Sample Category Title

It has been a very interesting start to the new year. Omicron concerns have been replaced by tightening fears. Tech stocks are no longer racy. Everyone wants to own value stocks such as banks. Investors are realising that the era of zero interest rate policy is coming to an end, because of inflation and the fact the US and global economies have weathered the storm of Covid. There’s hope that this omicron wave might be the last hurrah of Covid before the pandemic turns into endemic. South African researchers have gone as far as to say Omicron may mark the end of the pandemic.

Investors are now looking ahead in trying to anticipate how the Fed and other central banks might respond if the economy evolves as expected. Every word the Fed says will be examined, like how investors observed the FOMC’s meeting minutes from the December meeting that were released on Wednesday. In a bid to keep the US economy from overheating amid high inflation and near-full employment, the FOMC indicated that the outlook “could warrant a potentially faster pace of policy rate normalization.”

Investors since been bidding up yields, and on Friday the US 5-year and 10-year yields broke above their 2021 highs despite a mixed US jobs report. This triggered further selling of tech stocks, while value pushed higher.

Although headline jobs disappointed yet again with a print just shy of 200K, it didn’t matter in the eyes of investors because hourly earnings beat expectations with a print of +0.6% m/m vs. 0.4% eyed, taking the y/y rate to 4.7%.

It is worth watching the 10-year yields closely as we look forward to the week ahead when more US data including CPI are released (see data highlights below). The dollar rally could accelerate, while value stocks could shine even brighter.

Source: ThinkMarkets and TradingView.com

Macroeconomic highlights

Monday: Eurozone Sentix Investor Confidence

Tuesday: Fed Chair Powell testifies and speeches by Fed’s Mester and George

Wednesday: Eurozone industrial production and US CPI m/m

Thursday: US PPI and Unemployment Claims

Friday

• UK construction output and manufacturing production
• German Prelim GDP
• US Core Retail Sales, Industrial Production, and Prelim UoM Consumer Sentiment and Inflation Expectations

[php_everywhere instance="1"]

EUR/USD: Awaiting the January FOMC Meeting

The EUR/USD pair has been in a sideways trend for seven weeks in a row, moving along the horizon 1.1300 in the 1.1220-1.1385 channel. Even the publication of the protocols could not get it out of this state of the December FOMC (Federal Open Market Committee) meeting of the US Federal Reserve, which confirmed the seriousness of this central bank's intentions to tighten monetary policy and strengthen dollars. Apparently, the regulator is frightened by the rate of inflation in the country. In addition, it did not expect the Omicron coronavirus strain to have a significant negative impact on economic activity in the United States.

To normalize the situation, the Fed decided to finally stop the printing press and move on to raise interest rates. The roadmap for the near future includes three main points: 1) the curtailment of the emergency stimulus program in March; 2) three increases in the key rate in 2022, the first of which may also occur in March, after which 3) the regulator will begin to normalize the balance.

These intentions of the Fed led to a sharp outflow of funds from risky assets. Stock indices and cryptocurrency quotes collapsed, while US Treasury yields and the DXY dollar index went up. Although, it should be noted that the strengthening of the US currency was insignificant: the dollar won back only 45 points against the euro, dropping the EUR/USD pair from 1.1345 to the Pivot Point 1.1300.

The release of data from the US labor market on Friday, January 7th could be another important event of the week. The number of new jobs outside the agricultural sector (NFP) was expected to grow from 249K to 400K. However, it fell to 199K instead. On the other hand, the unemployment rate fell from 4.2% to 3.9% against the forecast of 4.1%. Thus, investors did not receive any clear signals, and the pair completed the weekly session near the upper border of the side corridor, at 1.1360.

According to some experts, the difference in the hawkish attitude of the Fed and the dovish attitude of the ECB should eventually lead to a further strengthening of the dollar and the movement of the EUR/USD pair to the south.

