May 16, 2020
First, a review of last week’s events:
- EUR/USD. There is this expression — “retrain on the fly.” That's exactly what President Trump did on May 14. Prior to that, he talked a lot and often about the advantages of a weak dollar, which would increase the competitiveness of American products in foreign markets and pushed the Fed towards a softer monetary policy. And now, he suddenly announced in an interview with Fox TV: "Right now it's good to have a strong dollar. Having a strong dollar right now is great!” The head of the Federal Reserve, Jerome Powell, also supported his President, saying that the regulator did not and does not consider the possibility of switching to negative interest rates.
The main reason for this 180-degree reversal is that the crisis generated by the COVID-19 pandemic has sharply increased interest in the dollar as a safe haven currency and trying to counter it is like swimming against the tide. In addition, the US authorities have turned on the printing press at full capacity, and it is very important for them now to maintain interest in their own currency. They are afraid that someone may simultaneously throw a large number of dollars into the secondary market, and in order to avoid this, they carefully fuel the confidence of investors that this currency will grow.
Despite this, EUR/USD quotes do not change much, as the euro is not the Turkish lira or Brazilian real, but a currency comparable to the dollar in scale and reliability. And if the pair moved in the side channel 1.0750-1.1000 earlier, the range of its oscillations now has decreased to 1.0770-1.0890. The pair is gradually consolidating near the horizon 1.0800, forming a triangle on a two-month chart and putting the final chord of the week at 1.0820;
- GBP/USD. Pound forecasts still coincide with realities. The British currency is under pressure, Brexit-related problems have been repeatedly increased by the coronavirus pandemic, and GDP is falling. The pound is falling too. The GBP/USD pair lost about 285 points during the week, striving to break the lower limit of the seven-week corridor 1.2165-1.2650, and ending the trading session at 1.2120;
- USD/JPY. The USD/JPY pair is consolidating around 107.00 confirming the thesis that the yen is the same safe haven for investors as the euro or the dollar. Moreover, the Japanese currency has a clear advantage over the euro: if the European currency was losing its positions to the dollar in the last one and a half to two months, the yen, on the contrary, was winning them back. And the EUR/JPY cross-pair has fallen by more than 500 points since the end of March (from 121.00 to 116.00). As for the last week, the Japanese currency was kept in a rather narrow range of 106.50-107.75 yen per dollar for the entire five-day period, and completed it at 107.20;
- cryptocurrencies. For starters, a bit of stats. According to Glassnode, the number of bitcoin addresses with a balance of less than 1 BTC has increased by about 100% since the second half of 2016. Wallets with a balance of less than 0.01 BTC (less than $100) showed the biggest increase. The number of such addresses has jumped 235% over the past four years and exceeded 10 million. And that's kind of good news. But if we make simple calculations, we will get that thanks to such a numerous but "small fish", the capitalization of the crypto market has grown by only $0.5-1.0 billion. A drop in the ocean! But the number of large holders of cryptocurrency, real "whales" who own more than 1,000 BTC coins, has grown by only 13% in four years, which suggests a lack of interest from large institutional investors.
Just one example. The other day, the founder of the Tudor Investment hedge fund, Paul Tudor Jones, whose fortune is estimated at $5.1 billion, said on CNBC that bitcoin is, of course, a great speculation, but he considers it only as one tiny, just 1-2%, part of his portfolio.
Crypto investors and major global regulators do not please. So, the US court sided with the SEC, preventing the owner of Telegram messenger Pavel Durov from launching the TON cryptocurrency. A similar fate befell the Libra coin initiated by Facebook, even despite the fact that the project was supported by another 26 such powerful companies as eBay, Uber, Booking.com, Vodafone and others. All this suggests that the US authorities do not need competitors to the dollar at all, and they will do everything they can to prevent such from appearing.
The May 11 halving in the Bitcoin network did not add optimism to the market either. Since the beginning of the year, this event has caused a lot of controversy and speculation about what awaits the main cryptocurrency after it. And despite a lot of positive predictions, the coin experienced halving at below $9,000. The main cryptocurrency could not gain a foothold last week above the sign level of $10,000, having stayed at a height of $10,003 for only a couple of minutes.
The halving of the miners' reward has already led, according to CoinMetrics, to a 30% drop in bitcoin hashrate. Crypto exchanges started actively withdrawing funds, quotes fell to $8,100, and the total market capitalization of the crypto market by the middle of the week sank from $270 billion to $234 billion (-13.3%). The situation, however, somewhat stabilized by the end of the week, the capitalization approached $260 billion, and the BTC/USD pair aimed at storming the height of $10,000 once again. The value of the Crypto Fear & Greed Index fell by 11 points over the week, from 55 to 44.
