pair EUR/USD:The global economy is in danger again
pair hacked Euro/dollar American major support level that was formed in 2016. The low was held at 0.9899 on Tuesday 23rd of August, which is the lowest price the pair has traded in 20 years. The euro has lost about 485 pips to the dollar in the last year alone.
Although not officially recognized, the US economy has already entered a recession, GDP continues to decline, although this movement slows slightly: -0.9% in the first quarter of 2022 and -0.6% in the second quarter . Quantitative tightening (QT) by the Federal Reserve and macroeconomic factors increase the chances of enhancing this process. Thus, JP Morgan CEO Jamie Dimon warned that the country's economy could expect "something worse than a recession," and the probability of that event is 20-30%.
The situation in the Eurozone is even worse, and the macroeconomic conditions are still not very promising. According to forecasts, due to the energy crisis caused by the sanctions against Russia, Europe, and especially Germany, will face a very difficult winter.
“The global economy is at risk once again,” said World Bank President David Malpass. We are facing high inflation and slow growth at the same time. Even if a global recession is avoided, the pain of stagflation can last for several years.” This situation is fueling the demand for safe haven assets, and the US currency is traditionally one of them. The dollar index (DXY) maintains positions near multi-year highs around 108 points and, according to experts, may rise to 110 points.
The main event last week was the annual Jackson Hole Economic Symposium on August 25-27, which brought together almost the entire American financial elite. The main event at the symposium was the speech of Federal Reserve Chairman Jerome Powell, which market participants were hoping for signals regarding the regulator's future plans. But he didn't say anything new and significant, Powell's comments were more "tough" than before, but they generally coincided with market expectations. The US central bank chief probably didn't want to shock the markets in any direction. He did not give a specific number by which the Federal Open Market Committee (FOMC) could raise the rate on September 21.
The probability of a 50 basis point or 75 basis point rate hike in September is about the same. Remember that the price is at 2.5% at the moment and that the next increase will send it to its maximum since 2008. There is no doubt that it will, although the CPI showed signs of slowing in July, dropping to 8.5%, and inflation has fallen, according to For the core price index for personal consumption expenditures (PCE), 0.6% to 0.1% in one month.
Meanwhile, the European Central Bank may also raise borrowing costs by 50 basis points at its September 8 meeting. The minutes of the regulator's meeting last July showed that too many Governors agreed on the advisability of raising the key rate from 0.5% to 1.0%. Moreover, according to Reuters, some ECB leaders, due to the deterioration of inflation expectations, want to discuss the issue of immediately raising the rate by 0.75%. However, a decrease in the difference between the Federal Reserve and the European Central Bank, although it may slightly support the euro, will not fundamentally change the situation, since the difference between the rates will remain in favor of the dollar. As a result, the US currency will continue to strengthen and, according to Wells Fargo analysts, may peak in the fourth quarter of 2022.EUR/USD may go down US to 0.9700 by the end of the year, a number of experts are calling 0.9600 as well.
Jerome Powell's speech was delivered on Friday evening, August 26, in the middle of the US trading session, when the Asian and European currency markets were already closed. Therefore, the final reaction to the words of the Federal Reserve Chairman will only become clear on Monday, August 29. As for last week, although its performance caused some volatility, the pair put the last chord within the weekly range, slightly below its position at 0.9966.
60% of experts are in favor of the fact that it will continue to move south in the near future, while the remaining 40% point in the opposite direction to it. The readings of the indicators on D1 give more specific signals. 100% along with bears both among trend indicators and among oscillators. However, the quarter is giving signals that it is oversold. The closest downside targets For the EUR/USD pair The US dollar is the July 14th low at 0.9950 and the August 23rd low at 0.9899. Note that the 0.9900-0.9930 area is also a strong support/resistance area for 2002. For bulls, the first priority is to rise above the parity level 1.0000, after which it will be necessary to overcome the resistance of 1.0030, then 1.0090-1.0100, followed by the 1.0120 levels and areas , 1.0150-1.0180, 1.0200 and 1.0250-1.0270.
