Overall, last week passed, as predicted, without any majorsurprises. The main event was the FOMC (Federal Open Market Committee) meeting of the US Federal Reserve on Wednesday, November 2, at which it was unanimously decided to raise the key rate by 75 basis points (bp) to 4.00%. This is the highest level since 2008. Such a move was quite expected. Therefore, the subsequent press conference of the regulator's management was of greater interest to market participants. Fed Chairman Jerome Powell said at the meeting that although inflation must be reduced "drastically", monetary policy parameters can be changed as needed. The hint was that the pace of rate hikes could slow down from December, but the final rate level would likely be higher than previously thought.
EUR/USD: Slower, Longer, Higher
The market received this message from the head of the Federal Reserve in different ways. Some decided that the US Central Bank kept the opportunity for further tightening of its monetary policy. Some believed that we in for the next, fifth in a row, rate hike by 75 bp in December. And some, on the contrary, took Powell's words as a signal that the basic step will no longer be 75, but 50 bp. That is, the vector of fighting inflation will change direction from “raising rates faster” to “raising rates more slowly, but longer.” Although, in this case, this is just a change of route, and the ultimate goal in both cases is the same.
Moreover, the market decided that the keywords here are not only “slower” and “longer”, but “higher” as well. Back in late October, the futures market predicted that the highest rate would reach 4.85% in March 2023. Now the peak of expectations has shifted to June, having risen to 5.1%. And the median rate forecast for the end of next year rose from 4.46% to 4.8%.
Many analysts believe that a slowdown in the Fed's monetary tightening (QT) will allow rival currencies to counter the oncoming dollar more effectively. Now the central banks of other countries are catching up, not having time to raise their rates at the same pace as in the US. If the Fed moves more slowly, they will be able, if not to overtake their American counterpart, at least to close the gap or catch up with it. Following the FOMC meeting, the DXY Dollar Index moved up, hitting 113.00. The US currency strengthened against all G10 currencies, except for the Japanese yen. Then a reversal followed, and before the release of the data on unemployment in the US on Friday, November 04, it fell to 112.35, and EUR/USD consolidated around 0.9800.
Labor market data showed that non-farm payrolls in the US (NFP) stood at 261K in October, up from the 200K forecast but below September's 361K. The unemployment rate in the country rose from 3.5% to 3.7% over the month, while the forecast was 3.6%. The market took this as a negative signal for the dollar, DXY fell to 110.80, and EUR/USD went up and ended the week at 0.9958.
Overwhelming majority of analysts, 90%, support the fact that it will continue to move south in the near future, and only 10% expect a correction to the north. Among the oscillators on D1, 40% are green, the same number are red, and 20% are neutral. Among the trend indicators, the advantage is on the side of the green ones. 65% advise buying the pair and 35% selling.
The immediate support for EUR/USD is at 0.9865-0.9885, followed by 0.9825, 0.9765, 0.9700, 0.9645, 0.9580 and finally the Sep 28 low at 0.9535. The next target of the bears is 0.9500. For the bulls, the first priority will be to break the 1.0000 barrier. Then they will meet resistance at the levels of 1.0100, 1.0250, 1.030 and 1.0370. Of the notable events of the upcoming week, first of all, we should note the data on retail sales in the Eurozone, which will be published on Tuesday November 08. There will be data on the consumer market (CPI) and the US labor market on Thursday, November 10. And on Friday, November 11, we will find out the value of the German CPI and the US University of Michigan Consumer Confidence Index.
GBP/USD: BoE Failed to Help the Pound
If a slowdown in US QT is going to help certain currencies, the pound doesn't seem to be one of them. The Bank of England (BoE), as well as the Fed, raised the key rate by 0.75% at its meeting on Thursday, November 03, from 2.25% to 3.00%. This move was the strongest one-time rate hike since the late 1980s. However, this did not help the British currency, and it continued to fall, fixing the weekly low at around 1.1144.
It would seem that the new Prime Minister has been elected, tax cuts have been abandoned, and the rate has been raised. What else do investors need? First of all, they need confidence that the rate will continue to grow at the same pace. But there is no such certainty.
Following Jerome Powell, BoE chief Andrew Bailey hinted that the pace of rate hikes could be slowed down in the future. That is, the dollar will remain in the lead in this parameter. Although, according to Mr. Bailey, a repeat of the 1970s crisis is unlikely, the threat of a prolonged recession forces the regulator to act very carefully. It is important not to strangle the economy in the rush to defeat inflation and not to bring down the labor market. According to the forecasts of the Bank's economists, the country's GDP will decrease by about 0.75% in the second half of this year. At the same time, the decline will last until mid-2024.
Investors were also disappointed by the Retail Price Index published last week by the British Retail Consortium (BRC). Thus, the average prices in stores in October, with a forecast of 5.5%, in reality grew by 6.6%. Most of all, prices for food products rose, by 11.6%, and the “food basket” rose by 9.4%. According to the BRC, the reasons for the next jump in inflation are still the same as before: the energy supply crisis caused by sanctions and the lack of skilled labor, in the struggle for which employers are forced to constantly raise wages.
