Market News from FxPro

[FxPro_2022]

US inflation met expectations but rattled markets

Alex Kuptsikevich, a senior analyst from FxPro reported that US consumer inflation data matched analysts' average forecasts, but this did not prevent the markets from experiencing a spike in volatility. This mixed reaction to the economic report had previously only been seen in NFP reports or contradictory comments of the Central Bank governors during press conferences.
Thus, the Composite Consumer Price Index fell by 0.1% in December, and the annual price growth rate slowed to 6.5%. The core index (excluding energy and food) added 0.3% last month, but the annual rate declined to 5.7%. All data coincided with analysts' forecasts and reinforced monetary market confidence that the FSR would only raise the rate by 25 points at the end of the February 1 meeting.

However, this coincidence with expectations did not keep us away from volatility. EURUSD has been moving in a range of almost 1%, going up and down again towards the lower boundary. The pair is precisely where it was before the publication, rattling short-term speculators' nerves. EURUSD was stopped from going above 1.08 in June, increasing the interest for the current test of the level.

The Nasdaq100 is losing about 1% from the pre-release levels, but it has recorded a swing amplitude of 2.3% in under an hour. The battle for the 50-day moving average at 11375 is in full swing and will be concluded at the end of the day. The battle for 11500 (200-week average) might be even more revealing.
Gold has touched but quickly retreated from above $1900 for now. Although it crossed more than once in the previous two years, this level has been at the historic top of the price for nine years, so it attracts much attention and deal flow.

 

[FxPro_2022]

Bitcoin back to 19,000 - former strong support

Market picture
Alex Kuptsikevich, a senior analyst from FxPro reported that Bitcoin jumped 7.2% to $19,000 on Thursday, a high that the first cryptocurrency has yet to trade in the last two months. The intraday growth consisted of two impulses. The first one was due to stop-orders triggering in the morning low-liquid market. The second came in the middle of US trading when markets decided on their reaction to the inflation report.

We also note that the first cryptocurrency added in 12 out of 13 days of the new year. Investors hope the bear market will be over with the start of the new calendar year. On the technical analysis side, BTCUSD has turned to the upside, rewrote local highs, and consolidated above the downtrend line from where there were down reversals in August and November.

However, yesterday's breakthrough does not mean there will be a rapid rise from here. From June to October, the area around 19k was strong support, and now it might be strong resistance.

According to Coinglass, the futures market was liquidated overnight for over $272 million in positions, over $189 million of which were short positions. The figure was the highest since November 10.
According to Glassnode, the bitcoin hash rate, smoothed by the 14-day moving average (14-DMA), reached a new high of 270.25 EH/s.

News background
El Salvador's parliament has passed a digital securities law allowing the country to raise funds with the world's first sovereign bonds on the bitcoin blockchain.
The Fed and banking regulators will continue to study the crypto industry and try to mitigate its risks, said Michelle Bowman, a member of the US Federal Reserve Board of Governors. She said the Fed doesn't want to discourage innovation and is thinking about the right way to regulate it.
Spot trading volume on centralised exchanges fell by 43% at once in December 2022 compared with November. On the futures market, the drop was almost 48%.
Avalanche, one of the top 20 cryptocurrencies, jumped 22% as altcoin developers partnered with Amazon to leverage Avalanche's ecosystem.

 

[FxPro_2022]

Weak Chinese trade data - low base for subsequent growth

Alex Kuptsikevich, a senior analyst from FxPro reported that China's foreign trade data for December was another demonstration of why the government went for a loosening of covid restrictions. Exports last month were 9.9% below levels a year earlier, accelerating the decline from November's -8.7%. Imports lost 7.5% to the same month a year earlier. The foreign trade surplus was $78.0bn, down from $70bn a month earlier and $93.7bn 12 months ago.
The data marginally exceeded expectations but overall shows stagnant foreign trade activity during 2022, reminiscent of 2014 and 2015, which were tough years for China.

That said, the weak data from the last months of last year and the first months of 2023 promises to form a favourable basis for comparison, as the easing of restrictions during December and the almost complete removal of restrictions will revive economic activity.
In addition, there is a certain softening of the rhetoric of the US and Chinese trade representatives, which should also be favourable for foreign trade. It is also worth noting that commodity and energy prices are now noticeably lower than in the middle of last year, which will further revive activity.

