Market News from FxPro

[FxPro_2022]

Bitcoin tests the strength of support

Market picture
Alex Kuptsikevich, a senior analyst from FxPro reported that Bitcoin has lost 4% in the past 24 hours, once again testing the strength of the $16K area. Ethereum is down 7.8% overnight to $1120. Other leading altcoins in the top 10 were down 5.5% (BNB) to 10.6% (Dogecoin).

Total cryptocurrency market capitalisation, according to CoinMarketCap, sank to $795bn, losing 4.9% overnight and 5.6% for the week. The cryptocurrency fear and greed index is down to 21 points by Monday versus 24 just over a week ago.

Bitcoin failed to develop a rebound last week, facing an intensified sell-off near $17K and about 23.6% of the move down from 5 to 10 November. Such a weak rebound indicates solid bearish pressure, forcing us to expect another move towards the lower boundary at $15.8K. A consolidation below that level could start a new downside wave with a potential target of $12K. However, this is a very distant target, while round levels of $15K and $14K could be the intermediate ones.

News background
Bitcoin's mining difficulty continues to increase, rewriting an all-time high. The falling price has resulted in the first cryptocurrency being mined at a loss on average. The falling price and high interest rates make us expect miner activity to drop and a subsequent decrease in difficulty. However, there could likely be a brief struggle for market share amongst miners: with bankruptcies and takeovers. This will be interesting.
According to the Nansen report, the collapse of FTX was directly linked to Terra's failure in May. The unrealised loss of the "average" long-term bitcoin investor reached 33%, according to Glassnode's calculations.
The impact of the FTX collapse will still be evident for the foreseeable future, according to a statement to investors from venture capital firm Multicoin Capital. Many players will cease to exist, putting pressure on the liquidity of the crypto market.
Some major crypto exchanges have suspended accepting deposits and withdrawals in Stablecoins, which are hosted on the Solana blockchain. The decision was made due to Solana's association with the collapsed FTX exchange, which used the blockchain's power.
The Australian unit of consultancy firm KPMG has said that meta-universes have the real potential to change many areas of life. In doing so, large companies will contribute to the technology's adoption.

 

[FxPro_2022]

The Dollar clings to correction

Alex Kuptsikevich, a senior analyst from FxPro reported that the Dollar Index has risen since last Tuesday, adding 2.5% to lows at 105.16. Speculators paused selling off the US currency in response to data and comments from Fed officials implying a higher interest rate target.
The dollar's pullback could also be described as a market breather, implying a pause after a rather aggressive decline of almost 7% from November 4th to 15th.
Despite this rebound, major investment houses call the dollar generally overvalued and point out that now could be a good time for a trend reversal. We have discussed this before, noting both fundamental shifts (other central banks have caught up with the Fed in rate hikes, and the latter is signalling a rate cut) and historical patterns (the dollar's response to global reversals cycles in monetary policy last about a year).
Nevertheless, from a short-term perspective, traders are better to be prepared that the DXY could rise to 108 or even 109 from the current 107.7 before we see the start of a new leg down.

The dollar has been selling off at an elevated pace since November 4th. A consolidation below the 50-day MA is considered an essential first signal for breaking the trend. Interestingly, this line has quickly reversed from an uptrend to a downtrend, indicating that the overall tendency has changed.
The next and more reliable signal on the technical analysis side should be an anchoring below the 200-day MA, which the USD bulls effectively defended last week. Apart from that crucial curve, which the big market-makers use for trend-following purposes, the 61.8% retracement level of the DXY from the lows of January 2021 to the highs of late September passes around 105.
The most conservative technical approach suggests that the current DXY drawdown is a correction after the 20-month rise, followed by a new wave of growth. Nevertheless, the FX dynamics of DM currencies are just an example where we can say that trees don't grow to the sky. The rule of mean reversal works here unless something breaks globally in the economy. The only such global breakdown would be the insolvency of Japan or another major country or the eurozone’s breakup. So far, while there is no such threat on the horizon, the end of the dollar 20-month uptrend is the main scenario.
If we are right, the dollar bears are taking profits and gaining liquidity before a new wave of a sell-off in the DXY, which might start this week or next week from levels between 108 and 109 and push it back below 100 before the end of the year.

 

[FxPro_2022]

Eurozone inflation slowdown is not a euro problem yet

Alex Kuptsikevich, a senior analyst from FxPro reported that German producer prices lost 4.2% in October; its year-over-year growth rate slowed dramatically by 11.3 percentage points. This is a necessary reversal of the inflation trend that Europe's largest economy has been waiting for.

