Market News from FxPro

[FxPro_2022]

Bitcoin completes consolidation, but no FOMO on the horizon

Market picture
Alex Kuptsikevich, a senior analyst from FxPro reported that Bitcoin has added 4.4% in the past 24 hours to $20.2K, with the primary growth momentum during the NY session. Interestingly, growth did not pick up in early trading in Asia as it frequently does. On the contrary, there was a trend of cautious profit-taking.
Now on the daily charts of BTCUSD, there is a bullish picture, which we warned about earlier. The descending triangle has resolved with a growth impulse on higher volumes. As a result, the price surpassed and closed the day above the 50-day moving average and previous local highs at $19.6K.
However, bulls should be aware that the current situation is more like February 2019, when the cyclical bottom has been passed. Still, a FOMO rally is not yet on the horizon, as it was in October 2020, the last time we saw the start of a broad bullish rally in cryptocurrencies.

News background
Michael van de Poppe – founder and CEO of Eight – believes bitcoin will rise to $30K as early as November. BTC's possible rise is also supported by the asset's exodus from centralised exchanges.
According to audit firm KPMG, 58% of family offices and high-net-worth investors in Hong Kong and Singapore intend to invest in cryptocurrencies. Despite the interest, large investors' investments in crypto assets remain relatively small (less than 5% of their portfolio).
Bank of America points to the increasing correlation between gold and bitcoin prices. The cryptocurrency's limited issuance creates an environment where demand for BTC will increase.
Cryptocurrency supporter Rishi Sunak became prime minister of the UK on Tuesday. In his previous role as Chancellor of the Exchequer, he is remembered for his benevolent attitude towards digital assets.

 

[FxPro_2022]

Techs losing drive

Alex Kuptsikevich, a senior analyst from FxPro reported that the technology companies that have acted as growth drivers for stock markets in recent years are increasingly losing their leading positions. Although it would be too naive to talk about the "beginning of the end" for the IT giants, the initial reaction to the reports of Microsoft and Alphabet makes it seem more like a threat to the recovery of the Nasdaq and S&P500 indices. Shares of both giants are losing around 6.6% on the post-market.
Microsoft's revenue and profit beat expectations, but investors see more negative numbers in the dynamic (-3.4% QoQ on revenue and -14.4% YoY on profit).
Alphabet noted a tough time in the ad market, with an overall profit fall of 26.6% y/y despite revenue growth of 6.6% y/y. The latter is the lowest rate in 9 years.

Experienced traders have long noticed that companies are likely to present the situation to industry analysts, so they make low projections. And easily beat them shortly after in ¾ of the cases. It is, therefore, not uncommon for neutral numbers or a slight overperformance to lead to a share price slump.
Also, in growth sectors, markets are paying increased attention to companies' forecasts. And they have been disappointed. Both Microsoft and Alphabet cited falling PC and ad sales. And that's bad news for the future, as it doesn't set the stage for a turnaround in the coming months. Microsoft's comments about cloud computing cuts also pulled Amazon shares, which are losing 4.3% in the post-market.
On a more general level, the simple rule of thumb remains that the IT sector is inversely correlated with interest rate movements and is more vulnerable during the economic downturn for which many are now preparing.

Choosing from major US indices - the Dow Jones, S&P 500, and Nasdaq - the first looks the most promising, including more manufacturing companies and a smaller weighting on the IT sector. This driver change can already be seen in that the Dow Jones made its lows in early October, while the other two made their lows on 13 October: the strongest are recovering first. And it is not the Technology sector right now.
Nonetheless, while this trio stays about 20% below the peak and the US Fed forwarding market expectations to slower rate hikes, it looks like the bottom is already behind us.