Recall that the European regulator, although it raised the inflation forecast for 2022 at its last meeting in 2021, still considers it a temporary phenomenon, which is why it is not worth it yet to worry. It was announced once again that the refinancing rate will remain at the current level until inflation reaches the target level of 2.0% and will remain there for a long time. Eventually, the "main" result of the December meeting of the ECB was the head of the bank Christine Lagarde's statement that the rate hike in 2022 was "very unlikely".

Strategists of the Dutch banking ING Group (Internationale Nederlanden Groep) have voted for the strengthening of the US currency. They believe that the EUR/USD pair will fall to the 1.1100 zone in Q2 and Q4 of this year, and it will be even lower at 1.1000 in Q4. Analysts of one of the largest financial conglomerates in the world, HSBC (Hongkong and Shanghai Banking Corporation) are in solidarity with ING, predicting a downward trend of this pair as well.

CIBC (Canadian Imperial Bank of Commerce) designated the following route for EUR/USD: Q2 - 1.1100, Q3 - 1.1000, Q4 - 1.1000. The JP Morgan financial holding assessed the pair's prospects more modestly, pointing to the level of 1.1200.

However, there is an opposite opinion among experts. For example, Barclays Bank already considers the dollar to be highly overvalued. Therefore, it is expected to depreciate moderately against the backdrop of rising risk appetites and commodity prices, caused by the recovery of the global world economy and cooling inflation. The Barclays scenario written for EUR/USD looks like this: Q1 - growth to 1.1600, Q2 - 1.1800, Q3 and Q4 - movement in the 1.1900 zone.

Morgan Stanley believes that the Fed's rate hike will proceed fairly smoothly, while other central banks will move from dovish to hawkish politics. This will lead to a convergence in the actions of regulators, put pressure on the dollar and raise the EUR/USD pair to 1.1800. The Goldman Sachs strategists call the same goal.

As for the near term, despite the poor NFP indicators, we can expect that the pair will continue to move along the level of 1.1300 until the January Fed meeting, fluctuating in in the range of 1.1220-1.1385 with the predominance of bearish sentiment. 70% of analysts agree with this forecast. 15% have taken a neutral position and another 15% side with the bulls.

The readings of the indicators on D1 are inconsistent as they are under the influence of a multi-week sideways trend. Among the oscillators, 60% point to the north, but 20% are already signaling that the pair is overbought, 20% point south, and 20% point east. Trend indicators have 55% green and 45% red.

The nearest resistance level is 1.1385, then 1.1435-1.1465 and 1525. The nearest support level is at 1.1275, followed by 1.1220. This is followed by the last November 24 low of 1.1185 and the zone 1.1075-1.1100.

The economic calendar of the coming week is highlighted by the publication on January 12, 13 and 14 of a whole pool of macro-statistics from the USA. It will include consumer price indices and retail sales indices, producer price indices, and retail sales volumes in December 2021.

GBP/USD: BoE Hawks vs Fed Hawks

The fact that, unlike the Fed and the ECB, the Bank of England launched an attack on rising prices in December made a strong impression on the market. After inflation in the UK rose to 5.1%, reaching a 10-year peak, the regulator raised the rate for the first time in three years from 0.1% to 0.25%. The decision was made despite the worsening epidemiological situation due to the new coronavirus strain. According to the head of the Bank of England, Andrew Bailey, the number one task is to curb price pressure on the economy and society.

Of course, the rate hike by 15 basis points cannot be called significant, but, most importantly, the first step has already been taken, and the market expects the second rate hike in February.

Such expectations continue to support the British currency, and the GBP/USD pair updated its eight-week high on January 05, reaching 1.3598. The finish of the five-day period took place slightly lower, at 1.3590.

Strategists at the British investment Barclays Bank believe that the pound is still very undervalued, and that the policy of the US Federal Reserve will eventually lead to a moderate depreciation of the dollar. They do not exclude that due to the new wave of COVID-19 and difficulties in relations with the EU due to Brexit, the pair may drop to 1.3300 in Q1. However, then it will go up again (Q2 - 1.3700, Q3 - 1.4000) and will return to the 2021 highs by the end of the year (Q4), rising to the level of 1.4200.

