pair EUR/USD: Recalibrating Quantitative Easing in the Eurozone
The ECB meeting on Thursday 9th September proceeded as expected without any surprises. The interest rate remained unchanged at 0%. The European regulator has proposed a "pessimistic" cut in the quantitative easing (QE) program. More precisely, according to Christine Lagarde, Governor of the Bank, it is not even a question of “downsizing” the program but of “resetting it”. The decline in asset purchases in the fourth quarter is merely a reflection of the decision taken in March to increase them. By doing so, the ECB remains flexible, and may change the pace of buying early next year if necessary.
The regulator likely won't want to make any sharp moves until its December meeting, when it will have to present a clearer plan to end quantitative easing. In the meantime, you will monitor the development of the situation. The results of the parliamentary elections in Germany, which will be held on September 26, will be of great importance. Especially since this will be the first election since 2005 in which Angela Merkel will not lead the CDU.
In addition to the "recalibration" decision, the European Central Bank raised its 2021 forecast for eurozone GDP from 4.6% to 5.0% and inflation from 1.9% to 2.2%. At the same time, the bank expects consumer price growth to decline to 1.7% in 2022 and 1.5% in 2023. This indicates that its soft monetary policy will continue for a very long time. There is no need to talk about raising interest rates before the end of 2023 – early 2024.
Economic growth goes hand in hand with the EUR/USD bulls, while monetary policy stands side by side with the bears. There were no clear signals from the European Central Bank, and they are unlikely to arrive until December. Therefore, the market is waiting for them from the US Federal Reserve to decide which currency to prefer.
The long life of the European quantitative easing program is mentioned above. The Fed may start cutting quantitative easing already this year and complete it by the end of 2022. This view is espoused by the hardline lobby in the Fed's leadership. Even Michelle Bowman, a member of the Federal Open Market Committee, specifically emphasized that disappointing August employment statistics would not get the Fed out of the way.
This balance of power plays on the dollar side and should send the EUR/USD pair south. At the moment, 50% of experts agree, backed by technical analysis. The pair finished last week at 1.1810, and it is now expected to be supported by the 1.1800, 1.1750, 1.1705 and 1.1665 levels. 15% of analysts expect the pair to consolidate in the 1.1800 region, while the remaining 35% are heading north. Resistance levels are 1.1845, 1.1908, 1.1975, 1.2025 and 1.2100.
The indicators on the daily are as follows. Among the oscillators, 50% are north, 10% south, and the remaining 40% are neutral. Among the trend indicators, 35% are colored green, and 65% are colored red.
The US economic calendar next week looks very busy, and all the important statistics will focus on the country's consumer market. The Consumer Price Index will be released on Tuesday, September 14, Retail Sales will be released on Thursday, September 16, and the University of Michigan Consumer Sentiment Index will be released the following day.
pair GBP / USD: movement with almost no outcome
After a parabolic curve at the low of 1.3725, the GBP/USD pair returned on Friday 10 September to the same place it started on Monday (1.3865) and ended the five-day rally at 1.3830. It never managed to break through the central part of the 1.3700-1.4000 channel, as it has been choppy since February 2021.
If it continues to move north (this scenario is now supported by 60% of analysts), the closest strong resistance will be at 1.3909, then 1.3960, 1.4000 and 1.4100. The bulls are aiming to refresh the June 1 high at 1.4250. In the event of an opposite development (30% of expert votes) it is supported in the areas of 1.3730, 1.3665 and 1.3600. The remaining 10% of analysts vote sideways.
As for the daily oscillators, 70% are green, 15% are neutral, and another 20% indicate that the pair is overbought. In trend indicators, like last week, green won 9-1.
Events in the coming week include the release of UK unemployment data on Tuesday 14th September, and the country's consumer market statistics on Wednesday 15th September.
pair USD/JPY: Another pair with no results
Being a safe haven, the USD/JPY pair has been moving along the 110.00 horizon since last March, with rare attempts to break out of the 108.30-111.00 trading channel. Once again, having started the week at 109.70, it ended the week roughly in the same place it had started, at the 109.85 level. Moreover, the trading range has become narrower, holding 85 points: from 109.60 to 110.45. Those who are actively trading are not happy with such a narrow movement.
The forecasts of experts for the near future look like this: 50% of them support bears, 15% are with bulls, and 35% take a neutral position. As for the indices on the daily, the red ones have an advantage of 60% among the oscillators, the green ones have 10%, and the gray ones have a neutral position of 30%. Its trend indicators are 50-50.
