pair EUR/USD: After the European Central Bank meeting and before the Fed meeting
The last time the EUR/USD review was titled “In Uncertainty,” he confirmed it last week. Starting from 1.1643, the pair fell to 1.1581, then rose to 1.1691, and ended the session with a new decline, this time to the level of 1.1560.
The main event last week was the European Central Bank meeting. As expected, the interest rate remained unchanged at 0%. Therefore, the ECB administration's comment on monetary policy was of greater importance. After the US Federal Reserve and the Bank of England set the timing to begin tapering their monetary stimulus (QE) programs, investors wanted to hear similar statements from the European Central Bank. But... they haven't heard of it: the regulator's press release virtually repeated the previous release in September.
According to information from Bloomberg, there is currently a split among the members of the ECB's Governing Council. First of all, this relates to estimating the size of the upcoming inflation. ECB President Christine Lagarde's assurances that the recent rise in inflation to 3.4% is temporary does not suit everyone. What's more, they appear skeptical in the face of Germany's 28-year inflation peak (4.6%) and Spain's 37-year peak (5.5%). The Bank's management statement that the analysis does not confirm the need for a rate hike in 2022 also appears suspicious.
All of the above has led to investors feeling that the withdrawal of monetary stimulus in the eurozone will not begin until late 2022 and early 2023. Against this background, the European currency should weaken sharply. But if we look at the chart, we will see a sharp increase in the EUR/USD pair: the EUR/USD pair rose 110 points on October 28. Surprising but real!
The main reason lies in the macroeconomic statistics from the US, which were released at the same time as the ECB President's press conference. According to preliminary estimates, US GDP in the third quarter will be 2.0%, which is significantly lower not only from the previous 6.7% but also from the forecast of 2.7%. The growth rate of the US economy decreased from 12.2% to 4.9%. These numbers dampened investor optimism and caused the dollar to weaken, as the Dollar Index (DXY) fell from 93.86 to 93.33, and the Dow Jones and S&P500 stock indices almost returned to their historic highs. Lower gas and coal prices also played a role against the dollar, reducing the potential for an energy crash in Europe.
At the end of the week, on Friday, October 29, the dollar was not only able to recover losses, but also pushed the EUR/USD pair to its lowest level in three weeks. The situation of investors was a key factor in this after the release of the US Federal Reserve's report on economic conditions, ahead of the regulator's meeting next week. TD Securities analysts explained that “as the Fed moves to reduce asset purchases and flexibility, which is likely to be a key feature of future policy, the risk/return ratio becomes more positive for the dollar.”
The dollar was also supported by monthly gains on risk assets, a rise in bond yields to 1.672% (the highest since May) and good macro stats from the US: the rise in core PCE remained at 3.6%. In September, in line with August. However, European statistics triggered another nervous attack on investors, indicating acceleration in inflation and a sharp slowdown in GDP growth.
Despite the volatility of the EUR/USD over the past few weeks, 100% of the trend indicators on D1 are heading south. But among the oscillators, these fluctuations caused a certain amount of confusion: only 40% of them were heading south, 30% heading north and 30% heading east. There is no unity among experts either. 30% voted for the pair's growth, 55% for its downturn, and 15% for the sideways movement. The support levels are 1.1520, 1.1485, 1.1425 and 1.1250. Resistance levels are 1.1580, 1.1625, 1.1670, 1.1715, 1.1800, 1.1910.
As for important events and the release of macroeconomic statistics, there will be plenty in the coming week. German retail sales volumes and the ISM business activity index in the US manufacturing sector will be released on Monday, November 1st. The value of the ISM in the service sector will be announced, as well as the ADP report on the level of employment in the United States. On Wednesday 03 November. We will have a major event like the Fed meeting on the same day, including the interest rate decision, as well as his administration's comments on the US central bank's monetary policy. Christine Lagarde, president of the European Central Bank, is scheduled to speak on Wednesday and Thursday.
