First, a review of last week’s events:
- EUR/USD. "Some Committee members would consider it appropriate to start discussing the topic of curtailing monetary stimulus if the US economy is moving quickly towards the targets set by the Fed," the minutes of the meeting of the Federal Open Market Committee (FOMC), which was published on Wednesday, May 19, say. The wording is more than vague. But it was against this background that the bears tried to strengthen the dollar and drop the EUR/USD pair down. As a result, having bounced off the high of the last eight weeks at 1.2245, it dropped by 85 points - to support1.2160.
However, then the markets realized quickly that this phrase, in fact, does not mean anything in reality. And even if the US Federal Reserve starts to discuss in June the possibility of curtailing the QE program and raising interest rates, it is not worth waiting for concrete steps on these issues yet. This "enlightenment" allowed the bulls to return the pair to the 1.2240 high. But they failed to gain a foothold there.
On Friday, May 21, an increase in the yield on 10-year US government bonds from 1.61% to 1.63% and a decline in US stock indices, coupled with weak German business activity, pushed the EUR/USD pair back to support at 1.2160 once again. The last chord of the week sounded not far from there, at the level of 1.2180; - GBP/USD. The British currency is fluctuating following the risk appetite of investors. And naturally, the dynamics of GBP/USD is influenced by the same factors as the previous pair. At the same time, the pound seeks to renew not only the annual, but also the 36-month high at 1.4241, and has almost reached this target.
Making a forecast for the past week, most experts pointed to the corridor 1.4100-1.4200. And this forecast, with a minimum tolerance, turned out to be almost perfect.
At the beginning of the week, boosted by positive statistics from the UK labor market, the pair climbed from the 1.4075 horizon to 1.4220. Then, after the rebound, trading shifted a few points to the north, to the range of 1.4100-1.4232.
On Friday, during the American session, treasuries growth and impressive data from IHS Markit on the US services sector forced the bulls to retreat again, and the pair ended the five-day period at 1.4153; - USD/JPY. Most experts were siding with the bears for four weeks in a row, expecting the pair to drop to support at 109.00 and then at 108.35. And their expectations were justified: breaking through the support at 109.00, the pair went further south. True, it did not reach the second goal, and the local bottom was recorded at 108.56.
The yen was supported by the decline in US bond yields and commodity prices for almost the entire week. Perhaps the pair could go down further, but the rise in oil prices and treasuries yields brought it back to the horizon of 109.00, next to which, at the level of 108.93, it completed the trading session; - cryptocurrencies. The bullish rally that began in autumn 2020 caused many investors to have a state of euphoria. Having decided that digital assets will grow forever, they forgot that the crypto market is not just volatile, but super-volatile. And that just a small shock is enough to cause its serious fluctuations. And what if there are several such shocks, and they are strong enough? In this case, as with an earthquake, panic immediately arises, and the tsunami wave literally flushes off the market all positions opened using leverage.
The crypto market experienced three such serious earthquakes in the first two decades of May. The first two collapses were associated with Elon Musk.
Tesla first announced the end of the sale of its electric vehicles for bitcoins, explaining this with concern for the environment. “We are concerned about the use of fossil fuels for mining. The future of our planet depends on the amount of gas emissions into the atmosphere. And we are not going to stay away from solving environmental problems, ”- its press release said.
The second blow to the market was struck by a tweet from Elon Musk that, perhaps, Tesla will still sell the previously acquired bitcoin tokens. Recall that BTC quotes jumped 22% just three months ago on the news that Tesla had invested $1.5 billion in bitcoin. It may get rid of them now.
The third panic hit the crypto market after Chinese financial institutions were banned from providing services related to digital assets. A corresponding statement was issued by three financial regulators overseeing online financial transactions, the payments market and clearing.
Financial institutions in China are now unable to provide services for the storage and management of cryptocurrency, as well as release products related to digital assets. It is also forbidden to use them as a payment instrument. The three regulators said in a joint statement that virtual currencies are "not supported by real value, their prices are easy to manipulate, and trade contracts are not protected by Chinese law".
The head of the US Federal Reserve, Jerome Powell, expressed solidarity with the Chinese authorities, criticizing cryptocurrencies, saying that they pose risks to financial stability, and pointing out that their stricter regulation may be required. In parallel, the US Treasury Department came up with a proposal, according to which information on cryptocurrency transfers worth more than $10,000 should necessarily be reported to the tax service.
