Avalanche (AVAX) is back on the watchlist after the bulls held back the bears at a major support area.
But is this the point where the bulls fully take back control or is this just a breather in the current downtrend?
Here’s a chart that I’m looking at:
The last time we checked out Avalanche (AVAX), we discussed a couple of scenarios as the market dipped from all-time highs around $140 to a potential support technical pattern forming around the $79.00 handle.
And the scenario that played out was the one where if Omicron and macro economic fears continue to be the main market focus, AVAX/USD could break lower and reach the $55 handle before seeing support again.
This week, AVAX/USD hit $55 and found bidders, enough to push the price back above $70 at the moment, but is this the start of a bullish move or another bear opportunity in the works?
Well, in the short-term, that answer is likely to rest on what the we get from the FOMC statement later today and what the U.S. dollar does in reaction to that event.
Expectations are for the Fed to hold off on policy changes for now, so thing to watch out for is what kind of expectations the Fed will set for future rate hikes and quantitative tightening (reduce rate of bond purchases/balance sheet). Right now, speculation in the markets is that we’ll likely see around four rate hikes in 2022 and for the Fed to reduce their balance sheet starting in the latter half of the year.
So, we’ll be watching the Fed event for the next direction in markets, and if they sound more aggressive than the scenario described above (e.g., rate hike today or balance sheet reduction starts today), then it’s likely the bounce in AVAX/USD will swiftly reverse back into the downtrend as the U.S. dollar is likely to strengthen.
On the other hand, if recent market volatility, the negative rise in pandemic conditions, and a recent string of economic surveys/data showing slowing growth ahead sparks a more cautious tone from the Fed today, we could see a reversal in risk sentiment (i.e., U.S. dollar weakness and a rally in risk assets.
Whatever we may see later today, it looks like this $60 – $70 range on AVAX/USD could be the jump off point for the next directional move, and is an area to easily build a trade with a solid potential return-on-risk ratio for longer-term players.
If using the other side of the range as a stop guide, and the previous swing high ($140ish) as a long target or the 2021 Summer lows (around $10) as a short target, they you can see potentially high asymmetric R:R both ways.
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