August 29, 2020
First, a review of last week’s events:
- EUR/USD. 60% of analysts once again tried to give priority to the dollar last week, hoping that the EUR/USD pair will still break the support of 1.1700. In the opinion of the remaining 40%, it should have stayed within the side channel 1.1700-1.1910, which actually happened. Moreover, its finish took place near the upper border of this corridor.
The growth of the pair and the weakening of the dollar were blamed on the statement by the head of the US Federal Reserve Jerome Powell at a symposium in Jackson Hole which some analysts even called historical. The Fed decided to take the most serious step in monetary policy starting in 2012, announcing its plans to aim for an “average inflation rate of 2%.” This means that the regulator will not tighten its monetary policy even if the inflation rate exceeds these very two percent.
These changes suggest a softer monetary policy in the coming months and even years. And even more so, investors should not expect an increase in the interest rate on the dollar. As Jerome Powell noted, the country's economy, which is recovering from the recession, needs low rates.
As a result, the dollar went down, giving a signal to a sell-off of the US debt. There was a dumping of not only long-term, but also short-term government bonds. Together, this forms a kind of vicious circle, since the loss of interest in these securities can, in turn, put pressure on the dollar, which may lead to its further weakening against competing currencies.
The market's awareness of this situation led to the fact that on Thursday-Friday the EUR/USD pair rose to the upper boundary of the corridor 1.1700-1.1910, ending the week session at 1.1900;
- GBP/USD. The pound continues to climb to the 2019 high of 1.3515, and it got very close to this target last week, making a 280-point break and reaching 1.3350. The British currency is supported not only by the constantly weakening dollar, but also by the weakening British Prime Minister.
According to The Times newspaper, Boris Johnson is struggling with the consequences of the illness caused by COVID-19, and for this reason can resign at the end of the Brexit transition period, that is, by end of the year. Since Johnson will be interested in ending his prime minister career on a high positive note, the UK's parting with the EU could go smoothly, without losing its access to the European single market and customs union. And this, naturally, will further strengthen the pound;
- USD/JPY. The pair has been trading in the range of 105.10-107.00 for the last four weeks. However, its volatility has increased significantly in recent days. And the main reason for this is not the speech of the head of the Fed, Jerome Powell, but the news that Japanese Prime Minister Shinzo Abe intends to step down for health reasons.
That message allowed the yen to strengthen by 175 points. Why? The question is quite complex. As some analysts explain, Abe served as Prime Minister for the longest time since the end of World War II, and together with the head of the Bank of Japan, Haruhiko Kuroda, did everything to prevent the strengthening of the national currency by any means, including negative interest rates. Such a policy has been called “Abenomics”, although many believe it is more correct to refer to it as “Kurodanomics”.
Shinzo Abe is leaving now, and the era of "abenomics" may pass with him, which will entail a loosening of tight fiscal policies and a strengthening of the national currency.
In the meantime, as mentioned above, nothing super serious has happened, the yen has kept within the August corridor and completed the five-day period at 105.35;
- cryptocurrencies. Even though bitcoin, like about a year ago, was unable to gain a foothold above $ 12,000, the situation remains generally favourable for it. First, it is the soft monetary policy of the main regulators, the end of which is not yet expected. Secondly, we have seen a continuous growth in the number of companies and services that have started to accept cryptocurrencies as means of payment. The attitude towards digital assets and a number of central banks has become more loyal. Here, according to analysts, the COVID-19 pandemic played a large role, due to which a significant part of our life went online. It seems that even the FATF (Financial Action Task Force) has come to terms with the existence of the crypto industry.
Cryptocurrency trading through mobile apps is up 81% compared to August last year. According to the latest report from the analytical company Apptopia, this type of transactions each new month surpasses the previous one in terms of the number of active users and new registrations. The mobile apps Coinbase and Crypto.com recorded a record number of daily active users, 969,000 and 576,000, respectively, on August 20.
The number of large long-term investors continues to grow as well. So, according to Glassnode, there are currently 2,190 wallets with 1,000 or more BTC coins. All in all, these wallets store almost 8 million bitcoins for a total of more than $90 billion. And this is a very strong incentive for the future growth of BTC/USD.
In the meantime, bitcoin found a new Pivot Point last week - $11,500, along which it has been moving all this time. The BTC/USD pair was above this line for the first part of the seven-day period, then it went down to the support of $11,100. But soon it returned $400 higher. This happened largely thanks to the statement of the head of the Federal Reserve J. Powell at a symposium in Jackson Hole, which led to some weakening of the dollar and the growth of alternative assets, including gold and bitcoin.
The total cryptocurrency market capitalization decreased in seven days, but not by much - from $ 366 billion to $ 360 billion. The Crypto Fear & Greed Index came out of the last quarter, dropping from 81 points to 74. According to the developers of the indicator, this suggests that BTC being overbought is gradually fading away, so it can now be dangerous to open short positions.
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. Speaking at Jackson Hole, Jerome Powell, in fact, clipped the dollar's wings. The head of the Fed has made it clear that the interest rate will remain at a record low even in case of increasing inflationary pressures. This is clearly a bearish signal for the US currency, which amplifies the likelihood of the euro and other major currencies rising against the dollar.
