January 18, 2020
First, a review of last week’s events:
- EUR/USD. Starting from November 29, 2019, the pair moved along the ascending channel. On December 31, it reached the upper limit of the channel at 1.1240, and then changed direction and on January 08, it broke through the lower limit of the channel at 1.1225. "Will it return to its limits?"– we asked this question last week, to which the majority of experts (60%) answered with a firm "no". And they turned out to be right: Until Thursday, January 16, the bulls tried to do this, but then their strength weakened, and the pair went down sharply.
Even the signing of the "first phase" trade agreement between the US and China did not help the bulls. According to this document, Beijing agreed to increase purchases of American goods and services by about $200 billion in the next two years, and Washington, for its part, promised to lower the duty on Chinese imports worth $120 billion to 7.5% and not introduce new fees.
It should be noted that, in general, this event had already been taken into account by the markets, but still caused a further increase in the US stock indexes and a slight decline in the dollar. Investors continued to reform assets, preferring shares rather than money.
However, the fall of the dollar and the EUR/USD pair was soon stopped due to the publication of the December ECB meeting minutes and the retail sales data in the United States.
In the first case, the management of the European mega-regulator announced that it is not going to raise the key interest rate until the inflation approaches the 2% mark. Moreover, the ECB did not rule out the possibility of moving the rate from the current zero level to the negative zone. As for the second factor, the retail trade volume in the United States increased from -0.1% to + 0.5%, and, as you know, consumer spending accounts for more than 65% of the US GDP. As a result, the euro began to lose its positions against the dollar, and the pair ended the trading session in the zone of a strong support/resistance level of 1.1100, at the level of 1.1090;
- GBP/USD. This pair showed similar dynamics to the EUR/USD, but, as usual, with a much larger scale. So, if the difference between the week low and high for the EUR/USD was just over 85 points, this value was twice as high for the British currency.
The active sale of the pound on January 17 was caused by the report on the UK retail sales for December. The monthly indicator was in the negative area, and the annual indicator was three times less than the forecast value. As a result, at the end of the week, the pound fell to the January 09 low, and ended the five-day period at 1.3015 - exactly where, according to most experts, the medium-term Pivot Point (1.3000-1.3050) of this pair is located;
- USD/JPY. 25% of experts, supported by 75% of oscillators and 85% of trend indicators, voted for the pair to rise to the level of 110.70. It did go up, but the pair's growth was stopped at 110.30. Despite the fact that the yen lost only about 80 points to the dollar during the week, this can be considered a significant event, since it overcame the psychologically important level of 110.00. Recall that after passing the mark of 29.000, the Dow Jones index confidently went up, and it is possible that the same thing will happen with the USD/JPY pair;
- cryptocurrencies. Every Wednesday, analysts of NordFX brokerage company publish weekly reviews of the cryptocurrency market on NordFX's Facebook page, Twitter channel, and other social networks. In another such review on Wednesday, January 15, it was suggested that the cost of BTC in February has all the chances to rise to the level of 9,5 thousand dollars. Increased correlation with gold as well as various external factors will allow the main coin to add at least $1000 per month. Among these factors, first of all, the use of bitcoin as a safe haven asset should be noted. A clear proof of this phenomenon was the growth of the main cryptocurrency against the background of escalating tensions around Iran.
On Tuesday last week, the Chicago Mercantile Exchange announced the successful launch of a new financial instrument, the option for Bitcoin, which allowed the BTC/USD quotes to reach a landmark level of $9,000 on Friday, January 17. Thus, the pair's growth over the past two weeks has exceeded 22%.
Altcoins also soared in the wake of the main cryptocurrency. Ripple (XRP/USD) showed an increase of 25%, Ethereum (ETH/USD) – 30%, and the most impressive was the strengthening of Litecoin (LTC/USD): its growth was about 50%. The total capitalization of the crypto market increased by 14.5% and reached $245 billion.
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 various methods of technical and graphical analysis, we can say the following:
- EUR/USD. For three weeks in a row, the pair is moving down, the euro has fallen by about 240 points. The vast majority of indicators are now red not only on H4, but also on D1. Among the oscillators on H4 there are 75% of them, on D1 – 65%, among the trend indicators 100% on H4 and 90% on D1 point to the south. The nearest support is 1.1065, the bears' target is 1.1000.