Capital Economics, one of the leading independent research centers in the UK, has taken the opposite position. Its specialists, on the contrary, expect the pound to weaken, and refer to a combination of 1) weak economic growth, 2) slowdown in inflation and 3) slowness of the Bank of England. These three factors, in their opinion, may lead to the fact that the UK regulator decides to raise the rate only to 0.5% in the coming months, instead of 1.0%, which will greatly disappoint the markets.

But, in addition to the growth and fall of the British currency, there is a third scenario. ING Group analysts predict that the pound will be somewhere in the middle of a triangle of a stronger US dollar, stable commodity currencies and weaker low-yielding currencies. Therefore, according to their scenario, the GBP/USD pair will move sideways along the horizon of 1.3400.

If we talk about the near future of the pair, 40% of analysts vote for its growth above the level of 1.3600, 50% vote for a fall below 1.3400 and 10% for a sideways trend.

The indicators on D1 have a pretty summery mood. Among the oscillators, 100% is colored green, although 25% of them are already in the overbought zone. Among trend indicators, 90% are green and only 10% are red.

The supports are located at 1.3525, 1.3480, 1.3430, 1.3375, the next strong support is 100 points lower. Resistance levels are 1.3600, 1.3735, 1.3835.

Important macro-statistics from the UK will be scarce next week. We can only note the data on the volume of production in the manufacturing industry, which will become known on Tuesday January 11 and Friday January 14.

USD/JPY: Pair at 5-Year High

The color of the indicators for this pair is also predominantly green. However, unlike GBP/USD, this does not indicate a weakening of the dollar, but, on the contrary, its strengthening.

We wrote a week ago that Japan needs a weak national currency. Thus, the head of the Bank of Japan, Haruhiko Kuroda, has recently said that a weak yen would rather help the country's economy than harm it. According to the senior official, if the yen falls, it will support exports and corporate profits. And if you look at the USD/JPY chart, his words do not differ from the deeds: the pair updated its high on January 04 and rose to the point where it has not been seen since January 2017, to the height of 116.35.

According to ING Group experts, the growth will not stop there, and we will see the pair at a height of 120.00 by the end of the year. Morgan Stanley also prefers the dollar, expecting growth to 118.00. On the contrary, Goldman Sachs believes that the pair will fall to 111.00 by 2023.

The pair finished last week at 115.55. As already mentioned, despite the slight correction, most of the indicators on D1 point north. Among the oscillators there are 90% of those (10% of them are signaling the pair being overbought), the remaining 10% are colored neutral gray. Among trend indicators, 85% recommend buying, 15% - selling. Experts also agree with the indicators: 80% of them side with the bulls, 0% for the bears, 20% choose neutrality. Support levels are 115.50, 115.00, 114.25, 113.75, 113.20, 112.55 and 112.70. The nearest resistance level is 116.35.

CRYPTOCURRENCIES: A Full Crypto Winter? Or Temporary Freezes?

it is the middle of winter in the northern hemisphere of the planet Earth. And the weather on the crypto market is corresponding, below zero. Quotes are falling, and there is not even a hint of warming so far. Another cold wave arose after the news appeared on the night of January 06 that the US Federal Reserve is ready to raise the key interest rate earlier and at a faster pace than was expected. This became clear from the published minutes of the December meeting of the Federal Open Market Committee (FOMC).

Inspired by this news, the bears went on the attack again. Anti-government unrest in Kazakhstan added anxiety to investors. Recall that a part of the miners immigrated there after the ban on mining in China, as a result of which Kazakhstan took the 2nd place in the world in BTC production (TOP-3: USA - 35.4%, Kazakhstan - 18.1%, Russia - 11.23%). The Internet was cut off due to the unrest in Kazakhstan, which led to a significant decrease in the hash rate on the BTC network.

