Market News from FxPro

Alex Kuptsikevich, a senior analyst of FxPro, after a month's break and a methodology update, the ADP is back to publishing its US private sector employment estimates. This is an important indicator for market participants ahead of Friday's official statistics.

ADP says the number of jobs grew by 132K in August, roughly half of the month earlier and well under the expected 300K. So far, the markets have avoided paying much attention to this statistic, as it is unclear how the changed methodology fits the official data.

The first reaction of the stock market was somewhat unconventional. We see a neat buying in the indices in the next hour. We can only explain this market reaction to a downbeat report as an expectation of less tightness from the Fed.

The market is likely wishful thinking as Fed officials continue tightening their rhetoric. Powell and Co. are not shy about saying it is worth temporarily sacrificing the economy to suppress inflation. Only a few months ago, they said they would avoid a recession and avoided using the word altogether. Now they are preparing the public to "accept some pain".

Simply put, markets may be too attached to the idea that the Fed is always on the side of the market bulls. This has practically been the case for the last 30 years. But after all this time, there has been a problem of low inflation, not high, as there is now.
According to Alex Kuptsikevich, a senior analyst of FxPro, the gold price dipped below $1700 on Thursday, approaching the lower boundary of its trading range since May 2020. Gold has been finding buyers after emotional dips towards the lower boundary throughout this period.

Perhaps the main reason for the long-term bearish sentiment is the hawkish US monetary policy. A sharp tightening of policy and the Fed's promises to raise interest rates have pushed 2-year government bond yields to levels last seen in 2007.

High short-term bond yields push investors away from alternatives such as gold, equities and emerging market currencies, raising the risk-free interest rate level - an informal benchmark for risk assessment.

So far, gold has behaved in a frighteningly similar way to the dynamics of 2010-2013, when we saw a comparable bump at the top after a multi-year rally. Now, this period of consolidation after the rally has been longer.

However, we should be prepared for a "dam break" if we see a decisive move down from the established corridor over the next few weeks.

If the price breaks below $1680 this week or next, the market could see an absolute surrender of position traders, who have been betting on another bounce from the lower boundary. In that case, we should be prepared for gold to go into the same multi-year bearish trend as it did in 2012-2015.

Just below, through $1670 passes the 200-week moving average, a fixing under which could trigger the capitulation of the most resilient long-term betting bulls.

In that case, a decline towards $1300 would be a working scenario until the end of 2023.

If the gold finds support, as it has done so many times in the past two-plus years, we could see a new upside surge after a two-year consolidation, and the 200-week average retains the long-term support it has enjoyed for the past five years.

Market picture

Alex Kuptsikevich, a senior analyst of FxPro, Bitcoin remains firmly anchored to the psychologically significant $20K round level, changing by only fractions of a per cent for almost a week. Ethereum continues to draw green candles, but this is more than nominal growth, also within fractions of a per cent, while the price is still hovering around $1580. Of the top altcoins, Polygon stands out, adding 5% in a day and 8.3% in seven days. The others are down over the last seven days.

Total crypto market capitalisation, according to CoinMarketCap, added 0.9% overnight to $984bn.

BTC has been hovering near the circular $20,000 level for almost a week, despite recent stock indicators' notable drop. The last time there was such a prolonged lull was in June 2020, when it stretched out for almost a month. Current trends indicate that bitcoin is a leading indicator for the stocks rather than following them. If this connection persists, the resilience of the most crowded with institutions, BTC and ETH, indicates that risk appetite continues, which gives an encouraging signal for the stock market.

News background

According to Bank of America, Crypto investors are switching to Stablecoin as they wait for the market crisis to continue.

The Attorney General of Washington has filed a lawsuit against Michael Saylor and the MicroStrategy company he used to run for $25 million in tax evasion.

Dogecoin co-founder Billy Marcus ridiculed former Microstrategy CEO Michael Saylor for being overly enthusiastic about the first cryptocurrency. Saylor called bitcoin "a miracle happening right before people's eyes".

