February 23, 2019
First, a review of last week’s events:
- EUR/USD. For almost the entire week, the pair stayed where it had been repeatedly a week, a month, and two or three months ago. Apart from the rare short-term breakthroughs, the pair cannot break out of the medium-term corridor 1.1300-1.1500. If we expand this channel to extremum points, it will be slightly wider: 1.1215-1.1570.
This was due to the lack of clarity both on Brexit and on the US-China negotiations. One can add to this, on the one hand, the desire of the Fed to curb the growth of interest rates, and on the other, weak statistics on the economy of Germany and the Eurozone. As soon as the dollar begins to grow, rumors from the ECB about the possibility of launching an anti-crisis LTRO (Long Term Refinancing Operation) or articles by venerable analysts saying that the US currency is overbought, appear, and the trend is again turning in favor of the euro. As a result, the dollar was unable to break through the lower boundary of the channel last week and ended the session at 1.1335;
- GBP/USD. Despite the incessant talk about the possibility of the chaotic Brexit, the pound showed an impressive growth on Tuesday, February 19. Even Fitch’s warning about the possibility of lowering the UK credit rating did not scare the bulls. Having stepped over the psychological level of 1.3000, the pound rose another 100 points higher, followed by a rebound, and the pair continued to move along the 1.3000 horizon, stopping at 1.3050 at midnight Friday;
- USD/JPY. During the week, experts were discussing how the decline of the SP500 index, with which the pair is correlated, would affect the behavior of the Japanese currency. How will the completion of the next stage of the US-China talks affect it? Will the pair get a support from the increase in the yield of 10-year US and Japanese government bonds?
Looking at the USD/JPY chart, one can see how sluggish the market reacted to the change in all these factors. With some dominance of bullish sentiment, the pair kept within the extremely narrow side channel 110.45-110.95, returning to its central zone, the level of 110.66 by the end of the week;
- Cryptocurrencies. The market stayed impressed during the past 7 days by the news that JPMorgan, the first of the US banks, created and successfully tested its own digital coin, JPM Coin, which it plans to use in mutual settlements with major financial institutions. And even despite the fact that, JPM Coin is in fact a competitor to the reference cryptocurrency, Bitcoin quotes went up. DataLight analysts concluded that as the price of Bitcoin increased, the number of transactions increased as well, reaching the values of April 2018.
However, this positive attitude does not mean a radical reversal of the trend and the beginning of a steady growth in the crypto market. Yes, indeed, its volumes since last Friday first grew by about 10%. But after the BTC reached the level of $4,000, many players on growth decided to take profits, which led to a decrease in capitalization by 2%. Therefore, the scenario of the BTC/USD pair consolidating at the horizon of $3,700 cannot be excluded from consideration.
It should be noted that the share of Bitcoin as a “heavyweight” on the market now amounts to more than 58%. As for the top altcoins, since May 2018, their "piece of cake" is continuously decreasing. Thus, the share of Ripple ( XRP/USD) today is 11.52%, Ethereum (ETH/USD) - 9%, and Litecoin (LTC/USD) - just 1.51%. But it is this “lightness” that allows them to demonstrate greater dynamics. Thus, the amplitude within the weekly fluctuations of the Ripple was 25%, and of Ethereum - 22%, which, of course, is very attractive for traders.
As for the forecast for the coming week, summarizing the opinions of a number of analysts, as well as forecasts made on the basis of a variety of methods of technical and graphical analysis, we can say the following:
- EUR/USD. The upcoming week is filled with both issuing of important macroeconomic data, and equally important speeches by politicians and key figures of the world economy. Thus, the market is waiting for the Head of FED Jerome Powell to speak in the US Congress on Tuesday February 26. And if he makes it clear that the Fed is not going to hurry with the rate hike, this can create quite a lot of pressure on the US currency.
However, only 30% of analysts expect that such a “dovish” attitude will lead to the growth of the pair to the Pivot Point of the medium-term channel in the 1.1400 zone and its further advance to the upper boundary of the 1.1500 channel. Most experts (70%) have taken the opposite position, believing that the weakening of the European economy and chaos with Brexit will tilt the balance in favor of the dollar, and the pair will return to the lows of recent months in the 1.1215-1.1240 area;
- GBP/USD. The key events that will determine the trend of the coming week will be the speech of the British Prime Minister Theresa May on Monday, February 26, and the vote of the Parliament of this country to review the deal with the EU on Tuesday. If Mrs. May’s proposals are rejected again, she will have a choice: either exit without a deal, or postponement of the Brexit. Judging by the mood of the market, most investors tend to the second option (or just want to believe in it). Whatever it may be, 40% of the experts believe that the pound will hold out at current levels near 1.3000 and 35% even predict his further growth to the height of 1.3200. Only 25% of analysts voted for the fall of the pair to the zone of 1.2770-1.2830.
Additional support for the pound may be rendered by a rise in prices for the "black gold", since the pound is directly correlated with oil prices.
- USD/JPY. The Japanese currency has frozen in anticipation of further developments. The worsening macroeconomic statistics of the United States, Germany, which has barely avoided a recession, Trump’s trade war with Europe and China, China’s slowest GDP growth over the past three decades — all these factors make investors pessimistic about the prospects for the global economy. It would seem that in such a situation, interest in the yen should grow as a safe haven currency. But instead, their appetites for risky, but more profitable assets are growing. Thus, according to the EPFR data, the net capital inflow to the countries with developing economies through ETF exchange funds has amounted to 16 billion US dollars from the beginning of the year.
In such a situation, in full agreement with most indicators and graphical analysis on D1, 70% of experts vote for a further fall of the yen and the rise of the pair to the height of 111.50 and then 100 points higher. An alternative point of view is expressed by 30% of analysts, who believe that the pair should go down to the zone of 109.60-110.00;
- Cryptocurrencies. After JPMorgan has launched JPM Coin, the crypto community expects similar steps from Facebook, Amazon and other major global corporations. But this is all in a hazy future. In the meantime, regulators such as the SEC and CFTC must make a lot of steps, including unpopular ones, to bring order to this market.
Regarding the trends of the upcoming week, the opinions of experts were as follows. 40% are for the continuation of the Bitcoin growth to the $4,200-4,400 zone, a jerk to the maximum of November 2018 is not excluded. at the height of $4,485. 35% suggest sideways movement of the pair in the $3,900-4,100 channel, while the remaining 25% expect the BTC/USD pair to return to the $3,500-3,800 zone.
Roman Butko, NordFX
Notice: These materials should not be deemed a recommendation for investment or guidance for working on financial markets: they are for informative purposes only. Trading on financial markets is risky and can lead to a loss of money deposited.