pair EUR/USD: FOMC Meeting: The Day the Markets Wait For
The main event not only next week, but also for the whole month will be the FOMC meeting of the US Federal Reserve on January 26. Will the regulator raise interest rates now? or march? Or will the reduction of incentives be postponed indefinitely? These questions remain unanswered.
Remember that the roadmap includes two main points at the moment: 1) the emergency stimulus curtailment in March, 2) three key rate increases in 2022, the first of which may also occur in March However, nothing lasts forever, so these points are not It is absolutely fixed and can be changed.
Even European Central Bank President Christine Lagarde said last week that the ECB has already started to respond and is ready to adjust its policy if facts and figures require it. Although it is not yet clear what "I've already begun to respond" is. And "ready" is a very loose concept.
According to Ms Lagarde herself, a very rapid increase in the rate could slow down the growth of the Eurozone's GDP. So why cut monetary stimulus and raise interest rates, especially with rising inflation, which according to the bank's management, is a temporary phenomenon? Inflation in the US is growing faster than in the eurozone. So the Fed is having a headache about how to stop it. The European Central Bank can wait until 2023 to raise interest rates, and at the same time see how things go overseas.
The obvious difference between the hawkish stance of the US Central Bank and the pessimistic stance of the European counterpart is the strong support of the dollar, which is pushing the EUR/USD pair lower. However, there are times when the actions of investors are determined not by real economic and political factors, but by rumors spread by speculators.
It looks like something similar happened on January 11th. Speaking in the US Congress that day, Jerome Powell stated again that in order to combat inflation for forty years, the Federal Reserve will raise the refinancing rate at least twice this year, and that if necessary, it can be raised three times. That is, in fact nothing new has been said. But, thanks to the rumors, the market for some reason was waiting for the number "four" and was frustrated that it was not sound. As a result, the DXY entered a deep peak, and the EUR/USD pair headed north rather than south.
Due to US inflation data, the euro consolidated its positions further on the next day, January 12th, and the EUR/USD pair rose further after it broke through the boundaries of the medium-term side channel 1.1220-1.1385. The nine-week high was reached on the morning of January 14th at 1.1482. After that, everything returned to normal. The market realized that there were no real reasons to strengthen the Euro, and the pair found itself inside the 1.1220-1.1385 channel again on Tuesday 18th January, and reached the local low at 1.1300 on 21st January. 1.1343.
At the time of writing, most D1 oscillators (55%) are red, 20% are green and 25% are neutral gray. Trend indicators are 90% red and only 10% green. Among the experts, the majority (55%) support the strength of the dollar, and 45% support its decline. The nearest resistance area is 1.1370-1.1385, then 1.1400-1.1435, 1.1480 and 1525. The closest support area is 1.1300-1.1315, then 1.1275 and 1.1220. This follows the November 24 last year low of 1.1185 and the 1.1075-1.1100 area.
about economic calendar For the coming week, along with the US Federal Reserve's FOMC meeting and its administration's subsequent press conference, we can note the release of data on business activity in Germany and the Eurozone (Marquette Index) on Monday, January 24. Preliminary data on US gross domestic product will be released on Thursday, January 27, as well as the volume of orders for capital and durable goods. (Because the purchase of such goods usually involves large investments, this data reflects the economic situation in the US, including the inflationary component.) Finally, German GDP data will be published at the end of the working week, on January 28.
pair GBP/USD: temporary correction
The dollar strengthened its position against the pound slightly over the past week. If the GBP/USD pair peaked at 1.3748 on January 13, it fell to 1.3545 on the evening of January 21. According to some experts, it's all about the British currency being generally overbought. After the Bank of England's decision in December to raise the interest rate from 0.1% to 0.25% for the first time in three years, the pair showed an increase of about 575 points. So the current drop of 200 points may not mean a reversal of the trend in the medium term, but only a temporary correction.
The pound has plenty of chances to return to growth, despite the hawkish stance of the US Federal Reserve. The CPI published on January 19 showed that UK inflation rose to its highest level in more than 15 years, reaching 5.4% (prev. 5.1%, forecast 5.2%). The continued growth of regulatory inflationary pressure may force a key rate hike early at the next meeting on February 3rd. It is possible at the same time, against the background of the moderate impact of the Omicron stress on the UK economy, that the monetary stimulus (QE) cut plans introduced during the COVID-19 pandemic may also be reviewed.
