June 4, 2022
EUR/USD: Inflation and Labor Market Decide It All
- The total result of the week can be considered close to zero. If the EUR/USD pair completed the previous five-day period at 1.0730, the final chord sounded at 1.0720 this time. At the same time, we cannot say that the past week was very boring: the maximum volatility was 160 points, 1.0786 at the high and 1.0626 at the low.
The DXY dollar index fell to a 5-week low of 101.29 on Monday, May 30. The reason was the expectation that the Fed may suspend the cycle of raising interest rates after raising it in June and July. Of course, provided that inflation in the US goes down.
However, the trend reversed on Tuesday. There was data from the Eurozone, according to which inflation there soared to a record level. Bloomberg's consensus forecast assumed a 7.8% increase in consumer prices in May. However, according to the European Union Statistics Office, they rose by 8.1% in annual terms after rising by 7.4% in April, which was the highest figure in the history of calculations. Oil prices have also risen to their highs since the beginning of March. As a result, the yield on US 10-year bonds began to rise again, reaching its highest level since May 19, at 2.88%. Along with treasuries, the dollar began to strengthen, and the EUR/USD pair went south, reaching the local weekly bottom on June 01.
The trend changed once again on Thursday, June 02 after the release of data from the US labor market. Employment in the country was expected to grow by 300K. However, in reality, the growth was only 128K, which is clearly not enough to maintain stability in the labor market and threatens unemployment. The negative picture was somewhat corrected by the number of new jobs created outside the agricultural sector (NFP). This indicator was published at the very end of the working week and amounted to 390K with the forecast of 325K and the previous value of 436K. A little more than 200K new jobs need to be created each month to keep the US job market stable. So the NFP of 390K looks pretty positive. As for unemployment, it did not change over the month and remained at the level of 3.6% in May, which is lower than the forecast of 3.5%.
The EUR/USD pair is now trading close to the 2015-2016 lows, while the DXY index has caught up with the December 2016 high, which is the highest point in the last 20 years.
Some currency strategists, such as, for example, analysts at the Swiss holding UBS Wealth Management, believe that the growth of the dollar may stop. The market has already taken into account in quotations both the tightening of monetary policy by the US Central Bank and the rise in interest rates, and no new triggers for the next rally are expected. So, in their opinion, the rise of the EUR/USD pair in the last three weeks may turn out to be not just a technical correction, but a change in the medium-term trend.
65% of analysts agree that the pair will try to break through the 1.0800 resistance next week, 35% expect the pair to return to May lows and the remaining 10% are neutral. It should be noted that with the transition from a weekly to a monthly forecast, the number of bull supporters decreases to 50%, and their maximum target is the zone 1.0900-1.1000. As for oscillators on D1, 80% are colored green (a quarter of them are in the overbought zone), and 20% are neutral gray. There is parity among the trend indicators: 50% vote for the growth of the pair, 50% for its fall. The nearest resistance is located in zone 1.0750-1.0800. If successful, the bulls will try to break through the resistance of 1.0900-1.0945, then 1.1000 and 1.1050, after which they will meet resistance in the 1.1120-1.1137 zone. For the bears, task number 1 is to break through the support of 1.0625-1.0640, then 1.0480-1.0500, and then update the May 13 low at 1.0350. If successful, they will move on to assault the low of January 01, 2017, at 1.0340, below there are only the goals of 20 years ago.
Eurozone GDP data will be released on Wednesday, June 08. However, the key event of the upcoming week will certainly be the ECB meeting on Thursday June 09. Markets are waiting for the decision of the European regulator on the interest rate, which is currently 0%, as well as for the comments on further monetary policy. In addition, the number of initial jobless claims in the US will also become known on Thursday, and a whole package of data on the US consumer market will be published on Friday, June 10.
GBP/USD: In Anticipation of Inflation Forecast
- Great Britain celebrated the "platinum" anniversary of Elizabeth II on Thursday, June 02: the 70th anniversary of her accession to the throne of the United Kingdom of Great Britain and Northern Ireland (it happened in 1952). Bank holidays were announced in the country on this occasion, on June 02 and 03.
Other economic events of the week include the publication of the UK Manufacturing PMI, which was slightly lower in May than the April value: 54.6 against 55.8, but it exactly corresponded to the forecast, so the market reacted sluggishly to it. In general, the dynamics of the pair resembled the dynamics of EUR/USD, although the downward pressure in this case was stronger. Like a week earlier, the GBP/USD pair remained in the side corridor of 1.2460-1.2665 and ended the trading session at 1.2497.