Finally, South Korean tech giant LG Electronics is preparing to launch a cryptocurrency wallet, Wallypto, based on the Hedera Hashgraph network in the third quarter of 2022.
Alex Kuptsikevich, a senior analyst of FxPro, the dollar index rose above 110, updating 20-year highs on Monday morning as a flash reaction to increased pressure on the euro and British pound. European currencies are selling off amid an energy crisis related to Russian gas supplies, which have entirely halted through the Nord Stream pipeline.

Although it caused an emotional response at the start of the day, this news fits in with the long-term upward trend of the dollar since the middle of last year, when all current drivers of the currency market were formed, and their effect remains in force.

The monetary policy differential is the most apparent growth driver for the dollar against the euro and the pound. The ECB is two steps behind the Fed, though it implemented a rare 50-point rate hike in July and is expected to raise it 50-75 points this coming Thursday. The differential between key rate and inflation in the US is lower compared to Europe, and potentially, this differential will only widen in the coming months.

The second important factor is economic resilience. America sells energy to Europe, thereby working to reduce its trade deficit and maintain interest in the extractive industries. In the long run, such a disposition will not allow the ECB to raise and hold rates as high and as long as the Fed can do without risking a deep economic downturn.

A weaker currency often increases the currency's competitiveness, which restarts the economy. This was the case even during the Greek debt crisis when the cheap euro generated a vast surplus in the balance of payments of Germany and other euro-region core countries.

However, the burden of high energy bills now exceeds the benefit of a weaker single currency, so there is still no sign that the euro has reached a fundamental bottom. We can repeat the same story with minor adjustments for the pound and the yen.

This creates a bullish outlook for the USD index, which might continue to rise to 120, i.e. +9% of the current levels, into the area of the 2001-2002 peaks. In an extreme scenario, such a rate could be reached by the end of the year, although it is more reasonable to expect such an increase in the next six months.

For EURUSD, such prospects open up the potential for a failure below 0.9000. GBPUSD could then go to 1.00-1.05, and USDJPY could break 150. It seems to us that approaching these levels will seriously put the issue of excessive dollar growth, as it was in the mid-1980s, back on the agenda of G7 financial leaders. But that is a matter for the distant future. For now, the dollar trend may well gain traction by helping to reduce inflation in the US.

Alex Kuptsikevich, a senior analyst of FxPro, Bitcoin declined 0.4% over the past week, ending at around $19,900 without experiencing any significant movement during that time. For now, we can only say that the crypto market is wagering on the strengthening of the dollar, and to a markedly lesser extent than other markets. Ethereum added 5.9% to $1570, while other leading altcoins from the top ten showed mixed dynamics: from a decline of 1.3% (BNB) to a growth of 13% (Cardano).

Total crypto market capitalisation, according to CoinMarketCap, rose 2.5% over the week to $976bn. The cryptocurrency Fear & Greed Index lost 8 points over the week to 20, returning to "extreme fear" status.

Bitcoin stood aloof from key market movements last week, moving on a short leash around $20K. Meanwhile, tectonic shifts were taking place in the markets as the dollar continued to renew multi-year highs and stock markets returned to a sell-off.

Cardano rose sharply at the end of the week on the back of the news. IOHK, the company behind the Cardano project, has set a date for Vasil's update - the largest and most important hardfork in the project's history will take place on September 22.

News background

According to analytics service TipRanks, HODLers are refusing to sell the cryptocurrency. 62% of wallets hold bitcoins for more than one year. 32% of addresses control BTC for 1 to 12 months, and only 6% of investors hold cryptocurrency for less than 30 days. At the same time, both profitable and unprofitable addresses have a 48% share.

Bitcoin miners' revenues in August amounted to $657 million and increased for the first time since March. The growth in revenues was helped by the growth of the first cryptocurrency's network hash rate.

Despite the crisis, investor confidence in cryptocurrencies increased slightly over the quarter. 65% of retail investors and 70% of institutional investors trust digital assets, according to a survey by cryptocurrency exchange Bitstamp.

Cryptocurrencies are helped by the aura that, in the long term, they are more promising than stocks and other risky assets, as they are at an early stage of adoption and still undervalued by the market.

