First, a review of last week’s events:
- EUR/USD. The statistics in the United States (including ISM and NFP) look rather optimistic. The US indices have updated their record levels over the past five days: The Dow Jones is 29393 and the S&P500 is 3345. Production orders in Germany have been falling by 0.5% for three months in a row, confirming concerns about the state of the European economy, which is teetering on the edge of recession. As a result, expectations are growing among investors regarding the expansion of quantitative easing (QE) policy in the euro zone, and confidence is growing that the dollar rate will remain at least unchanged. This has recently been stated by the Fed Vice President Randal Quarles. Donald Trump also radiates optimism ahead of the presidential election, insistently reminding the voters that the unemployment in the US is at a record low of 3.5%.
Recall that the opinion of experts, as well as most indicators on D1, regarding the pair's quotes on the last five-day period, was neutral-gray: 50-50. First of all, because of the unclear situation with the coronavirus. But at the same time, on both timeframes, H4 and D1, about 15% of the oscillators gave signals the pair was overbought and the trend reversal down was upcoming. Graphical analysis on H4 agrees with this development, foreshadowing a return to a very strong support of 1.0990-1.1000.
This is exactly what happened: the pair did turn around and reached the specified support on Wednesday, February 05. This was followed by a 20-hour battle of the bulls and the bears, which, in the end, ended with the victory of the latter. The dollar continued to rise, while the euro continued to fall. The decline in coronavirus infection rates and the market support from the Central Bank of China played into the hands of the US currency. As a result, on Friday, February 07, after updating the multi-month low, the pair found a local bottom at 1.0940, and ended the trading session at 1.0945; - GBP/USD. Following the euro, the pound lost its position against the dollar. An additional pressure is exerted on it by concerns that the UK will still not be able to agree a trade deal with the EU during the post-Brexit transition period.
As in the case of EUR/USD, about 15% of oscillators last week gave clear signals about the pair being overbought, and graphical analysis predicted a decline in the British currency first to the horizon of 1.2970, and then to the level of 1.2800. In fact, the pair's fall stopped on Friday, February 07, approximately in the middle of the named range – in the 1.2880 zone; - USD/JPY. The decrease in the rate of the coronavirus infection and the hopes for an early victory over this infection reduce the interest of markets in safe-haven currencies such as the Japanese yen. As a result, the pair managed to break the landmark level of 110.00 in the second half of the week and reach the level of 110.016. Then there was a rebound, and the final chord sounded in the area of a strong medium-term support/resistance zone – at the level of 109.75;
- cryptocurrencies. - Bitcoin has had the best January in the past seven years. The value of the main coin has increased by about 30 percent. The volume of capitalization of the asset added about $39 billion. according to experts, the reason for this rise was the geopolitical situation. The approaching halving has also affected the value of Bitcoin. The last time Bitcoin showed such aggressive growth dynamics was in January 2013. Then the coin increased in value by about 54 percent. It is noteworthy that at that time the asset was also preparing for the halving.
Another reason pushing the BTC/USD pair up was the coronavirus. "Asian investors are increasingly buying cryptocurrency because of the situation with the coronavirus. Payments in dollars may be banned, so Bitcoin and other coins will be the only way out," Vijay Ayyar, one of the top managers of the Luno crypto exchange, said on CNBC. Also, in his opinion, the price of Bitcoin is affected by the "black" market. Many companies from China have closed the export of goods, which is why the scale of smuggling paid for with cryptocurrency has increased significantly.
Whatever it was, the halving, along with the virus and the smugglers, have almost "pushed" Bitcoin quotes to the cherished bar of $10,000: on Thursday, February 06, fully justifying the forecasts of most experts, the cost of one coin reached the mark of $9,860.
Naturally, the growth of the leading cryptocurrency gave another impetus to the top altcoins. Ethereum (ETH/USD) reached $223.9, Litecoin (LTC/USD) – $75.30 and Ripple (XRP/USD) – $0.2800.
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. Over the past week, all most popular currency pairs have reached landmark levels: EUR/USD(1.1000), GBP/USD (1.3000) and USD/JPY (110), which makes the task of forecasting their further movement even more difficult, since these levels can act as both a very strong support and resistance.
At the time of writing this forecast (Saturday, February 08), the situation with indicators for the EUR/USD pair mirrors what we observed a week ago. 100% of trend indicators and 85% of oscillators on H4 and D1 are now colored red. And the remaining 15% of the oscillators now signal the pair is oversold and a rebound up is expected.
