GBP/USD, USD/JPY, EUR/USD and Bitcoin forecast this week 18-22 July 2022

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pair EUR/USD: parity achieved 1:1

What we've been talking about for the past few months has come true: EUR/USD hit 1.0000 on Tuesday 12th July. The local low was fixed on Thursday 14th July at 0.9951. The last time the pair was very low was in December 2002. Note that the dollar strengthened not only against the euro, but also against other major world currencies. The DXY is also in the area of 20-year highs, having approached the high of 108.99 on July 14th.

The dollar's rally was driven by recent inflation data in the US. The consumer price index came in at 9.1% in June, beating expectations of 8.8%. Note that this has been observed only 12 times in 110 years, and the last time inflation rose above 9% was in 1981. This record (which is at odds with record records) has reinforced market expectations regarding the pace of monetary tightening (QT) by the Fed . If earlier it was assumed that the rate would rise by 50-75 basis points at the next meeting of the Federal Open Market Committee (FOMC) on July 27, there is now talk that fed funds costs could immediately increase by 100 basis points. Analysts estimate the probability of such a move at 82%, and the probability of a rate hike of a total of 175 basis points in the next two meetings is 75%, according to CME Group FedWatch.

Atlanta Federal Reserve Bank (FRB) President Rafael Bostic dismissed the possibility, adding that inflation could rise further by the end of the year, requiring the Fed to act more decisively. According to experts, the desire of the US central bank to stop inflation at any cost may lead to the fact that the rate will eventually reach 4.00% (which is 1.75% at the moment). This will be done even though the country's economy may fall into the deepest recession.

What is good for the dollar is bad for the stock market. The flight from risky assets intensified amid market fears of a prolonged economic downturn. The S&P500, Dow Jones and Nasdaq are down, while the DXY is up. Data on US retail sales, released on the evening of Friday, July 15, slowed the trip. With a previous reading of -0.1% and a forecast of 0.8%, this figure reached 1.0% in June, which pushed the EUR/USD pair higher and closed at 1.0082.

It should be noted that the tightening of monetary policy of the Federal Reserve creates problems not only for the US economy, but also for the entire world economy. The share of the US dollar in international reserves reached 59% by the end of 2020, and the share of international settlements until February 2022 was 39%. Thus, the dollar is the main reserve currency and the main means of payment in the world. With the strengthening of this burden, the burden increases mainly on emerging market economies that have received large loans from the International Monetary Fund. Debt servicing difficulties have already led to stumbles in Sri Lanka, problems awaiting El Salvador, Tunisia, Egypt, Pakistan and Ghana.

The dollar's popularity as a defensive asset will continue to grow as recession approaches and thanks to US Federal Reserve policy. At the time of writing the review, on the evening of July 15, these predictions were supported by 60% of experts. A further 30% correction is expected in the north, and 10% of analysts gave a neutral forecast. The oscillator readings on D1 give a completely unambiguous signal: all 100% are colored red. There are 85% of these among trend indicators, and the remaining 15% have taken the opposite position.

The closest strong support for the EUR/USD is the 1.0040-1.0050 area, followed by the 1.0000 level. After it is broken, the bears will target the July 14 bottom at 0.9950, and even the 2002 strong support/resistance area below that. 0.9900-0.9930. The closest target for the bulls is to return to the 1.0350-1.0450 area, then there are the 1.0450-1.0600 and 1.0625-1.0770 areas. There are several levels on the way to 1.0350, which the pair broke very easily during the fall, so it is still difficult to determine which one is a serious obstacle when moving higher.

The highlight of the coming week will undoubtedly be the European Central Bank meeting on Thursday, July 21st. The regulator is expected to raise the interest rate from 0.0% to 0.25%. Such a move could support the euro a little, although it looks somewhat timid against the background of the hawkish policy of the Federal Reserve. There is no doubt that the next press conference and comments from the ECB management will give the market an idea of the future plans of this regulator.

Other events include the release of the Consumer Price Index (CPI) on Tuesday 19th July and a report on bank lending in the Eurozone. Data on the US labor market and manufacturing activity will be released on Thursday, July 21, and the value of the German manufacturing PMI will be known the next day. In addition, we advise you to pay attention to the People's Bank of China's interest rate decision on July 20. This decision is particularly interesting, as China's GDP in the second quarter of 2022 fell 2.6% versus an expected 1.5% decline, indicating the country's economy is approaching recession.

pair GBP/USD: I lost the fight over 1.2000, but it's not over yet

Unlike the EUR/USD pair, the GBP/USD pair has not yet broken a multi-year record, but is already close to it. The local low was set at 1.1759 last week, and the last chord of the five-day period was set at 1.1865. Here are two dangerous targets: 1.1409, the breaking point caused by the start of the COVID-19 pandemic in March 2020, and the December 1984 low at 1.0757. We believe that it is too early to talk about the parity of the pound with the dollar 1: 1.