Data on business activity in the UK construction and services sectors, as well as the Composite Business Activity Index (PMI), will be published on Tuesday, June 7 and Wednesday June 8. In addition, the Bank of England will publish its latest review of inflation expectations at the end of next week. According to forecasts, they will be significantly higher than the historical maximum (4.4% in 2008), and a jump to 5.0% and above will increase the likelihood of a further increase in the key interest rate on the British pound. A by-election should also take place at the end of June, which will be seen as a test of support for the policies of Prime Minister Boris Johnson and the Conservative Party.
In anticipation of these events, forecasts for the pound look very uncertain. At the moment, 40% have voted for its strengthening, 40% - for weakening and 20% - for the continuation of the sideways trend. Among the trend indicators on D1, only 10% indicate the growth of the pair, 90% indicate a fall. Among the oscillators, the ratio of forces is slightly different: 25% look to the south, 35% is neutral, 40% point to the north. Supports are located at 1.2460, 1.2400, 1.2370, 1.2300, 1.2200, then 1.2154-1.2164 and 1.2075. A strong point of support for the pair is at the psychologically important level of 1.2000. In case of growth, the pair will have to overcome the resistance of 1.2600, and then 1.2665, 1.2700-1.2750, 1.2800-1.2835 and 1.2975-1.3000.
USD/JPY: The Pair Is On the Way to 20-Year Highs
- The rising dollar is also pushing the USD/JPY pair to update its 20-year highs. It reached a height of 130.97 last week, coming close to the May 09 high of 131.34.
Listing above the reasons for the strengthening of the American currency, we did not mention another one: the meeting of US President Joe Biden with Fed Chairman Jerome Powell on Tuesday, May 31. The central topic of discussion was inflationary pressure, causing discontent among all segments of the country's population. As a result, Joe Biden gave the head of the US Central Bank full independence in the fight against inflation and allowed the use of all the tools available to the regulator, including an aggressive increase in interest rates and a $9 trillion reduction in the balance sheet.
As for the Bank of Japan, it is still not ready to curtail its ultra-soft policy. According to this regulator, monetary stimulus should help the country's economy recover from the doldrums caused by the COVID-19 pandemic. Weak economic statistics played against the yen as well. The volume of industrial production in Japan in April fell by 1.3%, instead of the expected reduction by 0.2%. A new round of the coronavirus pandemic in China was named as the reason.
At the moment, only 25% of experts vote for a new assault on the height of 131.34, 65% expect a rollback to the south, and the remaining 10% have taken a neutral position. Indicators have a completely different picture. Both for trend indicators on D1 and for oscillators, all 100% are colored green. True, as for the latter, 20% is in the overbought zone.
The nearest support is located at 129.70-130.20, followed by zones and levels 128.60, 128.00, 127.50, 127.00, 126.00-126.35 and 125.00. The target of the bulls is to renew the May 09 high at 131.34. As the ultimate goal, the January 01, 2002 high of 135.19 is seen.
Data on Japan's GDP for the Q1 of this year will be published next week, on Wednesday, June 08. This indicator is expected to be minus 0.3% (previous value was minus 0.2%). Such a fall will be another argument for the Bank of Japan in favor of maintaining monetary stimulus and negative interest rate.
CRYPTOCURRENCIES: From $8,000 to $1,555,000 per 1 BTC
- Bitcoin's current small rally has been labeled by some analysts as a "typical bull trap". And if you look at the chart, we can only admit that they are right: a sharp rise to $32,490 at the beginning of the week and then an equally sharp fall and return to the Pivot Point of the last three weeks, the level of $30,000.
Also, if we compare the charts of BTC / USD and the S&P500, Dow Jones and Nasdaq stock indices, it becomes clear that the attempt of the main cryptocurrency to start living its own life has failed. And bitcoin is once again following the stock market, albeit with some delay.
At the time of writing this review, on the evening of Friday 03 June, the total capitalization of the crypto market is at the level of $1.225 trillion ($1.194 trillion a week ago). The Crypto Fear & Greed Index is firmly entrenched in the Extreme Fear zone and is at around 10 points (12 a week ago). The BTC/USD pair is trading at $29.770.
According to a report by analyst firm Glassnode, long-term BTC holders are the only ones who didn’t lose their heads in the bear market and continue to buy the asset around the $30,000 mark. The current accumulation process mainly involves wallet owners with balances of less than 100 BTC and more than 10,000 BTC. The volumes of the former have increased by 80,724 BTC, the latter - by 46.269 BTC. At the same time, the total number of wallets with non-zero balances indicates the absence of new buyers. A similar situation was observed after the May 2021 sale. Unlike the sales of March 2020 and November 2018, followed by a surge in online activity and new bull runs, the latest sale does not yet boast an influx of new users.
