pair EUR/USD: Weak inflation weakens the dollar
The EUR/USD has been moving sideways in the 1.0100-1.0270 channel for more than three weeks. Attempts to break through the upper or lower boundary ended in failure each time. Even very strong data on the US labor market, which was released in the first week of August, did not help the dollar. Remember that the US unemployment rate has remained at 3.6% since March, which is a very good indicator. It fell in July by 3.5%. Like the NFP, the number of new jobs created outside the agricultural sector, with a forecast of 250 thousand, was 528 thousand. And this is despite the fact that it was 372 thousand a month ago.
The sideways movement continued until Wednesday, August 10th when the pair moved sharply higher and the 1.0270 level turned from resistance to support. The point here is not the strengthening of the euro, but the weakness of the dollar. The US currency deteriorated after the release of the US inflation report. It turns out that the Consumer Price Index (CPI) with a forecast of 0.2% in July was at the level of 0.0% (1.3% in the previous month). It fell from 9.1% to 8.5% (8.7% expect) on a yearly basis. Instead of the expected 0.5%, core CPI grew only 0.3% in July (0.7% in the previous month).
All of these numbers clearly indicate a decline in inflation as a result of the war waged by the Federal Reserve. Of course, this is not a definitive victory, but the success of the US central bank is clear. Therefore, it may ease its monetary policy somewhat and not raise interest rates as aggressively as it has in the past two months.
Speaking at the end of the July meeting of the Federal Open Market Committee, Federal Reserve Chairman Jerome Powell tried to convince everyone that the regulator remains hawkish. That is, if necessary, the Fed is ready to accelerate the pace of rate hikes. However, even then, markets did not believe Powell and responded by turning toward the stock market. Now the inflation data is another argument in favor of the fact that the FOMC may raise the rate not by 0.75%, but by only 0.50% in September, stop raising rates entirely in November, and return to QE entirely in 2023.
Of course, these are just predictions so far.. but they are the ones who pushed the S&P500, Dow Jones and Nasdaq stock indices higher and did not allow the EUR/USD to fall back to the 1.0000 level. not yet.
The EUR/USD finished last week at 1.0260, returning to the medium term side channel at 1.0100-1.0270. 45% of experts vote for the fact that it will fall further, and perhaps even break through the lower boundary of the channel. 35% see the road to the north and 20% to the east. As for the oscillators on D1, 40% of them are colored red, 40% green, and 20% neutral gray. There is a perfect balance between trend indicators: 50% are heading south and 50% are heading north.
The closest support for the pair is at the level of 1.0220, then there are the areas 1.01500-1.0200 and 1.0095-1.0120. The main target for the bears is, of course, 1.0000. If this key level is broken, the bears will target the July 14th low at 0.9950, and even lower is the strong 2002 support/resistance area at 0.9900-0.9930. The next serious task for the bulls will be a breakout of the upper boundary of the 1.0270 channel, then there is last week's top in the 1.0364-1.0368 area, the next target is a return to the 1.0400-1.0450 area, then there are the 1.0520-1.0600 and 1.0650-1.0750 areas.
Next week is going to be full of all kinds of economic statistics. Thus, the German ZEW Economic Sentiment Index will be published on Tuesday, August 16th. There will be preliminary data on Eurozone Gross Domestic Product (Q2) on Wednesday 17th August, as well as US retail sales. The minutes of the last meeting of the Federal Open Market Committee will be published on the same day. We await European inflation data on Thursday, August 18th, as well as labor market data, home sales and manufacturing activity in the US.
pair GBP/USD: GDP drops, outlook remains bleak
The GBP/USD pair reacted to the US inflation data released on Wednesday, August 10th, by jumping north about 200 pips to a peak of 1.2276. True, it failed to stay there, and the last chord looked around 1.2135. Even the global rise in risk sentiment hasn't helped the pound. The main reason is the gloomy economic prospects of the British economy and the gloomy outlook of the Bank of England.
UK GDP data for June and Q2 was released on Friday, August 12th. The June contraction turned out to be less than expected: -0.6%, while expectations were -1.2%. The drop in GDP in April-June was -0.1% vs expected -0.2% and +0.8% in the first quarter. As such, the annual figure was 2.9% versus 2.8%, 8 expected, and 7% in Q1.
All this data turned out to be a little better than expected. But despite this, the economy's slide into recession is an obvious fact, and the only question that remains is the depth and duration of that fall.
According to 55% of analysts, the last week did not bring anything good for the Pound, and therefore the pair will continue to decline. Only 15% of experts take the opposite view, and the remaining 30% remain neutral. The readings of the indicators on D1 are as follows. For trend indicators, the ratio is 85% to 15% in favor of red. Only 25% of the oscillators with bears, 35% indicate growth, 40% take a neutral position.