A Reuters survey of 45 experts showed that most (65%) expect the Bank of England to raise interest rates again on February 3 to 0.5% this time. If this happens, according to Scotiabank strategists, the GBP/USD pair may return to levels around 1.3800.
More than 75% of analysts expect the rate to be raised to 0.5% by the end of March. Also, according to the median forecast, the British regulator will raise the price by another 25 basis points in the third quarter. After that, another increase will follow, up to 1.0%, around the beginning of 2023.
However, as for the forecast for the next few days, 60% of experts are in favor of the bears, and they expect the pair to decline at least to the 1.3450-1.3500 region. Most indicators on D1 agree with this prediction: 60% of oscillators are selling (even though 10% are already oversold), 20% recommend buying and 20% are still neutral. Among the trend indicators, 40% are looking up, 60% are looking down.
Supports are located at 1.3525, 1.3480, 1.3430, 1.3375, the next strong support is 100 pips lower. Resistance levels and areas are 1.3570-1.3600, 1.3640, 1.3700, 1.3750, 1.3835 and 1.3900.
The Bank of England meeting will only take place in early February, and there won't be a lot of important macro data from the UK next week. The publication of the Markit Business Activity Index may increase volatility on Tuesday, January 24th. Although, most likely, investors will not pay much attention to it on the eve of the US Federal Reserve meeting.
pair USD/JPY: Yen as a safe haven
Another central bank meeting, Japan, took place last week, on January 18th. As expected, the key interest rate remained at the same negative level, minus 0.1%. According to this regulator, the country does not need a strong currency, and a weak yen is likely to help the economy, as it supports Japanese exports and corporate profits.
In general, the results of last week's USD/JPY pair can be evaluated as neutral. First, it climbed to a high of 115.05 on Tuesday, January 18th. Then the trend changed to a downtrend, and the pair fell back to where it was trading a week ago, to the 113.60-114.00 area by the end of the five-day period.
The Japanese currency was supported by a lack of risk appetite in the market. Investors began to abandon risky assets again in favor of the yen, which plays the role of a "safe haven". The reasons for this change in sentiment were expectations of higher inflation, uncertainty about monetary policy of global central banks, and growing geopolitical tensions.
The USD/JPY pair closed last week at 113.66, which is within the 113.40-114.40 trading range, where it has been regularly for the past three months. Although 60% of analysts vote for its growth, 25% for a decline and 15% for a sideways trend, the average forecast is that it will stay within this channel. Of course, provided that the US Federal Reserve does not present any surprises in its meeting. And you should not forget about the international political situation, there are also possible surprises, and very unpleasant ones in it.
Among the oscillators on D1, 100% are facing south, although 25% of them are already giving signals that the pair is oversold. Among the trend indicators, 65% would recommend selling, and 35% would recommend buying. Support levels are 113.50, 113.20, 112.55 and 112.70. The nearest resistance area is 114.00-114.25, 114.40-114.65, then there are the levels of 115.00, 115.45, 116.00 and 116.35.
Cryptocurrency: Not just winter?
Risky asset prices remain under strong pressure in anticipation of the US Federal Reserve meeting. The Dow Jones, S&P500 and Nasdaq stock indices have been losing positions for nearly all of January. But as for the top cryptocurrencies, they have been quite successful in fending off bear attacks over the past two weeks. If we talk about Bitcoin, the buyers have done their best to keep the price of the BTC/USD pair from reaching the psychologically important horizon of $40K. However, the bears managed to break through the defense on Friday, January 21 and lower the pair to $36,160. The total value of the cryptocurrency market also fell to $1.72 trillion, and the Crypto Fear & Greed Index was firmly stuck in the extreme fear zone, dropping to 19 points.
The situation, according to a number of experts, does not bode well for cryptocurrencies at the moment. The bubble deflates, so the bitcoin price could drop to $30K. This opinion was expressed by specialists from the investment company Invesco, who liken it to the collapse of 1929.
Analysts say that the decline from the highs of $69,000 is perfectly in line with the bubble pattern. This path assumes that the asset will lose 45% of its value within 12 months after the peak. That is, according to their calculations, the price will drop to $34,000 - $37,000 by the end of October and to $30,000 by the end of 2022.
