First review of last week’s events: EUR/USD. The dollar is rising throughout the week, fueled by optimism about the forth coming recovery in the U.S. economy. The incidence of coronavirus is down sharply: in just three weeks from its peak, the 7-day moving average has dropped by almost 50%. And successful vaccinations, along with a new economic aid package, can generally lead to an economic boom in the country. And that’s where the confusion begins, which surprised many economists. With the pandemic erupting at the end of February last year, there was clearly an inverse correlation between dollar and stock indices. After an initial sharp collapse, thanks to fiscal stimulus (QE), lower interest rates and pumping the U.S. economy with cheap money, stock indexes, the S&P500, Dow Jones, Nasdaq, have gone up and the dollar index DXY has gone down. And here came 2021, and everything turned upside down. Against the backdrop of good economic data and expectations for a new $2 trillion “vaccine” financial injection, the rise in risk sentiment and stock market indices continued. But at the same time, the yield on long-term U.S. Treasury bonds and the dollar rose. “But it shouldn’t be,” exclaims many experts. Soft monetary policy and pumping liquidity into the market should lead to a weakening of the currency, but not the other way around. Or is it not the strength of the dollar at all, but the weakness of its competitors? Firstly, the euro? Starting Monday at 1.2135am, the EUR/USD pair groped the local bottom at 1.1950am on Friday February 5, piercing through 1.2000 support for the first time in 10 weeks. After that, the correlation between the stock market and the dollar once again changed its mark, from plus to minus this time: the S&P500 continued to rise while DXY began to fall. As a result, the EUR/USD rose again and ended the five-day period at 1.2050; GBP/USD. At its meeting on Thursday 04 February, we predicted that the Bank of England would leave both the volume of bond purchases of £895bn and the interest rate at 0.1% unchanged. And so it happened, there were no changes in monetary policy. But at the same time, in just a few hours the pound strengthened against the dollar, to 135 from 1.3565 to 1.3700. This was not about the outcome of the Bank’s meeting, but about market expectations. The Bank’s Committee unanimously decided to leave the key parameters of its policy unchanged. Some investors expected a split within the Committee’s ranks and that many of its members would support the introduction of negative interest rates. The split did not occur, the result of the vote was 9-0. A negative rate would undoubtedly lead to the collapse of the pound, but the situation has been saved by officials’ optimism about the growth of the UK economy. In their opinion, thanks to vaccination, the country’s GDP will reach pre-COVID indicators this year, and the consumer price index will rise to 2% in early 2022. The Bank of England’s unanimous decision to abandon negative interest rates in the near future should encourage capital inflows into the country. This was clearly demonstrated by the GBP/USD pair, which continued to rise on Friday 05 February and ended the weekly session at 1.3735; USD/JPY. The movement of this pair in most cases depends on what happens not in Japan, but in the United States, where the DXY dollar index, stock indices, as well as the yield on U.S. government bonds are moving. It also happened last week. Back on January 27, the pair broke through the upper end of the medium-term descending channel, along which it had been descending since late March last year and rose sharply. And while the vast majority of oscillators and trend indicators on both the Η4 and D1 indicated an upward trend, only 30% of experts voted for further growth among analysts. But it was their forecast that turned out to be absolutely accurate: at the height on Friday, February 5, the pair reached a height of 105.75, followed by a correction and then a finish at 105.35; cryptocurrencies. In our recent review, we noticed that bulls are gaining strength again, creating another growth boost in bitcoin. He also said that the main problem of the cryptocurrency market in 2021 will be regulators, whose goal is to take over this segment under their maximum control. Starting in the second half of 2020. institutional investors have become the main drivers of growth. In addition to specialised funds such as such as Grayscale Investments and technology companies such as MicroStrategy, Harvard, Yale University and Michigan have started to acquire cryptocurrencies using their funds. Even conservative giants like U.S. government pension funds like CalPERS bought digital assets. However, due to regulatory issues, these institutions act very carefully, investing in bitcoin, for the time being very small amounts on their scale. Recall that as soon as the BTC/USD pair renewed its highest level on January 8, rising above $42,000 and the capitalization in the cryptocurrency market exceeded $1 trillion, the head of the European regulator Christine Lagarde immediately stated that it is a very speculative asset that is used to run a rather “strange business” and money laundering. New U.S. Treasury Secretary Janet Yellen also joined her from across the ocean, according to her, “cryptocurrencies are particularly worrisome, and many of them are used to fund illegal activities.” Both Lagarde and Jelen have indicated that there is a need for serious regulation of this market. However, both remained silent about the main reason for such concern. Although it is clear that governments are most concerned about the loss of control over monetary resources. Anyway, $200, but after statements from the ECB President and the US Treasury Secretary, the price of bitcoin fell below $30,000. However, at the end of January the market came to its senses, and the main price of the coin again went up. On Friday evening, February 5, the BTC/USD pair is trading in the $38,000 zone, and the total capitalization of the cryptocurrency market is hitting highs, rising to $1.16 trillion. As for the Crypto Fear & Greed Index, it has reached 81 and although it is in the overbought zone, it is still far from the maximum values. According to Glassnode specialists, the number of unique active BTC addresses reached 22.3 million in January. “This is the highest rate in bitcoin history to date,” analysts say. January activity growth broke the previous record of 21 million active addresses in December 2017. BTC miners also showed near-record highs. Despite the 30% drop in bitcoin prices, January was a very good month for this “strange business”. Mining of the main cryptocurrency brought them $1.1 billion (a maximum of $1.2 billion reported in December 2017). Ethereum’s production showed a record result of $0.83 billion, exceeding