 

[FxPro_2022]

Altcoin outpaces Bitcoin in growth
Market picture

Alex Kuptsikevich, a senior analyst from FxPro reported that Bitcoin has added another 3.3% in the past 24 hours to $20.8K, bringing the gain over the past seven days to 9%. Ethereum is growing at a higher rate, reaching $1570 (+5.8% in 24 hours and 21% in 7 days).
Over the last day, major altcoins added between 1.5% (DOT) and 21% (DOGE). According to CoinMarketCap estimates, total cryptocurrency capitalisation surpassed the $1 trillion mark, up 3.3% on the day.
Dogecoin was again buying from Twitter's acquisition by Elon Musk, who had previously said he might add the coin to pay for the social network's services. However, the latest rise looks more like a 'buy rumour' pattern, and it can't be ruled out that the pump will soon turn into a dump.
News background

Bloomberg exchange strategist Mike McGlone is confident that the Ethereum network's successful transition to the Proof-of-Stake consensus algorithm has laid the foundation for steady growth in the second-capitalised cryptocurrency.
The first US bitcoin futures ETF from ProShares lost a record $1.2bn in investor funds the year after launch. This was the worst debut result in the history of the exchange-traded fund industry. Despite this, several investors retain faith in BTC - the ProShares Bitcoin-ETF has seen net inflows of $87 million in the past six months.
According to the Wall Street Journal, the capitalisation of Andreessen Horowitz, the largest crypto venture capital fund, fell by 40% in the year's first half.
The UK Parliament voted to amend the Financial Services and Markets Bill to mandate the regulation of cryptocurrencies as financial instruments.

 

[FxPro_2022]

BoC smaller than expected rate hike not crushing CAD
Market picture

Alex Kuptsikevich, a senior analyst from FxPro reported that there was an important signal today that monetary authorities in North America are ready to ease the pace of policy tightening faster than the market expects.
The Bank of Canada raised the rate by 50 points to 3.75%, although analysts, on average, predicted a repeat of September's move with a 75-point hike. While the Bank of Canada's commentary on the decision pointed to the need for further rate hikes, there is no getting around the fact that the central bank is now more concerned with fine-tuning its policy rather than chasing fleeing prices.

The Bank has noted a slowdown in consumer price growth from 8.1% to 6.9% over the last three months. The situation in the USA is not much different, with inflationary pressures also declining. However, the fundamental difference is that the expensive dollar raises inflation elsewhere and reduces it in the USA. Hence, a more fine-tuning phase becomes more relevant for the Fed, too.
The USDCAD reaction is also very indicative. From the highs near 1.3650, where the robots pushed the pair in the first moments after the release, it has rolled back 0.8% to 1.3540 in just over an hour. As a reminder, just three months ago, raising the rate less than the Fed was practically dooming the currency to fall. However, today the USDCAD is retesting October lows.

 

[FxPro_2022]

Falling house prices in the US - not yet a sign of recession
Market picture

Alex Kuptsikevich, a senior analyst from FxPro reported that the US housing sector has entered a cooling down phase, giving rise to sometimes very alarmist comments that this is the beginning of a significant collapse, comparable to the failure during the global financial crisis. But we don't tend to dramatise the situation just yet, drawing attention to the high base.

The S&P Case-Shiller price index published on Tuesday marked the second consecutive month of decline in August, down 0.86% from 0.45% a month earlier. Data from the Federal Housing Finance Agency (FHFA) showed a 0.7% fall in August after a 0.6% fall in July.
The year-on-year growth rates retreated from a peak of 21% and 19% at the start of the year to 13% and 11.9%, respectively.

However, a look at the absolute values of the above indices only shows a return to trend levels after the market bubble from September 2020. The difference from the early 21st century is in the level of consumer debt. Moreover, fighting price pressure is now the Fed's top priority.

In 2007-2012, price declines were despite the Fed's attempts to ease policy by pushing mortgage rates to historical lows to stimulate lending. Now mortgage demand has fallen to its lowest levels since 1997, as fixed 30-year rates have risen to 7.16% after a rate hike in key interest rates not seen in 40 years.

The US economy officially entered recession in early 2008, a few months after the annual house price trend turned negative. We now see double-digit price growth rates, double the "norm" between 2014 and 2020.

The housing market is often seen as a leading indicator of the economy, which is why many commentators rush to call two consecutive months of falling prices an omen. However, it is better to look at other indicators for signs of recession, and the housing market is just cooling a bit down from historic overheating.

 

[FxPro_2022]

FX interventions kicking USD to correction

Alex Kuptsikevich, a senior analyst from FxPro reported that as we previously warned, major central banks worldwide that hold massive amounts of dollar securities, are stepping up interventions to support their national currencies. On Wednesday, China, Japan, and Switzerland resorted to such measures. The UK and India used earlier the same tool.

