Market News from FxPro

[FxPro_2022]

UK’s inflation baby step down

Alex Kuptsikevich, a senior analyst from FxPro reported that following the soft inflation report in the USA, Britain published its November data which was also weaker than expected. The consumer price index rose by 0.4% last month against expectations of 0.6%, and the year-on-year increase slowed from 11.1% to 10.7%. Equally important, core inflation slowed from 6.5% to 6.3%, while the previous two months' pace was expected to be maintained.
As always in the economy, the slightly faster-than-expected price deceleration has two sides. This news supports risk appetite as it will dampen expectations on how fast and high the Bank of England will raise rates.
The bad news is that the slowdown in the annual rate is due to a high base effect while prices continue to rise. A 0.4% increase in prices for the month brings the annual rate to 4.8%, which is also well above the central bank's target and will force it to hold the Key Rate above inflation. The 6.1% y/y wage increase rate also supports the stability of the inflation spiral, encouraging a pass-through of inflation to end-users.
A slowdown in core inflation could also be a manifestation of weak demand. Receiving similar signals further down the line, the Bank of England may be forced to turn quickly to policy easing, which risks making the pound a victim of the currency market like the Japanese yen earlier this year.

 

[FxPro_2022]

S&P500 clings to bear trend until last

Alex Kuptsikevich, a senior analyst from FxPro reported that The Fed's key rate meeting promises to be the last significant scheduled event for financial markets. Decisions and comments today have every chance of being decisive for the stock market over the next few weeks. The currency market has already picked its trend earlier this month.
The Fed will almost certainly raise rates by 50 points, slowing down after four hikes of 75 points earlier this year. The Fed has long hinted at such a move and is unlikely to want to surprise markets today with unexpected moves, preferring the tactic of managing expectations.
A sharper-than-expected slowdown in inflation has affected rate expectations. The market is now pricing in just one or two more hikes of 25 points after today's move. And here, the Fed has a lot to manage. Previously, some Fed officials have persisted that rates could rise higher than the market is setting and (even more importantly) hold high for longer than expected.

However, markets continue to argue with such predictions, reacting with notable purchases of risky assets on lower-than-expected inflation releases. Earlier today, another such report came out - on import prices. This index is losing for the fifth month, falling by 4.6%. The annual growth rate has fallen to 2.7%, the lowest since January 2021. This is a significant anti-inflationary factor considering the huge US foreign trade deficit. Added to this is the impressive pullback in commodity prices in recent months.
As a result, the Fed can afford to slow down policy tightening and soon take a pause drastically. If we are right, Powell will clear the way for such an opportunity.
However, the market is in no hurry to get ahead of the game. The S&P500's more than 3% surge after the CPI release was more than nullified in the following couple of hours. The index failed to close the day above the 200 SMA, clinging to the bearish trend with all its might.
It has yet to cling above this line since April. But now the situation is different as the Fed has gone from an increasingly harsh tone, each time in the last two months, to an increasingly softer one, which feeds the bounce in equities.
A consolidation above 4050 for the S&P500 promises to be a meaningful bullish signal for the market, triggering a rally right up to Christmas or even the end of the year. An additional supporting sign could be a sharp rise above 4100, triggering a short squeeze.
At the same time, a sharp reversal downwards from those levels would be a very unpleasant surprise to the markets, capable of triggering a new wave of sell-offs comparable to the more than 15% declines that started in April and August. Recall that the Fed's actions were the fundamental reason for the reversal in both cases.

 

[FxPro_2022]

Fed has paused the BTC rebound

Market picture
Alex Kuptsikevich, a senior analyst from FxPro reported that Bitcoin updated five-week highs above $18,300 on Wednesday but then fell along with stock indices amid the Fed's intention to raise rates higher and hold them longer than markets had hoped.
The market reaction to the Fed brought the price back to levels before the lift-off but did not trigger a sustained decline yet. Bitcoin failed to close the day above its 50-day moving average but continues to hover around that curve. A consolidation above this line could spur additional demand.
The cryptocurrency Fear and Greed Index was up 1 point to 31 by Thursday and continues to be in a state of "fear". Despite dropping 1.4% overnight, the crypto market's total capitalisation at 860bn has been near the upper end of its trading range for more than a month.
News background
According to CoinGesco, the number of cryptocurrencies in the BTC and Ethereum networks reached historic highs following the collapse of FTX. The growth rate of large asset holders has quadrupled compared to the annual average.
Goldman Sachs said gold is a better asset diversifier than BTC as it is less volatile.
According to Nansen, about $3 billion has been withdrawn from Binance in the last two days, with user activity attributed to a "temporary suspension" of withdrawals in USDC.
In response to the recent media attack, Tether, the issuer of USDT, said it would reduce the collateralised credits in USDT reserves to zero over the next year.
There is no consensus among US regulators on cryptocurrencies. The Commodity Futures Trading Commission (CFTC) has called bitcoin, Ethereum and USDT commodities in a lawsuit against FTX CEO Sam Bankman-Fried, who faces up to 115 years in prison.

