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It’s been a tumultuous few weeks for Bitcoin and other cryptocurrencies as the war in Ukraine has been both a positive and a negative driving force for digital currencies. But the deepening rout in equity markets is threatening to undo Bitcoin’s 46% rebound from its January trough as the $38,000 support was tested again.

A bumpy uptrend

Bitcoin posted an impressive, though bumpy, rally between January and March when it recovered from a six-month low of $32,950.72 to climb as high as $48,234 on March 28. Russia’s invasion of Ukraine was a major setback, but it didn’t take long for the rally to resume as, apart from a rebound in risk appetite, cryptocurrencies were also benefiting from speculation that Russians were using digital assets to evade Western sanctions as well as the capital controls imposed by Moscow. The encouragement by Ukraine’s government for international donations to be made in cryptos to help its war efforts also likely boosted prices during March.

However, the mood has faltered dramatically in April as intensifying expectations that the Federal Reserve will hike interest rates multiple times this year has dented confidence in riskier assets. Although in the past, Bitcoin has illustrated some convincing correlation with safe havens such as gold, its relationship with risk assets has been even stronger lately.

Mounting headwinds

Stocks have been hammered this month on fears that soaring inflation, rising borrowing costs and lingering supply disruptions will slow growth in the major economies, if not tip them into outright recession. In the United States, where inflation is at a four-decade high and the Fed is expected to hike rates by at least another 200 basis points this year, the yield on 10-year Treasury notes came close to reaching 3% last week for the first time in more than three years. This has been weighing on tech and growth stocks, which are more sensitive to long-term lending rates.

An overall better-than-expected earnings season for Q1 has provided some support but hasn’t been enough to turn Wall Street around amid all the gloom. However, although this is spurring many traders to seek less risky investments, cryptocurrencies remain attractive as alternative assets. The heightened sense of uncertainty could therefore generate bouts of buying interest during this torrid period, especially on days where there are positive developments concerning the cryptocurrency market.

The Elon Musk effect

For example, Fidelity Investments announced on Tuesday it will start offering Bitcoin to retirement savers. The news was unable to offset the negative sentiment in the broader markets and could only offer a temporary lift, pushing it briefly above $40,000. Similarly, Monday’s gains on the back of Twitter’s acceptance of the takeover bid by Tesla boss, Elon Musk were also wiped out.

But this does nevertheless highlight that cryptocurrencies are unlikely to be ever entirely driven by equity markets. It’s also another reminder that the industry has yet to fully mature and is evolving fast, so prices will continue to be sensitive to headlines that involve either their growing adoption or fresh regulatory curbs.

Musk’s acquisition of Twitter could yet provide a more sustained boost to cryptos should speculation that the move will lead to the social media platform accepting Dogecoin as a payment system prove correct – something that would potentially benefit all digital coins.

Downslide may have further to go

In the meantime, however, Bitcoin’s bearish bias in the short term remains intact, though weakened slightly. The price slipped below its medium-term uptrend line last week and was blocked twice from stepping back above it. Although there is some upside pressure today, the Relative Strength index has some way to go before it can move back into bullish territory above 50.

If the selling pressure persists, the price could soon breach the longer-term ascending trend line, and this would then turn the focus on the $33,000 level.

However, if sentiment improves in the coming days, the 50-day moving average is a potentially difficult obstacle just above the $42,000 level that would have to be overcome. Though, for a more convincing rebound, Bitcoin would need to challenge the March peak of 48,234.

The Euro surged through key support at 1.0635 (2020 low) on Wednesday, extending steep fall into fifth straight day and hitting levels last traded in March 2017, after triggering stops parked below.

The single currency is pressured by risk aversion on worsening geopolitics, surging dollar, with stop of Russian gas supplies to Poland and Bulgaria today and strong fall in German consumer morale, adding to negative factors that weigh on Euro.

Close below broken 1.0635 pivot would signal an end of a cycle and open way for further losses as Euro is in extremely negative environment.

Bears eye initial supports at 1.0500 zone (Mar/Feb 2017 lows) followed by 1.0461 (Mar 2015 low) which guards key longer-term support at 1.0340 (Jan 2017 low), as the pair is on track for the biggest monthly fall since Jan 2015.