In such a difficult environment, the Bank of England will most likely not be able to stick to a certain line and will toss between tightening (QT) and easing (QE) its monetary policy, trying to find a balance. However, there is no guarantee that it will be able to do this, and such throws will cause increased volatility in the British currency quotes.
Against the backdrop of weak data from the US labor market, GBP/USD corrected to the north at the very end of last week and set the last chord at 1.1373. However, strategists at ING, the largest banking group in the Netherlands, believe that it may soon retest the 1.1000 level. At the same time, when moving to a long-term forecast, one can hope for some positive things. For example, economists at the Australian bank Westpac predict that the pound will trade at 1.2000 by the end of 2023, and it will reach 1.2700 by the end of 2024.
As for the median forecast of analysts for the near future, the advantage of bears over bulls is insignificant here: 55% to 45%. Among the D1 oscillators, 25% are on the green side, 40% are on the red side, and 35% are comfortably settled in the neutral gray zone. Among trend indicators, 65% are red, 35% are green. The levels and zones of support for the British currency are 1.1350, 1.1230, 1.1150, 1.1100, 1.1060, 1.0985-1.1000, 1.0750, 1.0500 and the September 26 low at 1.0350. When the pair moves north, the bulls will meet resistance at the levels of 1.1435, 1.1475-1.1500, 1.1560, 1.1600-1.1625 1.1645, 1.1720, 1.1830, 1.1900, 1.1960, 1.2135 and 1.2200. Of the events of the upcoming week, attention is drawn to the data on the GDP of the United Kingdom, which will be published on Friday November 11. The forecast looks disappointing and foreshadows a fall in Q3 2022. by -0.1% (+0.2% in Q2).
USD/JPY: Intervention from BoJ: Yes or No
FX interventions by the Bank of Japan (BoJ) at the end of October helped stabilize the yen, and USD/JPY ended the five-day period at 146.64, in the middle of the 145.30-148.85 channel. At the same time, the country's finance minister, Shunichi Suzuki, said on Friday, November 04 that the government has no intention of directing the currency to certain levels through interventions. And that the exchange rate should move steadily, reflecting fundamental indicators, and monetary policy is up to BoJ. Such a statement may put downward pressure on the Japanese currency, as there may not be new interventions, and the Bank of Japan is not going to leave the ultra-dove rate and will keep the rate at the negative level of -0.1%.
Recall that USD/JPY reached the height of 151.94 on October 21, having renewed its 32-year high. But then, within just a few minutes, it collapsed by more than 500 points, from 151.63 to 146.24. According to the Financial Times, at that moment, the Bank of Japan sold at least $30 billion in an attempt to support the yen. After this intervention, the pair turned around and soared again: apparently, $30 billion was not enough. And another intervention followed on Monday, October 24, causing the pair to fall to 145.48. The last chord sounded at 147.40 on October 28. A week later, on November 4, the pair finished less than 100 points from this zone, at 146.64.
65% of analysts do not exclude that USD/JPY will try to test the 150.00 level again, and if successful, to rise above 152.00. 25% believe that the Japanese Central Bank will decide on one or more interventions, and therefore vote for the pair's downtrend. 10% expect further movement in the side channel. The oscillators on D1 have a mixed picture: 20% are looking north, 40% are looking south, and 40% are gray neutral. Among trend indicators, the ratio of green and red is 50% to 50%.
The nearest support level is 146.40, then 145.30, 143.75, 140.60, 140.00, 138.35-139.05 and 137.40. Resistance levels are 146.85, 147.50, 147.90-148.00, 148.45-148.85, 149.45, 150.00, 151.55. The purpose of the bulls is to rise and gain a foothold above the height of 152.00. Then there are the 1990 highs around 158.00. No important statistics on the state of the Japanese economy are expected to be released this week.
Cryptocurrencies: BTC/ETH – Who Wins?
Let's start with the birthday. Monday, October 31, 2022 marks the 14th anniversary of the birth of the flagship cryptocurrency. Satoshi Nakamoto published the bitcoin white paper on this day in 2008. The white paper described how the peer-to-peer payment system worked that would revolutionize the financial technology world. The bitcoin network was launched in January 2009. Satoshi Nakamoto disappeared two years later, and the public has never been able to find out who wrote the document that underpins the huge industry. It is unknown as well whether it was one person or a group of people.
Bitcoin has lived a very turbulent life during these 14 years. It rose and fell, then got back on its feet and fell again. It climbed onto the crest of the wave and fell into the abyss. Starting from scratch, it came close to $70,000 on November 07, 2021. And now it is trading in the $20,000 zone, having fallen in price by 70% in a year.
Of course, it is important to know what happened before. But we are much more concerned about what the future holds for us. And here the forecasts of experts are volatile as well as the quotes of bitcoin itself are volatile. Some predict the inevitable death of the crypto market for the umpteenth time, while others expect a take off to unprecedented heights. For example, ARK Invest fund manager Cathie Wood believes that the capitalization of bitcoin will grow to $4.5 trillion (currently about $0.39 billion), and it will be able to become more valuable than most fiat currencies, including the US dollar.