 

[FxPro_2022]

Bitcoin has approved a reversal to growth but needs tactical respite

Market picture
Alex Kuptsikevich, a senior analyst from FxPro reported that the bitcoin price has surpassed $21K, adding around 23% over the week. Ethereum jumped 20% to $1570. Other leading altcoins in the top 10 gained between 9% (BNB) and 50% (Solana). Solana has re-entered the top 10, pushing Polygon aside.
The total capitalisation of the crypto market, according to CoinMarketCap, rose 18.4% over the week, once again approaching $1 trillion.
It's easy to see that Bitcoin was outperforming this time, which can easily be attributed to the positivity of the stock market last week.
The first cryptocurrency also responded very well to technical signals. Since securing above the 50-day average on January 4, bitcoin has been closing all days with gains. A consolidation above the previous local high and a break of the downtrend resistance caused an acceleration in growth. BTCUSD closed above the 200-day average on Friday, contributing to the weekend's positive momentum.
Trading near the $21K level brought quotes back to the area before the FTX crash, and this is a new test of the local highs. Traders might want to be prepared that the market will need a short-term correction towards $19.5K before we see another momentum, as locally, Bitcoin looks overheated.

News background
The US Securities and Exchange Commission (SEC) has charged cryptocurrency exchange Gemini and crypto lending service Genesis with selling unregistered securities.
Crypto lending platform Nexo recorded a significant outflow of customer funds amid reports of searches at its Bulgarian office as part of an investigation into potential AML policy violations. Authorities have accused the crypto bank of money laundering, tax irregularities, fraud and providing banking services without a licence.
The Republican Party, which won a majority in the lower house of the US Congress late last year, has begun forming a subcommittee to regulate cryptocurrencies.
The new CEO of cryptocurrency hardware vendor Trezor, Matej Zak, said the financial independence that bitcoin brings is far more important than its market value. He said there will be a consolidation of the crypto market in 2023 and then a bullish trend, which Trezor plans to prepare for.

 

[FxPro_2022]

Japan’s inflation acceleration sets up a hawkish BoJ stance

Alex Kuptsikevich, a senior analyst from FxPro reported that Japan's Domestic Corporate Goods Price Index rose 0.5% m/m and 10.2% y/y in December after 0.8% m/m and 9.7% y/y. This is near the peak of 10.3% set in September. Despite lower commodity prices, prices are stubbornly reluctant to fall in Japan. And this is discouraging as more than one generation of economists has seen Japan as a prime example of deflation, citing demographics. We may continue to see a secondary effect of the yen weakening.
The Bank of Japan has halted the yen's weakening spiral by reversing about half of the losses since the start of 2021. Nevertheless, increased exchange rate volatility pushes sellers to impose higher margins on prices, which prolongs inflationary pressures and risks triggering the price-wage spiral that every central bank in the world fears.

With this kind of resilience in inflation, investors expect to see a tougher central bank stance. From that point of view, it is logical that the Bank of Japan has had to go out with record purchases of Japanese government bonds in recent days to keep their yields from rising.
However, rising government bond yields are increasing pressure on the budget. There are doubts about the sustainability of the Japanese finance ministry, given the country's massive national debt, chronic budget deficit and sluggish economic growth.
The BoJ remains the only central bank to maintain negative interest rates, probably out of fear of triggering unnecessary pressure on the economy. It is, therefore, with double interest that we should watch for the decisions and comments of the BoJ on Wednesday morning, where no options can be ruled out.
We could see a decisive turnaround from the policy targeting government bond yields and even a key rate hike. If that is the case, the yen could continue to strengthen towards 120 before the end of the first quarter.
The opposite surprise cannot be ruled out when the central bank strengthens its negative rate policy and puts the yen back on a sustained downward path. This turnaround could be particularly dramatic for the currency as market prospects are now skewed towards an expectation of tighter policy, albeit less dramatically than we see in the USA or the Eurozone. In that case, the USDJPY might hit 133 very quickly and then aim for 140 before the end of March.
A dull scenario is also possible if the BoJ balances out its signals and does not cause market turbulence as it did at its last meeting in December. The inflation picture is pointing towards a policy-tightening option despite the risks of losses for the economy.