At the same time, some of the oscillators already give active signals about the pair being oversold. 60% of experts also look up. In their opinion, the pair will try once again to return to the limits of the medium-term ascending channel, which started in early December 2019. The nearest resistance is 1.1150. The targets are 1.1200 and 1.1240; The pair's growth may be helped by the outflow of capital to the stock market, provoked by the decline in tensions in trade relations between the US and China. This reduced the probability of a recession in the United States to 24%, which is the lowest rate in the last eight months.
Monday, January 20, is a day off in the United States, but it is at this time that the People's Bank of China will announce its decision on the interest rate, which is currently 4.15%. In addition, other events are of interest. On Tuesday, January 21, the German business sentiment Index will be published. According to forecasts, it may fall from 10.7 to 4.3 units, which may lead to some weakening of the European currency. On Thursday, the ECB's decision on the interest rate will be announced, and a press conference of the European regulator's management will also be held. And on Friday, January 24, we are waiting for a whole series of publications of estimated indicators of business activity both in Germany and in the Eurozone as a whole;
- GBP/USD. Two macro indicators will help to assess the state of the UK economy, such as the ILO unemployment rate, which will be released on Tuesday, and the Markit business activity index, being published on Friday 24 January. However, in the run-up to the upcoming Brexit, they are unlikely to have a serious impact on the formation of trends for this pair.
The pair finished the previous week in the mid-term Pivot Point zone 1.3000-1.3050. At the time of writing the forecast, just as in the case of the euro, 60% of experts expect the pair to grow, 40% – to fall. Indicators, especially oscillators, look very versatile. Graphical analysis on D1 indicates first the pair's growth to the level of 1.3120, and then a fall to the horizon of 1.2770.
Support levels are 1.2955, 1.2900, 1.2825 and 1.2770. Resistance levels are 1.3120, 1.3210 and 1.3285;
- USD/JPY. Here, everything points to a slight advantage of the bulls, who will try to keep the pair above the 110.00 mark and move it as high as possible from this border. Thus, 55% of analysts, 70% of oscillators, 95% of trend indicators, as well as graphical analysis on H4 and D1 indicate a gradual growth of the pair. The nearest strong resistance level is 110.75, and the next one is 100 points higher.
15% of experts have given a neutral forecast, and 30% have voted for the fall of the pair. The largest number of signals about the pair being overbought have been given by oscillators on D1. The main support level is 109.70. If it breaks, the pair may fall to the zone of 109.00, and then to the horizon of 108.40. Reaching the January 06-08 lows in the 107.65-107.75 zone is still unlikely;
- cryptocurrencies. Finally, it happened: The Crypto Fear & Greed Index has crossed the equator and risen to 54, approaching the zone called "Greed". Is it good or bad? According to the index developers, it can be dangerous to open short positions at this moment. And what about the long ones?
65% of analysts believe that the upward momentum of the BTC/USD pair has not yet been exhausted and it is able to gain a foothold in the $9,000-10,000 zone.
An alternative point of view is supported by 35% of experts. Agreeing that the situation is somewhat similar to 2017, they draw attention to the fact that, starting from June 2019, we are seeing a series of decreasing highs: $13,765 on June 26, $13,170 on July 10, $12,320 on August 06, $10,480 on October 26. And it is possible that $9,000 will be the next local high, followed by another collapse.
But for now, the market is full of optimism, and the predictions of all sorts of crypto enthusiasts are breaking all thinkable and unthinkable records. The most modest is the forecast of the analytical firm Fundstrat Global Advisors, which has stated that in the coming year, Bitcoin is highly likely to bring investors more than 100% of profits. According to the Fundstrat co-founder Tom Lee, the most important factors that will contribute to the growth of the price of the first cryptocurrency are halving, geopolitical risks and the US presidential election.
The most "space" forecast was given by Blockstream CEO Adam Back. He is convinced that the dreams of Bitcoin worth $100 thousand and even $10 million are not so far from reality. Back has commented on the idea of one of the leading representatives of the cypherpunk movement, Hal Finney, who is historically considered the second developer of Bitcoin, after Satoshi Nakamoto. Finney suggested "as a thinking experiment" to imagine that Bitcoin has become the dominant payment system in the world. "The total value of the currency should be equal to the total value of all the world's wealth. Current estimates of household assets around the world that I have found range from $100 to $ 300 trillion. If there are 20 million coins, the value of each of them will be about $10 million, " Finney wrote. Beck noted that due to the rising dollar inflation, " this is closer than it seems." But the crypto prophet did not specify how much closer.
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.