pair EUR/USD: Two of last week's events
The past week has been marked by two important events. First, the EUR/USD pair updated its 20-year low on Tuesday, September 06 again, falling to 0.9863. The ECB then raised its key interest rate for the first time in its history by 75 basis points to 1.25% on Thursday, September 8, accompanied by very hawkish comments.
We must say that both events were not a surprise to the market, and in general they were in line with the expectations we expressed in the previous review. The pair's rebound upwards after the ECB's decision was also not surprising. Having risen by about 250 points, it peaked at 1.0113 on September 9. A correction was followed to the north, and the pair closed at 1.0045.
Despite this hawkish move, the ECB is still a long way from the US Federal Reserve: the current interest rate on the dollar is 2.50%, which is exactly double what it is in the euro. But that's not all. If the September meeting of the European regulatory body has already passed, then its American counterpart is still in front of it. If the Federal Open Market Committee (FOMC) of the Federal Reserve raises the interest rate on September 21 again, the dollar will go further into the lead. And the probability of such a step happening is close to 100%.
It is still difficult to predict what both central banks will do next month, October. But there is a sense that the ECB may, at least for a while, reduce its hardline stance to understand how the rate hike has affected inflation and the state of the economy. The factor of Europe's energy crisis, caused by anti-Russian sanctions, continues to play against the euro. However, the EU leadership is taking active steps to reduce Russia's energy dependence on winter night. Judging by the fact that Eurozone GDP growth published on September 7 turned out to be higher than both the previous value and forecast (4.1% vs. 3.9%), stagflation can be avoided.
At the time of writing this review, on the evening of Friday, September 9, the voices of the experts were distributed as follows. 55% of analysts support the fact that the EUR/USD currency pair will continue to move south in the near future, 30% vote for its growth and strengthening of the euro, and the remaining 15% expects a sideways trend along the pivot point of 1.0000. Readings of indicators on D1 do not give any certainty. Among the trend indicators, the ratio is 50% to 50%. Among the oscillators, there is a slight advantage on the green side, 50%, 35% on the red side, and 15% colored in neutral gray.
The main trading range for the past three weeks has been within 0.9900-1.0050. Taking into account the collapses in both directions, they are somewhat wider, 0.9863-1.0113. The next strong support is located after the zone of 0.9860 around 0.9685. Resistance levels and bullstake targets look like this: 1.0130, then 1.0254, and the next target area is 1.0370-1.0470.
There will be a lot of important events next week. Consumer Price Indices (CPI) will be published in Germany and the United States on Tuesday, September 13. The Consumer Price Index is an indicator of consumer inflation and reflects changes in the price level of groups of goods and services in August. On the same day, the ZEW index of economic confidence in Germany for September will be released. Another set of economic statistics will arrive on Wednesday, September 14 and Thursday, September 15 in the form of the Producer Price Index (PPI) and data on retail sales and unemployment in the United States. We are waiting for the publication of the Eurozone Consumer Price Index, as well as the Consumer Confidence Index of the University of Michigan, at the end of the working week, on Friday, September 16.
pair GBP/USD: Anti-GBP Record
We named our previous GBP/USD review as 'on the way to a 37-year low.' Remember that the March 2020 lows (1.1409-1.1415) were at the same time the lowest levels in the past 37 years. And now, this offensive forecast of the British currency has been realized: the pair reached a domestic low of about 1.1404 on September 7, breaking the counter-record for 2020. Then the euro rose against the dollar, which led to a rise in other currencies, including the pound sterling. As a result, the GBP/USD pair rose to 1.1647, and the five-day period closed at 1.1585.
An important event on August 7 was to listen to the UK inflation report and speeches by members of the Monetary Policy Committee, chaired by the President of the Bank of England, Andrew Bailey. As expected, officials reaffirmed their commitment to tightening monetary policy (QT). Their statements reinforced market expectations that the regulator might raise the rate from 1.75% to 2.50% at its September meeting. This meeting was originally scheduled for next Thursday. However, due to mourning for Queen Elizabeth II, it has been postponed for a week and will take place on September 22, after the US Federal Reserve makes its decision on the price.
If the forecast for interest rate growth on the pound is met, this will create a greater burden on the UK economy, already causing serious concerns. The UK is already in recession and inflation will reach 14% this year, according to the British Chamber of Commerce (BCC). According to Goldman Sachs, it could reach 22% by the end of 2023, which will lead to a long-term economic contraction and a contraction in the economy by more than 3.5%. According to the Financial Times, the number of fuel-poor households will double in January to 12 million.
Of course, investors are very concerned about whether the new prime minister, Liz Truss, will be able to cope with the unfortunate situation in which the country's economy has found itself. Having failed to fully recover from Brexit and the COVID-19 pandemic, the UK has faced unprecedented inflation, a decline in the population's ability to pay and a catastrophic collapse of the national currency.
The average forecast for the coming week seems rather neutral. A third of analysts support bulls, the other third side with low speculators, and another third take a neutral stance. Indicators readings on D1 are mostly colored red. Among the trend indicators is the ratio of 70% to 30% in favor of red. For oscillators, 65% point to the south and 35% to the east. There are no oscillators pointing to the north.