 

[FxPro_2022]

Bitcoin has slowed but is still looking higher

Market picture
Alex Kuptsikevich, a senior analyst from FxPro reported that Bitcoin hit a high above $21.4K on Monday but pulled back to $21.0K – the area of the high since November – the rate is frozen, waiting for new signals.
It was apparent yesterday that the market needs a technical correction, or at least a consolidation around one level before it can continue rising after a 30% rally since the beginning of the year.
A technical correction might send the price to $20.2K or, more likely, $19.6K. The 200-day moving average and 61.8% Fibonacci level from the last rally pass near the latter level. A pullback to this area would be a typical correction. The emergence of new buyers will signal the end of the bearish trend in crypto. In the event of a more profound plunge, there is a high risk of a new disappointment of early buyers and an imminent return to a down-trend followed by lower lows.
According to CoinShares, investments in crypto funds rose by $9M last week, with small inflows following three weeks of withdrawals. Bitcoin investments increased by $10M, and Ethereum by $6M. Investments in funds that allow shorts on bitcoin decreased by $1.5M. Among altcoins, Solana recorded the largest inflows of $1.3M; XRP showed the largest outflows at $3.3M.
Bitcoin's mining difficulty rose last week by 10% to 37.59T, breaking record levels and marking the sharpest rise since October last year.

News background
Bitcoin could hit $100,000 within two or three years, said SkyBridge Capital hedge fund founder Anthony Scaramucci. The main trigger will be most investors' acceptance of BTC as an asset class.
The Indian Central Bank (RBI) has advocated a complete ban on cryptocurrencies. The RBI believes that the crypto market should not be legalised as the definition of 'cryptocurrency' is very vague, and all digital assets are comparable to gambling.
The developers of Shiba Inu have announced the imminent launch of a beta version of the Ethereum-based Shibarum Level 2 network. This will accelerate the network and allow developers to create decentralised applications and integrate NFT.

 

[FxPro_2022]

UK Earnings rise alongside employment drop

Alex Kuptsikevich, a senior analyst from FxPro reported that the UK market is showing further signs of a reversal in the labour market towards a fall in employment, but the increased pace of wage growth is keeping a close eye on the Bank of England's actions and comments.
Jobless claims rose by 19.7k in December after climbing by 16.1k a month earlier, a logical development after a smooth stop to the decline earlier last year.
The unemployment rate remained at 3.7%. Here there is a 0.2 percentage point increase from the August lows, but these levels remain very low by historical standards. Unfortunately for policymakers, the low unemployment rate reflects a shrinking active workforce, which has forced the government to launch a programme of tax incentives for those back to work in the ages over 50.

In theory, this should increase supply and curb wage growth, which now looks like the most dangerous part of the inflationary spiral. Wages in the last three months to November were 6.4% higher than in the same period a year earlier. This is below current inflation. However, this high rate of wage growth risks is the most significant factor in anchoring inflation expectations and overall inflationary pressure.
A fresh set of inflation data is published tomorrow morning, where a sharp fall in prices is not forecast on average. The combination of high consumer inflation and rising wages could force the Bank of England to push the economy harder into recession to suppress consumption and bring price growth under control, which would be positive for the pound.

 

[FxPro_2022]

China smashed expectations for the economy, but that hasn't stopped the yuan's correction

Alex Kuptsikevich, a senior analyst from FxPro reported that an extensive package of statistics from China showed a much better economy than the average analysts had expected. But this set of economic surprises failed to affect the renminbi, which is falling for a second day, having lost 1.4% in the meantime.
China's economy grew by 3% last year (2.7% was expected). GDP was virtually unchanged for the fourth quarter, although a decline of 0.8% was expected, which is a considerable difference between expectation and fact.
The high-frequency data for retail trade and industrial production also exceeded expectations. The industrial production index in December was 1.3% higher than a year earlier. Since the start of the year, production has risen by 3.6%. Retail sales last month were 1.8% lower than a year earlier but were expected to fall by 9.5% y/y.

The unemployment rate fell from 5.7% to 5.5%, rejecting analysts' forecasts that it would remain unchanged.
Often such a divergence triggers an impulse to buy currencies on the back of capital inflows into domestic assets. But this time, the markets have quietly digested the difference, developing a second day of a technical rebound in the renminbi after the 9% rally from the beginning of November to the peak at the end of last week.
So far, the movement of the last two days has resembled a "buy the rumour, sell the news" style technical bounce, as investors ramped up their investments in the yuan late last year, betting on a turnaround to greater openness.
And this bet is working on several fronts across a broad spectrum of activity, from abandoning the 0-covid policy to easing for the technology sector. On top of that, we are seeing a softening of rhetoric from trade representatives and a pumping of liquidity into the financial system. Simply put, China has comprehensively taken up economic growth stimulus to regain some of the appeal for investors that it has been losing in several waves since 2018.
The USDCNH exchange rate is consolidating near the 50- and 200-week averages after collapsing from 7.35 to 6.71 in just over two months. The exchange rate reduced near these same levels from May to August 2022 and found support in early 2019. Therefore, another potentially prolonged stop here is quite a positive scenario.
A market shakeout could lift USDCNH to 6.86-6.90 before we see a new reversal to the downside. At the same time, this would remove the short-term overbought yuan on FX and provide some impetus to the economy through exports.
If China supports the economy and opens up to investors in the coming weeks, capital inflows into the renminbi could continue. In that case, the USDCNH could return to 6.25-6.35, where multi-year lows and the 161.8% Fibonacci level from the last rally of the Chinese currency are concentrated.

