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Market Picture

Bitcoin continues its attempts to break through resistance at $25K. Volatility was muted on Monday as the primary driver of it – US equity markets – was closed yesterday. Cryptocurrency market capitalisation rose 1.2%.

According to CoinShares, investments in cryptocurrencies fell by $32 million last week, the second consecutive week of declines and the highest in seven weeks. Investments in Bitcoin fell by $25 million and Ethereum by $7 million. Investment in funds that allow to short bitcoin increased by $4 million.

Despite bitcoin’s unsuccessful attempts to consolidate above $25K, intraday pullbacks from this resistance are becoming smaller, indicating a continued buying-the-dip pattern. A break above $25K is only a matter of time, potentially opening the door to $28K.

News Background

Galois Capital, one of the world’s largest cryptocurrency-focused hedge funds, announced its closure. The fund lost around half of its capital after the FTX collapse.

The next cryptocurrency bull market will start in the East. The US will only have two options: embrace cryptocurrencies or be left behind, said Gemini exchange co-founder Cameron Winklevoss. Such comments came amid moves by US regulators against cryptocurrency companies.

The G20’s Financial Stability Board (FSB) intends to draw up standards for cryptocurrency regulation by July.

Hong Kong will allow retail investors to trade cryptocurrencies on exchanges. Trading venues will be subject to mandatory licensing.

Meanwhile, Binance’s introduction of a zero fee for bitcoin trading and the collapse of the FTX exchange allowed it to capture 98% of the BTC spot trading market.

Germany ZEW Economic Sentiment rose form 16.9 to 28.1 in February, above expectation of 22.8. Current Situation index rose from -58.6 to -45.1, above expectation of -50.0.

Eurozone ZEW Economic sentiment rose form 16.7 to 29.7, above expectation of 22.3. Current Situation Index rose 13.2 pts to -41.6.

ZEW President Professor Achim Wambach said: "Meanwhile a large fraction of the survey participants expects the economic situation to improve in six months' time. However, the current situation is still assessed as relatively unfavourable.

"As in the previous month, the increase in expectations can be traced back to higher profit expectations in the energy- and export-oriented sectors as well as the consumer-related parts of the economy. Expectations for long-term interest rates are also rising and the banking sector indicator has reached its highest level since 2004."

Full release here.

UK PMI Manufacturing rose from 47.0 to 49.2 in February, a 7-month high. PMI Services rose sharply from 48.7 to 53.3, an 8-month high. PMI Composite jumped from 48.5 to 53.0, an 8-month high.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: "Much better than anticipated PMI data for February indicate encouraging resilience of the economy in the face of headwinds which include rising interest rates, the ongoing cost of living crisis, labour shortages and strikes...

"However, while the data suggest that near-term recession odds have fallen considerably, elevated inflation pressures clearly remain a concern, especially in the service sector. As such, the resilience of the economy and the stickiness of the survey's inflation gauges add to the likelihood of the Bank of England tightening policy further, and potentially more aggressively, which may dampen future growth expectations and suggests that the possibility of recession later in the year should not be ruled out."

Full release here.

Asian shares traded mostly lower on Tuesday along with US and European futures as investors adopted a cautious approach ahead of the reopening of the US markets after the President’s Day holiday.

Mounting diplomatic tensions between the United States and China, coupled with the prospects of the Fed maintaining its hawkish path have left market players on edge. This sense of unease and growing uncertainty may drag equity markets lower this week. In the currency space, dollar bulls were offered some support as Treasury yields climbed. Gold struggled for direction while oil prices slipped as expectations of more Fed rate hikes clashed with optimism over Chinese demand.

In other news, the minutes from the recent Reserve Bank of Australia meeting struck a hawkish tone with the central bank considering raising interest rates by 50bps. The bank eventually proceeded with a 25bp hike with policymakers agreeing that more interest rate increases were needed down the road to tame price pressures. Given how headline inflation jumped to 7.8% in the final quarter of 2022 from 7.3% in Q3, RBA hawks will remain in a position of power. Looking at the technical picture, AUDUSD remains trapped within a messy range on the daily charts. While a breakout could be on the horizon, a fundamental spark might be needed to get the gears turning.

Will the Fed Minutes Boost USD?

Market expectations around the Fed maintaining its hawkish bias have been boosted by robust US economic data since the start of February coupled with a sticky inflation report. This development has injected dollar bulls with renewed confidence, leaving G10 currencies sore and vulnerable. Despite the dollar's recent rebound, bulls could be rallying on shaky foundations. Markets expect the Fed to raise interest rates by 25bps in March with the Fed funds rate expected to peak around 5.3% by the summer. Given how the current inflation rate of 6.4% is the lowest since October 2021, further signs of cooling inflation may temper further rate hike bets.

All eyes will be on the FOMC meeting minutes on Wednesday which will be closely scrutinised for clues about the rate hike path. The key question is whether a 50bp rate hike could have been a possibility during its first meeting in 2023. Ultimately, the overall tone of the minutes and any fresh clues regarding rate hike timelines will most likely impact the dollar.