The macro data released on Wednesday, July 13th turned green unexpectedly. Thus, the UK GDP (YoY) with a forecast of 2.7% actually stood at 3.5%, while the GDP for June rose with the previous value of -0.2% and the forecast 0.1% to 0.5%. Despite this positive, the stressors on the country's economy have not disappeared. Among them are the problems related to Britain's exit from the European Union and the customs conflict between Britain and Northern Ireland. Inflation is still the highest in 40 years, and could exceed 11% by November, sending the economy into a deep recession. To all this we must add the crisis of the government that caused the resignation of Prime Minister Boris Johnson, as well as the difficulties associated with sanctions against Russia for its armed invasion of Ukraine.

Despite statements from BoE officials that they are ready to accept a faster pace of monetary policy tightening, the regulator is in fact behaving more cautiously than the market expected. The current interest rate is 1.25%, which is lower than the corresponding Fed rate (1.75%), and the next BoE meeting will be held only on August 4, 2022. This could not help but put downward pressure on the GBP/USD pair.

At the moment, 50% of experts believe that the British currency will continue to decline, 25%, on the contrary, expect an upward rebound, and 25% take a neutral stance. The readings of the indicators on D1 are as follows. Among the trend indicators on D1, the strength ratio is 100:0% in favor of red. Among the oscillators, the advantage of the bears is slightly lower: 90% indicate a drop, and the remaining 10% turn their eyes to the north.

The nearest support is at 1.1800, followed by the July 14th low at 1.1759. Moreover, 1.1650 and 1.1535 and the March 2020 lows are in the 1.1400-1.1450 region. The immediate task of the bulls is to climb to the 1.1875-1.1915 area, and then a new stage of the battle for 1.2000, which they lost last week. In case of victory, the pair will face resistance in the areas at 1.2100, 1.2160-1.2175, 1.2200-1.2235, 1.2300-1.2325 and 1.2400-1.2430.

As for the UK macroeconomic calendar, we advise you to focus on Tuesday 19th July, when data will arrive from the UK labor market. Bank of England President Andrew Bailey's speech is scheduled for the same day. The value of the Consumer Price Index (CPI) will become known on Wednesday 20 July, and a full package of data regarding the state of the British economy will be received on Friday. It will include retail sales data for June, as well as data on business activity (PMI) in both individual sectors and in the country as a whole.

pair USD/JPY: Storm After Calm

We called the previous review the 'calm before the storm' as the USD/JPY did not renew its 24-year high for the first time in five weeks and took a breather. But since the storm has been promised, it must break out. A new high was recorded at 139.38 on July 14, and the pair met the end of the trading session at 138.50.

The reason for the new weakness of the yen is the same: the difference between the tight monetary policy of the US Federal Reserve and the tight monetary policy of the Bank of Japan (BOJ). By the way, the next meeting of the BoJ will be held next week, on Thursday, July 21, when it is likely to leave the interest rate again unchanged at the negative level -0.1%.

If we usually talk about the fight between the bulls and the bears, then as far as the future of the yen is concerned, the battle is between … analysts and the Bank of Japan. Analysts are mostly, waiting for the central bank to finally change its policy, thus stubbornly voting to strengthen the yen. The latter, no less stubborn, leaves this policy unchanged.

This time, only 40% of experts talk about the pair's movement to the 142.00 high. The remaining 60% are hoping for a reversal of the downtrend. There are no such differences in the readings of indicators on D1: all trend indicators and oscillators 100% are heading north, although 20% of the latter are in the overbought territory. Supports are located at levels and in areas 137.65, 137.00, 136.60, 135.50-135.70, 134.00, 133.50 and 133.00. Bulls targets 140.00 and 142.00. And if the pair's growth rates remain the same in recent months, it will be able to reach the 150.00 area in late August - early September

Aside from the BoJ meeting and its administration's subsequent press conference, there are no other significant events expected in Japan this week.

Cryptocurrencies: the beginning of the end of the decline

GBP/USD, USD/JPY, EUR/USD and Bitcoin forecast this week 18-22 July 2022The previous review drew attention to an anomaly when both US stock indices and the dollar - the S&P500, Dow Jones and Nasdaq - were growing at the same time. Things went into place last week: the US currency continued to grow, and indices fell. It should be noted that Bitcoin Credit has managed to stay in the $20,000 region, despite another wave of risk flight from investors. Now, how long will it last?