These two events caused the BTC/USD pair to break through support around $46,000, where the 200-day moving average was passing, and fell below $42,000. Bitcoin's Crypto Fear & Greed Index fell to the Extreme Fear zone, hitting 15 points out of 100, indicating panic reigning in the market. The Bitcoin Dominance Index fell to 39.65%, hitting the May 2021 lows. (Recall that it was 95.88% at the maximum in 2013). Naturally, the collapsed bitcoin pulled the entire crypto market along with it. If its total capitalization was $2.439 trillion on December 27, it lost almost 19% by January 7 and fell to $1.980 trillion, breaking through an important psychological level of $2 trillion.

It should be noted that the attack of bears on the eve of the next meeting of the US Federal Reserve on January 26 was predictable. Our weekly crypto news review quoted economist Alex Kruger as saying that "investors should be expected to exit risky assets ahead of the Fed meeting." Which is exactly what happened.

The next line of active defense of the bulls, according to a number of experts, awaits bears in the $39,500- $41,900 zone. It is there, near the low of last April 12, is the range of high liquidity, according to the TradingView publication. It was not withdrawn even before the last wave of the asset's rally, when the price of bitcoin hit an all-time high.

Despite the fact that the crypto market is falling for the eighth week in a row, many experts and investors are hoping for the imminent arrival of the crypto spring. For example, Block.One co-founder, former actor and former US presidential candidate Brock Pierce is confident that bitcoin could reach $200,000 this year. Governments are printing excessive amounts of money, thereby fueling inflation, and this will be the main reason for BTC to take off. "I wouldn't be surprised if bitcoin trades for $100,000. It is quite possible that it can jump over $200,000 for a moment," this influencer said optimistically.

Antoni Trenchev, co-founder and managing partner of Nexo, a major cryptocurrency lender (more than $6 billion), heralds a stellar future for the main digital asset. "I think bitcoin will reach $100,000 this year, perhaps by the middle of this year," he predicts.

The head of the investment company Ava Labs, John Wu, expressed the opinion in an interview with CNBC that the capitalization of the crypto market will exceed $5 trillion in 2022. According to Wu's forecast, digital assets have the potential to at least double their market value in the next year.

According to the head of Ava Labs, cryptocurrencies will be the only asset class that can withstand both the actions of the Fed and the record increase in inflation, which reached its maximum values in the US in almost 40 years in early December 2021. Wu also claims that the share of bitcoin will fall below 30% with the growth of the crypto market, although the price may exceed $75,000 per coin.

An interesting way to assess the prospects of the flagship cryptocurrency was proposed by analyst Benjamin Cowen. In his opinion, bitcoin has already bottomed out, although its decline may continue, somewhere up to $40,000. According to Cowen, it can be more revealing sometimes to value bitcoin not in the BTC/USD pair, but in comparison with other assets. As an example, he suggests looking at BTC paired with the S&P500 index. According to the expert, bitcoin has already reached critical support here, as "it is testing levels that were tested back in September".

The experts of Glassnode are in solidarity with Benjamin Cowen, although they use completely different methods of market analysis. According to their estimates, the BTC market indicators paint a fairly positive picture, since an increasing amount of this asset is becoming illiquid. Glassnode examined the dynamics and the supply performance of bitcoin in its report dated January 03, 2022. The results showed that the growth of illiquid asset supply accelerated last year, which now accounts for 76% of the total. Glassnode defines illiquidity as moving BTC to a wallet with no history of spending. The liquid stock of BTC, which is 24%, is in wallets that regularly spend or trade coins.

The figures indicate that more and more bitcoin is being transferred to storage, which indicates an increase in accumulation. The reduction in highly liquid supply also hints that there is no need to expect a major sell-off or surrender to the bears in the near future.

It will not be long to wait until the Fed meeting on January 26. We will see then whether such estimates are right. In conclusion, we just recall the words of the aforementioned Benjamin Cowen. "Anything is possible in the case of investment," he writes. "All models can be wrong, although some can be useful..."

