Forex and Cryptocurrency Forecast

18 views 12:05 pm 0 Comments April 7, 2024

EUR/USD: The Dollar Weakness Puzzle

What transpired with the EUR/USD pair last week? It behaved as expected on Monday, 01 April. However, starting from Tuesday, the situation deviated. Let’s delve into the details. On the first day of April, data on business activity in the US industrial sector from the ISM for March showed the economy is on the rise: PMI increased from 47.8 to 50.3 points, crossing the 50-point threshold that separates growth from contraction. This marked the end of a downward trend lasting over 15 months. With this sector accounting for over 10% of the US GDP, the PMI growth is a vital indicator of an economy that easily withstands high interest rates. Thus, logically, this data benefited the dollar, pushing the pair to 1.0730 – its lowest since 15 February. The escalation of tensions in the Middle East also supported the strengthening of the American currency as a safe haven.

On the following day, Tuesday, preliminary data on inflation in Germany was released. The Consumer Price Index (CPI) in this powerhouse of the European economy showed a monthly increase of 0.4%, below the forecast of 0.6%. Year-on-year inflation slowed from 2.5% in February to 2.2% in March – the lowest since May 2021. The Harmonised Index of Consumer Prices (HICP) fell from 2.7% to 2.3%. Such a slowdown in inflation should have fuelled hopes for the ECB to soon start cutting rates, thereby weakening the euro further. However, instead of continuing its downward movement, EUR/USD reversed and moved north.

Wednesday revealed that inflation is declining not just in Germany but across the Eurozone as a whole. Year-on-year, the preliminary Core Consumer Price Index dropped from 3.1% to 2.9%, surpassing the expectations of 3.0%, and the CPI fell from 2.6% to 2.4% (y/y). Despite this, EUR/USD continued its stubborn climb.

The dollar was not aided by another batch of strong data from the US either. Published macroeconomic figures showed that the number of JOLTS job openings rose to 8.756 million in February compared to 8.748 million the previous month, better than the market forecast. Moreover, the volume of manufacturing orders in February increased by 1.4% after a decrease of 3.8% at the beginning of the year.

A trend reversal began to emerge following speeches by US Federal Reserve officials. For instance, Loretta Mester, President of the Cleveland Fed, stated that the central bank sees a significant risk in easing national monetary policy too soon, especially in the context of a strong labour market and steady economic growth. Jerome Powell, Chair of the Federal Reserve, echoed this sentiment in a speech at the Stanford Graduate School of Business, reiterating that there is no rush to cut rates as inflationary risks persist.

The situation returned to a logical path with a new batch of data from the US labour market released on 04 and 05 April. According to the ADP report on employment levels in the private sector, employers hired 184K new workers in March, exceeding the forecast of 148K and the previous figure of 155K. The Bureau of Labor Statistics (BLS) added to the picture with information that non-farm employment (NFP) in the US rose by 303K. This significantly surpassed market expectations of 200K. The BLS report also showed that the unemployment rate in the country dropped to 3.8% from 3.9%.

Given all of the above, it can be expected that the Fed will not rush to ease its monetary policy. The likelihood of a rate cut in June dropped to 61% from 70% a week ago, and according to economists at Commerzbank, it is virtually nil. Naturally, such a shift in expectations should support the strengthening of the national currency. Yet, this has not occurred. EUR/USD has not managed to consolidate below 1.0800, and its last chord was played at 1.0836.

As for the short-term forecast, as of the writing of this review on the evening of Friday, 05 April, 50% of experts voted for the strengthening of the dollar and further decline of the pair. 10% sided with the euro, and 40% took a neutral stance. Among the oscillators on D1, only 15% are coloured green, 35% red, with the majority in a state of indecision, coloured neutral grey. The trend indicators have a 60:40 ratio in favour of the greens. The nearest support for the pair is located in the 1.0795-1.0800 zone, followed by 1.0725, 1.0680-1.0695, 1.0620, 1.0495-1.0515, and 1.0450. Resistance zones are at 1.0865, 1.0895-1.0925, 1.0965-1.0980, 1.1015, 1.1050, and 1.1100-1.1140.

This upcoming week, on Wednesday, 10 April, a whole set of data on consumer inflation (CPI) in the United States will be released. That same day, the Minutes of the last FOMC (Federal Open Market Committee) meeting of the US Federal Reserve will be published. The key day of the week will undoubtedly be Thursday, 11 April, when the European Central Bank (ECB) meeting is scheduled. Market participants’ attention will be focused not only on the regulator’s decisions on the interest rate but also on subsequent comments by its leadership. That day, the Producer Price Index (PPI) and the number of initial jobless claims from US residents will also be published. The working week will conclude with the publication on 12 April of the revised German CPI and the University of Michigan’s US Consumer Sentiment Index.

