May 9, 2020
First, a review of last week’s events:
- EUR/USD. The Constitutional Court of Germany dealt a blow to the ECB's efforts to save the European economy last week. It decided that the European regulator had exceeded its authority regarding the quantitative easing (QE) program, and therefore its decisions were not binding on Germany. This news immediately weakened the EUR/USD position. If you add to this the lack of compromise among EU governments over fiscal stimulus, the risks of Eurozone fragmentation are growing every day.
However, things are not better on the American continent. Publications of recent data have shown that the situation in the US labor market is even worse than expected. 33.5 million Americans have applied for primary unemployment benefits since late March, non-farm employment in April alone fell by 22.5 million jobs, and unemployment reached 14.7% (4.4% in March). Under such circumstances, some experts do not rule out cutting the Fed's interest rate to negative values.
However, it seems that the market is tired and reluctant to respond to individual figures and events, paying attention only to the resumption of business activity and the removal of restrictive quarantine measures in different countries. Of course, the EUR/USD quotes fluctuate up and down, but the volatility that we observed in late February and March is not even present. The pair has been moving in the 1.0750-1.1000 channel for the fifth week in a row since early April, and, as most (65%) experts predicted, even the expectations of a new round of the US-Chinese trade war could not push it beyond these borders;
- GBP/USD. The forecasts of both experts and indicators for this pair had a neutral gray hue last week. A third of them voted for the growth of the pair, a third - for the fall, and a third - for the side trend. The Bank of England meeting on May 7 did not add clarity, at which it was decided to keep the main parameters of the monetary policy unchanged - the interest rate at 0.1% and the quantitative easing program at £ 645 billion. Calls by two members of the Bank’s management to increase the program by £100 billion never found support from their other seven colleagues.
In such an implicit situation, the pound has been moving in the channel 1.2200-1.2645 for the sixth week, and the range of fluctuations narrowed to the range 1.2265-1.2500 last week, within which, at the level of 1.2405, the pair ended the trading session;
- USD/JPY. 75% of the oscillators and 100% of the trend indicators on D1 predicted last week the continuation of the downward trend that began on March 25 and the consolidation of the pair below the key level of 107.00. In general, the events developed in this scenario. Recall that on the first day of May, the pair made another attempt to break the support of 107.00, ending the trading session slightly below it — at 106.85. Then the downtrend continued, and on Wednesday May 6, the pair groped for the local bottom at 106.00. This was followed by a reversal, and the pair returned to the values of the beginning of the week, ending the five-day period at the level of 106.70;
- cryptocurrencies. The halving in the Bitcoin network is getting closer and closer. When this forecast is written, it is less than four days away. And when you read it, the halving may already have taken place.
The questions that traders and investors ask us indicate that not all of them understand the meaning of this event. Therefore, it requires clarification.
So, Bitcoin is set up to mine just 21 million coins. Thus, unlike Central banks, which can print an infinite amount of their own currency, the volume of BTC is strictly limited, which determines its value, making this cryptocurrency look like gold.
Halving is the process of reducing the reward for mining a block by half. There have already been two such decreases in the life of Bitcoin – in 2012 and 2016. And if at the first stage miners could get 50 BTC for each block in the distributed registry of crypto coins, this figure will be only 6.25 BTC soon. This should prevent the inflation of the main cryptocurrency and make sure that all 21 million bitcoins are completely mined only by 2140
It is important that halving does not occur on a specific date, but at the moment when the next 210,000 blocks are mined. The upcoming halving will occur at block 630,000 and, according to calculations, this should happen on May 12.
In the run-up to this event, the main cryptocurrency showed a weekly growth of almost 14%, rising at one point even above the landmark mark of $10,000. The total market capitalization of the crypto market has reached $270 billion, of which almost 70% is accounted for by BTC. The Crypto Fear & Greed Index rose in two weeks from 20 to 55, which according to the creators of the index corresponds to the prevailing greed in the market when opening short position is dangerous.
Unlike the benchmark cryptocurrency, the main altcoins either showed zero gain or are in the red zone. Ethereum (ETH/USD), Ripple (XRP/USD and Litecoin (LTC/USD) on Friday evening, May 8, are almost where they were seven days ago, which means that investors are now so passionate about Bitcoin that they just don't care about the rest of the coins.
