Ethereum is more Stable than Bitcoin

Crypto assets have become a vivid example of the statement ” What goes up, must come down” and time after time we are convinced of the validity of this phrase. Overcoming the threshold could have opened the way for testing price levels up to $10,500 in the near term, but buyers again lacked the strength. In 7 days Bitcoin shows a decline of almost 4%.

Altcoins moderately follow Bitcoin. The total capitalization in a day decreased by $10 bln. This cannot be called a large-scale sale, but there is a worsening of investor sentiment, which may result in increased sales pressure soon. The Crypto Fear & Greed Index after a 12-point growth over the week showed a daily decline of 3 points, which is a relatively accurate reflection of what is happening in the market.

While all the news was around halving and the likely prospects for Bitcoin after this event, the leading altcoin Ethereum (ETH) demonstrated quiet growth. Since the beginning of the year, Ethereum has grown by 61%, compared to 31% for Bitcoin in the same period. ETH usually follows the increase in Bitcoin, but in the end, it turns out that the coin adds more and loses less.

Favourable prospects for Ethereum are linked to the fact that its network is becoming increasingly active by launching decentralized financial applications (DeFi). ETH holders can block assets in DeFi smart contracts with different purposes, which reduces the circulation of coins, naturally creating an effect that is achieved in the bitcoin network by halving. Bitcoin maximalists do not see Ethereum as a threat, but there is no point in believing that a network after switching to 2.0 cannot be a worthy competitor to bitcoin.

Bitcoins mined at the very beginning of the network’s existence have long been at the centre of attention of the crypto community. The reaction to the transfer of 50 bitcoins, which have been motionless since 2009, has been decisively strong. These coins were received as a reward when the network had less than 100 transactions and only a few people, including Satoshi himself, were mining BTC. Such fund transfers now have a much higher response in the community than transfers of tens of thousands of bitcoins with fees less than a dollar. However, fast and cheap international transfers, bypassing numerous intermediaries, are precisely the direction that still needs to be developed and where the traditional sluggish banking system continues to hold the lead.

by Alex Kuptsikevich, the FxPro senior market analyst.

The Oil is moving up, Right into the Trap

The same with gold, whose rally has stalled a couple of steps below strong resistance at $1800.

For oil alone, the situation looks more optimistic. Brent quotes continue to rise, reaching $36.91 in the morning, which is close to the peak of April at $37.05.

Brent received an additional growth impulse on the US stockpiles data, released on Wednesday. Last week it declined by 5 million barrels, which was the second week of decline in volumes. At the same time, the American strategic reserves continue to replenish, having increased by 1.9M barrels.

Contrary to expectations, the reserves could not update the record of 2017, having started the wave of decline two weeks ago. Seasonality seems to have played a significant role in this. The growth of this indicator often occurs in March-April. However, traditionally there is then a decline: just in time for the beginning of the active auto season. Now we are witnessing precisely this pattern, further enhanced by purchases in the strategic reserve.

At the same time, there is a decrease in production, but it happens much slower than expected. Last week this indicator averaged 11.5M barrels per day (-0.1M for the week). In total, the decline from the March peak is 1.6M barrels per day, or slightly over 12%.

There is a big buyer in the market, which stores oil somewhere outside the US In normal times, fuel accounts for 65% of black gold consumption, i.e. more than 8.5M barrels of 13.1M produced in March. The demand for it fell by 40%, to about 5M. Let’s assume that the amount of fuel, which is used for electricity, remained unchanged, while consumption in manufacturing decreased by 5%-10%. It turns out that the balance in the US is slightly above 9.2M barrels per day. However, we are witnessing that even at 11.6-11.5 oil reserves are decreasing.

This leads to the idea that the commodity customers are indeed significantly increasing their oil purchases near the cyclical lows. However, this is also bad news for oil prospects. The overhang from reserves will hurdle price recovery and suppress demand for raw materials in the coming months, as countries reduce their stockpiles to average levels.

by Alex Kuptsikevich, the FxPro senior market analyst.

The Invisible Ceiling for The Markets

The positive dynamics of the last days or the figures of the monthly increase in exchange prices should not be misleading. Many assets are still bumping into the glass ceiling – more and more investors prefer to close purchases and look around for new signals.