GBP/USD: A Result Close to Zero

Last week, final data on the Business Activity Index in the UK for March were revised downwards. The Services PMI was reduced from 53.8 to 53.1, the lowest figure since November of the previous year. A survey of financiers who make decisions at the Bank of England (BoE) showed a slight decrease in inflation expectations to 3.2% (y/y) and an anticipated reduction in wage sizes over the next year. It is noteworthy that these forecast indicators have decreased for the first time in seven months. However, this did not significantly affect GBP/USD dynamics; the tone of its quotes was set by the Dollar Index (DXY).

Starting the past week at 1.2635, the pair finished it at 1.2637. Thus, the result of the week can be considered zero. Analysts’ opinions on the behaviour of GBP/USD in the near future are divided as follows: the majority (60%) voted for the pair’s fall, 40% remained neutral, and no one wished to side with the bulls. The indicators on D1 are as follows: among the oscillators, 50% recommend selling, 10% suggest buying, and the remaining 40% are in the neutral zone. Trend indicators point south by 60%, north by 40%. If the pair moves south, it will encounter levels and support zones at 1.2575, 1.2500-1.2535, 1.2450, 1.2375, 1.2330, 1.2085-1.2210, 1.2110, and 1.2035-1.2070. In case of an increase, it will face resistance at levels 1.2695, 1.2755-1.2775, 1.2800-1.2820, 1.2880-1.2900, 1.2940, 1.3000, and 1.3140.

The calendar for the upcoming week highlights Friday, 12 April, when GDP statistics for the United Kingdom will be released. No other significant events affecting the country’s economy are scheduled for the coming days.

USD/JPY: A Break Above 152.00 – A Matter of Time?

For two and a half weeks, USD/JPY has been moving in a sideways channel, unsuccessfully attempting to rise above 152.00. Fear of possible currency interventions by the Japanese Ministry of Finance prevents the bulls from breaking this resistance. While actual interventions have not yet occurred, there has been plenty of verbal intervention from high-ranking Japanese officials. For example, Finance Minister Shunichi Suzuki once again stated that the authorities are closely monitoring the situation and do not exclude any options to combat excessive currency movements.

Despite such statements, the yen remains under pressure, increasing the likelihood of the pair’s bullish trend continuing. According to strategists at the American bank Brown Brothers Harriman (BBH), the continuation of the upward rally is just a matter of time. They write that a very gradual tightening of the Bank of Japan’s policy, coupled with a softer than previously anticipated Federal Reserve easing cycle, serves as a fundamental catalyst.

The market sentiment, according to several analysts, does not contradict BBH’s forecast. Currently, according to statistics, most traders (up to 80%) are in sell positions for USD/JPY, which increases the chances of the market moving against the crowd.

The pair finished last week at 151.61. As for its near future, 80% of experts (i.e., the same percentage as the traders) sided with the bears for the pair, voting for further strengthening of the American currency, while the remaining 20% voted otherwise. Technical analysis tools are clearly unaware of fears regarding possible currency interventions. Therefore, all 100% of trend indicators and 85% of oscillators on D1 point north, with only 15% of the latter looking south. The nearest support level is located in the zone of 150.85, 149.70-150.00, 148.40, 147.30-147.60, 146.50, 145.90, 144.90-145.30, 143.40-143.75, 142.20, and 140.25-140.60. Resistances are placed at the following levels and zones – 151.85-152.00, 153.15, and 156.25.

No significant events related to the Japanese economy are scheduled for the upcoming week.

CRYPTOCURRENCIES: A Week of Unexpected Announcements

After bitcoin reached a new historical high of $73,743 on 14 March, BTC/USD sharply pulled back, losing approximately 17.5%. A local minimum was recorded at $60,778. This moment marked a record outflow of funds from exchange-traded funds, with bitcoin accounting for 96%. The departure of institutional capital from the crypto sphere overlapped with many investors and miners’ desire to secure profits after updating the price record. At the peak, the realized profit exceeded $2 billion per day, with a third attributable to investors in Grayscale. Analysts at JPMorgan, in a note to investors dated 21 March, mentioned the overbought condition of the cryptocurrency and the risk of a continued correction.

