pair EUR/USD: Inflation and the labor market decide everything
The total score for the week can be considered close to zero. If the EUR/USD pair completed the previous five-day period at 1.0730, the last chord appeared at 1.0720 this time. At the same time, we cannot say that the last week was very boring: the maximum volatility was 160 pips, 1.0786 at the top and 1.0626 at the bottom.
The DXY Dollar Index fell to a 5-week low of 101.29 on Monday, May 30. The reason is the expectation that the Fed may suspend its rate hike cycle after raising it in June and July. Of course, provided that inflation in the US falls.
However, the trend reversed on Tuesday. There was data from the Eurozone, which says that inflation there has risen to a record level. Bloomberg consensus forecasts assume a 7.8% increase in consumer prices in May. However, according to the European Statistics Office, they rose 8.1% year-on-year after a 7.4% rise in April. Oil prices also rose to their highest levels since the beginning of March. As a result, the yield on the US 10-year bond began to rise again, reaching its highest level since May 19 at 2.88%. Together with Treasuries, the dollar started to strengthen, and the EUR/USD pair headed south, reaching the local weekly low on June 1.
The trend changed again on Thursday, June 2nd after the release of data from the US labor market. Employment in the country was expected to grow by 300,000. However, in reality, growth was only 128 thousand, which is not enough to maintain stability in the labor market. The negative picture was somewhat corrected by the number of new jobs created outside the agricultural sector (NFP). This indicator was published at the end of the business week and came to 390K with a forecast of 325K and a previous value of 436K. Just over 200,000 new jobs must be created each month to keep the US labor market stable. So the NFP of 390K looks very positive. As for unemployment, it was unchanged during the month and remained at the level of 3.6% in May, which is lower than the expected 3.5%.
The EUR/USD pair is now trading near 2015-2016 lows, while the DXY is chasing a December 2016 high, the highest point in the last 20 years.
Some currency strategists, such as UBS Wealth Management, believe that the dollar's growth may stall. The market has already taken into account in the quotations both the tightening of monetary policy by the US central bank and the rise in interest rates, and no new signs of an upcoming rush are expected. So, in their view, the rise of the EUR/USD pair in the past three weeks may not be just a technical correction, but a change in the medium-term trend.
65% of analysts agree that the pair will attempt to breach the 1.0800 resistance next week, 35% expect the pair to return to its May lows and the remaining 10% are neutral. It should be noted that with the transition from the weekly forecast to the monthly forecast, the number of rally supporters drops to 50%, and their maximum target is the 1.0900-1.1000 area. As for the oscillators on D1, 80% of them are colored green (a quarter of them are overbought), and 20% are colored neutral. There is parity between trend indicators: 50% vote for the growth of the pair, and 50% for its fall. The nearest resistance is in the 1.0750-1.0800 area. If successful, the bulls will try to break through the resistance 1.0900-1.0945, then 1.1000 and 1.1050, after which they will meet the resistance in the area of 1.1120-1.1137. For the bears, task #1 is to break through the 1.0625-1.0640 support, then 1.0480-1.0500, and then update the May 13th low at 1.0350. If they succeed, they will move on to assault the low on Jan 01 2017, at 1.0340, just below there are the targets that were there 20 years ago.
Eurozone GDP data will be released on Wednesday, June 08. However, the main event for the coming week will definitely be the ECB meeting on Thursday 09 June. Markets are awaiting the European regulator's decision on the interest rate, which is currently 0%, and also for comments on further monetary policy. In addition, the number of initial jobless claims in the US will also become known on Thursday, and a full batch of data on the US consumer market will be published on Friday, June 10.
pair GBP/USD: Watch for inflation expectations
Great Britain celebrated the “platinum” anniversary of Elizabeth II on Thursday 2 June: the seventieth anniversary of her accession to the throne of the United Kingdom of Great Britain and Northern Ireland (it happened in 1952). Bank holidays were announced in the country on this occasion, on June 02 and 3.
Other economic events for this week include the publication of the UK Manufacturing PMI, which was slightly lower in May than the April value: 54.6 vs. 55.8, but fully in line with expectations,
Pound was slow to react to this. In general, the pair's dynamics are similar to those of EUR/USD, although the downward pressure in this case was stronger. Like the previous week, the GBP/USD pair remained in the side lane at 1.2460-1.2665 and ended the trading session at 1.2497.
