Market News from FxPro

[FxPro_2022]

Fed is in no hurry to soften its position despite contracting activity

Alex Kuptsikevich, a senior analyst from FxPro reported that U.S. statistics released on Wednesday signalled a decline in economic activity towards the end of the year, but the Fed maintained its hawkish rhetoric. Such a toxic mix turned markets lower towards the end of the day, causing the Dow Jones to fall 1.8% and the Nasdaq100 to drop 1.2%. The VIX fear index returned to above 20, a sign of a wave of selloffs in the equity market more than once during the previous year.

For December, retail sales fell by 1.1%, following a 1.0% decline a month earlier. Excluding cars, the drop was also 1.1%, more than double the 0.5% decline expected after a 0.6% decline in November. US retail sales at face value were released, adding 6.7% y/y, just 0.2 percentage points above the latest inflation figure. This is sharply below the 10-year average through February 2020, when lockdowns triggered sales turbulence, making such a comparison unrepresentative.

Like retail sales, industrial production recorded a second month of decline in December. Manufacturing lost 1.1% and 1.3%, respectively. The overall index of the industrial output lost 0.7% last month after declining 0.6% in November. On the chart, it reverses from above 102 for the fourth time since 2008. Whether we see a 15% pullback like in 2008/2009 or 2020 or a relatively shallow recession like in 2015-2016, this promises a difficult life for the stock market, which has moved in the same direction as manufacturing during the episodes in question.
Output inflation was also weaker than forecast. For December, the overall index lost 0.5% (the most substantial decline since April 2020), and the annual rate fell to 6.2%. The core index, which excludes food and energy, slowed to 5.5%. The yearly comparison of producer prices has already hit a high base: In November 2021, prices started to rise sharply, and now we see a natural deceleration of the annual rate, although monthly declines are rare.

All the economic indicators listed indicate sharper-than-expected cooling of the economy. But at the same time, Fed spokespersons continued to assure that they would not cut rates before the end of the year as the markets expected. The divergence of opinion amongst the governing council is just what the next move will be. At least two now support an increase of another 50-points hike at the start of February, but markets see just a 5% chance of this move. The reassessment of these expectations could be a new driver for the market.
It is important to remember that in April and August last year, the Fed broke down overly dovish investor expectations and turned the index downwards. In recent weeks we have seen a particularly striking difference between the Fed's stated stance and the expectations of market participants.
The Nasdaq100 index returned under the 200-week moving average, failing to stay above that line and reversing back down from the December 2021 downtrend line for the fifth time. Without an easing in the rhetoric of the monetary authorities by the February meeting, Nasdaq100 runs the risk of not only retesting the 10600 area, from where it has been repeatedly ransomed since October, but also of updating, heading towards 10,000.

 

[FxPro_2022]

The US construction market continues to shrink

Alex Kuptsikevich, a senior analyst from FxPro reported that the number of building permits issued in the USA fell by 1.6% in December to 1,330k, the lowest number since May 2020. From the peak in March last year, the decline was 30%. The number of housings starts in December fell by 1.4% to 1,382k, down 23% from the peak in April last year.
The construction market volume is shrinking at about the same pace as it did during the housing bubble's collapse in 2006. On the other hand, construction volumes are now about the same as we saw before the beginning of 2020. So far, we are seeing nothing more than the deflation of excess volumes but not the start of a collapse. The same observation is borne out by the comparative stability of new house prices in recent months (published in a separate report). The summer price volatility was not the start of a collapse.
A fall of another 5% in buildings or permits issued over the next couple of months would be well within the range of normalising the market to pre-pandemic levels. But a sustained fall below that would already signal an alarming slowdown in demand and the economy, which risks not only negatively impacting markets but could also force the Fed to soften its rhetoric more actively.

 

[FxPro_2022]

Maybe the short-time correction for Crypto is over

Market picture
Alex Kuptsikevich, a senior analyst from FxPro reported that the cryptocurrency market has added 0.75% in the last 24 hours to 976bn, with Bitcoin rising by the same amount, testing $21K again.
The first cryptocurrency has corrected to 76.4% of the rally from December lows to this week's highs. It cannot be ruled out that this is the end of the shakeout. Such shallow pullbacks are normal for strong bull markets in stocks or other assets. Confirmation that Bitcoin, with the crypto market, is once again bullish will be a recent high of $21.6K, clearing the way for $24.6K 161.8% Fibonacci, where the 200-week moving average also passes.