As a reminder, bitcoin hit an all-time high at $64,600 on April 14. And now, just five weeks later, on May 19, it fell to $30,225, losing 53%. (For Ethereum, these numbers were, respectively, $4,364, $1,927 and 56%). Then the market seemed to be on the mend, and the BTC/USD pair climbed to $42.285. However, there was another reversal on Friday, May 21, and it dropped to the level of $33,550 by the evening of the same day.
The Crypto Fear & Greed Index fell to a 12-month low on May 20 at just 11 points. By the very end of the working week, May 21, it also grew slightly, up to 19 points, and is now in the "Extreme Fear" zone. According to the index developers, such values indicate that the market is still in a strong panic, and that, possibly, its growth will begin after some time.
It is clear that the panic sell-off has affected not only bitcoin, but the entire crypto market as a whole. If on May 12 its total volume was $ 2.54 trillion, then after only seven days, on May 19, this figure fell to $1.43 trillion. It was at the same level on the evening of Friday 21 May.
Concluding the review of the past week, it will be useful to add a little optimism to this negativity. After all, in addition to those who lost their money, there are those who made big profits on the collapse of prices. According to the itsblockchain portal, one of the whales sold 3,000 BTC on May 9 at an average price of $58,500 and bought 3,521 BTC at an average price of $44,500 from May 15 to May 19. Thus, the profit of this investor was $18.7 million, and at the same time they increased their holdings by 521 BTC. And it is appropriate to remind here that the NordFX brokerage company offers its clients the opportunity to earn not only on the growth, but also on the fall of the market. At the same time, it is enough to have just $150 on the account to open both a long and a short position with a volume of 1 BTC. (Tthis figure is 10 times lower for 1 ETH and equals $15).
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. If in the spring of 2020 the determining factor was the fall of the economy under the blows of coronavirus, a year later everything turned 180 degrees. And now the main driver of the markets has become reflation, that is, the recovery of the economy due to its active stimulation.
The S&P500 and Nasdaq indices update historical highs over and over again. And investors, despite the overheating of the stock market, sell dollars over and over again in order to buy back sinking stocks and other risky assets.
Starting March 30, 2021, the DXY dollar index tends to go down, while the EUR/USD pair goes up. And although Fed officials say that discussions on the possibility of curtailing QE may begin as early as June, this may strengthen the dollar only in the short term. The weakness of recent macro statistics is unlikely to allow the regulator to deprive the US economy of financial support. And if any concrete steps are taken, it is unlikely to happen until the end of this year.
Of course, no one questions the stable recovery of the US economy. However, this process has recently slowed down noticeably. So, perhaps, it will be Europe that will become an example of recovery from the COVID-19 pandemic. The Eurozone looks much stronger today than it did a few months ago. Accelerating vaccination rates and reducing quarantine measures in many EU countries suggest an imminent recovery of its economy. The European Commission has already raised its GDP growth forecast for 2021 from 3.8% to 4.3%. And now, an attack by the hawks can be expected at the June meeting of the ECB.
The European economy is export oriented. Therefore, the Joe Biden administration can also seriously help it by lowering import tariffs imposed by the previous US President Donald Trump.
All this suggests that the bullish trend for the EUR/USD pair may continue. 70% of experts agree with this forecast, indicating this year's high of 1.2350 as a target. The nearest resistance levels are 1.2245 and 1.2300. In the longer term, we can talk about the growth of the pair to the height of 1.2550.
The remaining 30% of analysts believe that the overbought US stock market should lead to a large-scale correction, as a result of which the pair will break through the support of 1.2160, first drop to the level of 1.2050, and then reach support in the 1.1985-1.2000 zone.
Graphical analysis indicates that the EUR/USD pair will stay in the 1.2160-1.2245 trading range for some time, after which it will go south. There is some confusion among the technical indicators on H4. But their readings are more definite on D1: 85% of oscillators and 90% of trend indicators are colored green.
In terms of macro statistics, Thursday, May 27 seems to be the most interesting. We will find out the volumes of orders for durable goods, as well as data on US GDP on that day; - GBP/USD. With improved weather conditions, May is likely to have good spending and business performance in the UK. In addition, the country's government is actively lifting the remaining quarantine restrictions, planning to remove all of them on June 21. All this may lead to the fact that the bulls will still achieve their goal, and the GBP/USD pair will renew the 36-month high at 1.4241. 65% of analysts agree with this forecast, supported by 90% of oscillators and 95% of trend indicators on D1, as well as graphical analysis on H4 and D1.
