First, a review of last week’s events:
- EUR/USD. The market is now ruled by two main factors: the second wave of the COVID-19 pandemic and the upcoming November 3 presidential election in the United States.
A rise of nearly 900,000 in applications for unemployment benefits showed that the labor market and the U.S. economy need more stimulus measures. And although, according to US Treasury Secretary Stephen Mnuchin, an agreement on such measures between Democrats and Republicans before the election is unlikely, negative statistics have tempered greatly the market risk appetite and pushed down stock indices such as the S&P500. This clearly benefited the US currency: by Thursday, the dollar gained 135 points, and the EUR/USD pair reached a local bottom at 1.1685. This was followed by a rebound downward, and the pair completed the five-day period at 1.1715;
It is possible that the “American” would continue to strengthen its position, but the “European” is actively helped by the confident development of the economy of China and the ECB, which is clearly not going to increase the volumes of its quantitative easing (QE) program.
The number of COVID-19 cases in Europe is growing, which could provoke the introduction of new strict quarantine measures that restrict economic activity. However, after the adoption of a program to support the European economy in the amount of €1.8 trillion at the end of July, the European Central Bank does not want to boost developments and expand its monetary stimulus program. At the moment, less than half of the funds have been spent within the framework of the already operating QE program, therefore, it simply does not make sense to talk about new incentives, according to the Vice President of the ECB Luis de Guindos; - GBP/USD. The uptrend of the first 12 days of October is over, and the pair has moved to the sideways movement in the range 1.2860-1.3080. Moreover, the end of the week was left to the bears, who managed to put the final point at the level of 1.2915. An obstacle to the growth of the pound was the introduction of additional restrictions due to the coronavirus in London, as well as the statement of the EU leadership that the bloc, although it seeks a fair partnership with the UK, will not compromise at any cost;
- USD/JPY. This pair ended the weekly session at 105.40, in a zone of a very strong mid-term support, which has stopped its decline many times over the past 12 weeks. And now the question of what a safer haven for investors is, the dollar or the yen, remains open. The competition continues;
- cryptocurrencies. We often start our review of cryptocurrencies with criminal news. Nothing particularly outstanding in this area happened last week. Although police reports had information about attempts to blackmail and extortion of cryptocurrency now and then.
So, there was a wave of calls about mining buildings in at least 18 prefectures in Japan. Scammers demanded a ransom in cryptocurrencies. “Bitcoin was the most popular choice for criminals,” said Japan Today. "But in none of the cases has the information about the explosives been confirmed." As a result, the criminals did not receive money, but they have not yet been caught, unlike a sheep farmer from Lincolnshire (England), who has already been sentenced to 14 years in prison for extorting £1.4 million worth of bitcoins from Tesco supermarket chain.
According to the Daily Mail, 45-year-old Nigel Wright put cans of Heinz and Cow & Gate baby food brands on the shelves of the chain stores, which he stuffed with metal fragments, including shards of a stationery knife, for two years, After which he demanded ransom in exchange for a promise to reveal the location of the dangerous cans. The sheep breeder was detained after a detective posing as a Tesco employee transferred £100,000 in cryptocurrency to him.
As a result of Wright's threats, Tesco had to recall from stores a total of 140 thousand cans of baby food, 42 thousand of them were destroyed. It cost the trading network £2.7 million in losses.
If Tesco has suffered losses, bitcoin holders continue to profit: the price of the main cryptocurrency has increased by about 3% over the past 7 days. As we predicted, the BTC/USD pair, despite several attempts, failed to overcome the resistance of $11,500 and marked a new consolidation zone in the area of $11,300-11,400.
The total capitalization of the crypto market during this time has also grown slightly and is at $357 billion. As for the Crypto Fear & Greed Index, it is still in the neutral yellow zone at the heart of the scale — at 52 (it was 48 a week ago).
Bitcoin has risen by 8.5% in the last 6 weeks. But the results of such top altcoins as litecoin (LTC/USD), ripple (XRP/USD) and ethereum (ETH/USD) are almost zero. Ethereum mining revenues have grown by about 40 percent over the past month. According to the analytical platform Glassnode, the main source of new earnings was the increased commissions. The popularization of the DeFi market was also reflected in the income of miners, which significantly increased the number of operations performed on the Ethereum blockchain.
Its protocol and the ability to create smart contracts allowed to create decentralized financial instruments within the framework of DeFi and DAO projects that allow you to borrow or lend cryptocurrency, and also earn on its simple retention (staking). As a result, the number of daily active wallets in the Ethereum network quadrupled - from 12.8 thousand in the second quarter to 50.2 thousand in the third quarter of 2020. The Ethereum blockchain accounted for 96% of all transactions related to decentralized applications (dapps), for a total of almost $120 billion.
Such activity of competitors could not but excite the holders of the main cryptocurrency - bitcoin. And as a result of the joint work of the Kyber network, the Ren ecosystem and BitGo, a similar project was implemented - DAO WBTC. The results of the 4th quarter will show how effective and popular it will be.
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. When looking at the chart of this pair, it becomes clear to the experienced trader that oscillators either on H4 or on D1 are unable to give any accurate predictions now. Among trend indicators, a certain advantage is on the red side - 70% on both timeframes. However, even despite the support of graphical analysis on D1, technical analysis cannot guarantee the continuation of the downtrend. The key word, as usual, is with fundamental analysis. Or rather, with those factors that were mentioned at the very beginning of the review.