US consumer market statistics will be released on Tuesday, August 30th. We will have a whole series of data from the US labor market on the same day, as well as on Wednesday, August 31, Thursday, September 1 and Friday, September 02, including important indicators such as the unemployment rate and the number of new jobs created outside the agricultural sector (NFP) . As for the European economy, data on unemployment in Germany and the Eurozone consumer market (CPI) will be received on Wednesday, August 31, and the value of the business activity index in the manufacturing sector (PMI) and retail sales in Germany will become known on September 01.
pair GBP/USD: Bad Long-Term Outlook
We took the title of Husband Review Pound sterling / dollar American “gloomy expectations for the pound continue to be verified” a week ago. But it turns out that the situation does not just look bleak, but also provokes real horror for some experts. Citi Bank economists believe that “the long-term chart for the pair is looking really terrible at the moment. It can be seen as a large double top forming as a continuation pattern, which promises a drop in price to parity and possibly below it. There is no significant support now (beyond the low of the March 2020 peak just above 1.14) until the key lows set in 1985 at 1.0520. This month’s close below 1.1760, if any, would be a bearish month.”
British Pounds / US Dollars It closed last week at 1.1736. The pound remains under pressure from the resignation of Prime Minister Boris Johnson, accompanied by a sex scandal, and rising inflation. Britain's energy regulator Ofgem has announced that average annual household electricity bills will rise by 80% from October and that the new prime minister will need to take urgent action to deal with such high prices.
The median forecast for next week appears to be somewhat neutral. 45% of analysts support the bulls, and 55% support the bearish scenario. The indicator readings on D1 look exactly like those of the EUR/USD pair: all 100% are colored red, while 25% of the oscillators indicate that the pair is oversold. Immediate support is the August 23 low at 1.1716, followed by 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 1.1755, 1.1800, 1.1865-1.1900, 1.2000, 1.2050-1.2075, 1.2160-1.2200, 1.2275-1.2325 and 1.2400-1.2430.
In terms of UK economic statistics, traders should take into consideration that there is a bank holiday in the country on Monday 29 August. Among the important events, we note on Thursday 1 September, when the August value will be known as the UK Manufacturing PMI.
pair USD/JPY: Bank of Japan policy will remain the same
USD/JPY is moving In the side lane 135.80-137.70 all week. And if we talk about the results of the five-day period, then the bulls won a slight advantage: after starting the week at 136.81, the pair finished at 137.45. Therefore, the neutral prediction was fully justified. It is reported that the majority of experts voted for the pair's move to the east last time.
The latest Bloomberg survey of economists shows that inflation, at 3%, is unlikely to force Bank of Japan President Haruhiko Kuroda to tighten monetary policy. While 3% is the highest level since 1991 (excluding years of tax increases), it is still well below the 8.5% inflation rate in the US. Moreover, according to forecasts, inflation may reach 2.5% in the last three months of 2022, and be at the 1% level at the end of next year.
Regarding the possible change in the monetary policy of the Bank of Japan after the end of the Haruhiko Kuroda term in April 2023, one cannot really count on that. What's more, one should not expect an increase in interest rates at the upcoming meeting of the Japanese regulator on September 22.
Based on the above, the majority of analysts (60%) believe that the US dollar against the Japanese yen (USD / JPY ) will aim again to test the July 14 high and the high at 139.40. 30% of experts expect a strengthening yen and a downtrend, 10% give a neutral prediction. The indicators on D1 reflect the readings of the previous pairs: 100% of them point north, while 25% of the oscillators are overbought. Support for the pair is located at the levels and in the areas 137.00, 136.70, 136.15-136.30, 135.50, 134.70, 134.00-134.25, 132.85-133.00, 131.75-132.00, 131.00. Resistance is 137.70, 138.40, 138.50-139.00 and finally July 14th high at 139.38. The next bulls targets are 140.00 and 142.00.
No significant statistics on the Japanese economy are expected this week.