Coinbase CEO Brian Armstrong shares this opinion, predicting that bitcoin will become a reliable asset over the next 5-10 years that can provide investors with security in difficult times. The billionaire believes that the market capitalization of BTC is not yet large enough for the first cryptocurrency to act as a serious hedge asset. However, according to the businessman, everything can change around 2030, when the crypto market will grow and “take a large share of the global economy.” Bitcoin can be then treated as digital gold, investments in which can protect during a crisis.
Former Goldman Sachs executive and macro investor Raoul Pal is also looking ahead, allowing the digital asset market capitalization to rise to $300 trillion in the next 10-15 years. According to him, the capitalization of almost all financial markets ranges from $200 trillion to $300 trillion. Pal believes that cryptocurrencies will also reach this level in the future as part of the “fastest and most massive growth” in history. He is confident that the market capitalization of cryptocurrencies will soar immediately after the end of the macroeconomic turmoil.
After the Fed's decision to raise interest rates again, risky assets sank down. However, poor data from the US labor market came to their aid. As a result, at the time of writing the forecast, on the evening of Friday, November 04, BTC/USD, together with the S&P500, Dow Jones and Nasdaq stock indices, turned north and is trading at $21,180, trying to gain a foothold above $21,000. However, it is not at all certain that it will succeed. And if the main risky assets start to fall again, the main cryptocurrencies may follow them. Kitco News analyst Jim Wyckoff believes that the crypto market's flagship will succeed. In his opinion, in technical terms, the bulls now dominate the bears. The specialist does not rule out that consolidation may form on the market in the near future before the quotes move into a phase of stable growth. Wyckoff has not ruled out either that bitcoin could experience increased volatility in the coming weeks.
A well-known analyst aka Plan B also believes that bitcoin is on the verge of a new upward cycle. The expert predicts the growth of the coin for two reasons. First, thanks to the recent rise in the value of bitcoin, investors who collectively own more than 60% of the available coins have made profits. According to Plan B, this factor indicates the upcoming BTC price pump. Secondly, the RSI index speaks in favor of the increase in the value of bitcoin. The value of this technical indicator has recently dropped to its all-time low, that is, the market has fallen into an extreme oversold zone, so a reversal is inevitable.
Researchers at Glassnode agree with Plan B. Their latest report says that the bitcoin market is currently in an accumulation phase, leading up to a massive bull run. There is a trend At the moment, similar to what happened at the beginning of 2019 before the rapid increase in bitcoin's value more than threefold.
However, for the crypto market to go up, institutional investors must move from sell-off or hibernation to accumulation. The mood of the general public (the so-called shrimps) is of course important, but the mood of the whales is much more important.
BNY Mellon, America's oldest bank, said that 70% of institutional investors would increase investment in crypto, albeit under certain conditions, such as "custody and execution that would be available in recognized, reliable institutions." The BNY Mellon report notes that "nearly all institutional investors (91%) are interested in investing in tokenized products." But at the same time, they are looking for ways to enter the cryptocurrency market safely, and not invest recklessly in the hope of high profits.
As for ordinary people, we can cite the results of another survey conducted by Grayscale Investment. Only 52% of ordinary Americans surveyed agreed that cryptocurrencies are the financial future. And only 44% of respondents said they were considering investing in digital assets. At the same time, the majority of respondents (81%) agreed that cryptocurrencies need clear regulation rules.
The question of whether the regulation of the crypto market is good or bad is still open. For example, many experts consider the threat of increased attention to Ethereum from the SEC (U.S. Securities and Exchange Commission) as negative factors.
It has been a month and a half since the leading altcoin moved from the PoW algorithm to PoS, after which the responsibility for building blocks has passed from miners to validators. The developers consider the main advantage of this change in the algorithm to be the reduction in network energy consumption from peak 112 TWh/year to 0.01 TWh/year. With regard to ETH, this practically nullified all the claims of environmentalists related to environmental pollution by miners. However, as a result of this step, the coin is increasingly moving away from what Satoshi Nakamoto introduced to the concept of cryptocurrency: the network has become more centralized and the SEC's desire to deprive ethereum of its cryptocurrency status has increased, replacing it with the status of a security and subjecting it to stricter regulation. SEC Chairman Gary Gensler hinted at this on the day of the transition to PoS.
At the same time, it would be naive to think that only ethereum will be in the clutches of financial regulators. Certainly, bitcoin will also be subject to sanctions. So both cryptocurrencies are on an equal footing in this regard. But in terms of network development and its prospects, ethereum has clearly overtaken its older colleague in the past few months. This is clearly seen on the chart of BTC/ETH. Since mid-June, it fell from a high of 20.3 to 13.0 and returned to the values of the beginning of the year.
At the time of writing this review, on the evening of Friday November 04, BTC/USD is trading in the $21,180 area, ETH/USD - $1,650. The total capitalization of the crypto market is $1.055 trillion ($1.005 trillion a week ago). The Crypto Fear & Greed Index has not changed in seven days and is in the Fear zone, at the level of 30 points. According to the index developers, one can think about opening long positions at such a moment. Although, in our opinion, the situation is very shaky, and traders need to act as carefully and cautiously as possible.
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