August 10, 2019
First, a review of last week’s events:
- EUR/USD. The pair is consolidating in the zone of a strong support/resistance level around 1.1200. In general, the zone 1.1150-1.1215 is quite significant for this pair, since it can be called the main Pivot Point of 2015-2016. And now, after three years, the pair has once again fallen into this range, which may indicate some confusion in the market.
Uncertainty factors are many.
Firstly, this is the beginning of another round in the US-China trade war. Introducing 10 percent duties on the next group of Chinese goods from September 1, the US president did not stop there, he called China “currency manipulator” and is planning to postpone the issuance of licenses for US companies to trade with Huawei.
In addition to the external war, Trump has to wage an internal war, with his own Fed. He wrote in his Twitter on Thursday August 08: “Our companies are the greatest in the world, there is nobody even close, but unfortunately the same cannot be said about our Federal Reserve. They have called it wrong at every step of the way...". It is about stimulating the American economy, which is one step away from the recession, for which Trump blames the strong dollar. “The Fed’s high interest rates,” he writes, “in comparison to other countries, is keeping the dollar high, making it more difficult for our great manufacturers...to compete on a level playing field.”
So, the market expects steps from the US leadership aimed at preventing an industrial downturn. But the ECB is expected to take the same steps, since the Eurozone economy, undermined by economic wars and political instability within the EU, is not in the best condition either, and the yield of German bonds have reached record lows. However, lowering the interest rate for the euro is a double-edged sword. By stimulating industrial growth, this step will create serious problems for the banking system in Europe. According to Bloomberg experts, lowering the rate on euro deposits to -0.5% will increase banks' expenses associated with servicing negative rates by 60%.
Investors are not happy with the ongoing drop in oil prices either. Saudi Arabia is making a lot of efforts to maintain the price of “black gold” at least at the current level, but the results of these steps remain doubtful;
- GBP/USD and USD/JPY. Most experts had expected a decline on both of these pairs. And if you look at the results of the week, the forecast turned out to be correct on the whole, although not one of them reached its goals. Thus, 75% of analysts expected to see GBP/USD around 1.2000, but the week low was fixed slightly higher, at the level of 1.2025. Thus, the loss of the British pound against the dollar amounted to about 135 points.
- As for USD/JPY, unlike the pound, the yen continued to strengthen against the US currency. Analysts (60%) had expected the pair to be able to reach the January 2019 low at around 105.00. However, the fall was stopped at the horizon of 105.40 (minus 120 points during the week) , after which there was a rebound upwards, and the pair completed the five-day period at 105.65;
- Cryptocurrencies. Former CEO of Google and Facebook, Avichal Garg, is sure that the real dominance of bitcoin in the cryptocurrency market is much higher than the figure published by cryptocurrency services, and actually exceeds 75%. According to Garg, it is necessary to revise the current measurement standards, since now they take into account the huge number of altcoins with zero liquidity. And it is not at all excluded that soon we will see the share of bitcoin exceed the mark of 80%, or even 90%. An argument in favor of this development is that BTC is gradually becoming a very popular safe haven asset. “Bitcoin has proven to be a hedge against global risks, because it shows a positive correlation with gold and a negative correlation with the stock markets,” said Tom Lee, co-founder and senior analyst at Fundstrat, in an interview with CNBC. And, looking at the charts of the last week, one cannot disagree with him. Usually, top altcoins repeated the dynamics of the main cryptocurrency. Now, despite the fact that the BTC/USD pair has shown steady growth, adding about $1,500 during the week and gaining a foothold in the $11,550-12,120 zone, the main altcoins, including Litecoin (LTC/USD), Ethereum (ETH/USD) and Ripple (XRP/USD), finished the week in the red zone. Although, of course, it is too early to bury them completely. According to some experts, several alternative cryptocurrencies (for example, Ethereum) can become stand-alone blockchains, ceasing to be considered altcoins. The rest will go into oblivion as unnecessary.
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. If on H4 both trend indicators and oscillators are still pointing north, D1 has a completely different picture: about half of the indicators are colored red, and another 15% of the oscillators give signals that the pair is overbought. Graphical analysis on H4 and 60% of experts sided with the bears as well, they expect that, having pushed off the resistance of 1.1200, the pair will once again test support in the zone of 1.1025. In their opinion, the euro quotes at 1.1200 are now supported mainly due to the growth of interest in protective assets. However, the fragile balance, in addition to the situation with Brexit and a new aggravation of the political situation in Italy, can be disturbed even by weak data on GDP growth in the Eurozone, which will be released on Wednesday, August 14.
A reduction in the state budget deficit and positive data on inflation in the USA can also play a role in strengthening the dollar. What these numbers will actually be will be announced on Monday, August 12 and Tuesday, August 14, respectively.
The remaining 40% of analysts vote for the growth of the pair to the zone 1.1275-1.1345. Their forecast is based on the expectation of a recession and a further decline in interest rates in the United States. Thus, Wall Street Journal analysts estimate the chances of a recession over the next 12 months at 33.6% (a year ago it was18.3%), which is the highest rate since 2011. And predicting a change in the rate, experts believe that by the end of 2019 it will fall from 2.25% to 1.85%;
- GBP/USD. On Tuesday morning, August 13, the UK will present a portion of labor market data that is expected to be neutral at best and weak at worst. As for inflation, its indicators, which will be released on August 14, are likely to remain at the same level. In general, experts are not expecting any significant changes in the pound this week, and therefore their forecast can be classified as neutral.
As for the technical analysis, 100% of the trend indicators and most of the oscillators on H4 and D1 are colored red. Graphical analysis also Indicates to a continued fall of the pair. Moreover, it is already 25% of the oscillators that indicate overselling of the pair, which is a strong signal for a trend reversal and upcoming correction.
Support Levels: January 2017 lows - 1.1985 and October 2016 lows - 1.1945. Resistance Levels: 1.2210, 1.2415, 1.2525;
- USD/JPY. As already mentioned, the desire of investors to shelter their capital in quiet harbors continues to grow. And 35% of analysts are sure that the Japanese currency will continue to play the role of such a harbor, and therefore the fall of the pair will continue until the January 3, 2019 low at the level of 105.00. Next support is March 2018 low 104.60. Graphical analysis on Н4, as well as 85% of oscillators and 100% of trend indicators on Н4 and D1 agree with this scenario.
30% of the experts were not able to give a forecast, and the remaining 35%, together with a graphical analysis on D1, voted for the trend to reverse upward and the pair to rise to the zone 107.00-108.00. Such a scenario is also supported by 15% of the oscillators, giving signals of the pair being oversold.
It should be noted that in the transition from a weekly to medium-term forecast, the number of bull supporters among experts increases sharply, from 35% to 65%, and the height of 109.00 is called the main goal;
- Cryptocurrencies. Tom Lee is confident that, having become, along with yen and gold, a safe haven asset, Bitcoin will be able to rise to $20,000. A similar point of view has been expressed by Anthony Pompliano, co-founder of Morgan Creek. According to him, central banks will begin to massively buy bitcoins in the near future in order to hedge dollar risks, which appeared against the backdrop of tensions between the United States and China. The “epidemic” of lowering interest rate regulators will positively affect the quotes of the first cryptocurrency. Another strength of Bitcoin is its projected emission and limited supply.
The reference cryptocurrency has grown by 93% in three months and now its immediate task is to update the highs of June 2019 in the $14,000 zone. More than 70% of experts agree with this forecast, although, in their opinion, this could happen by the end of August. In the next week, the pair will perhaps continue to move along the horizon of $12,000.
Roman Butko, NordFX
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