The nearest support is located at 1.2100, followed by the areas and levels of 1.2045-1.2065, 1.2000, 1.1875-1.1925 and 1.1800. Below is the July 14 low at 1.1759, then 1.1650 and 1.1535 and the March 2020 lows in the 1.1400-1.1450 region. As for the bulls, they will face resistance in the areas at 1.2160-1.2200, 1.2275-1.2325 and 1.2400-1.2430.
The main event for the coming week is likely to be the release of UK inflation data on Wednesday 17th August. Also worth noting in the calendar are Tuesday, August 16, when UK labor market data comes in, and Friday, August 19, when July. Retail sales in the country became known.
pair USD/JPY: Hope for a better but distant future
The dynamics of the USD/JPY pair last week were similar to the dynamics of the EUR/USD reversal. (This makes sense, since here the dollar moves from the position of the base currency to the position of the quote currency.) After starting on Monday August 8 from 135.00, the pair fell sharply on Wednesday August 10 based on US inflation data, and reached the local low at 131.72 on August 11, then reversed and ended at 133.45.
Those willing to open long positions will likely be interested in analyst forecasts of Westpac, one of Australia's largest banks, one of the Big Four, and New Zealand's second largest. They believe that the current level of the USD/JPY is justifiable. Favorable economic growth in Asia and the continuation of the downward trend in energy prices in Japan. And given the possible easing of monetary policy by the US Federal Reserve, according to Westpac strategists, the pair may fall to 123.00 by the end of 2023.
The end of 2023 is very far away, over 16 months. As for the predictions for the near future, the opinions of experts are divided as follows. 45% of analysts expect the pair to rise, another 25% are hoping for a strengthening yen and a continuation of the downtrend, while the remaining 30% speak of a side corridor. The readings of the indicators on D1 give a slightly different picture. Trend indicators have a 65% to 35% ratio in favor of red indicators. Oscillations are 15% north, 40% south, and 45% east.
Support for the pair is located at the levels and in the areas 133.00, 132.50-132.85, 131.75-132.00, 131.00, 130.40, 128.60 and 126.35-127.00. The resistors are 134.00, 134.40-134.60, 135.30-135.60, 136.35-137.00, 137.45, 137.90-138.40, 138.50-139.00, and finally the high of July 14 at 139.38.
As for the events of the coming week, it is worth paying attention to Monday, August 15, when the preliminary volume of Japan's GDP for the second quarter of 2022 will be known. According to forecasts, it may grow from -0.1% to +0.6%. This is the main macroeconomic indicator of market activity, which assesses the rate of growth or decline in a country's economy. Its growth is usually a bullish positive factor for the national currency.
Cryptocurrencies: August 26: Bad day on the calendar
The crypto community continues to wonder if the cryptocurrency market has bottomed out or if a new price crash lies ahead. Before moving on to the next batch of forecasts, let's start with some stats.
Bitcoin price dropped to $17,597 on June 18, which is in line with the December 2020 level and nearly 75% below the all-time high of $68,918. If we measure from the beginning of 2022, the main cryptocurrency started at $47,572 on January 1, and was down 63% by June 18. After that, the BTC/USD pair slowly rose, indicating a series of higher lows and higher highs over the course of 8 weeks. However, the downside resistance increased sharply above $24,000 and the bullish momentum started to fade quickly.
Therefore, the weekly maximum was at $24,264 on July 20, $24,435 on July 29, and finally, $24,891 on August 11, meaning that the growth was only about 2.5% over the past three weeks.
At the time of writing, Friday evening, August 12, the total crypto market capitalization is $1.155 trillion ($1.089 trillion a week ago), and the Crypto Fear & Greed Index is still in the fear zone, at 42 points (31 weeks ago). BTC/USD is trading at $ 24,100, which is about 50% lower than it was at the beginning of the year.
Despite this price cut, the number of addresses with a balance of 1 BTC has increased by 9.4% since the beginning of 2022. The index reached an all-time high of 891.009 at the end of July. The situation becomes even clearer with addresses with a balance of over 1 ETH, which have increased by 15.7% over seven months. This trend indicates investors' desire to accumulate. For example, according to analytical source The Balance, 39% of American investors have started investing more in cryptocurrencies, wanting to maintain their savings.
Is it worth buying the main cryptocurrency now? Mike McGlone, chief strategist at Bloomberg Intelligence, believes that Bitcoin is currently trading at a significant discount in a sustainable bull market. “The first cryptocurrency hit an all-time low in July compared to its 100-week moving average,” the expert explained.
Mark Yusko, managing partner of Morgan Creek Digital, says that the current price of the first cryptocurrency is unfair, and it should be around $30,000. According to Anthony Scaramucci, CEO of SkyBridge Capital, the “fair value” of BTC should now be around $40,000. PlanB, the creator of the once popular Stock-to-Flow model, has a higher bar at $55,000.
