January 11, 2020
First, a review of last week’s events:
- EUR/USD. As you know, life is like a zebra: a black stripe comes after a white one, and vice versa. That was what happened this time as well: after the merry New Year holidays came the anxious expectation of a full-fledged war between the United States and Iran. But, a few days later it became clear that both sides want to avoid a full-fledged conflict, and the tension in the geopolitical field went gradually down, which is clearly visible in the oil prices.
Last week, everything went well for the US dollar at first. The US currency was growing thanks to new record highs in the US stock market and optimistic statements of the Fed's leaders. So, the President of the Federal reserve of Richmond Thomas Barkin said that the country's economy and the labor market in the United States looked strong. And according to Fed Vice President Richard Clarida, the current monetary policy of his organization is fully consistent with the state of the country's economy. According to forecasts, US GDP growth in 2020 may be 2-2.5%, or even more.
Up until Friday, January 10, the dollar was growing in anticipation of strong data from the US labor market. As a result, as expected by 45% of experts, supported by 85% of indicators and graphical analysis on H4, the EUR/USD pair fell to the support of 1.1100, and then by another 15 points. But the data on the number of new jobs outside the agricultural sector (NFP) disappointed the market so strongly (a drop of 43%) that the pair turned sharply north, jumping to the height of 1.1130. It met the end of the trading session at the level of 1.1120;
- GBP/USD. For the third week in a row, the result for the British pound is close to zero. Starting from the horizon of 1.3075, by Tuesday January 07, it reached the height of 1.3210, then fell to the support of 1.3010, turned around again and finished the five-day period at 1.3060, losing only 15 points during this time. However, as before, due to its rather high volatility, the pair did not deprive traders of the opportunity to earn: the weekly scope of its fluctuations amounted to 200 points;
- USD/JPY. The forecast for this pair was 100% accurate. Recall that, in the opinion of the majority of analysts (70%), supported by graphical analysis on D1, the pair's drop had to stop at the level of 107.80, having rebounced from which it was supposed to go to the 109.25 resistance, and then to the last December highs in the area of 109.70.
In reality, on Monday, January 06, the pair found the bottom at 107.76, turned around and went up. On Wednesday, the yen made another attempt to gain a foothold below the level of 107.00, however, it was unsuccessful as well, and by the end of the week, the pair, as expected by experts, reached the set height of 109.70. This was followed by a small correction, and the final chord sounded at the level of 109.50;
- cryptocurrencies. Indeed, it seems that a number of investors are considering Bitcoin as a financial haven. So, against the background of the confrontation between the US and Iran, the reference cryptocurrency reached a month-and-a-half high, breaking some important resistance levels. Fake information about a sharp increase in the capitalization of stablecoin Tether (USDT) on CoinMarketCap by $500 million also contributed to the growth. As a result, the cost of BTC soared to the height of $8,450 per coin.
The analysis of what happened last week suggests that the crypto market quotes begin to be increasingly influenced by algorithmic trading. Reacting only to the momentum of the price, which in this case was up, the robots began buying coins, giving an additional force to this momentum.
Soon after it became known about the reduction of tension around Iran, and that the information about $500 million is just a fake, the price of Bitcoin went down, dropping to $7,765, then went up again, reaching the height of $8,100 by the evening of Friday, January 10.
As a result of these events, the growth of Bitcoin, starting from January 03, was at a maximum of about 17%, Ethereum (ETH/USD) – the same 17%, Ripple (XRP/USD) – 22%, and Litecoin (LTC/USD) - 27%. At the same time, the total capitalization increased by 10%, and the Bitcoin Crypto Fear & Greed Index is another three points closer to its neutral position, reaching 41.
As for the forecast for the coming week, summarizing the opinions of a number of experts, 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. Starting from November 29, 2019, the pair moved on an upward channel. On December 31, it reached its upper limit at 1.1240, and then changed direction, opening the year 2020 with a gap down. On January 08, it broke through the lower border of the channel at the level of 1.1125, but due to negative data on the labor market in the United States, the bears could not consolidate their success, and the pair finished the week session almost at the level of the breakdown.