Futures on S&P 500 reached the level of 2981 – the highest since March 6, but this morning it rolled back to 2913, losing 2.2% from the intraday peak. Japanese Nikkei225 is also facing an increase in sales. Even more noticeable are the difficulties of the EUROStoxx50 index, which since the beginning of April has hardly left the 1.25% range.

At first glance, Oil seems even better, having added 80% for the month to $36 per barrel of Brent on the spot market. But here too, sales increased as we approached April peak.

On Monday afternoon, markets showed more than 3% rally, with Oil growing three times stronger on reports of successful testing of the Moderna vaccine. However, this test on eight healthy people will be followed by a new phase with 600 volunteers. And if all goes well, we will get a vaccine by the end of 2020. It’s too long away and too uncertain to launch sustainable purchases in the markets right now.

But even if we move away from the medical topic, company reports show a very mixed picture. Walmart has managed to find the right balance between online retailing and partial shop operations. Many others fare much worse. J.C. Penney started a bankruptcy procedure, while many other retailers are experiencing a double-digit revenue drop compared to last year. Quarantine measures will accelerate the retail apocalypse that has been reported since 2018 in the U.S.

Trendy clothing stores in Europe have already opened in most countries, but without tourists, they are losing their customer base. Thus, the economic recovery can only be seen in comparison with previous weeks – it’s growth from a low base. Attempts to increase asset prices outside the crisis areas are probably doomed to stumble upon increased sales.

Investors should keep monitoring how income and dividends in companies change as quarantine restrictions are lifted. In our view, so far, all negative is pegged to quarantine, but retail sales in China and the behavior of commodity prices suggest that the bottom point for the markets is yet to come.

by Alex Kuptsikevich, the FxPro senior market analyst.

SNB stops CHF’s Growth and Breaks it as an Indicator

In this case, more than 1.2% growth in a day is probably due to the Swiss National Bank, which protects the Franc from strengthening.

The Swiss Franc against the Euro rose by 4.5% since December last year, showing equable growth during the first four months of this year. However, about a month ago, the EURCHF found its bottom in the area just above 1.05. This is slightly below the 2017 low. The last time such levels were observed about five years ago.

There are several reasons behind the appreciation of the Franc to the Euro. The economy of the European region started slowing down right after the first volleys of trade wars. The currency market reacted even earlier, beginning to sell the Euro right after the first Trump threats. In two years, the Euro lost 12.5% to the Franc. The decline accelerated after the ECB started to soften the policy. At the same time, the SNB remained in the same positions, keeping a profoundly negative rate.

Earlier, from September 2011 the SNB introduced a ceiling for EURCHF at 1.20, which was abolished only in January 2015. Back then, this benchmark formed a pattern of behaviour of traders who bought EURCHF, earning on the interest rate difference and having the SNB as an ally on their side.

This story ended tragically for many traders and some brokers when the SNB suddenly gave up this peg. This time it operates without declaring precise support levels, but more and more traders seem to have caught the new pattern.

These SNB interventions also have other consequences. The Swiss Franc is often an indicator of demand for protective assets, showing growth at a time of high uncertainty in the markets. Extension of the Euro against the Franc pushes up the single currency, which in normal conditions corresponds to an increased demand for risks.

Now, this indicator looks broken. The current rebound of EURCHF from 1.0500 to 1.0650 may be due to the favourable market dynamics, as well as purchases of Euro and Dollar for the Franc by the country’s central bank. And it is weakly combined with the period of healthy and free moving markets, causing doubts that the markets have finally turned to growth.

by Alex Kuptsikevich, the FxPro senior market analyst.

Bitcoin Defies Gravity

From the technical analysis side, Bitcoin got support after a dip to a 200-day moving average near $8,500. If bitcoin can go above the big round level 10K, it will give hope to the whole crypto market.

Market sentiment on the eve of halving could not be called cheerful. There was quite a lot of equipment for bitcoin mining, which barely made any profit. After the reward reducing, these ASICs would have to be turned off. According to the latest data from The Block, the reduction in hash rate after halving has already been 16%.

The miners’ revenues have dropped by 44%. However, now market participants are waiting for a recalculation of the difficulty, which will slightly correct the situation. Anyway, this may only be the beginning of the process, as even more efficient devices for mining barely pay off.