As for the bulls, they will face resistance in the regions and at the levels of 1.1600, 1.1650, 1.1720, 1.1800, 1.1865-1.1900, 1.2000, 1.2050-1.2075, 1.2160-1.2200. The closest support, apart from the zone of 1.1475-1.1510, is the September 07 low of 1.1404. One can only guess to what levels the pair can fall further. Given the increasing volatility, it is probably not worth focusing on aggregate areas, Fibonacci levels, or any figures for graph analysis.
In relation to the UK's economic statistics, GDP and output data are due to arrive on Monday, September 12, with data on the level of wages and unemployment in the country to be published on Tuesday, September 13. ) on Wednesday, September 14, and retail sales in the UK will be announced on Friday, September 16. The source of all this data is the Office of National Statistics, so the timeline for its publication is subject to change due to mourning for Queen Elizabeth II.
pair USD/JPY: Pair of astronauts
The USD/JPY rose to a high of 140.79 on September 2, reaching a 24-year high. Most analysts were waiting for another rally and new highs from last week. This is exactly what happened: the pair rose to the level of 144.985 on Wednesday, September 7. The last tendon of the week seemed a little lower at 142.65.
Describing why something happened is pretty simple using Copy Paste on the keyboard, and it's enough to take any of our reviews over the past couple of years. That's what we're doing now. So, the reason is the same: the difference between the monetary policies of the Bank of Japan (BOJ) and other major central banks, chiefly the US Federal Reserve. Unlike American hawks, the Japanese regulator still intends to pursue a super-soft policy, which aims to stimulate the national economy through quantitative easing (QE) and a negative interest rate (-0.1%). This divergence is a key factor for further weakening of the yen and the growth of the USD/JPY. The situation will not change until the Bank of Japan raises the rate.
And why is the Bank of Japan raising it? The published data on the country's GDP (second quarter) looks very good: the index rose from 0.5% to 0.9%, while the forecast was 0.7%. Of course, inflation in Japan exceeded the 2% target, which is a bad thing. But this is almost nothing compared to inflation in the US, the eurozone or the UK. So you don't have to worry too much here. So Japanese Finance Minister Shoneichi Suzuki said that price increases will not be quelled by tightening monetary policy, but on the contrary, by pumping 5.5 billion yen of budget reserves. In addition, the minister said that he was 'closely monitoring the movement of the exchange rate', that it was 'important that it moves steadily' and that 'sudden movements of the currency are undesirable'.
Haruhiko Kuroda, governor of the Bank of Japan, said almost the same thing, word by word, on Friday, September 9, after his meeting with Prime Minister Fumio Kishida. His main theses are as follows: 'I discussed the foreign exchange market with Kishida', 'Rapid movements in the exchange rate are undesirable', 'We will closely monitor the movement of exchange rates'.
We don't know what's positive about the words of these senior officials, but, as the media wrote, Allen has received support thanks to them, and now 45% of experts vote to strengthen it. Another 45% remained neutral, and only 10% were waiting for further growth of the USD/JPY. The indicators on the D1 have an absolute advantage over the greens side. Among the oscillators there are 100% of them, among the trend indicators - 90%, and only 10% on the side of the red lines.
The nearest resistance is 143.75. The task of the No. 1 bulls is to replenish the summit of September 07 and gain a foothold above 145.00. Going back to the spring, when analyzing the rate of rise of the pair, we made a forecast according to which it could reach the peak at 150.00 in September. It seems that it is beginning to materialize. The support of the pair is located at the levels and in the regions 142.00, 140.60, 140.00, 138.35-139.05, 137.50, 135.60-136.00, 134.40, 132.80, 131.70.
No significant events in Japan's economic life are expected this week.
Cryptocurrencies: The main week of the calendar
Last week was marked by another wave of sales. The price of Bitcoin approached its lowest level on June 19 ($17,600), falling to $18,543 on September 7. Meanwhile, Ethereum fell below $1500, an important support/resistance level, and hit a local low of $1488. This dynamic is primarily due to the hardline rhetoric on the part of the Federal Reserve and, as a result, the strengthening of the US currency. However, later, against the backdrop of the ECB meeting, both pieces fully recovered their losses, and prices even increased dangerously. At the time of writing this review, on the evening of Friday, September 9, they were trading as follows: BTC/USD at $21.275, and ETH/USD at $1,715. The total value of the cryptocurrency market rose slightly above the psychologically significant level of $1 trillion and reached $1.042 trillion ($0.976 trillion a week ago). The Crypto Fear & Greed index fell by another 3 points in seven days from 25 to 22 and is in the Extreme Fear area.
According to Trading View, the ratio of Ethereum to Bitcoin has grown to its highest values for 2022. It was repaired at 0.0843 on the afternoon of 06 September. The last time this level was observed was in December 2021. 1 BTC is worth about 12.4 ETH in current values.