Business activity data for the UK construction and services sectors, as well as the Business Activity Composite Index (PMI) will be published on Tuesday 7 June and Wednesday 8 June. In addition, the Bank of England will publish its latest revision of inflation expectations at the end of next week. According to forecasts, it will be much higher than the historical maximum (4.4% in 2008), and a jump to 5.0% and above will increase the likelihood of another increase in the key rate on the British pound. A by-election should also be held at the end of June, which will be seen as a test of support for the policies of Prime Minister Boris Johnson and the Conservative Party.
In anticipation of these events, the outlook for the pound looks very uncertain. Currently, 40% have voted for it to strengthen, 40% - to weaken and 20% - to continue the sideways trend. Among the trend indicators on D1, only 10% indicate the growth of the pair, 90% indicate a fall. The ratio of forces varies slightly between oscillators: 25% is looking south, 35% is neutral, 40% is looking north. Supports are located at 1.2460, 1.2400, 1.2370, 1.2300, 1.2200, then 1.2154-1.2164 and 1.2075. There is a strong support point for this pair at the psychologically important 1.2000 level. In the event of growth, the pair will have to overcome the resistance 1.2600, then 1.2665, 1.2700-1.2750, 1.2800-1.2835 and 1.2975-1.3000.
pair USD/JPY: the pair is on its way to a 20-year high
The dollar's rally is also pushing the USD/JPY pair to refresh its 20-year highs. It reached a high of 130.97 last week, approaching the May 9 high of 131.34.
We mentioned above the reasons for the strengthening of the US currency, but did not mention another reason: US President Joe Biden's meeting with Federal Reserve Chairman Jerome Powell on Tuesday, May 31. The main topic of discussion was inflationary pressure, which caused indignation among all segments of the country's population. As a result, US Central Bank President Joe Biden gave complete independence in the fight against inflation and allowed the use of all tools available to the regulator, including a significant increase in interest rates and a cut of $9 trillion in the balance sheet.
As for the Bank of Japan, it is still not ready to scale back its ultra-flexible policy. According to this regulator, monetary stimulus should help the country's economy recover from the recession caused by the COVID-19 pandemic. Poor economic statistics played against the yen as well. Japan's industrial production volume fell in April by 1.3%, instead of the expected 0.2% decline. A new round of the coronavirus pandemic in China has been named as the cause.
At the moment, only 25% of experts vote for a new attack at the height of 131.34, 65% expect a retreat to the south, and 10% take a neutral position. Indicators have a completely different picture. For trend indicators on D1 and for oscillators, 100% of them are all colored green. True, for the latter, 20% is overbought.
The closest support is at 129.70-130.20, followed by the areas and levels 128.60, 128.00, 127.50, 127.00, 126.00-126.35 and 125.00. The bulls' target is to renew the May 09 high at 131.34. As a final target, we see the January 01, 2002 high at 135.19.
Japan's GDP data for the first quarter of this year will be published next week, on Wednesday, June 08. This indicator is expected to be negative 0.3% (previous value was minus 0.2%). Such a drop would be another argument for the BoJ in favor of maintaining monetary stimulus and negative interest rates.
Cryptocurrencies: from $8000 to $1 million per 1 Bitcoin
Some analysts have described the current small rally of bitcoin as a “typical bull trap.” And if you look at the chart, we can only admit they are right: a sharp rise to $32,490 at the start of the week and then an equally sharp drop and back to the pivotal point of the past three weeks, the $30K level.
Also, if we compare the BTC/USD charts and the S&P500, Dow Jones and Nasdaq stock indices, it becomes clear that the major cryptocurrency's attempt to start living its own life has failed. Once again, bitcoin is following the stock market, albeit with some delay.
At the time of writing this review, on the evening of Friday, June 3, the total cryptocurrency market capitalization is $1.225 trillion ($1.194 trillion a week ago). The Crypto Fear & Greed indicator has solidified in the Extreme Fear area and is at around 10 pips (12 a week ago). The BTC/USD pair is trading at $29.770.
According to a report by Glassnode, the only long-term holders of Bitcoin who did not lose their heads in the bear market continued to buy the asset around the $30K mark. The current accumulation process mainly includes wallet holders with balances below 100 BTC and over 10,000 BTC. The volumes of the former increased by 80,724 BTC, and the latter – by 46.269 BTC. At the same time, the total number of wallets with non-zero balances indicates the absence of new buyers. A similar situation was observed after the May 2021 sale. In contrast to the March 2020 and November 2018 sales, followed by a surge in online activity and new revolutions, the latest sale does not yet boast an influx of new users.
Moreover, the leading mining companies are facing their own problems. An analytical report by Compass Mining indicates that the flow of cryptocurrency from miners has reached its highest level since January. The fact is that mining profitability is declining due to halving and increasing computational complexity. It is necessary to repay loans and other obligations and support operational activities. So miners have to give up their bitcoin reserves.