As usual, the first Friday of the month, November 5, will see data from the US labor market, including an important indicator such as the NFP, which is the number of jobs created outside the US agricultural sector. Eurozone retail sales statistics will be released on the same day.
pair GBP/USD: Ahead of the Fed and Bank of England meetings
The Consumer Price Index (CPI), which reflects the performance of UK retail prices for goods and services and is a key inflation indicator, was +0.3% in September (versus +0.4% and +0.7% in August). On a yearly basis, UK CPI grew +3.1% (vs +3.2% expected and +3.2% in August). Although indicators showed inflation slowed in September, analysts expect it to accelerate sharply in October due to higher energy prices, utility fees and a partial increase in value-added tax.
Next week is not only the week of the Fed meeting, but also the Bank of England, which will take place on Thursday, November 4th. According to a number of experts, it is unlikely that the slowdown in inflation in September will force the British regulator to stop raising the key interest rate in the coming months (now at 0.1%).
The risk of stagflation, which combines weak GDP growth and high inflation, poses a major risk to the British economy, which is still under pressure from the effects of Brexit. According to Bank of England experts, the annual inflation rate will accelerate to around 5% by April 2022 and drop to a late 2% target by the end of 2022. This is a very fast pace, and the head of the central bank, Andrew Bailey, said recently that at such rates , it may be necessary to act and raise interest rates faster than originally planned.
Many investors now believe that the interest rate on the pound may reach 0.45% by the end of 2021 and 0.95% by June 2022, which is supposed to lead to an appreciation of the pound. However, in the current low-key situation, things are not so simple, and a reduction in monetary stimulus could deteriorate the British economy, deepen the crisis and lower the living standards of the UK population. Retail volumes (excluding fuel), as determined by the Office for National Statistics, have shown a year-over-year decline of -0.9% to -2.5% for three consecutive months, indicating that people are starting to save.
The past week and a half shows that the GBP/USD bullish momentum that started on September 30th has dried up, and thanks to the same factors included in the EUR/USD, the pound finished the trading session at 1.3685 after.
There are still intrigues about how the market will react to the plans of the US Federal Reserve and the Bank of England to end quantitative easing for now. But it is safe to say that the next Wednesday and Thursday, when these regulators meet, guarantee high volatility. At the same time, 40% of experts are betting on the victory of bears, 30% along with graphic analysis on D1 supports bulls, and the remaining 30% take a neutral position.
Up to 50% of oscillators are neutral gray. The remaining oscillator readings are equally divided: 25% for red and 25% for green. As for trend indicators on D1, red wins a clear advantage, which is 80%.
Support levels are 1.3765, 1.3675, 1.3600, 1.3575, 1.3525 and 1.3400. Resistance levels and targets for buyers are 1.3725, 3770, 1.3810, 1.3835, 1.3900 and 1.4000.
pair USD/JPY: The Yen Has Its Own Path
The charts from the last two and a half weeks are showing that the bullish momentum has also dried up for the USD/JPY. Only in the case of the GBP / US dollar, if the dollar has been weakening against the pound since the end of September, on the contrary, it has risen against the yen.
The Japanese currency is a safe haven currency for investors. Its recent weakness is logically consistent with a stable inverse relationship between the price of the yen and the growing risk appetite in the market. We should also add that another reason for the yen's weakness is the shift in Japan's trade balance towards imports, due to the sharp rise in energy and metals prices. Of course, one cannot ignore such an important factor that influences USD/JPY rates as the US Treasury bond yield. However, it is also directly related to the market's risk aversion.
The USD/JPY pair upgraded to a four-year high on October 20 to reach 114.70, its highest level in November 2017. After that, the bulls' enthusiasm waned, and the pair fell, ending last week at 113.95.
At this point, 70% of analysts expect the pair to first return to the horizon of 113.00, and then decline to the area of 111.00-112.00 by the end of November. The remaining 30% of experts adhere to the opposite view, and expect the next update of multi-year highs and the rise of the pair to the range 115.00-116.00.
The resistance levels are 114.35, 114.70 and 115.50, and the long-term target for the bulls is the December 2016 high at 118.65. The closest support levels are 113.85, 113.40 and 113.25, then 112.00 and 111.65.
As for the upcoming week's events, the BOJ MPC meeting report can be seen on Tuesday, November 2nd. However, it is likely that the market will react to it rather calmly. Especially since this event will be held only a day before the meeting of the US Federal Reserve, which will be the focus of focus for investors and speculators.