Countries are using this short-term tool to stop the one-sided selling of their national currencies. A longer-term measure is to raise rates, but its side effect is that the time lag and the impact on the real economy, many of which are already heading for a recession, is too long.

On the speculative side, other consequences of this intensification of FX interventions are essential. More dollars are becoming available in the financial system, which counteracts the kind of liquidity drying that the Fed is engaged in by sharply raising rates and shrinking the balance sheet.

Central banks' very regular dollar sales are setting the stage for at least a corrective pullback. Yesterday, for the first time since January of this year, the DXY Dollar Index was 1% below its 50-day average, which acts as a medium-term trend signal line.

Looking at the chart outside the context of FX interventions, the sharp dip below the line calls into question the continuation of the dollar's rising trend. More locally, without the dollar returning to gains before the end of this week, the priority scenario for the FX market could be a correction in the DXY.

Given the total amplitude of the rally from the "double bottom" of January-May 2021 to the highs of September 2022, a pullback to the 104-105 area is possible. The target range's lower end was the Dollar surge's highs in March 2020. The 200-day moving average, which serves as a long-term trend indicator, pulls into the same area. The upper boundary is the retracement area to the 61.8% level of the dollar's rise since the beginning of 2021.

 

[FxPro_2022]

Key central banks are preparing for a slowdown in rate hikes - now also the ECB

Alex Kuptsikevich, a senior analyst from FxPro reported that as most observers assumed, the ECB raised its key rate by 75 points to 2.0%. These are low rates by modern standards, but the eurozone last saw such rates 14 years ago.

Furthermore, the central bank indicated its intention to withdraw liquidity from the banking system to combat record inflation. Amongst other signals, there is a comparatively dovish guide to further policy tightening. The ECB is signalling its intention to raise the rate further to ensure that inflation returns to the 2% target.

We recall that official inflation was 9.9% YoY in September, and average forecasts suggest a further, albeit slight, acceleration in October. Such a message, in our view, indicates that the ECB remains on the side of the economy and maintains a catch-up role regarding inflation and other CBs (excluding Bank of Japan). The first impulsive market reaction was to sell the euro and European debt securities, sending EURUSD temporarily below parity.

Nevertheless, this is another signal in the piggy bank that key central banks are already coming out to slow the pace of rate hikes. The Bank of Canada did it yesterday, the Reserve Bank of Australia did it before that, the ECB warned of a slowdown today, and the Fed is signalling that along with a 75-point hike next week, we will hear a signal of further rate slowing.

Having seen a pullback in commodity and agricultural prices and having done some work on policy tightening, the key global central banks seem to be synchronising their policies and preparing to move to a finer tuning. This is a relatively positive shift for equity markets and an additional reason to correct the one-and-a-half-year rally in the dollar.

 

[FxPro_2022]

Profit-taking of a crypto mini-rally
Market picture

Alex Kuptsikevich, a senior analyst from FxPro reported that Bitcoin has regained some of the positions gained earlier in the week, losing 2.7% in the past 24 hours to $20.3K. Ethereum, which was previously rising more actively, is now actively correcting, down 3.5% to $1500.
Total crypto market capitalisation is down 2.5%, with top altcoins losing between 1.7% (BNB) and 10% (SHIB) in the past 24 hours.
Bitcoin is correcting after touching the $20.8K area, but the price above previous local highs and the 50-day moving average leaves us in a short-term bullish scenario.
Dogecoin (DOGE), Elon Musk's favourite coin, has jumped 35% in the last three days, reacting to news of his purchase of the social network Twitter, in the hope that it will be allowed to buy into the social network. On the other hand, overall market pressure prevented Doge from taking the 200-day average with a run-up, causing a wave of profit taking and taking 7% away from the start of the day on Friday.
News background

According to CryptoQuant, long-term investors (HODLers) now control the most significant volume of BTC since October 2015. This is a positive sign, as they usually do not sell crypto even during turbulence in the market.
Raul Pal, the founder of Real Vision, said the crypto market would grow 300 times to $300 trillion in ten years. He said the crypto sphere is already flooded with venture capital investments, although big players are cautious because of regulatory issues.
According to Bitnodes, five countries - the United States, Germany, France, the Netherlands, and Canada - account for the most significant number of nodes that form the bitcoin infrastructure. The Russian Federation is in ninth place with 178 nodes (1.2%).
Australia has submitted a draft budget that would make bitcoin a digital asset and not be taxed as fiat foreign currency.
Kazakhstan plans to test its digital currency on BNB Chain, the Binance blockchain.