Currency spotlight – EURUSD

Over the past two weeks, it’s been the same old story with the EURUSD as prices remained trapped within a 150-pip range. While the euro has drawn support from ECB hike expectations and improving confidence towards the Eurozone economy, the dollar remains strengthened by speculation of more Fed rate hikes. This growing tension between the two currencies could result in a strong breakout in the major, with a fundamental spark needed to get things moving. It may be wise to keep an eye on the Eurozone February ZEW survey and PMIs out of Europe and the United States today.

Talking technicals, a strong daily close below 1.0650 in EURUSD could signal a decline towards 1.0500. Should 1.0650 prove to be reliable support, prices may retest 1.0800.

Commodity spotlight - Gold

Could we be experiencing the calm before the gold storm this week? The precious metal struggled for direction during early trade, lingering below $1840 as investors waited on the sidelines ahead of the Fed meeting minutes on Wednesday.

It has been a rough month for gold so far thanks to the strong jobs and hot inflation data from the United States pushing up Treasury yields. Hawkish comments from Fed officials rubbed salt into the wound with gold currently down 4.7% month-to-date. Given how the precious metal is enroute to experiencing its first monthly loss since October 2022, bulls need to get their mojo back. But a hawkish set of Fed minutes will most likely add insult to injury, potentially dragging prices toward $1800. Such a development may invite further downside in the short to medium term.

Eurozone PMI Manufacturing dropped from 48.5 to 48.8 in February. PMI Services rose from 50.8 to 53.0, an 8-month high. PMI Composite rose from 50.3 to 52.3, a 9-month high.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:

"Business activity across the eurozone grew much faster than expected in February, with growth hitting a nine-month high thanks to resurgent service sector activity and a recovering manufacturing economy. February's PMI is broadly consistent with GDP rising at a quarterly rate of just under 0.3%....

"However, although inflationary pressures have continued to moderate in February, the survey hints at persistent elevated price trends in the service sector, linked in part to higher wage growth, which will concern ECB policymakers....

"The combination of accelerating growth and stubbornly elevated price pressures will naturally encourage a bias towards further policy tightening in the months ahead."

Full release here.

It hasn't been the most thrilling start to the week but the good news is that it should improve from here as the US rejoins and the economic calendar fills out.

We were basically treading water on Monday which is often the case on a US bank holiday. The fact that the calendar was as thin as it was elsewhere naturally doesn't help and it may be no bad thing either. We've become so accustomed to relentless action in the markets this past year in particular that a day of calm can be a good thing. But don't expect it to last.

This week may not be as all-action as others we've experienced this month but there is still plenty for investors to get their teeth stuck into. Today is littered with economic releases throughout, with the PMIs being a key feature of that. At a time of such uncertainty over inflation, interest rates, and the economy, these forward-looking business surveys carry extra weight. And what's more, they're expected to show businesses are becoming less pessimistic which would be a small win but a win nonetheless.

That said, the Japanese manufacturing PMI was expected to do just that and instead dipped much further into contraction territory. The decline was driven by lower output, new orders, and new export orders; once again indicating waning global demand and trade. The services survey was much better but that is being driven by improved tourism as restrictions were removed, and government support. All in all, there are more concerning signs than promising ones.

Unnerved

The RBA minutes from earlier this month highlighted how unnerved policymakers are by recent inflation developments, with a pause in tightening not even discussed despite that at one stage appearing to be where the central bank was heading. In fact, the debate centered around whether there was a need to accelerate the hiking cycle which may unsettle investors that have become more relaxed on the belief that the end is near.

The message, often not heard, from policymakers around the world has consistently been that there's more to do and that rates may need to stay higher for longer but investors have not always been receptive to that. That seems to be changing and a 50-basis point hike would have very much driven that home but the RBA instead opted for 25 this time, backed by the belief that monthly meetings allow for a more gradual exit. ​

Choppy trading continues

Oil remains choppy this week with Brent and WTI slipping around 1% in early trade on Tuesday, wiping out similar gains at the start of the week. There is undoubtedly more optimism around the Chinese economy which will stimulate more demand this year but at the same time, sentiment is cooling on the global economy as interest rates are projected to go a little higher than previously anticipated.

This was always likely to be a quarter of big swings in sentiment as it was too much to ask for the inflation data to simply retreat back without any setbacks along the way. That naturally has consequences for economic expectations and therefore oil demand which is why we could see the market remain choppy over the rest of this quarter and into next.

Correction losing momentum

Gold is edging lower once more today following some choppy trade at the start of the week. While bulls may be encouraged by Friday's rebound, others may take a little more convincing. That it came around notable support, in the $1,820 region, and on weaker momentum could be the biggest sign that the corrective move is seeing pushback.

That isn't to say it's fully run its course and we could see the yellow metal pare losses before the correction continues but near-term prospects are looking a little more promising. The first test in any recovery may come around $1,860, with $1,890-$1,900 then being a major test of resistance.

Can Bitcoin overcome major resistance?