At the same time, it is worth bearing in mind that inflation has climbed too high, accounting for 45.8% y/y in producer prices in the previous two months, and regulators are looking with great concern at how broadly it will be beyond energy and food.

Not surprisingly, we saw the first signs of a trend reversal in import prices (-0.9% m/m and slowing from 32.7% to 29.8% YoY in September). In October, we see an impressive drop in producer prices, supported by a cut in wholesale selling prices.

The October price decline is an argument against the euro as it brings somewhat closer to the point at which the ECB will stop its rate hikes. But at the same time, we should remember that the ECB overslept now when it should have started its fight against inflation, which took it to higher levels compared to the US and Switzerland.

Also, what is most worrying for central banks worldwide is that the longer prices rise at an elevated rate, the more it begins to be regarded as the norm. The inertia of the ECB could well manifest itself in the fact that it will raise rates after Q1 2023, when the Fed has already reached a plateau.

Simply put, weak eurozone inflation figures are not a problem for the euro and may even support its strength if the ECB sticks to its hawkish policy while it saves more purchasing power of money.

 

[FxPro_2022]

Crypto market cap halving?
Market picture

Alex Kuptsikevich, a senior analyst from FxPro reported that Bitcoin went below 15,500 at the end of the day on Monday, rewriting two-year lows, and slightly retreated from those extremes by the start of trading in Europe, trading around 15,700 (-2% in 24 hours). Ethereum is updating lows from July at the time of writing, falling to $1072 (+3.5% in 24 hours).

The crypto market capitalisation is down 1.75% overnight to $782bn, its lowest since January 2021. Although this indicator is very tentative and synthetic, we have seen a tug-of-war around $1 trillion for a long time. For a while, the market lingered near levels just above 830 - the high at the peak in January 2018. Now another belief that the previous peak of the last cycle would work as insurmountable support has been broken.

The crypto market capitalisation has gone sharply down, failing to develop an offensive above its 200-week average by early November. The 200-week (4-year) period is consistent with the notion of cycles in crypto, and the situation now looks like the exit of leveraged speculators who thought crypto had bottomed out in June-October.

Although we believe that squeezing the weak hands out of the sector is almost complete, we are now seeing nothing more than speculators deleveraging, which is generally healing the market. Technical analysis suggests capitalisation could fall as much as 400-450bn, nullifying the rally, before returning to growth. However, this technical picture looks excessively pessimistic, and the stingiest speculators might not wait for that entry point, as is often the case in the markets.

News background

According to CoinShares, investments in cryptocurrencies rose by $44m last week against inflows of $42m the week before. Bitcoin investments rose by $14m, while Ethereum fell by $1m. Investments in funds that allow shorts on bitcoin increased by $18m, while shorts on ETH increased by a record $14m. Inflows to "short" products were 75% of the total, suggesting a deeply negative sentiment amid the FTX collapse, CoinShares noted.
According to IntoTheBlock, the share of unprofitable bitcoin addresses exceeded 51% (24.56 million addresses out of 47.85 million BTC holders). The last time a similar situation was observed was after the market crash in March 2020.
Rumours have emerged in the cryptocurrency community about possible problems at another major company. The failure of digital asset manager Grayscale Investments to disclose reserves and the suspension of crypto lending operations by OTC platform Genesis Trading have raised concerns about the entire Digital Currency Group (DCG) sustainability. According to experts, the collapse of Grayscale would be more severe than the collapse of Three Arrows Capital.

 

[FxPro_2022]

Upward-looking Dow Jones

Alex Kuptsikevich, a senior analyst from FxPro reported that the Dow Jones index added around 18% to its lows at the start of October and still performing better than the Nasdaq 100 and S&P 500.
The index includes 30 large companies with sustainable businesses, which is very important at a time of rising interest rates and a slowing economy. To oversimplify, business viability and sustainability are not the top agenda for those companies, as it is for many companies in the S&P 500 and Nasdaq 100.
And a look at the DJI's chart confirms its higher potential. The index has been striding resolutely briskly with minor shakeouts since early October. In the middle of last month, it consolidated above the 50-day average in a decisive move.
We saw an impressive battle for the 200-day average in late October and early November. In that battle, the bulls were victorious, making strong intraday moves upward through that curve. And on November 10, this curve was defined as support.