 

[FxPro_2022]

Undeterred crypto growth
Market picture

Alex Kuptsikevich, a senior analyst from FxPro reported that Bitcoin rose 6.2% over the past week, finishing near $20.7K. The bulls over the weekend managed to rewrite local highs (touching levels above $21K) but again triggered a wave of profit-taking, forcing BTCUSD to retreat to the $20.5K area.
Ethereum has gained 18% in seven days, to $1590. Other leading altcoins have gained between 12.5% (BNB) and 98% (Dogecoin). The exception was XRP (-0.4%).
The total capitalisation of the crypto market, according to CoinMarketCap, rose 8.6% for the week to $1.01 trillion. The crypto Fear & Greed Index fell from 34 to 31 by Monday, markedly above 22 a week earlier.
Investors in the crypto market have cheered over the past week, supported by a weaker dollar and a rally in equities. However, there is still a significant overhang of selling triggered at any significant technical levels - previous highs or round levels. This trading mode will likely persist until the FOMC meeting on Wednesday evening but could stretch into weeks.
Dogecoin showed the best momentum, doubling in value in a week after Elon Musk purchased Twitter. DOGE took eighth in the cryptocurrency capitalisation ranking, pushing below Cardano and Solana.
News background

Cardano founder Charles Hoskinson has speculated that Dogecoin could be integrated with Twitter and suggested that the meme cryptocurrency could be moved to the Cardano blockchain to be able to add support for smart contracts.
According to Morgan Stanley, investors are gearing up for a big bitcoin sell-off. According to the bank, investors who bought the cryptocurrency at the top of the market are waiting for the BTC rally to resume to dump the asset at the highest possible price.
The rise in cryptocurrencies will be preceded by an increase in Stablecoin capitalisation, according to Santiment.
According to CryptoCompare, October saw the lowest cryptocurrency trading volume among institutions. However, total assets under management (AUM) across all digital asset investment products rose for the first time since July.
Social network Twitter said it would add a new feature allowing users to buy, sell and display non-fiat tokens (NFTs) directly through tweets.
For the first time, the volume of XRP tokens owned by Ripple Labs fell below 50% of issuance, the company noted in its third-quarter earnings report.

 

[FxPro_2022]

US personal savings rate nears the historical bottom

Alex Kuptsikevich, a senior analyst from FxPro reported that Americans' Personal spending rose 0.6% in September, the same as a month earlier, while income growth was up 0.4% in each of the two months.

Total earnings grew 5.2% YoY, as did earnings, whereas due to a cutback in tax credits, disposable income rose only 3.1% YoY. Spending, meanwhile, closely mirrors inflation, adding 8.2% in September compared to the same month a year earlier.

Spending growth is usually a positive signal for the markets because it pulls the entire economy along.

However, this growth driver is near exhaustion as savings have fallen to 3.1% of income and are near the lows since 2007. Historically, the lowest Americans saved was in 2005, when the rate fell to 2.1%, and the yearly average was 2.9%. Approaching the savings rate to the 3% threshold has cooled the housing market, as we see in our case.

The low savings rate can be explained by maintaining the same living standard (spending). However, the steepest rise in credit interest rates in 40 years and a falling stock market have prompted Americans to save a historically low proportion of their income. In this environment, there is likely to be a further drop in interest in long-term purchases such as homes and cars.

However, before you shout ‘’crisis!’’, you should remember that enormous sums have gone into savings during the pandemic. In the two years since March 2020, almost twice as much has been saved as in the two years before (61.4 trillion vs 32.4 trillion). In other words, Americans still have something to spend, and their debt burden is not as high as it was in 2005-2008.

The fall in the savings rate close to historic lows is a red flag, and it is now worth paying increased attention to the consumption behaviour of Americans. Given the savings accumulated during the pandemic, economic growth (excluding the suffering housing sector) has a high chance of further development for the foreseeable future. If we are right, there is no reason for the Fed to change its intentions to aggressively raise rates and keep them high for an extended period.