pair EUR/USD: words drive trends
The main drivers for the past week were the statements of important ECB officials. However, the beginning of the five-day period was relatively calm: the Easter holiday took its toll. Unlike the US, Europe rested not only on Friday 15 April, but also Monday 18. The dollar received a slight boost on Monday with comments from representatives of the US regulator. According to Rafael Bostic, President of the Federal Reserve Bank of Atlanta, the policy rate could reach about 1.75% by the end of 2022, and Chicago Fed President Charles Evans believes it will reach 2.25-2.50%. Louis Federal Reserve Bank of St. James Bullard announced a potential rate hike of 0.75% immediately at the May meeting of the Federal Open Market Committee (FOMC).
The situation changed dramatically on Tuesday: the EUR/USD pair reversed, having risen by 175 pips, and reached a high of 1.0935 on Thursday, April 21. The head of the Central Bank of Latvia, Martins Kazak, said on Wednesday that an interest rate increase at the European Central Bank is possible as early as July. His colleague, the head of the Belgian National Bank, Pierre Winch, gave an interview to Bloomberg the next day, in which he suggested that interest rates could turn positive this year. European Central Bank Vice President Luis de Guindos confirmed this possibility, according to him, the quantitative easing (QE) program may be completed in July, after which the way to raise interest rates will be opened.
An additional impetus to the pair was given by the improvement in risk sentiment and the decline in US Treasury yields. This sent the DXY dollar index down 1% after hitting a two-year high on Tuesday.
The situation changed for the third time on Thursday afternoon. The dollar started a new attack, boosted by a rise in the yield on US 10-year Treasury bonds, which rose to 2.974%, the highest level since December 2018. It happened thanks to Jerome Powell. Speaking, the Federal Reserve Chairman confirmed the high probability of a 0.5% rate hike at the upcoming FOMC meeting on May 3-4. Powell said such a move is under consideration because the US labor market is already "overheated". He did not rule out a further 0.5% rise in the rate in June.
As for European Central Bank President Christine Lagarde, speaking at the same International Monetary Fund event, she declined to comment on the possibility of a euro rate hike in July. “It will depend on economic performance,” Lagarde said ambiguously, after which the EUR/USD pair fell lower.
The ECB President decided to toughen her stance a bit on the last day of the working session, April 22nd. She did not deny at this point that the ECB's purchasing program might end at the beginning of the third quarter and added that interest rates might end. As early as 2022. Her words sounded tougher than mine on Thursday, but that didn't help the Euro. The pair found its bottom at only 1.0770, after which there was a slight correction to the north and it ended at 1.0800.
The euro received little support from the results of the televised debate between French President Emmanuel Macron and opposition leader Marine Le Pen. As the survey data showed, 56% of respondents considered the incumbent president to be more persuasive in the debate than his opponent.
The second round of France's presidential elections will take place on Sunday, April 24th. Emmanuel Macron received 27.84% of the vote in the first round. Marine Le Pen, head of the far-right National Rally, won 23.15%. Remember that she belongs to Euroskeptics, and she called for the country to almost leave the eurozone again in 2017. And if this lady comes to power, the EUR / USD pair, according to a number of analysts, may fall to the level of 1.0500, or even less.
At the time of writing, the election results were unknown, so the majority of analysts (50%) did not make any predictions. 35% believe the dollar will continue to rise. The opposite opinion does not exceed 15%. All trend indicators and oscillators on D1 are colored red, although 15% of the latter indicate that the pair is oversold. The closest support is at the level of 1.0770. The next downside target for the EUR/USD will be the April 14th low at 1.0757. If they manage to break that support, they will then aim for the 2020 low at 1.0635 and the 2016 low at 1.0325. The immediate resistance area is at 1.0830-1.0860, followed by 1.0900, the April 21 high at 1.0935 and 1.1000.
For the aggregate data release, the volume of US capital and durable goods orders will be known on Tuesday, April 26. GDP data and the state of consumer markets in Germany and the Eurozone on Thursday, April 28 and Friday, April 29. In addition, preliminary annual data on US GDP will be released on Thursday.
pair GBP/USD: lost the fight at 1.3000. Will there be a counterattack?
We assumed in the previous review that we are going for the continuation of the bull-and-bear battle, and the front line will pass in the 1.3000 area. Remember that 1.3000 is a key support/resistance level because it is not only the March 15th low, but also the 2021-2022 low.
And now we must say that the bulls have lost this battle. After the GBP/USD pair lifted to a high of 1.3090, which finally weakened and fell. The local bottom was fixed at 1.2822 on Friday, and the last chord looked a little higher, in the 1.2830 region.
The reasons for this collapse of the pound lie on both sides of the Atlantic. On the other hand, this is the hawkish stance of the US Federal Reserve and the growth of US Treasury yields. On the other hand, there are cautious comments from the Bank of England (BoE) and weak aggregate statistics from the UK.