And all this at a time when the S&P500 has yet to face a similar battle with the long-term trend and has lost its upside momentum on the way up. And the markets can all fall equally fast, but the first to recover are those who lead in the cycle. This rule worked in 2009 and 2020.
On the daily chart, the Dow Jones is hovering around the overbought area, but it is not rushing into it, marking a consolidation of buyer power. At current levels of 33,700, the index is near the site of previous peaks set near 34,000 in August.
If the short-term consolidation this week culminates in a breakout of resistance near 34,000, that would be the final signal that the global downtrend will be broken. If the current coalition turns into a new sell-off, a break-up of the 200 SMA would be a false signal.
However, in the meantime, an upside movement after a pause is a reasonable working assumption. A consolidation above 34,000 might launch a new buying round that would take the index to the next level area at 35,300 before the year's end and allow it to close a year in green.

 

[FxPro_2022]

Mini crypto rally in a bear market
Market picture

Alex Kuptsikevich, a senior analyst from FxPro reported that Bitcoin is adding 5.1% over the past 24 hours to $16.5K on Tuesday after updating two-year lows below $15,500. The rate rose in two powerful bursts, one at the start of trading in the US and the other at the beginning of trading in Asia. It's unlikely we will see a start of a promising move on high volumes. So far, as a reflex, investors are trying to follow the stock indices, where risk appetite is increasing.
Ethereum is adding 6.7% in 24 hours as traders are encouraged by its ability to defend the $1,000 level. Top altcoins are adding from 4.6% (Cardano) to 30% (Litecoin) over the last 24h. The latter is rising on signals that the SEC may recognise the coin as a digital commodity, like Bitcoin, rather than an asset like almost all other cryptocurrencies.
Despite the rebound, Bitcoin is still below the level it started the week, so we characterise the current move as a rebound rather than the beginning of a recovery. Bitcoin first needs to consolidate above $17K as a first reversal signal. More chances are that we are still seeing another mini rally in the bear market.

News background

Binance will not invest in Genesis Trading amid the crypto lending platform's search for $1bn in emergency funding, The Wall Street Journal reported. Without an additional cash infusion, Genesis Trading is potentially facing bankruptcy.
According to Glassnode, miners this year have sold the most significant volume of bitcoins since 2016. Capriole fund founder Charles Edwards noted that miner sales had soared 400% in the past three weeks. According to him, if BTC does not rise soon, we will see a massive bankruptcy of mining companies.
The crypto market has seen a noticeable drop in liquidity following the collapse of FTX, Kaiko noted. Trading volumes on crypto exchanges more than halved to $100bn every week.
The US House of Representatives Committee on Agriculture will hold a hearing on December 1 on the crypto-exchange FTX and measures to mitigate the impact of its collapse. The hearing is expected to feature remedial proposals from the head of the Commodity Futures Trading Commission (CFTC), Rostin Behnam.

 

[FxPro_2022]

RBNZ accelerates rate hike, encouraging NZD rise

Alex Kuptsikevich, a senior analyst from FxPro reported that The Reserve Bank of New Zealand raised the rate by 75 points to 4.25% after five consecutive 50-point hikes. Analysts polled had anticipated such a result based on the signals sent by the central bank. RBNZ also began to reduce the balance sheet through managed sales, while before, it had stopped reinvesting coupons and matured obligations. Commenting on the decision, it states the need “to reach a higher level, and sooner than previously indicated”.
In the November monetary policy update, the RBNZ said it intends to raise the rate to 5.5% by September 2023.
Contrary to the trend set by the US and shared by Australia, the RBNZ is accelerating rate hikes and tightening other policy tools. This has been made possible by excessively high inflation (7.2% y/y), rising short-term inflation expectations (5% in one year and 3.6% in two years) and employment above sustainable levels (unemployment rate of 3.3% - near the cyclical lows of the last 40 years).

Although a key rate hike of 400 points in 14 months looks impressive, current rates are low by historical standards. Until May 2008 – before the global zero-rate policy and QE started – the RBNZ held the rate at 8.25%, and the 4.5% level was the cyclical low from 1999 to 2009. So, in this case, the anticipated 5.5% is just a return to normal and not overtightened conditions here.
Either way, a higher rate hike is a bullish signal for the Kiwi. The NZDUSD pushed back from the bottom near 0.5500 6 weeks ago, adding 12% to 0.6170 during quite an even rally. Over the last week, we have seen some position shake-ups, after which the pair looks ready to resurface again.
A significant milestone on the way up will be the area of 0.6300, the 200 SMA and the essential support of the last seven years. A consolidation above that would firmly establish a reversal. At the same time, fundamentals such as a strong labour market and central bank resolve to fight inflation would increase interest in the Kiwi from speculators and carry traders.