Minor price adjustments on strongly oversold conditions, are expected to offer better selling opportunities, as long as consequences from the Ukraine’s conflict persist.

Res: 1.0600; 1.0635; 1.0727; 1.0806
Sup: 1.0500; 1.0461; 1.0400; 1.0340

The euro continues to lose ground and is down for a fifth successive day. EUR/USD has fallen close to 1% today, as it trades at 1.0542.

Russia’s comments weigh on markets

The euro blues show no signs of easing, as the currency is getting pummeled by the US dollar. EUR/USD is down 2.34% this week and has plunged a massive 4.72% in April. Comments out of Moscow have dampened risk appetite and weighed on the wobbly euro. Russia is clearly perturbed by the shipments of weapons from the US and Western Europe to Ukraine, and Russian officials have responded with threatening rhetoric, warning that these weapon shipments are legitimate targets. Russian foreign minister Lavrov has added that the threat of nuclear war is “real”.

If this wasn’t enough to give investors the jitters, Russia announced that Poland and Bulgaria would have their natural gas supplies cut off if they did not pay in roubles. Moscow is raising the ante by the weaponisation of its energy supplies, a move that could have dire consequences for European countries dependent on Russian energy. In this bleak environment, it’s no surprise that the euro is under strong pressure, and could be headed for 1.0300 and even parity if the standoff between the West and Russia continues.

Another factor weighing on the euro is the Federal Reserve, which is tightening policy and is virtually certain to deliver a half-point rate increase next week. With Fed Chair Powell and other FOMC members saying that more half-point hikes could be on the way, an aggressive Fed is widening the US/Europe rate differential and making the euro less attractive to investors.

EUR/USD Technical

• EUR/USD continues to break through support levels. 1.0553 is under pressure, followed by support at 1.0411
• There is resistance at 1.0657 and 1.0728

The US dollar continues to reign supreme, capitalizing on bets for rapid-fire Fed rate increases and the troubles in other economies. Growth data for Q1 are out on Thursday and will reveal the early impact of the war in Ukraine. The numbers could be crucial for market expectations ahead of next week’s Fed meeting and by extension, for whether euro/dollar can sink towards parity. 

Dollar keeps going

The relentless rally in the US dollar shows no signs of slowing down. It is a story that reflects both solid US economic fundamentals and storm clouds gathering over the rest of the world. On the domestic level, the American economy is solid. The labor market is in good shape and consumers have not cut back spending, which allows the Fed to raise rates aggressively to tame inflation.

On the global stage, the invasion of Ukraine has been a curse for the euro and the Japanese yen. Since both economies import energy products, consumers are feeling the squeeze of rising living costs. That will ultimately hit economic growth and prevent those central banks from raising interest rates much.

The lockdowns in China have made this situation worse. Chinese imports have imploded as ports have been left paralysed, which spells bad news for European exporters that rely on Chinese demand. And with expectations of slower growth in China, the yuan has taken a beating along with commodity currencies like the Australian and New Zealand dollars.

In short, the dollar has been the only place to hide - not because the American economy is exceptional but rather because other regions are struggling.

GDP disappointment? 

On Thursday at 12:30 GMT, the latest batch of GDP data will hit the markets. Forecasts suggest the US economy grew by an annualized pace of 1.1% in the first quarter. That is a sharp slowdown from the 6.9% recorded in the previous quarter.

Most of this slowdown boils down to an unwind in inventories. Faced with goods shortages, many businesses loaded up on extra inventory last quarter, which artificially boosted GDP. This process is going into reverse now.

However, the Atlanta Fed GDPNow model is even more pessimistic, projecting growth at only 0.4%. This is usually a very reliable model, so a disappointment seems more likely than a positive surprise in the official figures.  

In case the GDP stats fall short of forecasts, euro/dollar could finally enjoy a relief bounce. If the bulls manage to pierce back above the 1.0635 zone, the next obstacle might be around 1.0755.

Can the dollar keep going?

The Federal Reserve meets next week. Markets have already priced in 50 basis points rate increases at each of the next four meetings including this one, so it is difficult for this pricing to get much more aggressive.

In other words, we might be near the ‘peak’ of Fed hawkishness. Ultimately this will depend on inflation and growth, but if the Fed goes any faster than this, there is a very real risk something might break - whether that is the stock market or the housing market.