Meanwhile, Invesco admitted that they miscalculated their predictions for 2021, when they predicted a drop in the price of BTC to below $10,000. Analysts explained their error by saying that Bitcoin does not appear to be going through a single bubble, but rather a series of bubbles. (Maybe the Invesco experts were in a hurry, and this year those predictions will come true.)
Renowned analyst Plan B made a mistake in his predictions for the past year as well. Remember, he developed a Bitcoin Rate Behavior Prediction Model (S2F), which indicated that BTC could rise to $100,000 in 2021. Despite the fact that the S2F predictions did not materialize, PlanB continues to stick to his theory. He is confident that Bitcoin has not yet realized its potential by the 2020 halving. According to the analyst, the coin is now approaching local lows and is preparing to renew all-time highs in March. According to the analyst, the peak value of Bitcoin in the current cycle could be recorded in July and August 2022.
Another unsuccessful forecaster was former TV presenter and trader Max Kaiser. In another interview, he explained why his $220,000 prediction for bitcoin last year did not come true. “For 2021, I said we would get $220,000 per coin, which is a typical four-year cycle. What we had in 2021 was a massive mining meltdown in China, and the hash rate went down by 50%. We've since recovered and are close to hitting a new all-time record hash rate. That is why I am moving my goal from 2021 to 2022.”
"There's price, there's hash rate and there's setup complexity: These are three things you should keep in mind," Max Keizer explains. “I have always said that the price lags behind the hash rate, so once we see new all-time highs, new all-time highs for bitcoin price will follow.”
Guido Buehler, CEO of crypto bank Seba, calls for triple the modest goal. He believes digital gold could rise to $75,000 by the end of 2022. “Our internal valuation models suggest a price between $50,000 and $75,000. I’m pretty sure we’ll see that level,” he said, adding that Bitcoin’s volatility will remain high, but the asset will be able to test new highs, and the only question is timing.
Crypto analyst Justin Bennett's forecast can also be categorized as optimistic, although the numbers here are lower. Bennett reviewed historical price action models for BTC which show that the asset is expected to rise by 20-30%. “It can be seen that starting in early 2021, bitcoin finds the bottom line below the liquidation level, and then makes an upward movement. The average rate of this movement was about 63%, and it was lowest in April by about 27%. - says the expert. “If you take this data and look at the lows of around $40,000, the minimum move of about 27% would bring the market to around $50,000. This is very likely as the $50,000-53,000 range is very important and sellers will defend this range as resistance.
There is no clear opinion on the future of Ethereum either. Some still hope that the ETH/USD pair will meet around $7000-10000 in 2023, while others expect the coin to crash after Bitcoin. For example, Peter Brandt, a Wall Street trader with 45 years of experience, expects a further drop in the price of Ethereum. In his view, from a technological point of view, this altcoin is “a very complex, expensive and inconvenient platform for the user in terms of using NFTs and private tokens and sharing them in the metaverse.” Based on this, Brandt concluded that ETH will lose points in the eyes of investors, giving way to competitors.
Peter Brandt's predictions are highly controversial. In fact, the slow protocol has led to transaction delays and a significant increase in fees. Sometimes the deal costs more than $50, which is quite expensive compared to the competition. For example, the commission is less than one cent in Solana. However, due to the high level of decentralization, Ethereum remains the number one in terms of using smart contracts. Currently, the altcoin dominates the rest of the blockchain in the DeFi sector with $157 billion in blocked funds or 66% of the total market. Its leadership is even greater in the NFT sector: here ETH has almost a monopoly with its share exceeding 90%.
Its share is likely to decline over time due to competition, but many experts still promise a bright future for this alternative currency. The move to Proof of Stake and subsequent network scaling should help maintain its leading position. "X Hours" for these steps is scheduled for the second quarter of 2022 for now. However, there is a certain risk of postponing the appointment again. This does not seem to frighten investors much. According to the Glassnode platform, they are buying cryptocurrencies even though their value is dropping.
Ethereum has already lost about 50% of its value in two months. Meanwhile, the number of ETH wallets with a non-zero balance reached a new high of 73,025,019. Network activity is also increasing, which indicates investors’ desire to take advantage of the correction and buy as many coins as possible. The average number of daily transactions on the blockchain is currently over 1.2 million.
According to Glassnode analysts, ETH will trade in a narrow range until a clear transmission is formed for the US stock market. If capital goes to risky assets again, Ethereum will resume rallying with Bitcoin. But when will this happen? Will it ever happen?
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