Ethereum co-founder Vitalik Buterin called the current bear cycle expected. In his view, Terra's collapse and market decline are a boon for the crypto industry, as they help identify problems and unsustainable business models well.

With the rising capitalisation of the crypto market, the DeFi sector could pose long-term risks to financial stability, according to the US Federal Reserve.

Alex Kuptsikevich, a senior analyst of FxPro, Bitcoin has added 10% in the past seven days, trading at $21.7K. Ethereum jumped 10.3% to $1730. Altcoins from the top 10 add between 1.5% (Polkadot) and 9% (Solana).

Total cryptocurrency market capitalisation, according to CoinMarketCap, rose 7.9% for the week to $1.06 trillion. The Cryptocurrency Fear and Greed Index is at 25 starting the week, near the upper end of the "extreme fear" area.

Bitcoin showed substantial gains on Friday and avoided correction sentiment over the weekend. As a result, the coin is again testing the 50-day moving average, where fluctuations have become very small once again.

The market has removed excessive oversold from the BTCUSD but has yet to make a decisive move upwards. A strong move above the 50-day average could end the bear market.

Even so, it is unlikely that current buyers can expect quick multiples gains. A prolonged bear market (like the one we are now in) is usually followed by a protracted period of cautious and uneven price growth. Moreover, the bulls have not yet brought the price back above the 200-week average, which is now near $23.2K.

News background

MicroStrategy has applied to sell up to $500 million worth of shares to buy bitcoins.

US lawmakers and regulators are discussing strict measures on bitcoin mining because of its large carbon footprint. This is according to a White House Office of Science and Technology Policy report.

US SEC head Gary Gensler said cryptocurrencies should be considered securities. Still, the agency is willing to share the "reins of regulation" of the industry with the Commodity Futures Trading Commission (CFTC).

British Prime Minister Liz Truss said the new government aims to make the UK "the world's dominant crypto hub".

Alex Kuptsikevich, a senior analyst of FxPro, Bitcoin rose 2.6% to $22,300 in the past 24 hours amid rising stock indices and a weaker US dollar. Ethereum lags the market, losing 0.7% to $1715. Top altcoins performance ranged from -1.5% (Cardano) to +10% (Solana).

Total crypto market capitalisation, according to CoinMarketCap, rose 1% overnight to $1.06 trillion. The cryptocurrency Fear & Greed Index added 9 points to 34 by Tuesday, the highest since mid-August.

BTC is just a hair above its 50-day average, which should hardly be considered an encouraging bullish sign. The following intermediate stage of recovery that could revive the market is the 200-week average at $23.2K.

The latter dynamic suggests cautious market players, who are likely to shift their attention to global macro issues. The most critical of these today is the US inflation report, which could return optimism to the markets if price growth slows and sell-offs otherwise. TradingView shows a correlation between bitcoin and the S&P 500 index started to strengthen again last week.

Solana posted the highest daily gain among top coins. Despite the overall market decline, the number of NFTs issued on the Solana blockchain rose sharply, reaching 312K. The trading volumes of collectable assets on the network have also jumped.

News background​

According to CoinShares, crypto funds saw a $63 million outflow last week, the highest in 12 weeks. Ethereum funds lost $62M, bitcoin funds - $13M, and short-BTC funds got an $11M inflow. These dynamics stand in stark contrast to the price behaviour and overall market capitalisation, showing that the institutions are not setting the prices here at all.

The bitcoin network's hash rate has renewed its all-time high of 281.79 million TerraHash, shifting the projected date of the next halving from May 2024 to Q4 2023.

According to a Harris Poll survey, 70% of cryptocurrency investors are hoping to become billionaires, which is significantly above the number among traditional investors.

On September 19, due to increased regulatory pressure, Huobi will delist seven anonymous cryptocurrencies, including Dash (DSH), Monero (XMR) and Zcash (ZEC).

Monthly estimates showed that the UK economy added 2.5% over the three months to July vs the same period a year earlier. The negative surprise was a 0.3% decline in Industrial Production in July compared to expectations of a 0.4% gain after a 0.9% slip in June. Production added a modest 1.1% compared to July last year.