Will it return to the limits of the ascending channel? 60% of experts do not think so. In their opinion, the dollar will continue to strengthen, and the pair is expected to decline to the zone of 1.1040-1.1065, the next goal is 1.1000. Graphical analysis on H4 and the majority (70%) of trend indicators on D1 agree with this development. The readings of trend indicators on H4 and oscillators on H4 and D1 can be considered neutral at the moment.
According to the forecasts of the remaining 40% of analysts, the EUR/USD pair will not be able to break through the support at the level of 1.1100, and it will return at least to the central line of the ascending channel, which will be in the zone of 1.1240.
Of course, the trends of the coming week may be affected by the escalation of tension around Iran. But no extra surprises should probably not be expected from the publication of macroeconomic indicators. On Tuesday, Thursday and Friday, data on the US consumer market will be published. On January 16, we will also learn the values of the German HICP consumer price index, which is projected to remain unchanged. The report on the ECB's monetary policy meeting may be more interesting, it will also be published on Thursday 16 January;
- GBP/USD. The UK is less than three weeks away from parting with the European Union. According to Bloomberg, to date, Brexit has already cost the country $170 billion, and by the end of 2020, London will lose another $90 billion. The annual economic growth has halved from 2% to 1%. The British economy is now 3% smaller than it could be if the relations with the EU had remained at the same level. The UK economy is lagging behind the G7 countries and, according to some economists, it has a long way to recover.
In the near future, the pound is highly likely to still move in a fairly wide side channel 1.2900-1.3200 with a Pivot Point in the zone 1.3000-1.3050. At the same time, according to 60% of analysts, supported by 85% of indicators on H4 and D1, the pair will continue to move to its lower border in the coming week. Supports are 1.3010, 1.2970 and 1.2900.
The remaining 40% of experts, in agreement with the graphical analysis on D1, believe that the pair, on the contrary, will break away from the central zone and is likely to reach the December 31, 2019 high at the height of 1.3285. According to the indications of graphical analysis, it may take about four or five days, after which it will return to the Pivot Point;
- USD/JPY. Last week, the pair not only returned to the borders of the medium-term side channel 108.40-109.70, but also reached its upper border. Although 75% of oscillators and 85% of trend indicators are colored green, only 25% of experts believe that the pair will be able to rise to the height of 110.70. The majority of analysts (75%) side with the bears, as well as 15% of the oscillators on H4 and D1, signaling the pair is overbought. Supports are109.20, 108.75 and 108.40. Reaching the last week's lows in the 107.65-107.75 zone is unlikely;
- cryptocurrencies. We have already written that, according to TradeBlock, only 30% of BTC coins in 2019 were in motion. The remaining 70% are in wallets in a "frozen" state. Similar figures were received by Delphi Digital. According to its data, at least 59% of bitcoins purchased in the second half of 2017 have not moved anywhere. That is, their holders did not sell their cryptocurrency even in December 2017, when BTC soared to $20,000 on some trading platforms. Such data suggests that a stable layer of so-called holders has formed in the cryptosphere, who do not part with their coins even when the market is growing aggressively.
Perhaps they are waiting for 2040, when, according to the calculations of Benjamin Cowen, the price of Bitcoin can reach $1 million. According to Cowen, the history of the main cryptocurrency price shows that the market cycles are getting longer: it took 2.5 years to reach the first peak and 4 years to reach the second peak. Extrapolating the model of logarithmic regression to the price of Bitcoin, the expert suggests that it would take about 5.5 years to reach the next peak (after the peak of December 2017), and in 2023 the price of Bitcoin could reach the $100,000 mark. And the Bitcoin of $1mln cannot be earlier than 2040.
At the same time, of course, there is another opinion, according to which, under pressure from regulators, Bitcoin will go into oblivion, and it will be replaced by state and regional digital money. The ECB has started thinking about developing its own cryptocurrency, the BRICS countries are contemplating a single cryptocurrency and the Bank for International settlements has already held the first summit of G20 Central bankers, which discussed the idea of a global cryptocurrency.
But all this is a matter of the distant future. In the meantime, the highs and lows of the past week allow us to say that the BTC/USD pair has moved to a new level of $7,765-8,450 with a Pivot Point in the $8,000-8,100 zone. At the same time, only 30% of analysts believe that it will be able to stay in this corridor, while 70% expect it to fall to the $7,000-7,500 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 in financial markets is risky and can result in a complete loss of deposited funds.