News background
Crypto lending platform Genesis Global Capital, part of Digital Currency Group (DCG), is preparing to declare bankruptcy. According to knowledgeable sources at Bloomberg, the company will do so in the coming days, with Genesis' debt levels reaching $3bn.
Genesis' problems stemmed from the default of hedge fund Three Arrows Capital in June, with the collapse of FTX exacerbating the situation. DCG is considering selling its subsidiary CoinDesk.
The US Department of Justice has arrested Bitzlato cryptocurrency exchange platform founder Anatoly Legkodymov on charges of laundering $700M related to the closed darknet marketplace Hydra.
Banking group National Australia Bank (NAB) has announced plans to launch an AUDN stablecoin, pegged to and fully backed by the Australian dollar. AUDN will launch based on Ethereum and Algorand in the middle of the year.
In cooperation with fintech company Monei, Spain's central bank will test EURM, a EUR-linked stablecoin, over the next 6-12 months.

 

[FxPro_2022]

Bitcoin feels the need for correction before further growth
Market picture

Alex Kuptsikevich, a senior analyst from FxPro reported that Bitcoin rose 5.3% last week to close at $23.8K. On Sunday, the first cryptocurrency was one step away from $24K, updating its high since August. Ethereum gained 0.9% to $1640. Top-10 leading altcoins have gained between 2.7% (Dogecoin) and 18.8% (Polygon).
Total cryptocurrency market capitalisation rose 4.4% to $1.08 trillion over the week, according to CoinMarketCap. The cryptocurrency fear and greed index reached the greed zone for the first time since late March last year.
Bitcoin is gradually approaching its key moving averages. The 200-week is just above $24.7K, and the 50-week is now at $24.5K. A break below these levels would be a strong sell signal. A rebound above them could restore confidence in the crypto market. But be prepared for a prolonged consolidation or correction before a decisive move higher.
Polygon (MATIC) broke into the top 10 by capitalisation, taking over Solana. Over the past 30 days, the price of MATIC has increased by 52%. Ethereum's second-tier scaling network came second by daily users, behind the BNB chain.
Another recalculation showed a 4.7% increase in the mining complexity of the first cryptocurrency. The index renewed its all-time high at 39.35T.
News Background

According to Matrixport, US institutional investors have started actively buying bitcoin, accounting for up to 85% of all purchases. Altcoins are still largely lagging but could soon overtake the top two cryptocurrencies.
According to Reuters, the US Securities and Exchange Commission (SEC) has begun inspecting Wall Street financial advisors for cryptocurrency custody services.
One of the largest rating agencies, Moody's, is developing a scoring system to analyse the risks of stablecoins. The platform will be based on assessing the quality of collateral reports and will support up to 20 assets.

 

[FxPro_2022]

Gold heading for a correction

Alex Kuptsikevich, a senior analyst from FxPro reported that gold is declining for the fourth consecutive session, flirting with the $1900 level and $49 below last Thursday's peak. Gold's 2.5% retreat is much more pronounced than the dollar index’s 1% growth over the same period.
The current reversal to the downside is linked to several factors and could be relatively long and deep, although it is unlikely to break the long-term uptrend.
The formal trigger for a wave of dollar buying has now been a pull into defensive assets ahead of a hectic second half of the week, which includes interest rate decisions from the Fed, ECB, and Bank of England, as well as releases on eurozone inflation and US jobs report.
After a rally of more than 20% from the September and November double lows of $1617, a technical correction above $1900 is needed. Accumulated bull fatigue was evident in last week's relatively deep intraday drawdowns.

In addition, the RSI has been in overbought territory for two weeks on the daily timeframe and returned to neutral territory below 70 last Wednesday, which often signals the start of a correction. At the end of November, gold lost 3.3% on a similar signal before rebounding.
Gold is also overbought on the weekly timeframe, which has almost always led to a sudden reversal or a prolonged stall in this area.
Now it is worth preparing for a deeper correction as the gains of the past two months have been more significant. The Fibonacci patterns suggest a potential retreat to $1862 if we look at the November-January momentum and to $1822 if we look at a full correction of the entire velocity from the November lows.
The 50-week moving average is also targeting the $1820 area. This is a crucial trend indicator where buyers and sellers will battle it out for the long-term trend. However, it is too early to speculate on the outcome of this battle.