There is no shortage of optimism in bitcoin this year and it's continuing to push higher again today. The cryptocurrency is trading close to $25,000, a huge test considering the scale of recovery we've seen in the last seven weeks. The region around $24,500-$25,500 was big on the way down so it will be a big psychological test this time around, too. But with bitcoin up around 50% already this year, you have to wonder how much further it can go.

Germany PMI Manufacturing dropped from 47.3 to 46.5 in February. PMI Services rose from 50.7 to 51.3, an 8-month high. PMI Composite rose from 49.9 to 51.1, also an 8-month high.

Phil Smith, Economics Associate Director at S&P Global Market Intelligence said:

"February's flash PMI survey showed the German private sector economy return to growth territory for the first time eight months, alongside continued resilience in the labour market and a further slight recovery in business confidence.

"Encouragingly, the increase in business activity was broad-based by sector. However, whereas the upturn in services activity was at least partly demand-related, higher manufacturing output owed almost exclusively to a substantial easing of supply-chain bottlenecks, which merely allowed goods producers to catch up on backlogs of work. With manufacturing new orders still in contraction territory, goods producers remain only cautiously optimistic about the year-ahead outlook, and they will likely need to see demand revive for that to change.

"The cooling of demand in the goods-producing sector and subsequent easing of supply-chain pressures has seen factory input costs start to fall. Still, like their service sector counterparts who once again highlighted particularly strong wage demands, manufacturers continued to raise their output prices at a robust rate during February, signalling that core inflationary pressures remain elevated. However, the rate of increase in average prices charged for goods and services continued to slow, down to its lowest since May 2021."

Full release here.

France PMI Manufacturing dropped notably from 50.5 to 47.9 in February. PMI Services, on the other hand, rose from 49.4 to 52.8. PMI Composite rose from 49.1 to 51.6, hitting a 7-month high.

Joe Hayes, Senior Economist at S&P Global Market Intelligence said:

"At face value, the February 'flash' PMI survey results for France are positive, showing the economy was in growth territory for the first time since October 2022. More encouragement could be taken from the underlying sector data, which showed the expansion was driven by services, a sector which has been under pressure due to the negative demand impact of eroding real incomes.

"However, it's difficult to say for certain if we're at an inflexion point and the French economy is now on its path to recovery. The manufacturing sector downturn intensified in February, and demand conditions within this sector are clearly still fragile. Factory export orders fell at the sharpest rate since May 2020, providing a downbeat assessment of broader global economic conditions.

"The likelihood of further increases in interest rates also remains, and this poses a risk to demand and activity. Inflation remained stubborn in the service sector, with rates of input cost and output price inflation holding close to their peaks. How much needs to be done by monetary policymakers to push this lower is uncertain, although sustained resilience in the labour market suggests more needs to be done to take heat out of the French economy."

Full release here.

The US 500 (cash) index is losing some momentum around the 4,050 level but it remains above the medium-term uptrend line and also well above the long-term descending trend line. The index failed to surpass the 4,200 round number with the technical oscillators suggesting that more gains may be on the cards. The RSI is resting near the neutral threshold of 50 after the fall from 70 level, while the MACD is heading south below its trigger line in the positive territory.

The 4,200 number is the nearest resistance that could reject any attempt higher. If not and the price extends positive momentum, the 4,325 barrier, registered back in August 2022 could take over ahead of the 4,600 hurdle.

On the flip side, a downside reversal below the 4,000-4,050 support region and the ascending line could bring the 50- and the 200-day simple moving averages (SMAs) at 3,980 and 3,940 respectively. Should it fail to hold, the 100-day SMA at 3,910 would be the next target, while a steeper decline could also reach the 3,885 barrier, where any violation would raise fears over a down-trending market.

In the medium-term window, the sentiment is turning positive following the break above 4,000 and the key resistance trendline which re-activated the uptrend off the 3,500 low. A closing price above 4,200 would confirm the outlook reversal.

GBPUSD has been attempting a solid recovery since September when the pair fell to an all-time low of 1.0324. However, this latest advance appears to be fading after being rejected twice at the 1.2445 region, while the price has been trading sideways between the 50- and 200-day simple moving averages (SMAs) in the past three weeks.

Despite the latest consolidation, the momentum indicators currently suggest that bearish forces have taken control. Specifically, the RSI is pointing downwards below the 50-neutral mark and the MACD histogram is currently found below both zero and its red signal line.

To the downside, if the pair extends its recent downside correction, the congested region between the 200-day SMA and the recent low of 1.1914 could act as the first line of defence. Should that floor collapse, the January low of 1.1840 might come under examination. Even lower, the pair may face the October resistance of 1.1645, which could act as support in the future.

Alternatively, should buyers re-emerge and push the price above its 50-day SMA, initial resistance may be met at the recent peak of 1.2270. Breaking above that zone, the price could ascend to test the crucial 1.2445 territory, which rejected the pair’s rebound twice. Failing to halt there, further advances could come to a halt at the May high of 1.2666.

In brief, GBPUSD remains stuck in a rangebound pattern as its 50- and 200-day SMAs have repeatedly capped both its upside and downside. Therefore, a break above or below this tight range is likely to be followed by a significant move in the same direction.