Construction and industrial production indices are back in the 2019 range after a quick dip and subsequent recovery due to the pandemic. And they are stagnating for some time around these levels. Manufacturing and construction are at the forefront of the economic cycle, and their message is not optimistic at all.

Foreign trade is much more dynamic. Import values have fallen for two months after ballooning during the first five months of the year, while exports have remained close to the highs. These local dynamics have reduced the foreign trade deficit to its lowest level since December 2021.

The narrowing of the foreign trade deficit is positive for the Sterling as it reduces capital outflows from the country. On the other hand, if the weakness in imports is linked to stagnant domestic demand and production, it does not carry anything good in the medium term. GBPUSD seems to have pushed back from the bottom in the middle of last week, but this dynamic is more attributed to the USD profit-taking after the rally rather than investments in the pound.

Bitcoin collapsed 9.6% on Tuesday, ending the day near $20.2K, which remains on Wednesday morning. Ether is losing 6.4% overnight to $1610. The most significant altcoins took a heavy hit, losing between 4.6% (BNB) and 13% (Solana), but remain on the plus side after seven days.

The bears in Bitcoin have asserted that they are in control. From the 50-day moving average level, BTCUSD experienced a substantial decline. This could bring back downward sentiment, as it did in August, for an extended period. However, it is too early to speculate on whether the June lows will be renewed.

Pressure on all risky assets came after a hot US inflation report, which increased the likelihood of a more robust Fed rate hike next week and triggered the strongest sell-off in more than two years.

News background​

Eugene Fama, 2013 Nobel Prize laureate in Economics, believes that bitcoin will have value as a means of payment. However, BTC's high volatility prevents it from being used for that purpose. We should add that this refers not only to the downside but also to upside moves.

Ethereum has a much higher near-term growth potential than bitcoin, according to ConsenSys. ETH could become a savings vehicle following The Merge event, set to take place on September 15.

Digital asset management platform Abra is launching Abra Bank, the first regulated crypto bank in the US, providing traditional services for cryptocurrencies.

According to media reports, investment giant Fidelity Investments, which serves 34 million clients, plans to provide retail clients access to bitcoin trading on its brokerage platform.

According to Alex Kuptsikevich, a senior analyst of FxPro, the markets are preparing for the next Fed decision, the publication of which and subsequent Chairman Powell's comments have the potential to trigger sharp market moves and set the tone for the days or even weeks ahead.

The rate futures market is laying down an 84% chance of a 75-point increase, leaving a 16% chance of a 100-point hike today. This is a very hawkish expectation that the market has been putting into prices since last Tuesday, causing a pull into defensive assets.

The money market has been renewing extremes in previous days, laying higher rates in prices for the longer term.

In the currency market, the dollar index has come close to the extremes set at the beginning of the month, trading now at 110.35, while GBPUSD, EURUSD and USDJPY have rewritten or come close to their multi-year extremums. All it takes is a slight nudge from this point to trigger an avalanche-like move in either direction. Everything will depend on the market's perception of the Fed's monetary policy plans.

In the week after the surprising US inflation report for August, the markets seem to have given up entirely on the idea that the Fed would lower the rate hikes. On the contrary, the market now appears to be going from one extreme to the other, expecting a 200-point rate hike before the end of the year. This creates the potential for "positive" surprises.

In our case, this could manifest in corrective sentiment on the dollar and a rebound in the equity market from local lows. For the equity market, a break of the downtrend may not come before a sure return of the S&P500 above 4150. The DXY ascent will not be called into question before a plunge below 107.70.

On the other hand, if the Fed remains adamant about tightening financial conditions despite market turbulence, a further push down in equities and a rise in the dollar could trigger an uncontrollable sell-off like the one we saw in March 2020, a near-freefall.

Such market stress could reverse Fed policy, as it did in 2020, 2018, 2015 and 2011. However, before the Fed makes such a reversal, the S&P500 could lose 7 to 12% from current levels near 3600 (200-week average) and 3400 (pre-pandemic peak).

It is challenging to find meaningful technical levels for the dollar index down to the 120 area, which could take up to five months if the momentum gained since the beginning of the year is maintained.

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