Commenting on the state of the economy on Thursday, the UK's chief regulator, Andrew Bailey, said the UK's inflationary shock had more in common with the eurozone than with the US. “We should not be complacent about inflation expectations,” Bailey added, stressing that they were dealing with “a very hard line between fighting inflation and the impact of the shock on real income.”
The day after the Bank of England chief's speech, the UK's Office for National Statistics dealt another blow to the pound. It reported that retail sales fell 1.4% in March. This indicator came on the heels of February's decline of 0.5% and turned out to be much worse than expectations, according to which the decline should have been only 0.3%.
Such a massive failure is likely to send investors into shock and it will take some time to regain their appetite for the British currency. The bears will try to build on their success and push the GBP/USD pair further lower. 65% of analysts vote in favor of this development, and the remaining 35% expect the pair to correct to the north.
There is an overall advantage of red among indicators on D1: 100% between both trend indicators and oscillators. True, for the latter, a third is in oversold territory. The immediate objective of the bears is to overcome the 1.2800 support, refresh the October 2020 lows around 1.2760 and open their way to the September 2020 lows in the 1.2685-1.2700 region. The more distant targets for the pair's decline are at 1.2400, 1.2250, 1.2085 and 1.2000. As for the bears, they will try to regain the lead and fight back for 1.3000. However, they will need to overcome the resistance 1.2860 and 1.2915 as such. In the event of a successful attack on 1.3000, resistance levels 1.3100, 1.3150 and the area 1.3190-1.3215 will follow.
There is no significant data on the British economy for the next week. The only thing that can be noted is the release of data on the housing market in this country on Friday, April 29.
pair USD/JPY: Will the Bank of Japan Stand Ahead?
The Japanese currency is hitting records one by one, and the prediction that last week will bring another proved to be just as true. The USD/JPY pair hit another high of 129.39 on Wednesday, April 20. The last time it rose to this level was in May 2002, which is 20 years ago.
The reasons for the yen's decline are the same: the difference from the monetary policy of the US Federal Reserve. Despite the fact that the majority of Japanese are against a weak yen, the Bank of Japan still refuses to raise the key interest rate even to zero and does not want to reduce monetary stimulus. The regulator believes that maintaining economic activity is much more important than fighting inflation.
The BoJ's regular meeting will be held next week, on Thursday, April 28. According to strategists from Singapore's UOB Group (United International Bank), the regulator will once again leave its monetary policy parameters unchanged. Economists at the University of Bahrain wrote: “We are confident that the Bank of Japan will keep its current loose monetary policy unchanged throughout 2022, and will also maintain massive stimulus, possibly until at least fiscal year 2023.”
The yen received some support from reports that Treasury Secretary Shunichi Suzuki discussed the idea of coordinated foreign exchange intervention with his counterpart, US Treasury Secretary Janet Yellen. And it seems that "the American side seemed to think positively about this idea." But a source from Japan's Finance Ministry dampened hopes of a joint effort between the two countries, refusing to comment on the details of the conversation between Suzuki and Yellen.
After renewing a multi-year high, the USD/JPY pair bounced back a bit in the second half of the five-day period.
The second is at level 128.53. 40% of experts vote for bulls to break into new horizons, 30% take the opposite position and 30% stick to neutrality. Among the indicators on D1, 100% of trend indicators are headed north, and among oscillators, 90% (a third are overbought), and the remaining 10% point south. The nearest support is at 127.80-128.00, followed by 127.45, the 126.30-126.75 area and the 126.00 and 125.00 levels. Resistance is located at the levels of 128.70, 129.10 and 129.39. Trying to determine the subsequent goals of the bulls would rather be like fortune-telling. The only thing we can assume is that they will set the January 01 2002 high, 135.19, as a distant target. Taking into account the fact that the pair has risen by 1,400 points over the past seven weeks, it could reach this high in a month and a half if this pace is maintained.
Aside from the Bank of Japan meeting and monetary policy report, there is no other significant information on the state of the Japanese economy expected this week.
Cryptocurrencies: Bitcoin from $30,000 to $200,000
Throughout 2022, Bitcoin has been moving along the pivot point around $40K, trying to either reach $50,000 or drop to $30K. The reason for these fluctuations, of course, is the US Federal Reserve. Investors can't finally decide how to act in the face of tighter monetary policy and higher interest rates on the dollar. As a result, their appetite for risk decreases and flares up again. First of all, this applies to the stock market, along with the volatility of digital gold as well.
We have repeatedly looked at the correlation of the BTC/USD pair with technology stocks. Therefore, according to Arcane Research, the correlation between Bitcoin and the Nasdaq Composite Index has reached its highest level since July 2020. The same index between the number one cryptocurrency and gold has fallen to an all-time low. Actual gold has recently acted as a hedge against inflation, and its price has approached its all-time high, reaching $2,070 per ounce on March 08 (maximum price was recorded at $2,075 on August 2, 2020).