EUR/USD continued to struggle in sideway trading last week and outlook is unchanged. Initial bias remains neutral this week first. On the upside, sustained trading above 55 day EMA (now at 1.1385) will bring stronger rise back to 1.1663 support turned resistance. On the downside, break of 1.1185 will resume larger decline from 1.2348. Next target is 161.8% projection of 1.2265 to 1.1663 from 1.1908 at 1.0934.

In the bigger picture, there are various ways of interpreting the fall from 1.2348 (2021 high). It could be a correction to rise from 1.0635 (2020 low), the fourth leg of a sideway pattern from 1.0339 (2017 low), or resuming long term down trend. In any case, outlook will now stay bearish as long as 1.1703 support turned resistance holds. Sustained break of 61.8% retracement of 1.0635 to 1.2348 at 1.1289 would pave the way back to 1.0635.

In the long term picture, EUR/USD has possibly failed 1.2555 cluster resistance (38.2% retracement of 1.6039 to 1.0339 at 1.2516) again. Long term outlook will remain neutral as sideway pattern from 1.0339 (2017 low) is extending with another medium term fall. For now, we'd hold back from assessing the chance of downside breakout, and monitor the momentum of the decline from 1.2348 first.

USD/JPY's up trend resumed last week and hit as high as 116.34. But a temporary top was formed ahead of 61.8% projection of 109.11 to 115.51 from 112.52 at 116.47. Initial bias remains neutral this week for some consolidations. Downside should be contained well above 114.26 resistance turned support to bring rally resumption. On the upside, firm break of 116.47 will pave the way to 100% projection at 118.90, which is close to 118.65 long term resistance.

In the bigger picture, no change in the view that rise from 102.58 is the third leg of the up trend from 101.18 (2020 low). Such rally should target a test on 118.65 (2016 high). Sustained break there will pave the way to 120.85 (2015 high) and raise the chance of long term up trend resumption. For now, this will remain the favored case as long as 112.52 support holds, in case of deep pull back.

In the long term picture, the rise from 75.56 (2011 low) long term bottom to 125.85 (2015 high) is viewed as an impulsive move, no change in this view. Price actions from 125.85 are seen as a corrective pattern which could still extend. In case of deeper fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77. Up trend from 75.56 is expected to resume at a later stage for above 135.20/147.68 resistance zone.

GBP/USD's rebound from 1.3158 extended higher last week and breached 1.3570 support turned resistance. The development affirms the view that corrective fall from 1.4248 as complete with three waves down to 1.3158, after hitting 1.3164 medium term fibonacci level. Sustained trading above 1.3570 will pave the way to 1.3833 resistance next. On the downside, though, break of 1.3489 minor support will mix up the outlook and turn intraday bias neutral first.

In the bigger picture, strong support was seen from 38.2% retracement of 1.1409 to 1.4248 at 1.3164. The development suggests that up trend from 1.1409 (2020 low) is still in progress. On resumption, next target will be 38.2% retracement of 2.1161 to 1.1409 at 1.5134. Nevertheless sustained break of 1.3164 will argue that whole rise from 1.1409 has completed and bring deeper fall to 61.8% retracement at 1.2493.

In the longer term picture, a long term bottom should be in place at 1.1409, on bullish convergence condition in monthly MACD. Rise from there would target 38.2% retracement of 2.1161 to 1.1409 at 1.5134. Reaction from there would reveal whether rise from 1.1409 is just a correction, or developing into a long term up trend.

USD/CHF rebounded to 0.9213 last week but retreated since then. Initial bias is neutral this week first. As long as 0.9084 support holds, choppy rise form 0.8925 could still extend higher. Above 0.9213 will target 0.9293 and then 0.9372. However, break of 0.9101 will resume the fall from 0.9372 instead.