 

[FxPro_2022]

Europe slows less than expected, PMIs show

Alex Kuptsikevich, a senior analyst from FxPro reported that preliminary eurozone PMI estimates are better than expected, although they point to an economic contraction. Germany's manufacturing PMI rose from 45.1 to 46.7 in November, contrary to forecasts of a decline to 44.9. Values below 50 indicate an activity decrease, while higher-than-expected figures indicate its lesser intensity.
The service sector PMI declined from 46.5 to 46.4, but above the expected 46.1. The composite PMI rose from 45.1 to 46.4 thanks to manufacturing.

Earlier, a positive reversal, albeit from low levels, was also marked by the ZEW indices. Tomorrow will be the turn of the Ifo to confirm or deny this trend.
Most likely, the Eurozone and the German economies will shrink in the current quarter and could also lose some money at the start of next year. However, so far, we only see signs of a relatively modest slowdown, and the labour market is displaying the highest employment rate in the history of the Euro-region.
The ECB is expected to raise its rate by at least 50 points in December but might take a more drastic step with relatively strong economic data, as we saw in New Zealand earlier today.

Until 2009, the eurozone economy grew strongly, even at higher rates than in the US, contributing to the euro's strength against the dollar. The economy and inflation in the Eurozone have been less rate-sensitive than expected and more so than in the USA.
The euro, however, has been relatively well worked out the difference between the ECB and Fed rates. If so, the ECB could take rates above US levels, which would gradually restore the position of the single currency lost since the start of 2021.

 

[FxPro_2022]

The US labour market trend reverses

Alex Kuptsikevich, a senior analyst from FxPro reported that weekly jobless claims in the USA rose to 240,000 last week, maintaining the upward trend since the end of September. The initial claims were the highest since August and exceeded expectations of 225k. The number of repeat claims was the highest since March at 1551k against 1503k a week earlier and expected 1517k.

Both indicators are at low absolute levels by historical standards, but we note a trend. This indicator suggests that the US economy is shifting from a slowdown to a contraction. The last time such a reversal occurred was at the end of 2019. However, the lockdowns severely disrupted (accelerated) the natural course of events. Even earlier, these indicators reversed in 2000 and early 2007, months before the start of the market downturn and quarters before the official recession.

A weakening labour market is just as important a signal for the Fed as slowing inflation. Both signs favour the US central bank reducing the rate hike. Even if a pause in the hikes is taken, the economy will digest the policy tightening already made for many months, nibbling at the nose in the coming months.

More signs of a reversal in the labour market and a less drastic slowdown in Europe than previously feared work in favour of EURUSD rising and are generally against the dollar index and in favour of the stock market, as it suggests a softer tone from the Fed in the coming weeks and months than previously expected.

 

[FxPro_2022]

Crypto climbs out of the pit
Market picture

Alex Kuptsikevich, a senior analyst from FxPro reported that Bitcoin is adding 1.2% over the past 24 hours to $16.7K by the start of trading on Thursday. Ethereum is rising more briskly, gaining 4.3% to $1200. Crypto market capitalisation rose 2% to $837B, rebounding from the latest setback at the start of this week.
On the short-term charts, Bitcoin has formed an inverted head-and-shoulders pattern, suggesting an upside potential growth to $17.8K, as suggested by classic targets for this figure. In turn, this would be a move out of consolidation in almost two weeks, which could further boost buyers' optimism.
Taking a step back to the larger timeframes, however, strength remains on the bears’ side as the former cryptocurrency trades below previous consolidation levels at $18.0K.

News background

According to Coinbase research, many investors are increasing the number of coins in their wallets despite the decline in the crypto market. Over the past year, 62% of institutional investors surveyed have increased their investments.
According to a Harvard University study, central banks in sanctioned countries could use bitcoin, as well as gold, as a risk hedge. Diversifying central bank reserves could eventually boost the value of cryptocurrency and gold.
Elizabeth Warren, a US Senate Banking Committee member, also called for stronger regulation of the cryptocurrency industry in her article for The Wall Street Journal. She said the Sam Bankman-Fried empire incident is a "wake-up call" for the authorities.
New York state authorities have imposed a two-year ban on the non-environmental mining of cryptocurrencies on the Proof-of-Work (PoW) algorithm.