It is highly probable that some of the miners will start selling their assets to cover the losses. Others will go out of business, and if they have debts, they will also have to cover their costs by selling coins. It will also be possible to talk about continuing the process of consolidation of the mining market participants, as well as even more centralization of computing power. For a decentralized project, this sounds like bad news.

However, this may only be the first shock. As bitcoin pricing is now driven not only by miners and retail investors but also by large institutional investors and funds, clashes can be mitigated by increased trading volumes and the diversity of participants. CoinMarketCap data shows that current average trading volumes are several times higher than the peak values of 2017. The market has grown, matured, and it is very likely that current events in the global economy will have a more significant impact on the coin.

Sad news for the “crypto” as a whole came from the US. Expelled from Russia, Pavel Durov (Vkontakte and Telegram founder)  can’t launch his cryptocurrency in integration with Telegram messenger in the US. American courts are on the side of the SEC, once again confirming the main idea of the US monetary authorities: no competitors to the dollar will be allowed into the mainstream.

The TON technology will be used, but without the user base of the messenger, it won’t be of interest. A similar fate awaited Libra, which leads us to the idea that the crypto market will be allowed to live only in its current state and size, waiting for the launch of official national cryptocurrencies.

 by Alex Kuptsikevich, the FxPro senior financial analyst.

US Budget Outlays at Record High, but the Fed Says More is Needed

The President of the Reserve Bank of Dallas, Richard Kaplan’s words were one of the reasons for increased pressure in the markets the day before. Now markets await Powell’s testimony later today with double concerns.

Kaplan, who spoke on Tuesday, said he expects unemployment to peak at 20% with a decline to 8-10% by the end of the year. This high was last seen at the lowest point for the economy after the Global Financial Crisis in 2008.

Investor caution is easy to understand. Fresh data on the US fiscal balance sheet showed a record monthly deficit of $738 billion in April at the expense of $980 billion in expenditures in one month alone. The accumulated budget deficit since the beginning of the fiscal year has already reached a record high of $1.5 trillion, although only seven months have passed.

And this is not the end. Many federal business assistance programs will only start paying money to companies in May, promising to more than double the state budget deficit.

The US president and the secretary of the Treasury said it’s necessary to wait for some time to consider new stimulus. At the same time, they note that the next packages of measures will be tax breaks, not new money. The democrats, on the contrary, have already submitted a further $3 trillion support package for consideration.

The United States can attract huge funds from the markets and not suffer from a drop in government bonds prices (increase in their yield). But any loan has a limit. The US has not yet reached this ceiling. However, senior government officials are afraid that it is somewhere nearby, which makes them increasingly wary.

Potentially, the Fed could switch from inflation targeting to targeting the yield curve of government bonds, up to yield levels of 10-30-year bonds, as it did between 1940 and 1950.

This policy allows keeping the financial situation under control during a difficult period when almost limitless funding options are needed. But as a result, there is distortion in financial markets in favour of short-term government bonds. This does not create the right stimulus on corporate bond markets, as there is a threat of negative real income on a longer horizon.

by Alex Kuptsikevich, the FxPro senior market analyst

The Phantom Threat of Inflation and Fears of Covid-19’s Second Wave

This is associated with the emergence of a new sickness case in Wuhan, which brings back fears of a second wave of spread after the restrictions were lifted.

At the same time, the global picture clearly shows a decrease in the number of new infections and deaths in the past 24 hours. In our opinion, we should look for other reasons behind the difficulties of market growth. The US Treasury is draining market liquidity by placing unprecedented amounts of government bonds to finance support packages.

While the US Treasury is “vacuuming” the market, the demand for dollars remains high. Besides, the Fed has sharply reduced the scope of asset purchases on its balance sheet, which has lessened support for markets.

At the same time, investors take profit in those securities, which offset the decline of February-March. Sales on growth seem to be the prevailing strategy in recent days. The focus is on those shares that can benefit from the global economic slowdown.

First of all, these are producers of essential goods and grocery store chains. At the same time, there is a rupture in the supply chains of products, which makes us think about the risks of food inflation in the coming months.