Normally this would suggest that the dollar’s rally is on its last legs. Of course, this is only one side of the coin. With markets in turmoil and everybody bracing for a global slowdown, the dollar is also enjoying serious safe haven demand, which could keep the trend going. The next support barrier for euro/dollar is the 1.0490 region.

For a real trend reversal, the growth outlook for the rest of the world needs to improve. Some positive news from Ukraine would be a good start. Until then, it’s difficult to argue against the almighty dollar.

Bears are taking a breather on Wednesday after a steep fall in past four days, when risk-sensitive Aussie dollar was down 4.3%, pressured by s robust greenback and strong risk aversion.

Today’s release of Australian inflation data showed consumer prices rose well above expectations in Q1, signaling the RBA may start raising interest rates as early as next week that gave fresh boost to Australian dollar and paused larger bears.

The price action is holding around Fibo 76.4% of 0.6967/0.7661 (0.7131) which was dented by a brief close below on Tuesday, failure to register a clear break lower would further question bears.

Daily studies remain in full bearish setup, but momentum is turning north in the deep negative territory that gives initial signal that bears may stay on hold for some time.

Today’s action is also forming an inverted hammer candle that would add to positive signals if the candle will be validated on closing.

Otherwise, the downside will remain at high risk, with repeated close below 0.7131 pivot to unmask initial targets at 0.7090 zone and psychological 0.70 support.

Res: 0.7131; 0.7190; 0.7232; 0.7261.
Sup: 0.7100; 0.7086; 0.7051; 0.7033.

Markets

Russia yesterday moved to a next phase in the war of retaliatory economic sanctions, cutting of gas supply to Poland and Bulgaria as they refuse to pay in ruble. However, the market reaction was ‘remarkably’ guarded. Risk sentiment even improvement after yesterday’s outright risk-off session. European equities trade with modest gains (0.0%/0.5%). US indices also regained an, albeit limited, part of yesterday’s steep losses. Positive earnings from bellwethers (Microsoft, Daimler amongst others) apparently supported some dip-buying. European gas prices jumped sharply higher at the open, but intraday gains gradually eased. Crude oil also maintains most of yesterday’s gain but near $104 p/b, Brent currently trades in what has become ‘familiar’ territory. Other commodities like iron ore or copper stabilized or gain slightly. Maybe the explanation is a bit more positive as it might be (partially) inspired by China’s intentions to engage in big infrastructure projects to support ailing economic growth. Aside from a more constructive equity performance, interest rate markets also entered calmer waters. After tumbling sharply lower yesterday, the US yield curve succeed a modest bear flattening trend with the 2-y yield rising 4.5 bps and the 30-y gaining 2.5 bp. There is no Fed speak due to the black-out period ahead of next week’s policy meeting and visibility on growth and inflation for sure didn’t improve. However, after yesterday’s correction, markets concluded that there is no profound reason yet to question the Fed guidance on aggressive policy frontloading. German yields, which decline less than their US counterparts yesterday, show a bull flattening trend with yields are ceding up 5.5 bps (2-y/5-y) to 1.5 bp (30-y). The escalation in economic sanctions between Russia and the US apparently causes further uncertainty on decisive ECB policy action. It also doesn’t help peripheral bond markets. In a daily perspective, widening remains modest. However, at 177 bps the 10-y Italian spread is near the highest level since June 2020.

No change of trend on the FX market. The dollar continues to shine with the DXY index testing the corona top at 103. At the same time, the picture of the euro looks ever more ugly. EUR/USD fiercely cleared the previous YTD low at 1.0636, currently trading at 1.0560, the lowest level since March 2017. The EUR/USD 1.0341 (2017 low) and even the parity level are looming on the horizon. After a brief setback, USD/JPY also resumes its uptrend (128.1). As investors are counting down to tomorrow’s BoJ policy decision. Sterling remains in the defensive as cable (1.255) set a new correction low, but outperforms an even weaker euro (EUR/GBP 0.841). In CE markets, the zloty (EUR/PLN 4.70) and Czech krone (EUR/CZK 24.5) regain slight ground after yesterday’s setback. The forint underperforms with EUR/HUF testing the 380/382 resistance area.