The charts of the main altcoins, at first glance, repeat the dynamics of BTC/USD, but their recovery is much slower. Unlike bitcoin, etherium (ETH/USD), riple (XRP/USD) and litecoin (LTC/USD) were able to recoup only half of the losses after the May 10 failure.
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. Weakening risk sentiment and selling off exchange-traded funds strengthens the dollar. It is now supported by US President Trump, with his threats to sever any relations with China at all, and the Federal Reserve, which has refused to lower its key rate to negative values. Even the judge of the Constitutional Court of Germany, Peter Huber, helped the American currency, saying that the ECB was not “the master of the universe” to comply with all its decisions.
All this has prompted 65% of analysts supported by 60% of oscillators and 100% of trend indicators on D1 to side with the bears and vote for the decline of the EUR/USD pair. The nearest targets are 1.0750 and 1.0650.
10% of experts and 30% of oscillators, painted in neutral gray, have voted that the pair will continue to consolidate at the 1.0800 horizon. And finally, the remaining 25% of analysts predict the pair will return to the upper boundary of the side corridor 1.0750-1.1000. On D1, they were supported by 10% of oscillators that signal the pair's oversold;
- GBP/USD. According to most experts, the pound is not at all the currency in which it is worth investing even with a fall in risk sentiment. It has long ceased to be a refuge from financial storms. The European Union is currently busy with the process of forming its seven-year budget and its financing problems, the ECB is engaged in a fight with the German Constitutional court, and Brussels is not at all up to the settlement of Brexit-related problems. And the UK, in addition to a divorce from the EU, also has a continuously falling GDP, rising unemployment and a negative balance in foreign trade.
As a result, 65% of experts expect a further weakening of the British currency and its decline to the horizon of 1.2000. In the event of a breakout of this important level, the pair will rush to the lows of March: 1.1640 and 1.1450. Bearish sentiment is also supported by indicators on H4 and D1, demonstrating a rare unity: 85% of oscillators and 100% of trend indicators are colored red.
The opposite point of view is shared by 35% of analysts, 15% of oscillators indicating the pair is oversold, and graphical analysis on both timeframes. In their opinion, the breakdown of the lower boundary of the channel 1.2165-1.2650 is false, and the pair is expected to first return to the central zone of this channel 1.2245-1.2465, and then, possibly, rise to its upper boundary;
- USD/JPY. The yen froze, waiting for the next round of trade and now political war between the US and China to develop. We should not forget that its quotes are also strongly influenced by the level of risk sentiment in the market. There is also a correlation with 10-year US Treasury bonds, and the dependence of the Japanese economy on oil prices. Such an abundance of factors does not yet make it possible to identify the most likely direction of the breakthrough of the consolidation zone in the region of 107.00. At the moment, supporters of the pair's growth have a slight advantage (40%), supported by 65% of the oscillators on H4. 20% of analysts turn their eyes to the South and another 40% – to the East.
The nearest support levels are 106.75, 106.00 and 105.00. The resistance levels are 107.45, 108.00, 108.50 and 109.35;
- cryptocurrencies. So, the bitcoin halving has reduced the reward for mining one block to 6.25 coins. Some miners are already leaving the business or selling assets to cover losses. Even before the halving, a lot of equipment for mining BTC gave minimal profit, and now it has become completely unprofitable. It looks like things are heading towards further monopolisation of mining market, which contradicts the very idea of cryptocurrency decentralization. However, many experts hope that the crisis caused by COVID-19 and the printing of fiat by Central banks will nevertheless push the main cryptocurrency up.
“Bitcoin was able to survive the halving that has been expected for four years, and now it is ready to take new frontiers,” said billionaire Mike Novogratz, head of the Galaxy Digital crypto trading bank. According to him, the main coin will reach a level of $20,000 by December, and then the asset has every chance of updating its absolute maximum.
In addition to Novogratz, there are still enough optimists in the expert community who predict a surge in bitcoin in the medium term. So, according to Leonard Neo, the head of research at Stack, the BTC climb will begin about 6-9 months after the halving. At first, miners will adapt to new working conditions, after which bitcoin will turn to growth. “Further upheavals in the global economy may accelerate its upward trajectory,” CNBC quoted the expert as saying.
In the near future, task No. 1 for BTC/USD is to overcome the height of $10,000. Moreover, Bitcoin should not only take this line, but also confidently gain a foothold above it. Only in this case can we expect further rapid growth of quotes of this pair. 60% of analysts agree that it will be able to rise to the level of $10,500-11,000 in May-June. The remaining 40% expect to see the pair significantly lower: in the $8,000-9,000 zone. And here it should be noted that a number of experts draw apocalyptic paintings altogether, predicting the failure of the main cryptocurrency to levels around $ 6,500.
NordFX Analytical Group
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