On Thursday (September 26), the US dollar index rebounded slightly to 100.93, gold bulls were brewing at $2,658, and Bitcoin was holding on to $63,000. The Fed's dovish pricing for the next 12 months is strong, with a maximum rate cut of 200 basis points expected. The Israeli army is preparing for a ground war in Lebanon, but France and the United States are working on a 21-day ceasefire plan between Israel and Hezbollah, and Russian President Putin has lowered the threshold for the use of nuclear weapons, and risk aversion still dominates the market.

Israeli army prepares for "Lebanon ground war" and the United States formulates a 21-day ceasefire plan

Israel is preparing for a ground operation in Lebanon, its army chief said Wednesday, after Hezbollah fired dozens of rockets toward the Israeli border and a missile toward Tel Aviv in the militant group's deepest attack yet.

Speaking to troops on the northern border, Israel's chief of staff, Lieutenant General Herzi Halevi, said Israel's severe air strikes this week were aimed at "preparing you for a possible entry into Israel and continuing the fight against Hezbollah."

The strikes, which Israel says it targeted Hezbollah weapons and rocket launchers, have killed more than 600 people, at least 25 percent of them women and children, according to Lebanese health officials.

France and the United States are working on a 21-day ceasefire proposal to "prepare for negotiations" to end the escalating conflict between Israel and Hezbollah that has killed more than 600 people in Lebanon in recent days, French Foreign Minister Jean-Noël Barrot said on Wednesday.

Barlow told the UN Security Council at a meeting on the conflict that the proposal would be released soon and "we hope that both parties will accept it without delay".

Barlotte said France and the United States had consulted with both sides on the "final parameters for a diplomatic solution to this crisis," adding that "war is not inevitable."

Deputy U.S. Ambassador to the United Nations Robert Wood encouraged the Security Council to support diplomatic efforts but gave no specific details of the plan.

"We are working with other countries on a proposal that we hope will calm the situation and resolve it diplomatically," he said.

Putin lowers threshold for use of nuclear weapons, sends strong warning to NATO

Well-known financial blog ZeroHedge reported that Putin on Wednesday explicitly lowered the threshold for the use of nuclear weapons by Russia's strategic forces. In a televised speech to the Russian Security Council, he said that Russia's nuclear doctrine has been effectively revised in view of the "new sources of military threats and risks facing Russia and its allies." This is obviously a response to a series of recent escalating cross-border attacks by Ukraine deep into Russian territory, some of which threatened to hit Moscow.

He went on to say that Western countries would also be held accountable if they assisted other countries in launching a large-scale attack on Russian territory. Under the new doctrine, this could trigger a Russian nuclear launch. This lowers the threshold for an "existential threat" to Russia itself and its people.

"The updated version of the document states that any aggression against Russia by a non-nuclear-weapon state, but with the participation or support of a nuclear-weapon state, should be considered a joint attack on the Russian Federation," Putin noted.

While he stopped short of saying that would automatically give Russia a green light to respond with nuclear weapons, he did insist that the threshold for using nuclear weapons would be based on "credible information about the massive launch of aerospace attack means across the borders of our country."

He then cited the defense of Belarus as part of the change: “As a member of the Union State, we reserve the right to use nuclear weapons in the event of aggression against Russia and Belarus.”

Putin said Moscow would also "consider" nuclear retaliation if it received "reliable intelligence" that other countries would launch "massive" missile or air strikes against Russia or its closest ally Belarus. He said potential enemy strike weapons could include ballistic missiles, cruise missiles, strategic aircraft and drones.

The timing of this major shift in nuclear policy is undoubtedly to welcome the visit of Ukrainian President Zelensky to the United States, where he will introduce Ukraine's "Victory Plan" to President Biden, Vice President Harris, and former President Trump.

Strong dovish pricing for the next 12 months: Fed cuts rate by up to 200 basis points

Despite efforts by some Fed governors to dampen dovish expectations, markets continue to overestimate the extent to which the Fed will ease policy.

The market expects the Fed to cut interest rates by 75 basis points by the end of this year, and a total of 175-200 basis points in the next 12 months.

Thursday's gross domestic product (GDP) and Friday's personal consumption expenditures (PCE) data will be key for the dollar.

Notably, Fed Chairman Powell said the pace of the easing cycle will depend on incoming data, so the outcome could shake the dollar, and he will speak later on Thursday.

Bitcoin Technical Analysis

Over the past six months, the Bitcoin network has seen a significant drop in inflows, with Glassnode saying the price of Bitcoin has fallen into a "long consolidation phase". This long consolidation phase has continued since the 2024 Bitcoin halving, in which the market gradient for the short-term holder (STH) group (those who hold Bitcoin for less than 155 days) has turned negative, while the actual price gradient remains positive, but is trending lower.

“This suggests that the magnitude of the decline in Bitcoin spot prices has been greater than the capital outflows,” Glassnode analysts said in a report on Wednesday.

Such a long period of consolidation has not been seen since the 2019-2020 period, and it was preceded by a strong rally in the second quarter of 2019. A deeper analysis of this price stagnation suggests that STH, especially those who hold Bitcoin for one week to three months, plays an important role.

Glassnode analysts analyzed the market value to value (MVRV) ratio of the STH subgroup and found that new investors have been under financial pressure and suffered increasing unrealized losses since June 2024. However, this pressure is slightly lower than the pressure during the COVID-19 pandemic in March 2020.

"While many new investors' holdings are losing money, the size of their unrealized losses is significantly lower than the mid-2021 sell-off and the March 2020 COVID-19 crash," the Glassnode report further noted that when the market enters a long-term contraction, the cost basis of younger investors will pull down spot prices, which can be "described as a net capital outflow from the Bitcoin ecosystem."

The report explains that the cost basis of investors who hold Bitcoin for one week to one month (1w-1m), often referred to as the “fast line”, has fallen below the cost basis of investors who hold Bitcoin for one month to three months (1m-3m), often referred to as the “slow line”, indicating that the market is experiencing a net outflow mechanism.

Glassnode said the indicator suggests that “a sustainable market reversal may be in the early stages of building positive momentum.”

However, despite local price consolidation and periods of net capital outflows, Glassnode analysts said new investor sentiment in the market remains "very strong." To gauge STH's reaction to sudden market changes, the market intelligence firm analyzed the difference between the cost basis of new investors who are spending (the orange line in the chart below) and the cost basis of all new investors (the blue line).

They found that the amount of losses that STH has locked in after experiencing high unrealized losses in recent months is relatively low compared to the cost of holding shares. Therefore, they did not overreact and cash out their losses, showing "higher confidence in the market compared to previous bear market trends."

Glassnode went on to note that Bitcoin’s recent recovery has allowed it to remain above its STH cost base of $63,900, fueling optimism for further gains.

“The rebound could have technical significance if prices also hold above the 200-day moving average at $63,900.”