As for the forecast for the coming week, summarizing the views 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. The US administration is actively sharpening its teeth, looking towards the Middle Kingdom. Donald Trump gave the command to monitor Beijing's commitments to increase American exports. At the same time, hints are constantly being heard from the US president that China is the primary source of all the problems associated with the COVID-19 pandemic. This allows us to expect that the new anti-Chinese customs rates are not far off.
Europe, on the other measure, is trying to make sense of the decision of the German Constitutional Court, which can cause the problems of the European economy to grow like a snowball. Leading banks such as Societe Generale and Citi are talking about a possible split in the Eurozone if the ECB ignores the decision of the German Constitutional Court and thus challenges the German government. Forecasts show that even in the absence of extraordinary events, the Eurozone GDP decline in 2020 could reach 7.7%.
All this fuels the growth of anti-risk sentiment, as a result of which investors again begin to look at the dollar as a safe haven currency. If the ECB is bound hand and foot in its actions to stimulate the European economy, the EUR/USD pair, according to BofA Merill Lynch forecasts, could fall to 1.0200 by the end of the year.
For the next week, the experts' votes are distributed as follows: 35% believe that the pair will still hold within 1.0750-1.1000, 50% expect the dollar to strengthen and break through the lower border of this corridor, and the remaining 15% turn to the North.
The indicators have a slightly different picture. On H4, 60% of trend indicators and 70% of oscillators are colored green, and on D1, red still prevails, in which 60% of oscillators and 90% of trend indicators are colored.
Support levels are 1.0750 and 1.0650, resistance levels are 1.1000, 1.1065, 1.1100 and 1.1150;
- GBP/USD. The pound is still under pressure. The Brexit-related problems have been multiplied by the coronavirus pandemic. According to the Bank of England, UK GDP in the second quarter of 2020 "will be almost 30% lower" than at the end of 2019. Despite this, the regulator did not increase the volume of the aid program for the British economy, although, at the current rate of bond buying, it will exhaust current limits by the end of July. What happens next? It's not clear yet.
40% of analysts supported by graphical analysis on D1 and indicators on both time frames (H4 and D1) expect the pair to continue the sideways trend in channel 1.2265-1.2500. Another 40% of experts are waiting for the breakout of the lower border of the channel and the pair's decline to the zone of 1.1000-1.2165, and only 20% believe that it will go up and reach the height of 1.2640. The next goal of the bulls is 1.2725, after taking which the pair will try to rise to the level of 1.2865-1.3025;
- USD/JPY. The v-shaped movement of the pair last week divided experts in half — 50%, supported by indicators on D1, favored bears, and the other 50%, supported by indicators on H4, preferred bulls. At the same time, the latter believe that the reversal of May 06 is nothing but the beginning of a new mid-term uptrend. And if the level of tension between the US and China does not rise, the pair will be able to rise to 109.00 and then to 112.00.
Nearest support levels are 106.20, 106.00 and 105.00. Resistance levels — 107.00, 107.45 and 108.00;
- cryptocurrencies. It is ungrateful to make any predictions in anticipation of such an important event as halving. We have repeatedly talked about the predictions of numerous crypto gurus waiting for Bitcoin to rise to $50,000, to $100,000, and up to $250,000. But, of course, there are those who hold the opposite view. So, for example, financial and cryptocurrency analyst Joseph Young expects a slight pullback after halving, and then a series of medium-term and long-term growth periods, followed by falling quotes or flat.
Another well-known analyst and trader, Ton Vays, believes that the BTC/USD pair is unlikely to rise seriously in price. “We're likely to be stuck between $6,000 and $10,000. And so it will be until the end of the year, " he said.
As for forecasts until the end of May, their spread is very high - from the lows of March 2020 around $4,000 to the highs of June 2019 at the level of $14,000. So far, 65% of experts have sided with the bulls, and 35% have sided with the bears. We will find out who of them is right in the near future. It won't be long now.
NordFX Analytical Group
Notice: These materials are not investment recommendations or guidelines for working in financial markets and are intended for informational purposes only. Trading in financial markets is risky and can result in a complete loss of deposited funds.