All of these influencers have their own models and their own justifications. However, one must keep in mind that “fair price” is a somewhat relative concept. Perhaps the fairest is the current market value. This is how much sellers are willing to sell now, and buyers are willing to buy a particular asset for it.
Some indicators on the series pointed to the passing of the capitulation period and an improvement in investor sentiment in July. This is stated in an analytical report by ForkLog. On the back of the consolidation and the subsequent smooth recovery of the bitcoin price, the Puell Multi indicator has started to break out of the deep oversold territory. The Net Profit/Loss (NUPL) metric has moved into the hope/fear zone and is heading towards optimism. The MVRV Z-Score crossed the upper bound of the deep oversold zone at 0.1 on July 28. This is yet another sign that the “bottom” of the market cycle has passed.
According to Sam Bankman-Fried, CEO of crypto exchange FTX, the crypto winter is likely to be over, and spring is just around the corner. "I think we've already seen the worst," said the billionaire known as the SBF. “Some bitcoin miners may have more problems, but I think we are talking about a few hundred million dollars in total pain, not billions.”
However, SBF’s predictions for a crypto spring weren’t without a “but”: “If letting the Nasdaq drop another 25%, if Fed rates go up to 7%, and if we’ve been in a recession for two and a half years, Bitcoin could drop.” to $15,000 or $10,000,” the FTX CEO said.
Mike McGlone of Bloomberg Intelligence also looks warily at the US central bank. The analyst emphasizes the key role of the US Federal Reserve, which seeks to raise interest rates significantly in 2022. This could create barriers to risky assets, including cryptocurrencies and stocks. Meanwhile, Mike McGlone urges not to try to fight the Fed.
The risky assets will have to pass the next serious test at the end of August. An analyst with the nickname Jay noted that the release of economic data expected this month could have a major impact on the cryptocurrency markets. According to him, there are 3 important factors that could interrupt the current uptrend. The first is the US Personal Consumption Expenditure (PCE). “PCE data for July will be released on August 26. Given that personal consumption expenditures (PCE) is the Fed's preferred inflation indicator, a higher value could cause markets to crash with the expectation of a sharp rise in interest rates."
The second factor is US GDP for the second quarter: “Revised GDP data for the second quarter will also be published on August 26. Pay attention to it. If these numbers are adjusted upwards, it means, in effect, that the United States will not be in a technical recession anymore, this could prompt the Fed to raise interest rates even more.”
Finally, the third factor is the annual Jackson Hole Economic Symposium, where US financial authorities discuss global economic problems. The seminar will take place from August 25-27, which coincides with the release dates of the aforementioned statisticians.
These factors could influence the decisions of Federal Reserve Chairman Jerome Powell, which will have a ripple effect on the cryptocurrency market. “If the stats turn out to be irrelevant, and Powell isn't in the best mood, the cryptocurrency market is going to have a bad time. Although there are chances that he will keep his ideas to himself long enough for the cryptocurrency market to continue its recovery.”
A recent survey of institutional investors in Cumberland found that the majority of respondents expect bitcoin to rise to $32,000 by the end of the year. Mike Novogratz, CEO of digital investment firm Galaxy, set a slightly smaller number. In his opinion, the coin is unlikely to rise above $30 thousand in the near future. The billionaire himself “would be happy” if BTC stopped for a while in the $20,000-$30,000 range.
This time the most optimistic forecast was made by a famous analyst under the pseudonym InvestAnswers. US cryptocurrency exchange Coinbase and the largest investment firm BlackRock signed a partnership agreement last week. BlackRock currently manages over $10 trillion in assets. Based on this, InvestAnswers believes that the influx of funds in cryptocurrency from BlackRock clients could push the price of BTC to $773,000.
“If BlackRock puts 0.5% of its assets into BTC, then taking into account the leverage, Bitcoin’s capitalization will increase by $1.05 trillion, which means the price will go up to $75,000. This, I think, is very likely. If BlackRock customers took 1% of their holdings, the capitalization would increase by $2.1 trillion, and Bitcoin would reach $173,000. And if BlackRock puts out 5% of its assets, the price of Bitcoin would reach $773,000. Although I think this is very aggressive, it could be possible within 3-5 years,” the analyst wrote. (It should be noted here that InvestAnswers accounts are valid only for investments with leverage of 1:21 or more).
And to conclude the review, a few words about the main altcoin, ethereum, which is recovering much faster than bitcoin. The BTC/USD pair has gained around 40% over the past eight weeks, while ETH/USD has grown by nearly 120%. Most experts attribute this ascent to the upcoming change of consensus algorithm from Proof of Work (PoW) to Proof of Stake (PoS), expected to occur at the end of September. Mike Novogratz, Head of Galaxy Digital, believes that the altcoin could reach $2,200 even before this event. But according to ethereum founder Vitalik Buterin, the best is yet to come, following the network's transition to Proof-of-Stake. "Once the merger actually takes place, I expect investor sentiment to improve," he said.