EU approves a historic €750 billion stimulus package

Hi everyone,

Right on time, the EU approved another €750 billion stimulus package aimed at boosting countries affected by the lock down. As with prior packages, it’s likely that most of this money will create more problems than it solves, but perhaps it’s really different this time.

Meanwhile, gold and silver have experienced unprecedented growth, and might continue to rocket past $2,000 and $30 respectively in the months ahead as Fed central bankers plan to overshoot 2% inflationary targets by a considerable margin.

Finally, if ever you needed more proof of how irritating bitcoin’s price action has been lately, take a look at Crypto Twitter’s over-the-top reaction to a mere 2% move (myself included). As always, we’ll also look at the latest crucial bitcoin data.

Let’s dive right in!

EU lands a €750 billion stimulus deal

European Commission President Ursula Von Der Leyen and European Council President Charles Michel bumping elbows

Just yesterday, EU leaders agreed to pass a historic stimulus of €750 billion ($858 billion). The fund’s goal is supposed to rebuild EU economies ravaged by heavy-handed lockdown procedures which many argue were not needed in the first place. But alas, it is what it is. The European Commission will now raise cash in capital markets rather than injecting cash into the system. In the latest round of blanket corporate socialism, the funds will be split between states and businesses in the form of loans, to be repaid by 2058.

The EU also agreed on a budget for the bloc of an additional €1.1 trillion for 2021–2027. Astonishingly, about a third of the funds are allocated for climate change, constituting the biggest green package ever in an environment of seemingly permanent low growth.

Once the announcement came in, bitcoin made a small 2% move after months of stability, which is essentially a mere drop in the ocean for what’s to come in light of these astounding numbers.

Gold and Silver continue to rally

Meanwhile, heavy physical commodities such as Gold and Silver have rallied to prices not seen since 2014, as precious metals react to the above stimulus agreement and possibly in expectation of additional spending by the US government.

Interestingly enough, gold and silver had already broken out to fresh local highs amidst a backdrop of recurrent cash handouts with no end in sight. However, perhaps bitcoin’s touch-and-go relationship between being a “risk on” and “safe-haven” asset might have contributed to the lagging effect.

Needless to say, while gold and silver are relatively scarce, bitcoin is absolutely scarce. As such, it’s likely that this will be reflected in bitcoin’s price shortly given the incontrovertible facts on the ground.

Will the Fed overshoot its inflationary targets?

Meanwhile, an economist by the name of Tim Duy recently pondered the possibility that the US Federal Reserve is setting the stage for a major policy change. According to the economist, the Federal Reserve will shift emphasis on actual inflation over foretasted inflation, which would mean that the typical 2% inflation rate target will be overshot considerably due to the lag between the two models and policy implementation.

Normally, the Fed follows the Phillips curve approach in order to forecast inflation. This relies on the idea that inflation accelerates as unemployment declines, and was criticised during the economic recovery of the last decade. The economist commented on the previous financial crash, saying that the Fed’s latest approach has different implications now.

He wrote: “ Inflation remained quiescent in the wake of the Great Financial Crisis even as the unemployment rate fell to 3.5%, well below the 2012 high estimate of the natural rate, or 5.6%. The Fed’s commitment to Phillips curve-based inflation forecasts induced it to raise interest rates too early in the cycle and continue to boost rates into late 2018 even as faltering markets signaled the hikes had gone too far. The Fed was eventually forced to lower rates 75 basis points in 2019 to put a floor under the economy. Inflation remained stubbornly below the Fed’s 2% target throughout that period.

Faced with a low inflationary environment, the Fed is now signalling a departure from the Phillips curve, according to Tim. In fact, Fed Governor Lael Brainard said this week that “ with inflation exhibiting low sensitivity to labor market tightness, policy should not preemptively withdraw support based on a historically steeper Phillips curve that is not currently in evidence.

Essentially, the Fed is pivoting from its primary tool to forecast inflation and will not tighten policy until actual inflation hits 2%. Since policy lags, this means that an overshoot is guaranteed. According to Tim, this implies an easy policy for the foreseeable future. As long as actual inflation remains below 2%, the Fed will push back on any ideas that they will tighten policy. And even when the target is reached, there is no guarantee that the overshoot would be transitional, as the Fed says.

After all, there is nothing more permanent than a temporary government policy.

Technically speaking

Bitcoin (HTF) makes a move, but hangs below an important level

Bitcoin finally made a move outside of a resistance trendline present since 2nd June, lending credence to the bullish scenario that would send bitcoin back above $10,000.

All three indicators — the TD sequential, RSI and MFI unanimously signaled that a move up is more likely on the 18th of July, at which point bears were unable to follow-through and caved into buying pressure. However, bitcoin has only just begun what might be a bigger upward move, and has yet to conquer the previous local high at about $9,450. A strong close above this level would make the case for another $10,000 retest more likely.

On the flip-side, despite the fact that bitcoin has reclaimed the $9,300 pivot point, a potential but unlikely fake-out scenario could see a quick reversal to $8,900. Presently, open interest across all exchanges continues to climb, meaning that a cascade of liquidations has yet to be settled in either direction. While the probability of this resolving to the upside is higher, this is bitcoin we’re talking about so it’s always good to expect the unexpected.

Finally, this two-day bitcoin chart lends further credibility to the bullish case, wherein the stochastic RSI is a screaming “buy”.

This is not to say that bitcoin will certainly move up from here. However, the technical data is telling a story that cannot be ignored — a resolution to either side is coming, and it will probably be to the upside.

Considering that all the major traditional market assets, indexes and stocks are pointing up, as well as the just-agreed-upon historic EU stimulus package, it would be very strange if bitcoin were to be the only outlier.

May your losses be small and your gains high!

Catch you next time.

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Best regards,
Christopher Attard
Founder of Chris on Crypto
Contributor to
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