As an example, let's take a long-term carrier like Marathon Digital. This company, like a number of others, has always been unprofitable, while it needs to raise about half a billion dollars until the end of 2022. Therefore, it is likely that Marathon Digital will soon have to sell some of its 10,000 BTC.
Analyst Capo, who previously forecast Bitcoin dropping below $30K, expects Bitcoin to fall further: “My opinion has not changed, and I expect altcoins to drop 40-60%, and Bitcoin to fall by 25-30%. And then it will take one to three months to recover.” The analyst noted that the S&P500 is now in the area of a strong resistance level (4,150-4,200), and this may cause a resumption of the downtrend in both the stock and cryptocurrency markets.
Another crypto strategist and trader, Kevin Swanson, disagrees with Capo and expects the price of Bitcoin to rise to $37,000 in the coming weeks. It is true that this movement will alternate with sharp declines, as on June 1. Swanson's opinion of Bitcoin's bullish bounce is based on his thesis that BTC made a temporary bottom at $26,700 on May 12. He writes, “One might think that Bitcoin is unlikely to go down. This makes me believe that this bottom ($26,700) could act as a long-term support area. ”
Alex Mashinsky, CEO of Celsius crypto company, believes that the decline in the market was too long and that the cryptocurrency is waiting for an upward trend with an eightfold increase in Bitcoin. In an interview with Kitco News, he stated that the crypto markets will recover and even inflation will not be a long-term problem for them. "You can push the spring as hard as you want, but the harder you push it, the more it bounces."
Celsius chief notes that even large investment bankers are increasingly involved in cryptocurrency. “Even JPMorgan, which doesn’t usually talk about cryptocurrency, has issued a report claiming that the panic may have been exaggerated and is expected to rebound to $38,000 from where we are today.”
Scott Maynard, chief investment officer at Guggenheim, stated at the Davos Forum that the “base price of Bitcoin” is in the region of $400,000. This high appreciation is due to the effect of the “unrestricted printing of the US dollar” by the US Federal Reserve. At the same time, he believes that the market could see a bottom for Bitcoin in the $8000 region.
Ki Young Ju, head of market data platform CryptoQuant, believes that BTC will not fall below $20,000. The expert supported this statement by noting that “the support from institutional investors is at an unprecedentedly high level.” Joe cited data on the functioning of the Coinbase Custody platform. According to the charts, the volume of managed bitcoins increased continuously for 5 quarters, from October 2020 to December 2021. The increase was 296% at the end of the period, reaching 2.2 million bitcoins.
Based on the data obtained, Joe concluded that in order to bring the cost of BTC down to the level of $20,000, it is necessary to sell all the capital accumulated during the consolidation period to the level of $500 thousand. BTC. According to a cryptocurrency analyst, institutions are not yet ready for this step. The expert added that the value of the currency is likely to have already reached the bottom of this cycle of decline.
Venture capital Tim Draper has confirmed his prediction that the price of Bitcoin will cross six figures in the coming months. In a new interview, he confirmed that the price of the currency will reach 250 thousand dollars "by the end of this year or the beginning of next year." Tim Draper believes that women will drive the adoption and growth of Bitcoin, and the fact that they will increasingly use this cryptocurrency for purchases will be a catalyst.
“Recently we had one woman with 14 bitcoins and now it's something like 1 to 6. I think there will be more at the end. What I mean is that women control about 80% of retail spending. If all of a sudden all women had cryptocurrency wallets and were buying things with bitcoins, everything would change. "And you'll see the price of the coin, which will exceed my $250,000 estimate," the investor said.
According to a study conducted by the largest US bank JPMorgan, the volatility dynamics of gold and bitcoin are beginning to move in unison. Moreover, bank experts do not exclude that the capitalization of the investment asset will be equal in the future, because in the eyes of investors, Bitcoin is more in line with the role of a hedge asset.
Analysts of the crypto channel InvestAnswers considered three options, according to which the capitalization of bitcoin could reach 40%, 60% or 100% of the capitalization of gold. In this case, the price of BTC could be around $515,000, $786,000 or $1,300,000, respectively, by 2030. If we take a combination of all the three price parameters mentioned above, the average expected target is around $867,000.
Another target level was set by InvestAnswers experts by selecting the average value of a selection of forecasts from Fidelity, ARK Invest and other companies. By combining some well-known crypto models, they came up with a BTC rate of around $1,555,000 for one coin.