January 30, 2021
First, a review of last week’s events:
- EUR/USD. The trade wars unleashed by the previous US President Trump have just seemingly subsided, but now we can "congratulate" everyone on the start of a new - currency - war. And it could prove equally exciting and unpredictable. This time, it was the European Central Bank, headed by Christine Lagarde, that declared hostilities. The adversary was, as you might guess, the US Federal Reserve System.
We have repeatedly written that the growth of the euro was caused by the outbreak of the COVID-19 pandemic. The European currency rose against the dollar by more than 1700 points from March 20, 2020 to January 15, 2021. For the time being, the ECB leadership pretended that the problem lies not in the current level of the EUR/USD rate, but in the rate of its growth. But it turns out now that the current quotes are also of great importance for the EU economy, and that it would not be bad for them to go down.
The heads of the Banks of Finland and the Netherlands have started to speak actively about the fact that the ECB is very concerned about the euro exchange rate and should take decisive steps to stimulate inflation, hinting at a further decrease in interest rates. And Janet Yelen will definitely not like it. Recall that the former head of the Federal Reserve, and now the new US Treasury Secretary, Janet Yelen promised in every possible way to stop other countries' attempts to artificially reduce the rates of their currencies.
So, we can assume that the challenge has been posed and accepted, and the duel has begun. And right from the start, the EU has been let down... by its main support, Germany. It turns out that inflation in this country in January jumped from -0.7% to + 1.6%, which will certainly affect the growth of the total indicator of the Eurozone. Whether this will entail an accelerated curtailment of the ECB's quantitative stimulus (QE) program remains in question. The market is at a crossroads, which can be clearly seen from the EUR/USD quotes: the pair has been moving in a rather narrow sideways channel 1.2055-1.2185 for the last two and a half weeks. And even the fall of US stock indices on January 27-29 could not push it out of this corridor. As for the end of the week, the pair put the final point at 1.2135;
- GBP/USD. Last week, most analysts (65%) refused to share the bullish optimism of technical analysis. The reason is the poor performance of the British economy and the statement of the country's Prime Minister Boris Johnson warning that the third round of the lockdown could last well into the summer. This is forcing investors to not just revise their forecasts for the pound, but also to re-start discussing a scenario with negative Bank of England interest rates.
Looking at the chart of the pair, we can state that the bullish momentum has exhausted itself for the time being. Even fresh positive data on the UK labor market, published on January 26, did not help the pound. The pair cannot break above resistance 1.3750 for the second week in a row. Its volatility has also plummeted. If it exceeded 400 points a week at the end of December, the figure has now fallen to 150 points. As for the end of the five-day period, the final chord sounded in the zone of another strong resistance level, at 1.3700;
- USD/JPY. The medium-term trend for this pair was laid back at the end of March 2020, when it began to slide smoothly along the descending channel. There have been many discussions among experts, whether the pair will be able to reverse this trend and break through the upper limit of this channel.
It was only 30% of analysts who voted for such a development a week ago, but they were the ones who were right. The zone 104.70-105.00 was indicated as the target of the bulls, which was reached by the pair USD/JPY on Friday, January 29. Unlike the euro and the pound, it reacted quite actively to both positive reports on the labor market and the US trade balance. But the main impetus was given by the redistribution of financial flows caused by the fall of the American stock indices S&P500, Dow Jones and Nasdaq. As a result, the pair reached the 10-week high at 104.95, and ended the trading session slightly lower at 104.70;
- cryptocurrencies. We were certainly joking, but it seems the forecast of a fortune teller from New York is starting to come true. Last week we talked about Maren Altman, who determines the trends of the BTC/USD pair based on the stars movement. So, she absolutely accurately predicted the beginning of the January correction of bitcoin, since the trajectory of Mercury (the price of BTC) was to be crossed by Saturn (the limiting indicator) on that day. Her latest forecast spoke of "some favorable signals at the end of January."
For the past three weeks, the main cryptocurrency has been clinging to support in the $30,000 zone, trying to break even lower and thereby instilling pessimism in many experts and investors. For example, Scott Minerd, the director of investments at Guggenheim Partners, said that the bitcoin rate would not stay above $35 thousand or even above $30 thousand, since there is no institutional demand now that can support the quotes at these levels.
However, the end of the month showed that the fortune teller could win in a duel between a fortune teller and an expert, . Having found the local bottom at $29,200 on Wednesday January 27, the pair turned around and reached $38,100 on Friday January 29. But then another sharp reversal followed, and it dropped to the level of $33,500. So, the outcome of the fight at the time of writing the review remains in question.
Scott Minerd is certainly right that big professional investors are not digital currency fans at all. And what happened in the second half of 2020 can rather be considered an experiment on their part, which they went to, constantly looking back at the reaction of regulators. But the director of Guggenheim Partners may not have taken into account that, in the absence of institutions, retail investors can also move bitcoin up, as was the case in 2017. Moreover, if then they were young enthusiasts, now the middle generation has joined them.
A study conducted by specialists of the Wirex platform together with the company Stellar Development Foundation showed that most of cryptocurrency investors are not at all young millennials, as the case was recently, but people over 45 years old. Investors aged 25 to 45 are only 22%.
The active buyback of bitcoin after the drawdown below $30,000 and the absence of panic sell-off showed that many investors still believe in the growth of bitcoin to new heights. The total capitalization of the crypto market once again broke the psychological mark of $1 trillion over the past seven days, rising from $0.933 trillion to $1.08. As for the Crypto Fear & Greed Index, it also began to grow along with the growth of quotations. If at the end of last week the index was at around 40 points, it climbed to 77 on Friday, January 29. This is already close to the overbought zone, but the maximum values are still far away. Recall that the index values were constantly in the zone 95-98 out of 100 possible during the rally in December - the first week of January.