 

[FxPro_2022]

Crypto under pressure

Market picture
Alex Kuptsikevich, a senior analyst from FxPro reported that Bitcoin lost ground throughout Monday, falling to $22.5K in early trading on Tuesday, down 6% from its Sunday peak. Total cryptocurrency market capitalisation fell 1.1% overnight to $1.04 trillion, with altcoins easy to find with positive overnight trends.
While institutional selloffs pressured bitcoin, it is still trying to swim against the tide, gaining 0.7% today to $22.8K. On the technical side, the latest pullback is too small to be considered a full-blown correction capable of attracting new buyers to the downside. Bitcoin now has a much higher chance of continuing its slide on profit-taking from the rally since the beginning of the year. These can be as low as $22.1K or even $21.0K. The pull into defensive assets intensified ahead of the FOMC's decision when market expectations and Fed rhetoric diverged dramatically.
According to CoinShares, investments in cryptocurrency funds rose by $117m last week, the highest in six months, with investors focusing on bitcoin. Investments in bitcoin-related funds increased by $116 million, Ethereum by $2 million, and inflows in funds allowing short bitcoin to rise by $4 million.

News Background
Vailshire founder Jeff Ross suggests that bitcoin is likely to rise to $25,000 in the short term. According to him, the strength of BTC on the 4-hour chart remains impressive.
South Korea will introduce a cryptocurrency transaction tracking system in 2023 to combat money laundering and recover illegally obtained funds.
The value of bitcoin on Nigeria's popular NairaEX exchange jumped to nearly $39,000 in local currency terms, 65% higher than the BTC price on the global market. The discrepancy is due to the country's central bank's ATM withdrawal limit. The central bank is trying to reduce the proportion of cash in circulation to increase the acceptance of digital naira (eNaira).

 

[FxPro_2022]

The dollar is poised for a run

Alex Kuptsikevich, a senior analyst from FxPro reported that this week has all the makings of being vital for the coming weeks and months, with the most important publications for the market in focus.
The week’s main event will undoubtedly be the Fed's interest rate decision. More specifically, the comments on the decision and the press conference will follow, where investors and traders will look for answers on when the Fed will stop raising rates. In addition, the ECB and the Bank of England will present their rate decisions, setting the overall agenda for the major central banks. Typically, the other central banks are moving in the same direction, albeit with some deviations.

On the economic data front, the most important releases will be the eurozone inflation figures for January and the US employment figures, which have often set the tone in the past.
As is often the case, the market moved to key levels just before important events. The dollar index fell to 101.60. The local correction in May also ended near the same level. But more importantly, this is the multi-year “ceiling” area in the dollar from which the DXY turned lower in 2017 and 2020.
At the start of last year, the opportunity to rewrite multi-year highs was provided by the Fed’s decisive moves, which hiked three times by 75 points each, something not seen in over twenty years. It will probably take an equally fundamental change in Fed policy to change the market's mode.
As we enter the fourth month of an active dollar sell-off, the market has accumulated fatigue with the trade. This is reflected in the sideways movement of the index over the past two weeks. The lull also sets the stage for a corrective pullback of 3-4%, allowing participants to take medium-term profits and rebalance portfolios.

The potential correction could take the Dollar Index to 104.5, the level at the start of the year and the 76.4% Fibonacci recovery line from the decline from the September high of 114.73 to the January low of 101.26.
However, there is reason to believe that the recovery in the Dollar Index will be more significant, taking it back to the 106.30 area, which is the 61.8% retracement level from that decline and the 200-day moving average.
In terms of the major pairs, a potential dollar correction pullback would take EURUSD from the current 1.09 to 1.06 in a shallow correction and 1.04 if the Fed forces the market to revise its monetary policy expectations. The GBPUSD could then fall to 1.1900 and 1.1630, respectively.
Gold, which the dollar has primarily driven over the last quarter, could fall to around $1870 in the event of a recovery in the dollar and as low as $1820 in a pessimistic scenario.