Food does not play a significant role in today’s spending structure, with just 14% of expenditures. So, we are likely to see food prices increase along with a decline in the overall volume in the food industry in the coming months.

The inflation data published in China this morning showed a slowdown in consumer price growth in April to 3.3% YoY from 5.4% in January. The decline in producer prices accelerated to 3.1%, indicating a deflationary trend for almost a year.

Later this afternoon, the US data will be published, which is expected to show a slow down of CPI to 0.4% YoY, the lowest level in almost five years. Excluding energy and food prices, it is expected to slow to 1.7% YoY from 2.4% at the peak in February. Surprisingly, this indicator risks coming under pressure in the nearest months, justifying a softening of monetary policy.

But if we look further, the impending reboot of the logistics chain risks is becoming a severe factor in favour of rising inflation. Globalization was previously a crucial deflationary factor. Deglobalization promises to drive prices up, which is bad for the poorest countries as well as the rich.

By Alex Kuptsikevich, the FxPro senior market analyst. 

The Fed Funded S&P500’s 35% Growth with $2.5 Trillion Help Package. What’s next?

The same can be said about other countries to a large extent. However, the U.S.A. case is the most obvious with the weekly report on changes in the Fed’s balance sheet.

S&P Chart

The chart clearly shows how the expansion of the balance sheet contributed to the S&P 500 index growth in previous weeks. If you look at history, you can also see how the market was learning. In 2008, the sharp expansion of the Fed balance did not prevent markets from falling for many months: the S&P 500 found its bottom in March when the most intensive phase of asset buying was already completed. In the following years, the Fed repeatedly launched QE programs, and at the time there were already enough of the Fed’s statements to push stock indices up.

In March and April, the Fed was more aggressive, and market participants already knew what to do – buy stocks and raise funds in debt markets. While the U.S. central bank does not buy shares, a significant part of the purchases of stocks in indices is based on the belief that the Fed will be able to fill the markets with liquidity.

The Fed Cuts Cuts the Expansion

It is very alarming that the Fed cuts the volume of expansion of its balance sheet weekly. In the last two weeks of March, the Fed’s balance sheet increased by $586bn and $557bn, while during the previous two weeks it was already $82.8bn and $65.5bn. Following this, the activity of stock buyers is fading. In 2017 markets managed to find internal growth drivers, despite the Fed’s passive position and even for a while to go against the balance cut. However, since 2019, market growth has already been indirectly supported by the central bank.

Such a dynamic can remain prevalent in the markets as long as there is no evidence of a terrible decline in people’s incomes in small companies and a shift to a more economical cost model.

Now, with record unemployment and the inability of many industries to operate at full capacity, will the market be able to find internal growth drivers again? – It is hard to believe.

 by Alex Kuptsikevich, the FxPro senior market analyst

Bitcoin to Rally after Halving?

However, if you ask the crypto market participants if this is the scenario they expected as halving approaches, the majority will say they expected more. Of course, with less than 5 days left before halving, a lot can happen around the crypto sphere, but on the fundamental level, everyone understands that if the recent growth of the bitcoin is the optimism maximum, then digital currencies are not doing well at the moment.

However, it is unlikely that it will be that bad for the first cryptocurrency, even if the price starts to decline significantly after halving, and even if it does not recover for a long time.

The last two times, halving ended with growth due to the unshakable faith of the crypto market participants in the Great Bitcoin Mission as a project that opposes the entire traditional financial system. When faith became too strong, institutional investors were allowed to enter the market.

Crypto-enthusiasts were waiting for a new impetus from institutional money. But futures became the starting point of crypto winter, hitting the hopes of retail investors in the crypto. Why did the popularization of Bitcoin in the financial world lead to a drop in price?

It was a sharp growth in the price of Bitcoin that led to the coin being perceived as a danger that needs to be contained. A growth above $10,000 and the scale of the crypto fever made Bitcoin “visible” to regulators.

The basic essence of the Bitcoin is its survival mechanism: the increasing difficulty of mining, decreasing profitability, and limited emission. By the way, a similar combination could also help the entire global economy. Previously, this combination led to an increase in the price of an asset.

However, now we can see that the growth of bitcoin is facing with quite serious difficulties. Why? The market composition has changed and the trading volume has grown significantly.