In the bigger picture, the corrective structure of the rebound from 0.8925 argues that fall from 0.9471 is not complete yet. It could either be the second leg of pattern from 0.8756 (2021 low), or resuming larger down trend from 1.0237 (2018 high). We'd pay attention to the downside momentum and assess the odds later. But for now, medium term outlook will be neutral at best as long as 0.9471 resistance holds.

In the long term picture, price actions from 0.7065 (2011 low) are currently seen as developing into a long term corrective pattern, at least until a firm break of 1.0342 resistance.

AUD/USD dipped notably last week but stayed above 0.7081 support. Initial bias remains neutral this week first. On the downside, break of 0.7081 support will indicate that corrective rebound from 0.6992 has completed with three waves up to 0.7277, after hitting 55 day EMA. Intraday bias will be back on the downside for retesting 0.6991/2 support zone. Firm break there will resume larger down trend from 0.8006. On the upside, though, break of 0.7277 will turn bias to the upside to resume the rebound.

In the bigger picture, strong rebound from 0.6991 key structural support will retain medium term bullishness. That is, whole up trend from 0.5506 is still in progress. Firm break of 0.7555 resistance will target 0.8006 high and above. However, sustained break of 0.6991 will argue that the whole up trend from 0.5506 might be finished at 0.8006, after rejection by 0.8135 long term resistance. Deeper decline would then be seen back to 61.8% retracement of 0.5506 to 0.8006 at 0.6461.

In the longer term picture, focus remains on 0.8135 structural resistance. Decisive break there will argue that rise from 0.5506 is developing into a long term up trend that reverses whole down trend from 1.1079 (2011 high). However, rejection by 0.8135 will keep long term outlook neutral at best.

USD/CAD was bounded in range trading last week, between 1.2604/2962. Initial bias stays neutral this week first. On the downside, firm break of 1.2619 support will complete a head and should top pattern (ls: 1.2852, h: 1.2963, rs: 1.2812). That would also argue that whole pattern from 1.2005 has completed with three waves to 1.2963. Intraday bias will be back to the downside for 1.2286 support, and possibly further to 1.2005 low. On the upside, though, above 1.2963 will target 1.3022 key fibonacci resistance.

In the bigger picture, focus will be on 38.2% retracement of 1.4667 (2020 high) to 1.2005 (2021 low) at 1.3022. Sustained break there should confirm that the down trend from 1.4667 has completed after defending 1.2061 long term cluster support. Further rise would then be seen towards 61.8% retracement at 1.3650. On the downside, however, break of 1.2286 will turn focus back to 1.2005 low again.

In the longer term picture, we're viewing price actions from 1.4689 as a consolidation pattern. Thus, up trend from 0.9506 (2007 low) is still expected to resume at a later stage. This will remain the favored case as long as 1.2061 support holds, which is close to 50% retracement of 0.9406 to 1.4689 at 1.2048. However, firm break of 1.2061 support will argue that USD/CAD has already started a long term down trend. Next target is 61.8% retracement of 0.9406 to 1.4689 at 1.1424.

GBP/JPY rose further to 157.74 last week but retreated ahead of 158.19 resistance. Initial bias is neutral this week for some consolidation first. Further rise is expected as long as 154.86 support holds. Decisive break of 158.19 high will resume larger up trend to 167.93 long term fibonacci level. On the downside, below 154.86 minor support will turn intraday bias back to the downside for deeper pull back.

In the bigger picture, strong rebound from 148.93 key structural support retains medium term bullishness. Firm break of 158.19 high will resume whole up trend from 123.94 (2020 low), to 61.8% retracement of 195.86 to 122.75 at 167.93. Nevertheless, firm break of 148.93 will bring deeper correction to 38.2% retracement of 123.94 to 158.19 at 145.10, and possibly further lower, as a correction to up trend from 123.94 at least

In the longer term picture, as long as 55 month EMA (now at 147.06) holds, we'd still favor more rally to 61.8% retracement of 195.86 to 122.75 at 167.93. But sustained trading below 55 month EMA will at least neutralize medium term bullishness and re-open the chance of revisiting 122.75 low (2016 low).