Of course, it may be that we will hear something new next week. It seems that the main goal of the heads of regulators is to achieve their goals solely with words. Speeches by the head of the ECB Christine Lagarde are scheduled for October 18, 19 and 21, while the speech of the head of the US Federal Reserve Jerome Powell will be heard on Monday, October 19. But that's not all — a debate is due to be held by US presidential candidates Donald Trump and Joe Biden on Friday October 23. Only 10 days are left until the “X” hour, so the duel of politicians promises to be unusually hot.
Both Lagarde and Powell's speeches and the White House contenders’ debate could have a heavy impact on investor sentiment. And if the fall in stock indices continues, it will cause further strengthening of the dollar and further movement of the EUR/USD pair to the south. 60% of analysts agree with such a development, pointing out September lows around 1.1610 as a target. The remaining 40% believe that, having bounced off the level of 1.1715, the pair will go up. The nearest resistance levels are 1.1755 and 1.1825. The following barrier is located in zone 1.1900; - GBP/USD. Not only the heads of the ECB and the Fed, but also the Governor of the Bank of England Andrew Bailey will talk a lot in the near future. His speeches are scheduled for October 18 and 22. However, he will not be the main newsmaker. The pound still has potential for further growth, but this requires a real breakthrough in the negotiations between the UK and the European Union on Brexit terms. And they, apparently, will drag on for another two weeks, or even longer. The fact that the Prime Minister of the United Kingdom Boris Johnson is not going to move away from the negotiation process is a good signal and gives us hope that an agreement with the EU can still be reached. But not in the coming days. Therefore, 70% of experts, supported by graphical analysis on H4 and D1, as well as 80% of oscillators and 90% of trend indicators on H4, believe that the GBP/USD pair may well fall to the 1.2700 zone in the coming week. Supports are 1.2845 and 1.2770.
The remaining 30% of analysts hope that the pair will remain within the boundaries of the channel 1.2845-1.3035 and will soon return to its upper border. The next resistance level is 1.3080; - USD/JPY. Currently, the Japanese currency is supported by falling risk sentiments and rising yields on safe bonds. However, the yen is close to the key support at 105.00, breaking through which is a very difficult task. Just look at the chart for the last 12 weeks. And the battles for this level in 2018-19 left many memorable, non-healing scars on the bodies of bears.
The majority of experts (70%), supported by 75% percent of oscillators and 90% of trend indicators on D1, believe that the pair will still be able to overcome this barrier within two to three weeks and approach the September 21 low 104.00 at least for a time. Supports are 105.00 and 104.45.
As for the remaining 30% of analysts and graphical analysis, they forecast that the dollar will grow, and the USD/JPY pair is expected to break from the horizon of 105.00 and rise first to resistance of 106.00, then to 106.40, and finally to a height of 107.20;
- cryptocurrencies. We noted in the first part of the review that the development of the DeFi market has significantly increased the popularity of ethereum. However, the situation could change dramatically if Joe Biden wins the presidential election. This will cause a new wave of inspections and tightening of control over the financial market, due to which some of the DeFi projects will be closed.
But Bitcoin, according to Bloomberg experts, will only win if Joe Biden wins. Under Donald Trump, the emphasis was on strengthening the dollar and all industries associated with it. Analysts are confident that the new American administration will think more progressively in matters of finance, in view of which the adoption of bitcoin by regulators will accelerate significantly.
The main task of this coin at the moment is to break through the important resistance of $12,000 and gain a foothold above it. It is at this level both in August 2020 and in 2019 that there was an activation of bears and a downward trend reversal. And if the bulls manage to overcome the resistance of sellers, BTC/USD pair have chances to reach the highs of last summer around $13,000-13,750.
According to the calculations of Timothy Peterson, manager of the investment company Cane Island Alternative Advisors, who uses Metclough's law for forecasts, the price of bitcoin with a 90% probability will not fall below $11,000. Moreover, with the same probability it should exceed the $12,000 mark by November 30, 2020.
Metclough's law in application to the crypto market states that the value of bitcoin depends entirely on the number of people using it. And according to Peterson, this approach helped him to successfully forecast the price of BTC at the end of 2018 and in 2019.
Another expert, CEO of analyst firm CryptoQuant, Ki Yong Joo, also believes that the coin will continue to grow, citing the absence of an influx of bitcoins on exchanges as an argument. To assess the volume of BTC transfers to exchanges, CryptoQuant has created its own indicator All Exchanges Inflow Mean, and now it remains in the “safe” zone: the “whales” are in no hurry to get rid of their reserves. And according to Ki Yong Joo's forecasts, bitcoin's rise above $11,500 will not lead to a massive sell-off.
Today, according to chain.info, the five largest cryptocurrency exchanges alone hold almost 2 million BTC coins, which is almost 11% of the total emission. These exchanges can be subjected not only to hacking attacks, but also to attacks by regulators and law enforcement agencies, which will result in the loss or blocking of significant volumes of the main cryptocurrencies. And this, as some experts believe, will cause a shortage of bitcoins in the market and an increase in its price. Although, almost no one believes now that the BTC/USD pair will be able to reach an all-time high of $20,000 by the end of the year. Even the probability of it pinning above the $13,000 horizon is only 25%. The probability of falling to $9,000 is exactly the same.
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.
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