60% of experts, supported by graphical analysis on H4, believe that the pair will continue to fall, aiming to test the lows of November-October 2019 in the area of 1.0880. And if successful, it will open the way to the zone of 1.0500-1.0800, where it already visited in 2015-2017.
However, graphical analysis as a further perspective draws a rebound of the pair from the support of 1.0880 back up: first to the resistance of 1.1000, and then another 100 points higher. The majority (60%) of analysts agree that the pair will reach 1.1100 and 1.1200 again in the medium term.
As for the macroeconomic analysis, next week we will be covered by a whole wave of important events. Among them are the speech of the Fed Jerome Powell to the US Congress, the publication of statistics on the consumer markets of Germany and the United States on 13 and 14 February, and the release of GDP data for Germany and Eurozone at the end of the week, on Friday 14 February; - GBP/USD. On Tuesday, February 11, the data on the UK GDP for the 4th quarter of 2019 will also be available. It is expected that the increase will be zero, which may put additional pressure on the pound. It should be noted that the situation with Brexit and the monetary policy of the Bank of England makes the prospects for the British currency very vague. At least, now the experts' opinions are divided into three almost equal parts: 30% are for the growth, 30% are for the fall and 40% are for the sideways movement of the pair. In the medium term, the majority of analysts (65%) still hope for the successful promotion of the trade negotiations between Britain and the EU.
As for technical analysis, the situation repeats the situation with the EUR/USD: the indicators are colored red, and only 15% of the oscillators are in the oversold zone.
The pair finished the week at the level of1. 2880 - in the Pivot Point zone, along which it rotated from the end of October to the beginning of December 2019. Therefore, the nearest borders of its fluctuations are the borders of the same last year's corridor -1.2800 and 1.3000. However, the fall of the pound over the past five days by as much as 320 points suggests that it may not stay in the specified channel. The next target for the bears is the 1.2400-1.2580 zone. If the trend turns up, we will see the pair in the 1.2975-1.3200 zone with a Pivot Point of 1.3100. Due to the increased volatility of the pair, it is not possible to give more accurate benchmarks (recall that in December 2019, it "flew" more than 600 points in just 10 days!); - USD/JPY. Japan is the most energy-dependent country due to the lack of its own energy resources, especially now, when after blocking several nuclear power plants, it was necessary to significantly increase purchases of petroleum products. Therefore, a sharp increase in the price of this energy carrier always leads to a weakening of the Japanese currency.
Over the past week, the oil market has been experiencing increased volatility in anticipation of the OPEC + Committee's decision to reduce the oil production. As a result, it was decided to reduce its production by 600,000 barrels per day, which should stop the fall in the price of "black gold". The easing of China's trade policy should also support the oil market, in particular, Beijing's decision to reduce duties on US goods worth $75 billion. Most likely, all this affected the growth of the USD/JPY pair and the fall of the Japanese currency to 110 yen per dollar last week. 60% of experts expect that the pair will continue to grow further, which will be facilitated not only by the oil factor, but also by the improvement of the situation with the coronavirus.
However, we must not forget that since January 06, Brent oil futures have fallen by almost 21% – from $68.91 to $54.45, which gives reason to the remaining 40% of analysts to side with the Japanese currency.
The technical analysis situation here is as follows. On the H4 timeframe, 80% of oscillators and 75% of trend indicators look up, while on D1, 85% of oscillators and 90% of trend indicators are green. So, there is a clear advantage of bullish sentiment.
Graphical analysis on H4 indicates a drop in the pair to the zone of 109.10-109.30, the following supports are 108.30 and 107.65. On D1, the picture is reversed: first, growth to the 110.80-111.30 level, and then to the 111.70 height. The nearest resistance is 1.2575. - cryptocurrencies. So, the price of Bitcoin has updated the 3-month high. "Beware of a trend reversal!"- 20% of experts warns. Against the background of the coronavirus epidemic, relations between the US and China may stabilize, which will cause an increase in investor interest in fiat currencies. In this case, Bitcoin can sink a lot. Even without the coronavirus, these two industrial giants are moving step by step toward the end of the trade war. But how much will this affect the Bitcoin quotes?
80% of analysts believe that a particularly strong drawdown (below $9,100) should not be expected, and the pair will soon reach the $10,450 mark. And there's $12,300 just around the corner. Thomas Lee, co-founder of Fundstrat Global Advisors, predicts even greater growth. In his opinion, the average yield on Bitcoin in the next six months will reach 200%.
But, as often happens, when everyone looks up, the price goes down. Therefore, we strongly advise you not to forget about the 20% of specialists who call for extreme caution.
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.
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