What is the actual (not theoretical) price growth limit for Bitcoin? Not $100K and not even $50K or $25K. It is likely that the basic principles of survival will change with the new conditions: the growth of trading volumes limits price growth, shifting Bitcoin from the category of speculation around the price to the investment of the financial system of the future.

Since the beginning of the year, trading volumes in the Bitcoin network have increased by 140% and are well above the 2017 levels. It is likely that Satoshi realized that an asset cannot develop with a non-stop price growth.

True crypto-enthusiasts should not be afraid of a decline in the price of bitcoin. Rising mining difficulty, lower premiums, stabilized prices, higher trading volumes, and a loss of regulatory interest – this formula may well work to turn a bitcoin into a real superstructure over a financial system despite current or the future price slumps.

 by Alex Kuptsikevich, the FxPro senior financial analyst

Fragile Stock Market Optimism

Rising surpluses in these export-oriented countries are often a positive signal of global growth. But things can be different now.

In Australia, the growth of the foreign trade surplus is due to a simultaneous decline in imports and an increase in exports. In March, Australians significantly (-15%) reduced their purchases of foreign goods.

China published data for April, and the picture is similar. Exports rose by 3.5% YOY (vs -16% expected), but imports fell by 14.2%. The decline in imports for China is not only a sign of weak domestic demand but also of a decline in business activity, as a significant part of imports are re-exported in the following months.

Separately, it is worth mentioning that the recovery of business activity indices is  also very delusive. The Chinese estimates published this morning showed an increase in the PMI from 43 to 44.4 but still below 50, i.e. in the area of decline. The same indicator for the Eurozone was revised with an increase from 11.7 to 12.0. But this is still a picture of a disaster in the economy.for

The same can be said about the labour market estimates in the United States. ADP estimated the decline in U.S. private-sector employment at 20.2m last month, which is better than expected, but not much.

U.S. private crude oil reserves are approaching record levels of 2017, although not as fast as expected.

All this makes us pay attention not so much to the rebound in stocks but the continuing USDJPY decline. And this is a clear divergence, which is often not in favour of stocks. This gap may shrink as stock markets begin to get confirmations that temporary lay-offs are turning into long-term job losses, which leads to spending cuts and further layoffs.

by Alex Kuptsikevich, the FxPro senior market analyst.

Germany’s QE Opposition is pressuring the Euro

However, they are not quite sure about the future economic outlook. This can be seen in the index charts. If we look at the American S&P500, we can see the profit-taking in March and April.

The same trends, on a smaller scale, are repeated inside the day. On the intraday charts this week you can see the declines at the end of the day, but most of the time, purchases prevail and we are likely to see the same trend today as well.

A similar situation around oil. It has been enjoying buying from stress-low levels since last week. Reducing its volatility has also taken away an essential irritant for markets in general. But soon we got two new negative factors.

First of all, it’s the U.S. accusations of withholding information about the virus and the threat that “China will pay for everything”. In this case, the markets operate based on the news. Chinese markets and the yuan are confidently recovering losses at the end of April amid confidence that the conflict won’t go into a phase of real and significant damage. They bet that leaders will be able to reach an agreement. After all, this has happened before.

Germany’s recent announcement

A new factor appeared yesterday, and this is the opposition of the German Constitutional Court to the ECB actions. Germany calls for the next three months to correct legal discrepancies for the asset purchase program, held since 2015. And this not only threatens a big revision of past actions but also puts a spoke in the wheels of the ECB, which intends to expand and deepen QE. Otherwise, the Bundesbank (the largest and most influential in the eurozone) will be on the sidelines.

In this case, the experience is on the side of the pessimists. The past German opposition to support troubled Greece, Spain, Italy was probably an essential factor that slowed the region’s recovery from the financial crisis and turned into years of low growth. Worse yet, it destabilized the debt markets of peripheral countries, causing the Euro to sell out.

The vital factor is that it has permanently eroded confidence in the eurozone, instilling in investors’ minds the idea that the Euro is not forever. However, if previously, investors were afraid of peripheral countries’ exit, now the risk of Germany’s exit is increasing. So far, on the level of unity of monetary policy and the ECB. The single currency was the cement that united the eurozone.