The ETH community linked the growth of this indicator to the upcoming network integration. Many users have been talking for almost a year now about a revolution that will occur in this tandem sooner or later. Then Ethereum will outperform Bitcoin in terms of capitalization and value. Remember that the Ethereum network update is scheduled for September 13-20. This merger is probably the most important event of 2022 in the cryptocurrency industry. This is because it will bring about many major changes in how the network works. The main ones are a 99.99% decrease in energy consumption and a decrease in the emission of ETH currency.
According to a number of experts, if the transition to the Ethereum 2.0 network and the implementation of the Proof-of-Stake mechanism goes as planned, the altcoin can rise sharply in price and attract the entire market with it, and above all its main competitor, Bitcoin. But that's if things go smoothly and according to plan. Or maybe not. Therefore, it became known on Wednesday, September 7 that the Ethereum network had a problem after the Bellatrix update. The blockchain is seeing a marked rise in the 'number of lost blocks', the frequency at which the network fails to process blocks of scheduled transactions to validate them. This figure has increased by about 1700%. Before the update, the percentage was about 0.5%, and after Bellatrix it rose to 9%.
Meltem Demirors, chief strategy officer at CoinShares, believes that investors are ignoring the overall market situation, amid the hype about ETH's transition to the PoS mechanism. And despite the benefits of the merger for the Ethereum network itself, it is not certain that this event will attract significant investment capital: 'While there is great enthusiasm in the cryptocurrency community for a merger that can reduce supply and increase demand quickly, the reality is different: Investors are worried about prices and macro indices. I think large amounts of new capital are unlikely to enter the ETH. There are some risks to be taken in the market because the merger has been used as an excuse to buy on rumor and sell news. How will these risks be played? Most likely on the institutional side or through trading, but through options rather than direct purchase of the asset.'
u.today portal experts also remind of macro statistics. They noted that September 13 could be an important date, not just because of the merger of Ethereum networks. There is another factor. As we wrote above, new data from the US Consumer Price Index (CPI) will be published on the same day. According to analysts, this information will help investors understand what is happening with the inflation rate in the country and will directly affect the financial markets, including the cryptocurrency. If the network update does not cause problems with volatility, liquidity and security, and the CPI shows a decrease in inflation, then upward momentum can be expected, otherwise the cryptocurrency market will continue to fall.
Glassnode allowed BTC to pull back further to support around $17,000. Specialists do not rule out this wave of surrender due to the increase in the proportion of 'unprofitable' currencies at the disposal of speculators (who have traded in the past 155 days). It rose to 96% (3.11 million BTC from 3.24 million BTC). The situation was exacerbated by the suspension of the downward rise from June 19 to August 15. The rise in price to $25,000 and its subsequent decline in a few days turned half of speculators' currency reserves into an 'unprofitable' category.
In the short term, it is the pressure test of speculators that will determine the behavior in the market, since most of the activity on the chain was carried out by them. Three such episodes in the current downtrend earlier led to sales with a short planning horizon and the subsequent formation of a local bottom.
Analyst Kevin Swinson agrees with Glassnode's disturbing outlook. He issued a warning about the possible downward movement of Bitcoin as well. Swanson said the U.S. dollar rose to a 20-year high, while Bitcoin fell below Qatari support that kept the asset on its feet from June lows of $17,600. Swanson acknowledges further downward scenario for Bitcoin as the DXY dollar index remains in a strong uptrend.
Another expert, Naeem Aslam, believes that the decline will not reach the level of $ 18,000 or $ 15,000, but much less to about $ 12,000.
Crypto analyst Nicholas Merten does not rule out that Bitcoin will soon collapse to a strong support level in the range of $12,000-14,000. This forecast was made based on unrealized net profit and loss (NUPL), which shows the status of positions of BTC owners. (When the NUPL is above zero, most investors are in the black zone. If it is below zero, more investors incur losses.)
At the same time, Merten believes that the BTC movement can be unexpected as the asset has never traded during the period of tightening monetary policy and raising interest rates. He also doubts the imminent return to quantitative easing (QE) by the US Federal Reserve, as it has been in the past. The expert writes: 'I would like to point out that there has been no 50% recession, almost a gloom correction or a bearish stock market in all the ten years during which Bitcoin has been traded liquidally on exchanges. There were typical bear markets around 20%, then the Fed came to the rescue and saved the situation. But the Fed can't do the same now. If you print money and try to save the situation, it could seriously exacerbate the inflation problem.'
And some positivity at the end of the review. Despite the low capitalization of the cryptocurrency market and the bankruptcy of a number of large projects, the Bitcoin hash rate is close to the historical maximum. The situation seems inconsistent with the decline of the main cryptocurrency by more than 70% of the maximum, and the collapse of shares of public mining companies. However, miners continue to introduce new capabilities. Analysts attribute this to the optimism of some companies and the predisposition of others to market turmoil. If we add to this the data of Glassnode, which notes an increase in the number of cryptocurrencies at the disposal of the Hodelers, we can hope that the crypto winter will remain followed by spring.