 

[FxPro_2022]

Swiss National Bank raises rate slower than others

Alex Kuptsikevich, a senior analyst from FxPro reported that The Swiss National Bank raised its rate by 50 points to 1.0% after two hikes of 50 and 75 points at the previous two meetings. In an accompanying commentary, the NBS said it was countering rising inflationary pressures.
In the commentary, the central bank says that "further rate hikes are not ruled out". This is a milder formulation than other G10 central banks without Japan. However, the exact phrase was in the two previous decision comments, so we cannot speak of a softening tone in this case.
At the recent and previous meetings, the step-up was the same as for our colleagues from the Fed and the ECB: now by 0.5 percentage points, in September by 0.75. However, remember that SNB meetings are twice as rare, so Swiss policy tightening is less drastic. For the year Swiss central bank raised the rate by 175 points against 250 points for the ECB (including the expected +50 today), 340 (also including the forthcoming decision) for the Bank of England and 425 for the Fed.

On the other hand, inflation is not as acute here, having retreated from a peak of 3.5% y/y to 3.0% in the last three months. The producer and import price index retreated to 3.8% y/y in November from 6.9% in June.
Historically, Switzerland has comparatively lower inflation which is the reason for the lower key rate. Therefore, the current slower pace of monetary policy tightening is not likely to fundamentally undermine the Swiss franc. By playing up the divergence in the speed of rate hikes, the USDCHF could develop a rebound without encountering significant resistance to 0.9400, which looks like a very modest pullback after a more than 9% decline since November 3.

 

[FxPro_2022]

ECB promises to be more active than Fed in 2023

Alex Kuptsikevich, a senior analyst from FxPro reported that The ECB raised key rates by 50 points, bringing the key rate to 2.5% - the highest in 14 years, but promising not to stop there. In addition to the rate decision, the ECB will start selling assets off the balance sheet from March 2023, starting at 15bn per month, promising to revise the parameters regularly.
The commentary on the decision states upside risks for inflation and downside risks for the economy, expecting the economy to grow by 3.1% this year and 0.8% next year. This is noticeably better than the Fed's forecasts which expect GDP growth of 0.5% each in 2022 and 2023. A sharp cooling of GDP growth has not stopped the Fed and is unlikely to stop the ECB.
The US business cycle is often 2-3 quarters ahead of the European one, which is why the Fed was the first to rush with rates. But now the ECB is starting to sound more hawkish than the Fed. During the press conference, Lagarde predicted more 50-point rate hikes, while the Fed is expected to raise rates by +25 percentage points next.

EURUSD added significant news for the third day in a row, strengthening by 1% after the US inflation release, regaining initial losses and rewriting semi-annual highs after the Fed, and strengthening by almost 0.5% after the ECB rate decision.
The EURUSD has been trading steadily above its 200-day average since the beginning of December, signalling a break in the downtrend. The pair has also crossed above the 61.8% mark of the declining amplitude from May 2021 to September 2022, and now it looks like it is about to start a long rally rather than a correction. The results of the most recent Fed and ECB meetings this year have underpinned this trend reversal by showing that the ECB is now catching up to the Fed. However, there is an essential technical test ahead at 1.0750-1.0800, where the 2020 lows are concentrated, a significant April-June consolidation area and local fatigue from an already past rally will accumulate.