On the other hand, the Fed has no plans to lower the rate below zero, which is a moderate-positive factor for the USD rate. In addition, it should be borne in mind that other central banks can follow the path of the Fed, not reducing, but continuing and expanding the quantitative easing (QE) policy. So, for example, the ECB may take a position similar to the Fed. Already now, the head of the Bank of France, François Villeroy de Galhau, has spoken about a similar inflation target. Central banks of other countries of the Eurozone, in which the number of coronavirus cases is on the rise, can also join his voice. So the coming dollar drawdown is not as clear as it seems at first glance.
So far, if you look at the indicators, the situation is not in its favour. 85% of oscillators on H4 and D1 are painted green, 15% are in the overbought zone. Among the trend indicators, there are even more supporters of the EUR/USD pair growth: 100% on H4 and 95% on D1.
But the picture is radically different among experts. 60% of them believe that the pair will remain in the 1.1700-1.1910 price range. And since it finished the last week at its upper border, this means a trend reversal and a return of the pair to the level of 1.1700. The remaining 40% of analysts vote for the breakdown of the upper boundary of the channel, further weakening of the dollar and the rise of the pair first to the height of 1.1950, and then to the iconic level of 1.2000.
It also makes sense to pay attention to the graphical analysis readings. On the D1, its forecast for September is as follows: first a drop to 1.1700, then a jerk up to 1.2035, followed by side movement in the channel 1.1900-1.2035.
And a few words on the macroeconomic developments of the coming week. On Tuesday September 01, we will see data on the consumer market of the Eurozone, the US ISM business activity indices will be published on September 01 and 03, and on Friday September 04, we will traditionally learn about the state of the US labor market, including the number of new jobs created outside the agricultural sector (NFP);
- GBP/USD. It is clear that 100% of the trend indicators at the end of the past week are looking north. But as for the oscillators on H4 and D1, 25% are already giving signals that the pound is overbought. 55% of experts also support bearish sentiment. Moreover, when moving from weekly to monthly forecast, their number increases to 80%. Support zones are 1.3275, 1.3155 and 1.3050.
The GBP/USD pair closed the last trading session at 1.3350 - this is a fairly strong resistance level, which it had stormed unsuccessfully both in July 2018 and March 2019, so there are a lot of chances for a rebound from it and a downward correction. On the other hand, the desire of the bulls to renew the 2019 high at 1.3515 is also a strong stimulus that supports the losing dollar.
As in the case of EUR/USD, graphical analysis on D1 is of interest. According to its readings, the pair may reach a height of 1.3515 in the coming days, after which a rebound will follow, and it will first return to support 1.3275, and then drop to the level of 1.3050.
Certain adjustments to the dynamics of the pair can be made on Wednesday September 02 hearing of the Inflation Report prepared by the Bank of England and the speech of its head Andrew Bailey on Thursday September 03;
- USD/JPY. The forecast for this pair is similar to that given above for the euro and pound. Most of the indicators point to a further weakening of the dollar, most experts, on the contrary, to its strengthening.
100% of trend indicators and 75% of oscillators are painted red. The remaining 25% of oscillators on both timeframes, H4 and D1, signal that the pair is oversold.
65% of analysts believe that the USD/JPY pair will not leave the 105.10-107.00 corridor limits, and only 35% consider the possibility of reducing it to the July 31 low of 104.18;
- cryptocurrencies. The crypto market capitalization is only $360bn now, which is about 25 -30% of the capitalization of Microsoft, Apple or Amazon. But cryptocurrencies are not one corporation, but a whole financial and technological industry that unites thousands of companies around the world. And this gives reason to say that the digital asset market is greatly underestimated.
A new report by the cryptocurrency fund Grayscale Investments states that the current structure of the BTC market is similar to that of early 2016 before the historic bullish growth began. Fund analysts predict that demand for bitcoin will rise significantly as inflation accelerates.
The growth of bitcoin due to the inevitability of a new global banking crisis was also announced by the author of the legendary book "Rich Dad Poor Dad", entrepreneur and investor Robert Kiyosaki. Moreover, the coming shock in his opinion will be more widespread than in previous financial crises. Investors need to accelerate the transition to "safe havens," Kiyosaki wrote on Twitter. He also stressed that the proof of the approaching crisis was the fact that such big financiers as Warren Buffett are already selling their assets related to the banking sector. “Probably, these people feel that the crisis is impending and will affect, first of all, the traditional financial system,” - said Kiyosaki. In his opinion, it is necessary now to transfer your capital into more reliable instruments, such as bitcoin, gold and silver.
Analysts currently call the coronavirus pandemic one of the main growth drivers for the BTC/USD pair. It is thanks to it that many investors turned their views to the main cryptocurrency and other digital coins. And then Jerome Powell said that the Fed is not going to tighten monetary policy, which in the long term can also lead to the growth of bitcoin.
Some experts in technical analysis also see the prospects for a breakdown of the $12,000 level and a rise of the pair to $40-45 thousand on the W1 and MN time frames. However, in the near future, 65% of analysts expect the BTC/USD pair to move along the $11,000 Pivot Point with one-off emissions up to $9,500 south and up to $12,800 north. Moreover, only 20% of experts believe that bitcoin will be able to at least touch the $14,000 mark in September.
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.