Cryptocurrencies: Dark gray is the color of cryptocurrencies now
As of last week, BTC/USD It was trading in a tight range of between $20,900 and $21,800 most of the time prior to Jerome Powell's Jackson Hole speech. In this region there is a cumulative average parity for all bitcoin holders. But risky assets: stock indices (S&P500, Dow Jones, Nasdaq) and cryptocurrency prices plummeted on the evening of August 29. At the time of writing, the major cryptocurrency has already started responding to the hawkish mood of the Fed Chairman and hit a weekly low of $19,834. The total value of the cryptocurrency market has fallen below the psychologically important $1 trillion level and stands at $0.991 trillion ($1.028 trillion a week ago). Crypto Fear & Greed is down 6 points in seven days from 33 to 27 and is in Extreme Fear territory.
The overall picture at the end of summer looks like this. In July, whales (with assets of more than 10,000 BTC) and shrimps (less than 1 BTC) were the main investment force driving Bitcoin higher. Institutional investors are known to play a leading role in the whale population, and they rely heavily on what happens on Wall Street. Institutional operations with digital assets are carried out through cryptocurrency funds. Judging by the statistics, the inflow of investments into these funds stopped at the beginning of August, and the whales returned to selling bitcoins in the second week of the month: the outflow amounted to about $21 million.
However, according to the CEO of crypto platform Bakkt, Gavin Michael, despite what is happening, Bitcoin will show significant growth in the coming years. Bakkt provides digital assets and futures trading services to institutional investors, and according to Michael, they are keeping a close eye on what is happening and their interest in the market is constantly growing.
One of the main signs of price growth in the future is the increase in network activity and the emergence of new addresses. Bitcoin activity is now at the same level as it was at the end of the 2018-2019 bear market, according to analytics firm Glassnode. However, despite the signs of the end of the “crypto winter,” network indicators still do not point to a reversal of the macroeconomic trend. The researchers note that the Bitcoin network is still not registering a demand for the cryptocurrency from investors, which is necessary for a sustainable upward trend. “Recent price increases have failed to attract a large wave of new active users, which is particularly noticeable among retail investors and speculators,” notes Glassnode. The lack of hype is also indicated by the low fees in the Bitcoin network. As noted, its volume has been reduced to less than a dollar.
Meltem Demirors, chief strategy officer at CoinShares, believes that “BTC does not see catalysts that could contribute to growth until the end of the third quarter.” But despite this, “we saw a lot of buying on the pullback in relation to bitcoin” in the summer, which, in her view, indicates that there is capital ready to accumulate this asset.
If Meltem Demirors is a cautious optimist, analyst Justin Bennett is extremely pessimistic and believes that BTC could face another sell-off. Bitcoin has fallen below the country support that has maintained the uptrend over the past few months. According to Bennett, the price of the coin fell more than 30% last time in such situations.
Although the analyst is bearish, he expects a small short-term rise in BTC to $23,000, which should be retested as resistance. Then a drop to $19,000 is expected. Bitcoin’s reaction at this level, according to Bennett, should determine its behavior through the end of the year: “The question will be whether we see rebounds and higher lows, or get lower lows for the rest of the year.”
As for Ethereum, Meltem Demirors sees investors ignoring the general situation in the market, amid the hype around ETH's transition to a PoS mechanism. Despite the benefits of the merger for the Ethereum network itself, the event is not certain that the event will attract significant investment capital: “While there is great enthusiasm in the crypto community for a merger that could reduce supply and increase demand rapidly, the reality is more realistic: investors are concerned about prices. and overall indicators. I think it is very unlikely that large amounts of new capital will enter ETH. There is some risk to take in the market because the merger has been used as an excuse to buy on the rumor and sell the 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.”
Another well-known strategist, Benjamin Quinn, spoke about Ethereum. In his opinion, if the most negative scenario is implemented, the logarithmic regression range indicates a possible decrease in the pair ETH / USD To the $400-$800 region. Coin calls this drop an excellent opportunity to replenish Ethereum reserves. At the same time, he does not rule out the possibility of an altcoin rally: “ETH could show a rally if the transition to PoS proceeds without major problems (be aware that some software updates do not always go smoothly) and the Fed changes its monetary policy.” (As a reminder, the ethereum network upgrade is scheduled for September 15-20. So, it won't take long to wait.)