Bitcoin-ETP (Exchange Traded Product) shows the outflow of funds. If the current pace is maintained, the counter history for July 2021 will be updated by the end of the month, when investors withdrew 13,849 BTC. The number of active addresses on the Bitcoin network has dropped to 15.6 million, about 30% lower than the January 2021 high. According to Glassnode data, many BTC holders and short-term speculators (less than 155 days) have divested their BTC holdings.
The market is currently supported by long-term (LTH) holders. As we have already written, there has been a trend recently towards accumulating digital gold among them. Accumulation volumes began to exceed emissions several times. According to Glassnode, the influx of coins from centralized exchanges has increased to 96,200 BTC per month, which was extremely rare in the historical past. In addition to “whales”, so-called “prawns” (addresses with a balance of less than 1 BTC) also contributed to the accumulation, bringing their share of up to 14.26% of the market supply.
At the moment, about 15% of long-term coin holders are losing, but they not only continue to hoard coins, but also acquire new ones, relying on their future growth. For example, analytics software provider MicroStrategy intends to “vigorously pursue its strategy” and continue to build up bitcoin reserves. This was stated by CEO Michael Saylor in a letter to the US Securities and Exchange Commission. According to Bitcoin Bonds, MicroStrategy holds 129,218 BTC worth $5.17 billion in reserves. The company's division made its last purchase, worth $190.5 million, in early April. For comparison, Tesla, which is second only to MicroStrategy, owns 43,200 Bitcoin, worth about $1.7 billion.
At the time of writing, Friday evening, April 22nd, the total cryptocurrency market cap is still below the psychologically important $2 trillion level, at $1.850 trillion ($1.880 trillion a week ago). The Crypto Fear & Greed indicator slightly improved its readings: it rose from 22 to 26 points and returned from the area of intense fear to the area of fear.
The BTC/USD pair is trading around $39,700. The chart for the past four months, with its highs and lows, gives investors hope for further price hikes. However, everything will depend on the May Fed meeting and investors' risk appetite. Remember that BitMEX co-founder Arthur Hayes predicted a drop in bitcoin to $30K by the end of the second quarter due to the drop in the Nasdaq index. The same $30,000 figure was also mentioned by cryptocurrency analyst and trader Michael van de Poppe, although he points to another reason: the geopolitical tensions in Eastern Europe due to the Russian military invasion of Ukraine.
Many other experts are not expecting anything good from the BTC/USD pair in the near future either, although they are building an optimistic forecast for the medium and long term. Therefore, according to Anthony Trenchev, CEO of the Nexo platform, the price of the first cryptocurrency may rise above $100,000 in the next 12 months. However, he is "worried" about the short-term outlook for bitcoin. In his opinion, the price may fall along with the traditional stock markets as a result of the US central bank cutting monetary stimulus program.
Paolo Arduino, chief technology officer at Bitfinex, predicts similar dynamics for the major cryptocurrency. This specialist believes that Bitcoin will be “significantly above” $50,000 by the end of 2022. However, he admits that the price will drop sharply in the near future. “Right now, we are living in conditions of global uncertainty in the markets, not just the cryptocurrency, but also the stock markets,” Arduino said.
Cryptocurrency market expert Ali Martinez analyzed the Bitcoin price chart and said its value could drop to $27,000. It is important for the bulls to stay above the critical support level to prevent this from happening according to the Fibonacci levels, this support is located at $38,530. In the event of a crash, the price of digital gold will drop to $32,853 or even $26,820. Like most analysts, Martinez also believes that one should not focus only on technical analysis and ignore fundamental analysis, because a lot depends on the geopolitical situation in the world right now.
Cryptocurrency analyst Benjamin Coin is confident that Bitcoin is approaching a “trend-choice point.” Cowen explains that this has happened before: “In 2013, bitcoin recorded a drop, then a second, then a third, and eventually started to rise. Then in 2018, when there were higher lows, we thought the same thing would happen as in 2013, but in the end, bitcoin fell to a new low.”
According to the analyst, in order to restore the upside and reduce the potential for a downside move, the BTC/USD pair needs to rise above the 200-day simple moving average, which is around $47,440 at the time of writing. “If bitcoin can muster up the courage to rise above the 200-day SMA and move to the $50,000 level, that sounds very bullish. But what happens if the market drops to $30,000 and Bitcoin goes up again? "There's a good chance we'll get back to $40,000 or maybe $43,000," Benjamin Quinn said.
Most likely, the prospect of a return of the main cryptocurrency from 30 thousand dollars to 40 thousand dollars in the current situation will not satisfy the investors much, given that the coin is currently trading in the 40 thousand dollars region. So, to encourage them, we will quote another specialist, Nicholas Merten of DataDash, who believes that BTC could hit new record highs early next year. According to him, the bulls have not lost control despite the current market volatility: “The market is currently far from impressing investors, but this situation is always observed during the beginning of accumulation. This is how the formation of the trend structure begins.”
According to Merten, the fact that Bitcoin has started making higher lows and higher highs confirms that the bulls are in charge, no matter what things look like at the moment. The analyst believes that as this situation continues, the rate of BTC has every chance of reaching $150,000 and even $200,000 over the next year.