 

[FxPro_2022]

Institutionals are slowing crypto's rise

Market picture
Alex Kuptsikevich, a senior analyst from FxPro reported that Bitcoin has gained 1.5% in the past few hours to trade at around $22,000. The total market capitalisation of cryptocurrencies rose 2.3% to $1.03 trillion. In line with the Nasdaq100, bitcoin outperformed, falling less and strengthening more.
Once again, we are entering a phase where institutions are the brakes rather than the fuel of crypto's growth. This balance of power is a sure sign of retail investor optimism. However, this sentiment could quickly fade if the sell-off in equity markets continues.
The local technical picture suggests that bitcoin has most likely reached its upside correction targets from the beginning of the year, paving the way to the upside. However, it is worth keeping a close eye on the traditional markets, as a reversal to the downside could send the crypto back into sell-off mode.
Paxos announced that it would stop issuing Binance USD (BUSD) stablecoins as of 21 February due to the SEC's designation of the asset as an unregistered security. Capital outflows from BUSD exceeded $360 million.
The capitalisation of Binance USD has fallen below $16 billion. Against this backdrop, Tether's share of stablecoins has surpassed 51%. According to Nansen, traders also withdraw funds from Binance at the highest rate in three months.

News Background
The Aave Lending Protocol community will consider a proposal to freeze the use of Binance USD (BUSD) as collateral amid pressure from the SEC on Paxos.
According to Bloomberg, the US Securities and Exchange Commission (SEC) will make it much harder for cryptocurrency hedge funds to operate. Private equity firms and pension funds could also fall under the restrictions. The new rules will make it more difficult to become qualified custodians which are responsible custodians of crypto assets.
Crypto investor platform Bakkt has decided to suspend its retail application and focus entirely on corporate clients.
Changpeng Zhao, head of Binance, described Dubai (UAE), Bahrain and France as bitcoin-friendly countries and urged cryptocurrency entrepreneurs to consider relocating there.

 

[FxPro_2022]

UK inflation weakens the Pound

Alex Kuptsikevich, a senior analyst from FxPro reported that the UK’s rate of consumer price inflation remains one of the fastest in the developed world, although January's figures were softer than expected.
CPI fell by 0.6% last month, against expectations of a 0.4% drop. Annual inflation slowed from 10.5% to 10.1% (10.3% forecasted). The weaker-than-expected data put downward pressure on the Pound, as it eased some pressure on the Bank of England to raise interest rates.
The Input Producer Price Index was also weaker than expected, falling 0.1% m/m against expectations for a 0.2% rise and slowing to 14.1% - an impressive slowdown of more than ten percentage points from a peak of 24.6% in June.
However, there is a greater likelihood that UK inflation will be more 'sticky' than continental Europe. The retail price index held its annual rate at 13.4% in January. Producer prices rose by 0.5%, much more than the 0.1% expected.
Due to the base effect, the inflation rate is falling, which is a relief. However, it should be noted that there is still a long way to go to reach the 2% CPI target, as the unemployment rate is low and internal inflationary pressures are building up to replace the external inflation caused by last year's soaring commodity and energy prices.

 

[FxPro_2022]

Bitcoin risks getting stuck near $25K

Market picture
Alex Kuptsikevich, a senior analyst from FxPro reported that Bitcoin has rallied over 9% in the past 24 hours, returning to August highs and peaking near $25,000. The move looked like a short squeeze following softer-than-feared comments from the SEC. At the same time, we note that the optimism was concentrated in Bitcoin and Ethereum.
The short-term technical picture has become even more bullish. Bitcoin has turned higher after correcting 61.8% of the rally since the beginning of the year and has rewritten previous highs with strong momentum. The next Fibonacci target is at 29,000, which coincides with the consolidation area from last May.
However, the picture on the weekly chart suggests that a serious tug-of-war may be taking place at current levels. A “death cross” pattern forms at 24.9, where the 50-week crosses the 200-week. And the price is now below that cross. History suggests that bitcoin gets stuck near this long curve for many weeks.

News background
Dan Morehead, CEO of cryptocurrency hedge fund Pantera Capital, said that the bear cycle in the cryptocurrency market ended in November and that bitcoin will rise. He said confidence in the cryptocurrency industry is rebounding, no matter what happens in the risky asset market.
Stablecoin issuer USDC Circle refuted Fox Business' information about possible reprisals from the SEC. Earlier, one of the network's reporters tweeted that Circle had been ordered to stop selling "unregistered securities".
Changpeng Zhao, chief executive of the Binance exchange, believes the industry could move to stablecoins pegged to other fiat currencies because of recent nagging from US regulators over the BUSD.
The ECB has urged EU banks to apply the Basel Committee on Banking Supervision's restrictions on crypto assets before they come into force. Implementing the Basel standard for regulating crypto-asset risk for banks is expected to be completed by 1 January 2025.