Support levels are 109.60, 109.10, 108.70 and 108.30. Bears dream is to retest the April low at 107.45. The closest resistance levels are 110.00, 110.25, 110.55, 110.80, 111.00 and 111.65. The ultimate goal for the bulls remains the same: to reach the desired high at 112.00.
Bitcoin: September 7, Black Day for Cryptocurrency
The last week in the cryptocurrency market can be reduced to a single day, Tuesday 7 September. A law in El Salvador went into effect that day recognizing bitcoin as a legal payment method on an equal footing with the dollar. The young head of state, Neb Bokel, changed about this three minutes before midnight local time. "In three minutes we will be making history," he wrote. Earlier, the head of state confirmed that the government of El Salvador received the first 200 BTC. Bitcoin has been on the rise since July 20 and has jumped above $52,000 since that announcement.
Roughly 20% of the country's GDP comes from remittances that Salvadorans working abroad send to their relatives. Huge commissions in US dollars to be paid are very unprofitable and enrich US financial structures. This is one of the main reasons for the adoption of Bitcoin. However, for most Salvadorans, a third of whom do not use the Internet, digital assets remain a mystery to them. According to surveys, about 70% of the population are afraid of innovations, and pensioners believe that the government wants to withdraw their US dollar pensions in this way. The result of these fears and misunderstandings were the protests and demonstrations that swept the country.
The World Bank refused to support the Najib Boukil initiative, which threatens to receive tranches from the International Monetary Fund. According to analysts, El Salvador does not have specific laws to address the nuances of bitcoin use, which increases the risks associated with money laundering and terrorist financing. Leading rating agencies such as Fitch believe El Salvador's insurance industry will be hit particularly hard. B-rated bonds are already in circulation, and now the situation will be aggravated by the presence of an unstable cryptocurrency.
September 7th clearly demonstrated just how unstable the crypto market is. In a matter of hours, bitcoin prices fell by 18%, from $52,870 to $43,205, sending the entire crypto market down.
The leading cryptocurrency then managed to recover some losses, and it is trading in the range of $45,000-46,000 per coin at the time of writing.
The Crypto Fear & Greed indicator turned into a fear zone, dropping from 74 to 46 points. The total cryptocurrency market cap fell below the psychologically important $2 trillion level to $1.975 trillion by September 08, but then rose to $2.100 trillion by the end of the business week.
Despite what happened, many experts remain positive about the prospects for both Bitcoin and Ethereum. For example, chief strategist Mike McGlone described the $100,000 mark for Bitcoin and the $5,000 mark for Ethereum as the “path of least resistance” in a September Bloomberg Cryptocurrency Report. “Crypto assets are entering a renewed bull market in the second half of the year after a dangerous drop from previous highs,” the Bloomberg expert noted, adding that he sees “the future of bitcoin as a digital reserve asset that complements the dollar.”
Bill Miller's management of the Miller Opportunity Trust also talks about the significant growth potential of the BTC/USD pair, describing bitcoin as a digital counterpart to gold. Gold is capitalized at $11 trillion, while Bitcoin is just $900 billion, which is a huge difference. “We are in the early days of bitcoin adoption and the asset will be very volatile, but we believe the risk-reward ratio is attractive,” Miller Opportunity Trust said in a statement submitted to the US Securities and Exchange Commission (SEC).
Kathy Wood, CEO of Ark Invest, also believes that the cryptocurrency market is far from the end of the rally. She said there were no indications of a price bubble in the markets. “We believe bitcoin is much more than a store of value or digital gold. This is a new world monetary system that is completely decentralized and not subject to the whims of politicians.” However, Kathy Wood believes that the next five to fifteen years will be very provocative, causing S-curves to be drawn. For the sector to mature, regulation is needed that will impact Bitcoin positively.
Analysts at Standard Chartered International Banking Group also gave a positive assessment of the outlook for Bitcoin and Ethereum. Compare the first with the currency, and the second with the financial market, where lending, insurance and exchange transactions take place. Therefore, due to the wider range of ETH use cases, its capitalization could eventually reach the value of the first cryptocurrency.
Standard Chartered predicts bitcoin prices in the $50,000-$175,000 range and Ethereum in the $26,000-$35,000 range. Thus, these cryptocurrencies should grow threefold and tenfold, respectively. “While the return on ETH may outpace BTC in the future, the risks associated with it are also higher,” said the bank’s representatives.
On average, 20% of analysts agree that the BTC/USD pair will cross $50,000 in the next week, and that number increases to 40% according to the monthly forecast, and 80% agree that it will happen before the new year.