However, a further downfall did not occur; the market sentiment changed. While crypto funds continued to lose assets, crypto exchanges registered an increase in the withdrawal of coins to cold wallets. Whales and sharks returned to accumulating the main cryptocurrency, expecting new BTC records in anticipation of or following the halving. If the net outflow amounted to $888 million in the week of 18-24 March, it changed to an inflow of $860 million in the week of 25-31 March. The record for coin accumulation by hodlers was 25,300 BTC per day. Bitcoin reached a high of $71,675 on 27 March.

The first half of the past week brought a new wave of sales; however, analysts at Coinshares believe that the absolute majority of investment companies and hedge funds are not interested in lowering BTC quotes, and whales will try to prevent a collapse below $60,000. The absence of new price records in those days was compensated by a series of if not sensational, then at least unexpected announcements made by crypto influencers.

For instance, CoinChapter reported that the head of Tesla and SpaceX, Elon Musk, declared meme coins Dogecoin (DOGE) the official currency of the colony to be built on Mars. “The brave colonists heading to the Red Planet will be rough and ruthless people. They won’t drag gold bars with them. They will need a fast and fun currency that embodies the spirit of space travel. Dogecoin meets all these criteria,” Musk said. One might expect such inspiring words to propel the token’s price to cosmic heights, but this did not happen. Instead, it slightly declined. This may be related to the fact that the aforementioned information appeared on 1 April – April Fool’s Day or All Fools’ Day. Thus, it’s possible that Musk was merely joking with his fans by assigning DOGE the status of Martian currency.

Attention was also drawn to a statement by the founder of the cryptocurrency exchange FTX, Sam Bankman-Fried (SBF), who was sentenced to 25 years in prison. Arrest did not prevent him from giving an interview to ABC News. In it, SBF stated that if he or another FTX employee had remained as CEO, the clients of the bankrupt exchange “would have long returned their money” at the current rate. Hence, the question arises: why not give Sam such an opportunity? Let him first compensate the clients for their losses and then go to jail.

Sam Bankman-Fried is far from the only notable crypto figure of interest to US law enforcement agencies. Changpeng Zhao, co-founder and former CEO of the Binance exchange, also faced court proceedings. However, last week, he made headlines not in the criminal chronicle but in Forbes’ new billionaire ranking, where he placed 50th with a net worth of $33 billion. (Bloomberg’s own index attributes Zhao with assets amounting to an even larger sum – $45.1 billion). Note that the Forbes list also includes other representatives of the crypto industry. For example, Brian Armstrong, co-founder and CEO of Coinbase, was ranked 180th with $11.2 billion. In total, the publication counted 17 entrepreneurs associated with cryptocurrencies with a net worth of over a billion dollars.

Another unexpected statement came from the pen of “Rich Dad Poor Dad” author and entrepreneur Robert Kiyosaki. He is widely known for his numerous constant calls not to save “fake dollars” that will soon turn into worthless paper but to buy gold, silver, and bitcoin. Kiyosaki repeated this mantra again this time, not ruling out that bitcoin could … crash to zero! According to him, it’s possible that the first cryptocurrency is as much a fraud or a Ponzi scheme as the US dollar, euro, yen, or any other “fake” fiat currency.

As of the writing of this review on the evening of Friday, 05 April, bitcoin quotes are far from zero; the BTC/USD pair is trading around $67,680. The total market capitalization of the crypto market has slightly decreased and stands at $2.53 trillion ($2.68 trillion a week ago). The Crypto Fear & Greed Index fell from 80 to 79 points, remaining in the Extreme Greed zone.

We have already detailed the history and meaning of halvings in a previous review. Now, we remind you that the upcoming fourth halving is expected to take place soon, most likely on 20 April. After this event, according to Mark Yusko, CEO of Morgan Creek Capital, “interest in the asset will increase – many will enter FOMO mode. We should see a twofold increase in fair value. In the current cycle, it stands at ~$75,000 with downward adjustments. […] Thus, [by the end of the year] we get $150,000,” he shared his calculations on CNBC. Yusko also believes that “historically, about nine months after the event, a price peak will be formed before the next bear market.”

The senior manager called the first cryptocurrency the “dominant token” and the “best form of gold”. Regarding long-term prospects, the expert stated that bitcoin “can easily” increase tenfold over the next decade. Separately, the head of Morgan Creek Capital mentioned that his hedge fund likes Ethereum, Solana, and Avalanche, although they fall short of the “king-bitcoin”. Mark Yusko did not mention Elon Musk’s “Martian” Dogecoin at all…