Cryptocurrency: Ethereum renews its record high
The historic record of $66,925 set by Bitcoin on October 20 has yet to be broken. The imminent correction that followed this rally triggered an even fight between the bulls and the bears. As a result, after swinging in the range of $57,590-63645, the pair returned on Friday, October 29, to what it was about seven days ago, to the $62,000 region. The total market capitalization of cryptocurrencies is also unchanged at $2.6 trillion, but the share of Bitcoin has somewhat decreased: its dominance index has fallen from 45.94% to 44.15%. This was due to capital inflows into altcoins, especially Ethereum, which rose from 18.72% to 19.61% during the week. Crypto Fear & Greed is still in Greed at 70 pips (75 weeks ago).
Most analysts believe that the bullish trend for the BTC/USD pair will continue. This is backed by statistics. Coin flows from exchanges have resumed, according to Glassnode. The Bitcoin network hash rate nearly recovered after the mining ban in China, which caused it to drop by 50%. At the same time, the supply of Bitcoin is very low: miners and investors are holding their reserves, waiting for further price growth.
The macroeconomic background is also favorable. The New York Stock Exchange continues to list bitcoin-linked ETFs. True, there is information that the Securities and Exchange Commission (SEC) is likely to reject Valkyrie's request to launch a leveraged ETF. The green light will also not be obtained from among the 40 files currently under consideration by the SEC, except for applications for launching bitcoin futures ETFs. But those that will be approved are quite enough to ensure a strong flow of money to this sector from investors who save their capital from inflation.
The good news for BTC is that payments giant Mastercard will soon announce support for cryptocurrency on its network. This includes bitcoin wallets, credit and debit cards, and loyalty programs where points can be converted into digital assets.
The US company Walmart, which operates the world's largest wholesale and retail chain, has also switched to the main cryptocurrency and launched a pilot program to sell bitcoins in its stores.
Cryptocurrency trader and analyst known as Altcoin Sherpa is confident that Bitcoin will not fall below the $54,000 region where there is strong support, and will update its historic high in November, which is above $80,000.
Another prominent analyst, PlanB, is also anticipating an increase in the price of bitcoin. As a reminder, PlanB is the creator of the Stock-to-Flow (S2F) model, which predicts the price of the major cryptocurrency, which allows him to accurately forecast BTC prices in August and September. And if Bitcoin continues to follow this pattern, hitting $98,000 in November and $135,000 in December at the same time, the expert believes that the major cryptocurrency is unlikely to be able to avoid another major correction that has historically followed every major rally cycle.
Another popular crypto analyst and trader Lark Davis predicts that “the next six months are likely to be very crazy for Bitcoin and crypto! Many of you will have the chance to completely change your financial destiny.”
Davis does not advise investors to stay away from altcoins and speculative NFTs in the current situation, but rather to bet on time-tested coins. “Let the winners win, double their positions and then triple them, and wipe out the losers. Do it ruthlessly, there is no point in holding questionable assets,” wrote Lark Davis.
In his view, BTC could increase investor savings by 20 times over the next 10 years, but altcoins could achieve similar returns much sooner. The expert explains that “altcoins are for making money, and bitcoin for storage.”
The altcoin major seems to have heard the words of Lark Davis. While Bitcoin was hovering around $60,000-61,000, Ethereum renewed its all-time high, peaking at $4,447 on October 29.
The ETH/USD pair has exploded for the fifth consecutive week, after adding over 65% since September 21. The reason for this growth is the coin-burning process that takes ETH tokens out of circulation. Another factor that pushed this altcoin higher was the news of the successful start of the Ethereum 2.0 Altair update to the Beacon Chain, bringing the moment of the full launch of ETH 2.0 even closer.
And another piece of news that will be of interest to those who think not only about their future, but also about the future of their children and loved ones. Russian insurance company Renaissance Life and InDeFi SmartBank have jointly started developing smart contracts to help inherit digital assets. With the growth of the cryptocurrency market, the problem of heredity arose. Since cryptocurrencies are decentralized, in the event of the death of the owner, the heirs cannot simply dispose of the deceased's estate without access to the cryptocurrency wallet. Smart contracts under development should solve this problem by enabling the customer to pass the disposition of the digital assets to their designated heir in the event of their death.
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