 

[FxPro_2022]

Bitcoin under pressure after stocks

Market picture
Alex Kuptsikevich, a senior analyst from FxPro reported that Bitcoin fell on Thursday by the most in 3.5 weeks amid a sharp decline in stock indices and a stronger US dollar. BTC rolled back to $17.4K, losing 1.3% overnight. Ethereum, which trades at $1270, shows the same decline amplitude. Total crypto market capitalisation is down 0.7% to $852bn. The pressure on cryptocurrencies came from the stock market, so assets with more institutions are faring worse than others.
The Cryptocurrency Fear and Greed Index was down 2 points by Friday, to 29 and continues to be in a state of "fear".
From a tech analysis perspective, Bitcoin has failed to latch on to levels above the 50-day moving average, causing it to now face speculative pressure. However, this kind of pressure usually lasts for a day or two unless backed by external reasons.
On the higher - weekly – timeframe, one can see the development of the current downward phase since the end of May. The RSI would form a bullish divergence, as new price lows correspond to higher levels in the index. This could signal exhaustion for the sellers or consolidation before the next leg down.
News background
Cryptocurrency exchange Binance has enough liquidity to allow all customers to withdraw 100% of their assets, if necessary, said Changpeng Zhao, head of the company. However, he said 99% of users need to gain the knowledge to hold cryptocurrencies on their own and, therefore, could lose their assets.
The collapse of FTX caused fewer losses than the bankruptcy of the Terra ecosystem before it, Chainalysis claims. That said, estimates of realised losses may be overstated, as any move from one wallet to another was considered a selling event.
ConsenSys, the company behind the popular cryptocurrency wallet MetaMask, announced a partnership with payments firm PayPal where users can buy Ethereum.

 

[FxPro_2022]

Bitcoin may be near the bottom, but years from the next FOMO
Market picture

Alex Kuptsikevich, a senior analyst from FxPro reported that Bitcoin is down 1.3% over the past seven days, remaining just below $17K since Saturday. Ethereum lost 5.3% to $1180. Other leading altcoins in the top 10 fell 8.8% (XRP) to 17.1% (Dogecoin). The intensified selling at the end of the week clearly showed that the market remains in the clutches of bears, capable of stopping the rise and sending the price lower.
Total cryptocurrency market capitalisation, according to CoinMarketCap, fell 5.2% for the week, approaching $800 billion. The Cryptocurrency Fear and Greed Index was unchanged for the week, remaining at 26 points ("fear"). By Monday, the index was up 3 points to 29.
Bitcoin ends the year near the same levels where it traded two years earlier and where it was at the end of 2017, raising doubts that the coin's limited supply is enough for a permanent bull market.
Higher interest rates also raise the bar for other asset classes for new investors. Nevertheless, the currently reduced volatility after a sell-off of more than a year often serves as a good starting point for long-term investors, although it has yet to promise them quick profits. We are probably years away from a new wave of FOMO for cryptocurrencies, not days and months.
News background

According to a Huobi report, investments in metaverse and GameFi have increased 300% over the past year. Meanwhile, investment in the crypto industry's primary market exceeded $27.7bn in 2022, while the crypto market cap has fallen by more than $2.2 trillion. So far this year, authorities in 42 countries have approved 105 "regulatory measures and guidelines" for the industry.
Analytics platform CryptoQuant analysed a report by auditing firm Mazars on cryptocurrency exchange Binance's reserves and confirmed its relevance. Mazars has since removed links to previously published reports and said it is discontinuing service to all cryptocurrencies.
The Basel Committee on Banking Supervision of the Bank for International Settlements (BIS) has recommended a cap on the share of crypto assets in commercial banks' core capital of 2%. A compromise between BIS’s initial proposal of 1% and banks’ 5%.
The Raydium decentralised finance protocol on the Solana network reported a hack. A hacker gained access to the protocol's administrative account and withdrew assets worth $2.2 million.

 

[FxPro_2022]

German business quickly recovers from the shock

Alex Kuptsikevich, a senior analyst from FxPro reported that Germany's business sentiment index rose in December for the third month, returning to August levels on the back of more optimistic expectations, while assessment of the current situation has improved just slightly. Ifo Business Climate Index for Germany jumped from 86.4 to 88.6 in December, better than the 87.6 expected. In a commentary on the publication, the President of the ifo Institute notes that “business is entering the holiday season with a sense of hope”.
Market participants closely follow the Ifo index because of its strong predictive power for the economy. But even more interesting is that the strong reversal from decline to growth coincided with the turnaround in the German indices.