Moreover, leading mining companies are gradually leaving the ranks of holders. An analytical report by Compass Mining notes that the influx of coins from miners has reached its highest level since January. The fact is that the profitability of mining is falling due to halvings and increasing computational complexity. And it is necessary to pay off loans and other obligations and support operational activities. So mining companies have to part with their own BTC reserves.
As an example, let's take such a long-term holder as Marathon Digital. This company, like a number of others, has long been unprofitable, while it needs to raise about half a billion dollars until the end of 2022. Therefore, it is possible that Marathon Digital will be soon forced to sell some of its 10,000 BTC coins.
Analyst Capo, who previously predicted bitcoin to fall below $30,000, expects altcoins and bitcoin to fall further: “My opinion has not changed, and I expect altcoins to fall by 40-60%, and bitcoin by 25-30%. Then it will take 1 to 3 months to recover.” The analyst noted that the S&P500 index is now in the region of a strong resistance level (4,150-4,200), and this may cause a resumption of the bearish trend for both the stock and cryptocurrency markets.
Another crypto strategist and trader, Kevin Swanson, disagrees with Capo, he predicts bitcoin will rise to $37,000 in the coming weeks. True, this movement will alternate with sharp declines, such as on June 01. Swanson's take on bitcoin's upward bounce is based on his thesis that BTC made a temporary bottom around $26,700 on May 12. “Looking at the 2021 low [$29,000],” he writes, “one would think that bitcoin is unlikely to go lower. This makes me think that this bottom [$26,700] could act as a long-term support zone.”
Alex Mashinsky, CEO of Celsius crypto company, believes that the fall in the market has been too long and cryptocurrencies are waiting for a bullish trend with an eight-fold increase in bitcoin. In an interview with Kitco News, he stated that the cryptocurrency markets will recover and even inflation will not be a long-term problem for them. "You can push the spring as hard as you want, but the harder you push, the more it bounces."
The head of Celsius noted that even large investment bankers are increasingly involved in cryptocurrency. “Even JPMorgan, which usually doesn't talk about cryptocurrency, released a report the other day claiming that panic may be exaggerated and is expected to rebound to $38,000 from where we we are today.”
Scott Maynard, Chief Investment Officer at Guggenheim, opined at the Davos Forum that the "fundamental price of bitcoin" is in the $400,000 region. Such a high estimate is due to the effect of the "unrestrained printing of US dollars" by the US Federal Reserve. At the same time, he believes that the market may see a bottom for bitcoin in the $8,000 area.
Ki Young Ju, head of market data platform CryptoQuant, believes BTC will not fall below $20,000. This statement was supported by the expert with the remark that "support by institutional investors is at an unprecedented high level." Ju cited data on the work of the Coinbase Custody exchange. According to the charts, the volume of bitcoins under management has continuously increased for 5 quarters, from October 2020 to December 2021. The increase was 296% at the end of the period, reaching 2.2 million BTC.
Based on the data obtained, Ju concluded that in order to reduce the cost of BTC to the level of $20,000, it is necessary to sell off all the capital accumulated during the period of consolidation to the level of 500 thousand dollars. BTC. According to the crypto analyst, institutions are not yet ready for this step. The expert added that the value of the coin is likely to have already reached the bottom of this decline cycle.
Venture capitalist Tim Draper confirmed his prediction that the price of bitcoin will exceed six figures in the coming months. He reiterated in a new interview that the coin will reach a price of $250,000 "by the end of this year or the beginning of next". Tim Draper believes that women will drive the adoption and growth of bitcoin, and the fact that they will increasingly use this cryptocurrency for purchases will be a catalyst.
“Recently we had 1 woman for 14 bitcoin holders, now it's something like 1 to 6. And I think there will be more eventually. What I mean is that women control about 80% of retail spending. If suddenly all women have crypto wallets and they buy things with bitcoins, everything will change. And you will see the price of the coin, which will surpass my estimate of $250,000,” the investor said.
According to a study by the largest US bank JPMorgan, the dynamics of the volatility of gold and bitcoin caught up and they began to move in unison. Moreover, the bank's experts do not exclude that in the future the capitalization of the two investment assets will be equal, since in the eyes of investors, bitcoin is more in line with the role of a hedge asset.
Analysts at the crypto channel InvestAnswers considered three options, according to which the capitalization of bitcoin can reach 40%, 60% or 100% of the capitalization of gold. In this case, the price of BTC could be around $515,000, $786,000 or $1,300,000, respectively, by 2030. If we take a combination of all 3 aforementioned rate benchmarks, the average expected target is around $867,000.
And another target level was determined by InvestAnswers experts by choosing the average value of a selection of forecasts from Fidelity, ARK Invest and other companies. By combining some of the well-known crypto models, they came to the BTC rate around $1,555,000 for 1 coin.
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.