True, graphical analysis predicts a fall for the pound in the first ten days of June. The remaining 35% of the experts are also expecting a correction to the south. Support levels 1.4100, 1.4075 and 1.4000 - USD/JPY. Japan's low CPI (consumer price index), which was released on Thursday May 20, showed that real yields there significantly outperform yields elsewhere. And this is despite the serious weakening of the yen during the first quarter of this year.
The strong pressure on the yen as a safe haven currency is exerted by global reflation, as well as by the growth of yields on long-term government securities of other countries, especially the United States. For comparison, the yield on 10-year Japanese bonds is 0.25%, while the yield on similar US bonds is 1.63%.
On the other hand, the yen's purchasing power and the resistance of the Japanese economy to rising prices and inflation speaks in favor of the yen. Published data on the PPI showed that the actual yield on Japanese bonds in April was positive, while their US counterparts, thanks to the Fed's printing press, are sinking deeper below zero.
Like the four previous weeks, the majority of experts (this time they are 75%) believe that the weakening of the yen has gone too far and it should continue to win back the lost positions from the dollar. Although expectations in this case are quite modest: the targets are the levels 108.55, 108.30 and 108.00. And the support at 107.50 is seen as a very distant target. The remaining 25% of experts expect the pair to return to the 110.00 zone. The nearest resistance is 109.35.
The indicators on H4 look rather mixed, there is a slight advantage (60%) for the bears on D1. Graphical analysis on both time frames indicates a sideways movement of the pair in the 108.30-110.00 channel;
- cryptocurrencies. After such a collapse, as one would expect, interested influencers rushed together to calm and convince the crypto community that not everything is so scary, and the best is yet to come.
LMAX institutional platform strategist Joel Kruger considers Elon Musk's statements about high energy consumption of bitcoin as only a catalyst for a long-overdue correction. “There is too much buzz around Tesla and Elon Musk,” he writes. "The pullback is caused by this to a much lesser extent, and by technical overheating after the parabolic movement of the course to a much greater extent."
Popular cryptocurrency analyst Lark Davis believes that bitcoin traders shouldn't worry about Elon Musk's comments or bitcoin's depreciation. Davis advises taking a look at the 2017 bull rally and seeing that bitcoin can survive multiple declines. He noted that there were 4 different corrections in the range of 30-45% then.
Lark Davis is confident that the current growth is only at an early stage and believes that the rates will soar much higher by the end of this year. “You should look broader,” he advises. - The current bitcoin situation is not a cause for concern. This is a fairly common situation that happens in the cryptocurrency market. The situation is likely to become mega-bullish again after a few weeks. Everyone will start to say again that BTC is a new concept of money and stuff like that. Now is not the time to panic and sell cryptocurrency, but it is high time to buy it in panic. We have excellent buying opportunities."
Analysts at Glassnode confirm Davis' words. According to them, when many new investors panicked out of their positions during the rollback, long-term investors continued to increase their investments. For example, business analytics company MicroStrategy took advantage of the decline in bitcoin and bought an additional 229 BTC worth $10 million. The acquisition was made at an average price of $43,663. Investor Robert Kiyosaki, the author of the popular book "Rich Dad Poor Dad," is planning to buy on the current fall in bitcoin.
Despite the collapse, Ark Invest fund manager Katie Wood reiterated her outlook for bitcoin. In an interview with Bloomberg, she said that the price of the main cryptocurrency will rise to $500,000 in the future. Katie Wood believes that the fall in the price of BTC was due to too strong emotions, which, as a rule, are not related to fundamental factors. At the same time, she still sees a certain connection with the fact that the most volatile and innovative part of the stock market has undergone a significant correction.
A fly in the ointment is Katie Wood's statement that, despite a fall of more than 50%, the price of bitcoin has not yet bottomed out.
As for the main altcoin, there are enough bullish forecasts here as well. For example, the founder of cryptobank Galaxy Digital Mike Novogratz predicted in an interview with New York Magazine an increase in Ethereum quotes to $5,000. This is facilitated by a combination of three factors: payment apps and stablecoins, decentralized finance, and non-fungible tokens (NFT), he said. “I'm almost 100% sure that the price will rise - it's just mathematics,” Novogratz explained.
And at the end of the review, our mini heading of crypto life hacks. This time, about how you can make money on the negative statements of eminent newsmakers.
Outraged by the mentioned tweets of Elon Musk, crypto enthusiasts have developed a new Fuck Elon Tweet (FUCKELON) token. According to their statement, the maximum offer will be 1 billion coins. FUCKELON is based on the Binance Smart Chain and has over 9,000 wallets already. And most importantly, the coin has already risen in price by 2000% and is trading at $0.005260 at the time of writing.
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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