May 25, 2019
First, a review of last week’s events:
- EUR/USD. Complaints and sometimes even moans have been heard everywhere in the last months about the low volatility of this pair. The same is true about last week, until the second half of Thursday, the maximum range of its fluctuations did not exceed 45 points. The pair spent most of the time napping, sleepily crawling along the narrow corridor of 25 points. However, the events of the week, from the aggravation of the US-China trade war and the upcoming elections to the European Parliament to the statements by the Fed leadership and poor data on business activity in Germany and the Eurozone, played into the hands of the dollar. As a result, the pair, as most experts had suggested (75%), fell to the two-year lows, stopping at $1.1105 per euro.
But it is not only the economy of Europe, but also that of the USA which is experiencing problems. The unexpectedly weak preliminary business activity index Markit (50.9 instead of the expected 53.0) and the weak statistics on the real estate market led to a collapse in the yield of US government bonds and a sharp reversal of the EUR/USD pair to the north.
The euro's recovery was also facilitated by the closure of short positions at the lows reached before the three-day weekend in the USA and the UK. Apparently, the European currency and the statement of the British Prime Minister Theresa May about her resignation added to this. As a result, the euro won back 100 points, and the pair finished the week at 1.1205;
- GBP/USD. So, Mrs. May is leaving. Her version of the Brexit agreement will not be voted once again in Parliament. And the country is in for the next reshuffle in the leadership of the Conservative Party. According to many analysts, the head of the government can now be someone from the supporters of a hard exit from the EU, like the former mayor of London and Foreign Minister Boris Johnson. How will the market react? Most likely the reaction will be negative. But this news has not so far greatly affected investor sentiment: following the euro, taking advantage of weak US macroeconomic statistics, supported by the elimination of short positions, the pair pushed off from the two-year low in the 1.2600 zone and went up, putting the final point in this session at 1.2710;
- USD/JPY. The Japanese yen could not resist the dollar in the first half of the week either. Recall that 50% of analysts had expected the pair to rise to the height of 111.00, and one third of them has called the highest resistance 110.00 The truth, as often happens, was somewhere in the middle, and the pair fixed the week high at 110.65. After that, investors started to doubt: thanks to the harsh statements of Chinese leader Xi Jinping about the “new Great March” and “independence”, they began to realize that the yen could be a more reliable haven than the dollar. The yield on US government bonds went down, while Wall Street analysts started to talk about a high probability of deterioration in the financial results of American companies in the second half of the year and that the US economy could now be under attack due to rising prices and lower consumer demand. As a result, the pair turned around and, returning to the values of a week ago, completed the five-day week at 109.30;
- Cryptocurrencies. The crypto market capitalization schedule almost repeats what happens to the reference coin. Bitcoin dropped from $8,335 to $7,000 - capitalization fell from $255.8 billion to $229.2 billion. Bitcoin adjusted to $8.265, and capitalization rose to $255.5 billion. Quite often, this graph can be successfully used as a leading indicator.
It should be recalled that only 25% of experts predicted a trend reversal last week. The overwhelming majority voted for its continuation, finding that the decline in the BTC/USD pair to the level of $7,000 is just a temporary correction. In their opinion, it had to return to the $8,000 zone, after which it should move for some time in the side channel, then approaching the resistance level of 8,500, where its growth was stopped last July, then moving away from it. That's exactly what happened.
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. Both graphical and technical analysis point to continued growth of the pair on the H4 timeframe. But at the same time, 25% of oscillators are already in the overbought zone. At D1, the situation is different: one third of the indicators are colored red, one third are green and another third are gray, neutral. But the graphical analysis insists on further strengthening of the dollar and the continuation of the downward trend.
In fact, the situation in the global economy is quite complicated. There are more obscure prospects for Brexit, the lack of clarity with the results of the elections to the European Parliament on May 26, and multi-pass maneuvers in the US-China trade war here. The forecasts regarding the Fed's monetary policy also vary. So far, the chances of its mitigation for this year have grown from 68% to 78%. If this forecast comes true, the interest rate on the US dollar can be reduced by 0.25% in less than four months. But at the same time, the ECB, recognizing the weakness of the European economy, speaks of its readiness to take supporting measures in the minutes of the last meeting.
So far, 60% of analysts side with the bulls, believing that the powerful rebound of the pair from support in the 1.1110 zone has shown the bears' fatigue and their inability to continue the struggle.
The support levels are 1.1150 and 1.1110. The resistance levels are 1.1225 and 1.1263. The next target is 1.1325;
- GBP/USD. At the time of writing this forecast, it is not yet known which of the British parties will show which result in the elections to the European Parliament. Who will get the advantage, Brexit supporters or its opponents? Who will be the head of the UK government? Theresa May' departure may in the short term strengthen the pound, but in no way will it eliminate the long-term risks. That is why 65% of experts, supported by 90% of oscillators and trend indicators on D1, have voted for the pair to fall further. The nearest support is at 1.2660 and 1.2600, followed by the 2018 lows, 1.2475 and 1.2405.
35% of analysts rely on the growth of the pair. The immediate goals are 1.2825 and 1.3000, then 1.3125 and 1.3200.
A compromise forecast is given by graphical analysis on D 1. First, supported by 1.2600, a rise to the height of 1.2825, and then the collapse and the bottom in the zone 1.2475;
- USD/JPY. 100% of the trend indicators and 85% of the oscillators on H4 and D 1 are colored red. 70% of experts have also voted for the further fall of the pair and the strengthening of the yen as a reserve currency. At the same time, 15% of oscillators give signals about the pair being oversold. As for the graphical analysis, it draws first a fall to the horizon 108.50, and then a trend reversal and a growth to the height of 110.65. It should be borne in mind that one or two unpredictable tweets of US President Trump regarding the prospects for relations with China are enough to deploy the pair and accelerate it to either side.
The support levels are 109.00, 108.50 and 107.75, the resistance levels are 110.25, 110.65, 111.00 and 111.65;
- Cryptocurrencies. The European Central Bank has released a report stating that, although cryptocurrencies do not have a serious impact on the real economy now, in the future it is possible that they can replace the euro. But this is for the future. As for the present, analysts at JPMorgan Chase believe that the recent rise in the price of Bitcoin has brought it beyond what they call the inherent value of cryptocurrency. And that this could be a harbinger of another long recession.
However, if we sum up the opinions of their colleagues, only 15% of experts now support the scenario with a fall. 45% believe that the pair will move to the side channel of $7,500-8,400, and 40% are optimistic about the upward direction, indicating the April-May 2018 high as their closest target. at the height of $9,550. Note that in the transition to the medium-term forecast, the number of such optimists increases to 70%.
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.