its December 2020 figure by 120%. A for the forecast for the coming week, summarizing the opinions of many experts, as well as forecasts made on the basis of various methods of technical and graphic analysis, we can say the following: EUR/USD. So far, the situation seems to be still in favor of the dollar. In anticipation of the sharp growth of the U.S. economy, investors are ready to turn a blind eye to the next increase in the country’s domestic debt, which will follow the next package of economic stimulus. The yield on long-term government bonds is rising and the spread between US and European bonds is rising, strengthening the dollar and putting pressure on the European currency. Thus, the yield on 10-year US government bonds has already reached around 1.15%, and the growth potential has not yet been exhausted. Christine Lagarde’s remarks that the ECB is not at all opposed to weakening the euro can also be recalled here. This led to 70% of experts, supported by 85% oscillators, 70% of trend indicators and graphical analysis on D1, agreeing that the dollar would continue to rise in the coming days and the EUR/USD pair would fall. Support levels are 1.1950, 1.1885, 1.1800 and 1.1750. However, the situation changes with the transition from weekly to monthly forecast and here there are already 60% of experts with graphic analysis who are waiting for the couple to return to the zone of 1.2200-1.2300. The target is january level of 1.2350, the closest resistance is 1.2175. As regards the important economic developments of the coming week, we can record data on consumer markets in Germany and the United States, which will be published on Wednesday 10 February; GBP/USD. Will the market be able to maintain bullish optimism about the UK currency for some time? 65% of analysts believe that at least briefly the pair will continue to succeed, breaking the resistance of 1.3750 to rise to 1.3800, and perhaps 25-50 points higher. Graphical analysis, 85% oscillators, as well as 100% trend indicators on H4 and D1 agree with this. However, 15% of oscillators already give clear signals that the pair is taken out. The remaining 35% of experts consider zone 1.3700-1.3750 for an insurmountable obstacle, according to them, after breaking through support at 1.3700, the pair will first take down 100 points and then reach the zone of 1.3485-1.3500. Among the events to look out for are a speech by the Head of the Bank of England, Andrew Bailey, on Wednesday, 10 February, and the publication of GDP data for q4 2020 on Friday, 12 February; USD/JPY. Most experts (70%) supported by a graphical analysis of d1, 75% of oscillators and 80% of trend indicators, expect the pair to continue to grow at least to the zone of 106.00-106.25. The next target is 107.00. The closest resistance is 105.75. The remaining 30% of analysts believe that the pair will return to 104.00, and the graphic analysis on H4 predicts an even bigger drop, to a low of 103.30 on January 21. The supports are at levels 104.75, 104.00 and 103.50. kryptocurrencies. What is good and what is bad. Cryptocurrency support from large institutional investors is of course good. It can provide further growth of bitcoin. However, the fact that the cryptocurrency market now depends largely on the sentiment of this rather small group, and this, in turn, depends on the sentiment of government officials, is bad and can lead to a collapse in quotations. A clear example is the January 30% drop in the BTC/USD pair. However, government action can not only put pressure on the cryptocurrency market, but also push it up. In doing so, US President Joe Biden confirmed his readiness for a new stimulus package for nearly $2 trillion. And this is good, because with almost 100% probability, some of these funds will flow into the digital asset market. But, for example, is the Chinese New Year good or bad? It is definitely good for people, fun holidays, gifts, fireworks … But, according to many experts, on the eve of this joyous event, the value of bitcoin may fall again. Moreover, in this case, the price of the main coin is threatened not by central banks, but by small investors who will begin to transfer their crypto assets to fiat for the purchase of New Year’s gifts. Today, it is in China that most bitcoin wallet owners are concentrated with savings of up to $10,000. And, according to the specialists of the investment firm Stack Funds, “because it is customary to celebrate the New Year in China very wonderfully, small investors they will definitely start withdrawing funds before christmas. In addition, they explain, “the charts over the last few years show that it is in the run-up to the holidays that the capitalization of bitcoin is significantly reduced.” We do not have to wait long for either confirmation or the rebutment of this forecast: The New Year in China is Friday, February 12, and the holidays will last from 11 to 17 February. Now about Ethereum. This leading altcoin continues to produce impressive results. Since the beginning of the year, the price has increased by 130% and in 2020 its increase was 448%. The main impact on this dynamic is the anticipation of the launch of futures contracts on the Chicago Mercantile Exchange (CME), which is scheduled for Monday, February 8. Forecasts for this event are mixed. Optimists (and are mostly) remind you that the launch of bitcoin futures on CME allowed this cryptocurrency to break the $20,000 mark at the end of 2017. Pessimists say that this event was the beginning of crypto winter 2018. So the question of whether the future is good or bad remains open. In December 2020, when the BTC/USD pair reached its previous high of $20,000 and ETH/USD was still very far from a similar sign, we saw significant potential for Ethereum growth. Now a similar situation is observed with another token, Litecoin, which we have not thought about for a long time. This coin appeared in October 2011, becoming an early fork of bitcoin, from a technical point of view it is almost identical. On December 19, 2017, it was trading at a record $370. Then came the crypto winter, and a year later the price of the coin fell to 20 USD, losing almost 95% of its value. At the moment, the LTC/USD pair is trading at $155, more than double the historical maximum, which could lead to an increase. Moreover, Litecoin even surpasses the main cryptocurrency in some important parameters. So, for example, the rate of transactions with him is four times higher than in bitcoin. NordFX Analytical Group Note: These materials are not investment recommendations or guidelines for working in the financial markets and are for informational purposes only. Trading on the financial markets is risky and can result in a complete loss of deposited funds.
Forex and cryptocurrency forecast for February 8 -12, 2021
14.02.2021Analytics