News Headlines

The German government cut the 2022 outlook from 3.6% to 2.2%, a move that reflects the impact of soaring prices on consumers and companies, burdened by uncertainty from the war in Ukraine. Growth is expected to pick up marginally in 2023 to 2.5%. Germany’s Economy Ministry predicts inflation to average 6.1% this year before slowing down to 2.8% in 2023. Both growth and inflation dynamics depend largely on geopolitical developments. Russia cut off gas flows to Poland and Bulgaria and threatened to do the same with other countries labeled “unfriendly”. This includes Germany and, if targeted, may affect output and prices dramatically in a stagflationary way. German inflation numbers are due tomorrow while Q1 GDP numbers will be published on Friday.

The US’s goods trade deficit soared to a record high in March. The balance came in at -$125.3bn, the biggest deficit ever recorded and eclipsing the previous record in January of -$107bn. At first glance, this may negatively affect Q1 GDP numbers (due tomorrow) through lower net-exports. Another batch of US data, however, showed a strong inventory buildup in both February (2.6% wholesale, 1.5% retail) and March (2.3% and 2%), contributing positively to GDP. It suggests the US seized the opportunity of restocking via imports before new snarls hit supply chains (eg. China lockdowns).

Daily Pivots: (S1) 126.76; (P) 127.49; (R1) 127.96; More...

Intraday bias in USD/JPY remains neutral as consolidation form 129.39 is still extending. Deeper retreat could be seen but downside should be contained above 125.09 resistance turned support to bring another rally. On the upside, above 129.39 will target 130.04 long term projection level next.

In the bigger picture, the break of 125.85 resistance (2015 high) suggests that whole up trend from 75.56 (2011 low) is resuming. Further rise should be seen to 61.8% projection of 75.56 (2011 low) to 125.85 (2015 high) from 98.97 at 130.04. Sustained break there wave the way to 147.68 (1998 high). For now, this will remain the favored case as long as 121.27 support holds.

Daily Pivots: (S1) 0.9584; (P) 0.9606; (R1) 0.9647; More....

USD/CHF's rally is still in progress and outlook is unchanged. Intraday bias remains on the upside for next projection level at 0.9864. On the downside, below 0.9602 minor support will turn intraday bias neutral and bring consolidations. But downside of retreat should be contained well above 0.9372 resistance turned support to bring another rally.

In the bigger picture, down trend from 1.0342 (2016 high) should have completed with three waves down to 0.8756 (2021 low) already. Rise from 0.8756 is likely a medium term up trend of its own. Next target is 100% projection of 0.8756 to 0.9471 from 0.9149 at 0.9864. This will now remain the favored case as long as 0.9459 resistance turned support holds.

Daily Pivots: (S1) 1.2507; (P) 1.2639; (R1) 1.2708; More...

GBP/USD's down trend is extending and outlook is unchanged. Intraday bias remains on the downside for 161.8% projection of 1.3641 to 1.2999 from 1.3297 at 1.2258. On the upside, above 1.2696 minor resistance will turn intraday bias neutral and bring consolidation first, before staging another decline.

In the bigger picture, rise from 1.1409 (2020 low) has completed at 1.4248, ahead 1.4376 long term resistance (2018 high). Decline from 1.4248 could still be a corrective move, or it could be the start of a long term down trend. In either case, deeper decline would be seen back to 61.8% retracement of 2.1161 to 1.1409 at 1.2493. In any case, break of 1.3158 support turned resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

Daily Pivots: (S1) 1.0602; (P) 1.0671 (R1) 1.0705; More...

Intraday bias in EUR/USD remains on the downside for 100% projection of 1.1494 to 1.0805 from 1.1184 at 1.0495. Firm break there will pave the way to 161.8% projection at 1.0069. On the upside, above 1.0654 minor resistance will turn bias neutral and bring consolidations. But upside should be limited by 1.0756 support turned resistance to bring fall resumption.

In the bigger picture, the decline from 1.2348 (2021 high) is expected to continue as long as 1.1185 support turned resistance holds. Firm break of 1.0635 (2020 low) will raise the chance of long term down trend resumption and target a retest on 1.0339 (2017 low) next. Nevertheless, break of 1.1185 will maintain medium term neutral outlook, and extending term range trading first.