 

[FxPro_2022]

Bitcoin's series of small gains

Market picture
Alex Kuptsikevich, a senior analyst from FxPro reported that Bitcoin continues its streak of small wins, recording its 13th consecutive day of gains on Tuesday, adding for 15 days in the last 16 sessions this year. The exchange rate rewrote a two-month high at $21.55K. Local overbought conditions continue to build, with help from the stock indices, where the Nasdaq100 managed to close Tuesday's trading higher.
Bloomberg strategist Mike McGlone said that the bottom in the crypto market has already been passed. He noted that the charts resembled the situation in 2018, although the macroeconomic situation is quite different. Back then, the Fed had already started easing its policy, but now it is a long way off, "so anything can happen".
It is easy to agree with this statement, but we still point out that growth is vulnerable to sharp declines at this stage. From a long-term investor perspective, we pointed out already in November that the crypto market has passed its low point. However, the best time for speculative buying is yet to come, when there will be a FOMO stage, like we last saw from December 2020 to April 2021. An even more colourful rise was from April to December 2017. In both cases, an acceleration and near-ubiquitous rise after surpassing previous historical highs.

News background
Digital currencies, CBDCs and stablecoins are the natural evolution of money and payments and will fundamentally change the global financial system, Bank of America believes. CBDCs "may become the most significant technological advance in the history of money".
According to a new analysis by mining company Luxor, Bitcoin is showing "resilience" amid the challenges it has faced in the past year. Macroeconomic pressures, natural anomalies, and the high volatility of some mining companies' shares (and, in some cases, their bankruptcy) have never been able to prevent the network's hash rate from rising significantly.
The European Parliament has changed the timetable for the European Union's Cryptocurrency Regulation Act (MiCA). Its final consideration has been pushed back to April. The 400-page document needs to be translated into 24 EU languages.

 

[FxPro_2022]

Bitcoin retreats for reset

Market picture
Alex Kuptsikevich, a senior analyst from FxPro reported that Bitcoin has lost 2% over the past 24 hours, pulling back to $20.77K, almost $1K below Wednesday's peak. The first cryptocurrency followed stock indices, which turned sharply lower on Fed officials’ continued hawkish rhetoric simultaneously with growing signals of weakness in consumer demand and business activity.
Technical analysis suggests that the latest pullback is a legitimate correction to the accumulated short-term overbought conditions after the rally since the beginning of the year. The correction can only be reclassified as a new downturn only after the BTCUSD consolidates below $19.5K, as the 200-day moving average and the 61.8% Fibonacci retracement level from the rally since the beginning of the year pass just above that level.

News background
According to research from infrastructure company Alchemy, Web3 development activity has increased over the past year, despite the severe challenges faced by the crypto industry. The number of smart contracts on the Ethereum core network deployed during the fourth quarter of 2022 increased by 453% to 4.6 million compared to the previous quarter.
According to the latest report from consulting firm Cornerstone Research, the US Securities and Exchange Commission (SEC) will continue to increase pressure on the cryptocurrency market, including through lawsuits. Last year, the SEC imposed a record number of enforcement actions against the industry, bringing 24 cases in US federal courts and six administrative proceedings.
Experts at the Bank for International Settlements (BIS) have proposed three main options for regulating the cryptocurrency industry. These include banning certain cryptocurrency transactions, isolating the industry from traditional finance and the real economy, and regulating cryptocurrencies like traditional markets.
The collapse of FTX was the first in a "long line" of collapses of unregulated cryptocurrency exchanges, said investor and star of the TV show Shark Tank Kevin O'Leary. He said all unregulated exchanges now face a massive outflow of customer funds. The refusal of some accounting firms to work with cryptocurrencies is also telling.