The CEO of Rockefeller International, who previously served as chief strategist at Morgan Stanley, Ruchir Sharma, noted that the downtrend usually lasts about a year in the stock market, and stock indexes are down 35%. At the moment, the market is down only 20%. So we can expect a further decrease in the demand for risky assets including bitcoin in the next six months.

“I wouldn’t say we are really at the bottom,” Sharma said, adding that Bitcoin will return to growth and reach new highs after the end of the bearish cycle. The financier recalled the situation with Amazon in the early 2000s, during the dot-com bubble, when the retailer's share price collapsed by 90%. However, after that, stocks rebounded, and soared 300 again over the course of the 20 years.

If you look at the BTC/USD chart, it is easy to see that the major currency has been clinging to some zero levels lately. So, bulls and bears fought for $40,000 from April 11 to May 5. The front line was at $30,000 from May 10 to June 10. The fight has been in the $20,000 region since mid-June. Currently, 60% of investors surveyed by Bloomberg see another Bitcoin price drop as the most likely, this time to $10,000. The remaining 40% are waiting for a recovery to 30 thousand dollars. The study included 950 respondents. Compared to institutions, there were more skeptics among retail investors.

Galaxy Digital CEO Mike Novogratz said in an interview with CNBC that he does not believe in the possibility of bringing the price of the first cryptocurrency down to $13,000. “There is a feeling that we are over the 90% debt limit. [...] The problem is that more growth requires more faith and new capital. According to Novogratz, the sideways trend of digital assets will continue until the US Federal Reserve stops raising the base rate, which will take about 18 months.

Lynn Alden, a macroeconomist, made a similar point. She believes that while there are no clear bullish signs in the cryptocurrency market, the time for global capitulation is already over. In her opinion, the worst part of the downtrend has ended along with the volatile first half of 2022. The macro strategist believes that bitcoin can recover as the massive bitcoin selloff stops.

However, Alden warns that Bitcoin could still go down one step. “From a macroeconomic perspective, there is not a lot of bullish catalyst at the moment, and I would not rule out further price declines.” “We've seen, for the most part, that bitcoin is closely correlated with the growth of the money supply, especially the dollar. So, when we have seen a significant increase in the money supply around the world over the past two years, Bitcoin has also done well,” Alden explained. 1 The opposite is happening now as the US Federal Reserve and other central banks try to rein in inflation. This, affects the price of the cryptocurrency. In other words, now that the flow of cheap liquidity has dried up and interest rates are rising, investors prefer not to get involved in risky assets.

Some experts prefer to call what is happening in the cryptocurrency market not a crash, but just another deep correction. In addition, referring to historical data, they announce the entry into the last phase of the bear market. Therefore, at the end of 2018, the total decrease was 84% from the previous historical maximum. The BTC/USD pair is currently down from the high of November 11, 2021, by only 71%. Thus, if we follow this pattern, we can expect the correction to be completed in the region of 10,000-11,000 USD, and the subsequent consolidation could last about a year or more.

According to Glassnode, the market downturn has virtually wiped out the rest of the "market tourists" from the game, leaving only dealers "up front". On average, the unrealized losses for each of them are now 33%. This is not the worst indicator in history, which also indicates an eventual downtrend that has just begun.

The beginning of the final phase is also indicated by the capitulation of miners, which has a great correlation with the bottom of Bitcoin. Most public mining companies used to expand their production through loans. Now their profits are down 50%, forcing them to sell their crypto holdings to cover operating and borrowing costs. Glassnode estimates that miners currently hold about 70,000 BTC, worth about $1.3 billion. And in the case of prolonged assembly, they will also have to put it up for sale, which will put additional pressure on the market.

Please note that in this case we are only talking about the beginning and not the end of the last phase of the downtrend. Thus, the capitulation of miners in 2018-2019 lasted four months, while the current cycle lasted a little more than a month.

As for Ethereum, the price dynamics of the ETH/USD pair almost repeats those of BTC/USD. Some experts do not rule out a temporary rise to $1,280, however, they believe that this will be another bull trap. The pair will return to the $1,000 area after its launch. The bears' next target is $500.

Returning to a Bloomberg survey, most of the 950 investors surveyed expressed confidence in the strong position of Bitcoin and Ethereum over the next five years. In their view, developments in the cryptocurrency market will prompt regulators to tighten control over the industry. This can increase trust and lead to greater promotion of digital assets. Ruchir Sharma of Rockefeller International also believes that cryptocurrencies will become more stable within three to five years, which will allow them to seriously push the US dollar.

As of this writing, Bitcoin is trading in the $20,900 region. The total crypto market capitalization is $0.945 trillion ($0.966 trillion a week ago). The Crypto Fear & Greed Index fell 5 points during the week from 20 to 15 points and is still in the Extreme Fear area.

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