The rise in German business sentiment may also be good news for EURUSD buyers. In 2020 and 2009, EURUSD accompanied the index’s recovery for the first several months. However, breaking the multi-year downtrend may take a significant fundamental change, which is too early to tell.
The EURUSD appears locally tired after its two-and-a-half-month rally and in a tactically overbought condition. The Euro has been losing ground against the USD during the last two trading sessions, retracing from 1.0730 to 1.0600. Still, it is the only major currency that has managed to break above the 200-day MA, which many consider a technical change in the long-term trend.
The bullish trend in the single currency might continue if the ECB's decisiveness in fighting inflation does not negatively impact business sentiment.

 

[FxPro_2022]

Buying-the-dip has supported Bitcoin

Market picture
Alex Kuptsikevich, a senior analyst from FxPro reported that the crypto market is waking up from a complete lull. Down just over 1% yesterday in the $16.5K area, bitcoin hit lows since late November, triggering a wave of stop orders during the early Asian session that dragged the price to $16.25K at one point. This was followed by a buying spree, gradually bringing the price to $16.8K.
The relatively small moves so far have not changed the centre of gravity by historical standards, leaving the first cryptocurrency to range narrowly for the past month and a half.
During the bull market in cryptocurrencies, a lack of growth was often seen as a precursor to declines. Now, interest in buying on declines may signal interest from long-term buyers. Of course, this is only true for the current fundamental picture.
According to CoinShares, investments in crypto funds fell by $30M last week, with outflows the highest in 14 weeks. Bitcoin investments decreased by $18M, and Ethereum by $9M. Investments in funds that allow shorts on bitcoin increased by $1M. Trading volumes rose to $866M, up from $678M the previous week.
News background
Real Vision founder Raoul Pal expects to see the market bottom by March 2023, after which a slow recovery will begin. He attributes this to the end of the Fed's rate hike cycle. According to Pal, bitcoin is the least attractive of the major assets, as it is more stable. Ethereum has more upside potential.
SEC chief Gary Gensler said that the cryptocurrency market might operate under the rules that apply to the securities market. However, he stressed that crypto assets are too volatile and speculative, putting investors at significant risk.
According to CoinGecko, over the past year, 3,300 cryptocurrencies (about 40%) out of more than 8,000 at the beginning of the year - have left the market. According to the portal's rules, a cryptocurrency can be removed from the site due to a lack of activity for two months or if it is confirmed that the project is fraudulent. More than 117,000 fraudulent tokens have appeared on the market since the beginning of 2022, Solidus Labs estimated.
Nigeria intends to recognise cryptocurrency as an investment asset. A new investment and securities bill has passed its second hearing in the country's parliament.

 

[FxPro_2022]

Bank of Japan surprise - another sign of a global dollar reversal

Alex Kuptsikevich, a senior analyst from FxPro reported that The Bank of Japan made a surprise move on Tuesday morning, extending the permissible yield range of 10-year government bonds. The decision caused the yen to strengthen by more than 3%, and the Nikkei225 index lost as much as 4% before recovering almost half of its initial decline.
The central bank of Japan said at the end of its regular meeting that it would switch from a 0.25% yield target to a 0.0-0.50% target range instead. As yields had been held at 0.25% solely due to BoJ purchases, the range extension immediately sent yields to the upper end of the range. This decision meant that the BoJ would print fewer yen to buy government bonds for the FX market, strengthening the currency.
Strictly speaking, the Bank of Japan has made monetary policy less accommodating. However, the difference with key rates of other countries remains disastrous, as it is the only one keeping rates negative with an active QE phase.

On the other hand, the signal from the softer central bank itself is definite and could be a trial balloon for a fundamental policy reversal. Bank of Japan meetings are no longer boring.
We also pay attention to the timing of the changes. The powerful interventions of the Japanese Ministry of Finance in November stopped the USDJPY rising and confirmed the reversal in the pair thanks to a decisive move down on a break-down of the 50-day moving average.
Throughout December, we saw a three-week consolidation of the pair just above the 200 SMA. The decisive move down after the extended consolidation has been reinforced by the fact that during the lull in the pair, the stop orders pulled closer to the market and are now triggered in droves.
A sharp pullback of the pair under its 200 SMA often signals the reversal of the long-term trend. We had similar signals earlier in the EURUSD and the GBPUSD.
In addition, the fall of the USDJPY below 133 was below the 61.8% retracement of the entire momentum of the pair from the beginning of 2021 to the peak in October 2022. Market participants' conviction of a hawkish reversal of Bank of Japan policy could trigger a new round of decline in the pair with a technical target near 127. This is where the 50% level of the mentioned last rally and the support area in May of the year gone by are concentrated.