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 currency war referred to in the first part of the review is not a matter of one week and not one month, it can stretch for years. The US economy “shrank” by 3.5% in 2020. And this is not only the first negative indicator since 2009, but also the largest drop since the end of World War II. However, investors expect a low interest rate and huge cash injections into the US economy ($900 billion from Donald Trump and $1,900 billion from Joe Biden), together with successful vaccination against COVID-19, will help it return to growth in 2021. Although, this will happen gradually, incrementally.
In contrast to the United States, support for the Eurozone economy was much more modest - €750 billion, therefore, the Eurozone GDP growth will be more moderate (according to forecasts + 1.5%). And the rate of vaccination is lower here than overseas. If we add to this the efforts of the ECB to weaken the common European currency, we can expect that the EUR/USD pair will be under certain pressure. But, as already mentioned, US Treasury Secretary Janet Yelen will make every effort to prevent this from happening.
After two and a half weeks of sideways movement of the EUR/USD pair in the channel 1.2055-1.2185, technical indicators are in confusion, giving no clear signals in either direction. As for the experts, most of them (65%) expect that in February, despite all, the dollar will continue to lose its positions and the pair will return to the 1.2200-1.2300 zone. The target is the January high of 1.2350, the nearest resistance is 1.2185. The nearest support is 1.2055, the main goal of the bears is the zone 1.1800-1.1900.
As for important economic events, there will be a lot of them in the coming week. Data on business activity and the labor market in the US will be published on Monday February 01 and Wednesday February 03. We will find out preliminary data on GDP On Tuesday February 02, and on the Eurozone consumer market on the next day. Finally, on February 05, on the first Friday of the month, data on the number of new jobs created in the United States outside the agricultural sector (NFP) will traditionally be released. This indicator is predicted to show an increase from -140K to +85K, which may lead to a short-term strengthening of the dollar, although this is often taken into account in advance by the market;
- GBP/USD. We will be waiting for a meeting of the Bank of England on Thursday February 04, where questions will be resolved about the planned volume of asset purchases under the programme to support the economy, as well as the interest rate reduction. Will Britain's regulator surprise investors? According to our forecasts, it is unlikely. It is likely that the volume of purchases of bonds on the open market will remain the same - £ 895 billion, and the rate will remain at 0.1%. Therefore, the market will wait for any signals, explicit or implicit, from the head of the Bank of England Andrew Bailey, whose speeches are scheduled for February 04 and 05.
As for analysts, 70% of them believe that the GBP/USD pair will still manage to break through the resistance at 1.3750 and rise to the height of 1.3800 for at least a short time. Graphical analysis and 85% of oscillators on D1, as well as 100% of trend indicators on H4 and D1 agree with this. At the same time, 60% of experts, along with graphical analysis, believe that after a dash to the north, the pair will return to the zone 1.3615-1.3700. The next support level is around 1.3500;
- USD/JPY. Most experts (70%), supported by graphical analysis on D1, believe that the pair's movement to the south will continue. However, now it has changed echelon, and the upper border of the medium-term descending channel will now become a support line for it. The main resistance level is 105.00, support is at 104.00, 103.55 and 103.00 levels.
The remaining 30% of analysts expect that the pair will be able to rise even higher and reach the zone of 105.70-106.10.
Among the trend indicators, 100% look up at Η4 and 85% at D1. As for the oscillators, 75% on H4 and 60% on D1 are colored green, the rest give signals that the pair is overbought;
- cryptocurrencies. According to a number of experts, the January drawdown is now fully redeemed, and the BTC/USD pair is ready to grow to $50,000. Those who wanted to take profits and transfer their crypto assets to fiat have already done so. And now the bulls are regaining strength, forming another upward momentum. Central bank interest rates, which are close to zero, the huge scale of fiscal stimulus, putting pressure on the dollar in the first place, and stock market fluctuations, drawing attention to Bitcoin as a hedge asset, can still act as arguments for the rally to continue.
It is likely that 2021 will be the scene of a struggle between the crypto market and regulators. And if we set aside the optimism of crypto fans, it remains questionable whether digital assets can seriously strengthen their positions.
So, for example, Bank of Singapore, which is one of the largest Asian financial organizations, called bitcoin a promising instrument that can not only compete with gold, but also shift it from the first place on investments security. At the same time, the bank's experts believe that "we are unlikely to see widespread adoption of bitcoin soon, since regulators simply will not allow users to independently decide how transactions with millions or even billions of dollars will be performed." Governments are making it increasingly clear that they will not allow attacks on their main instrument of power - national currencies.
As for the second most important cryptocurrency, the market is waiting for the launch of futures on Ethereum. It is this factor that allowed the ETH/USD pair to hold its positions even in the days of January, when bitcoin sought to break through support in the $30,000 zone.
Recall that one of the factors that allowed bitcoin to surpass the $20,000 mark at the end of 2017 was the launch of futures for this cryptocurrency by the Chicago Mercantile Exchange (CME). And now, on February 8, 2021, the same exchange is awaiting regulatory approval of the application for listing Ethereum futures, which may lead to a further increase in its quotations.
And in conclusion, another funny life hack from the life of cryptocurrencies. Last time we talked about an American fortune teller who predicts bitcoin prices by observing the movement of the planets. Now we are talking about another resident of the United States, Simon Berne, who placed a mining farm in the trunk of his BMW i8 sports car. The farm receives energy from the car battery, to which it is connected using a DC inverter. The battery power of the BMW i8 is 3500W, while the mining plant only consumes 1500W. According to Berne, this is a great way for him to make money even while traveling.
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.