EURUSD

Two rounds of the debt crisis (first Greece, then Spain and Italy) took 20% of the Euro’s value twice. EURUSD failed to fully recover to 1.50, where it was before the acute phase of the crisis. Partly, it is the fault of the slow economic growth of troubled countries, which turned out to be within strict limits of budgetary discipline. This pushed the ECB to QE, causing pressure on rates and the price of Euro, which is so displeased to the residents of Germany, who prefer savings and expensive national currency. Will they succeed? Perhaps, only if they can do it alone.

 by Alex Kuptsikevich, the FxPro senior market analyst

$3 Trillion Tsunami looms on US Markets

Futures on the index show an upward trend this morning, growing another 1.1%. This recovery did not fully offset the decline of previous days. However it  pushes the same thoughts as last week, when we saw profit-taking after a firm April for the stocks.

Additionally, it is encouraging that the indices are growing quite evenly. Very often it is a sign of confident purchases for the long term rather than speculation on the latest news. Along with the growth of stocks, the dollar has turned to decline. It seems that the demand for dollars was satisfied.

The Fed has managed to quench the dollar thirst, and now reduces the volume of purchases on its balance. In the last two weeks of March, the balance sheet increased by $557B and $586B, while the latest data showed that it increased by “only” $83B. If you assess the actions of the Fed by the dynamics of the dollar, the US Central Bank managed with thin balance in its operations.

However, the financial system is movable. And now there is a new, no less stressful test coming. The US Treasury Department is going to attract about $3 trillion in the second quarter of the year in its updated borrowing plans. This is five times higher than the previous quarterly record in 2008.

The big question now is what impact this will have on the markets. Historically, such situations have been negative for the markets, as investors will prefer highly reliable US government securities to riskier stocks. On a much smaller scale, this happened in September last year. Back then, the Fed was helping markets by injecting liquidity and can do so now, again dramatically increasing asset purchases on the balance sheet. This is not the only case. The US Treasury bills are regularly placed on a large scale, and the dollar is strengthening. It is an approach based on history.

But there is another approach, the one based on the logic. Besides the US Treasury offer, US bonds government bonds are thrown into the market by many EM countries, that sell their FX reserves to help the economy and keep national currencies from free fall. It may well turn out that the dollar debt may be too large in the markets. In this case, the value of dollar debt may begin to decline, because there will be too much of it.

However, the Fed only comes into play when the situation gets out of control. Will, the US Central Bank, act proactively this time, or will we see signs of a significant shift in balance before the regulator intervenes? Either way, this impending debt placement tsunami is unlikely to be quiet.

by Alex Kuptsikevich, the FxPro senior market analyst

Bitcoin is at Risk of Deep Fall in the Coming Months

In the last 24 hours, bitcoin has lost nearly 4% to $8,700. Ethereum (ETH) sank under $200 threshold, losing more than 6% in the last 24 hours.

The Crypto Fear & Greed Index rose 17 points over the week, fully reflecting the market sentiment. However, it remains in the “fear” area. The RSI for BTCUSD on the daily chart is declining from the overbought area. This technical indicator has worked accurately enough lately.

Since last Thursday Bitcoin is being redeemed on the declines to the 200-day average, which has stabilized near $8,500. If this support could not resist, the pressure on the first cryptocurrency might intensify. A simple 200-day moving average is a reliable trend indicator in traditional markets, and it has proved to be a reliable indicator on the crypto market.

The decline under this line at the end of February was the start of a 3-fold price collapse the following month. In November 2019, BTCUSD dropped by 18% the next month after fixing under the 200-day line. In May 2018, the decline from about the same levels was stopped only seven months later, at $3,300.

There is only a week left before halving in the Bitcoin network, but it is still difficult to see signs of FOMO in the market dynamics, which could push the price far above $10,000. And the closer the halving is, the less likely FOMO to happen.

It is quite probable that halving will not clear on price prospects for market participants. As before, this event may have a delayed effect. However, the environment around the cryptocurrency and the composition of investors has changed. Institutional market participants still are not crypto enthusiasts. This should be considered in forecasts on the impact of halving on the future price of bitcoin.

 by Alex Kuptsikevich, the FxPro senior financial analyst

Crude Oil Inspires Markets

The U.S. WTI reached $19.6 earlier today, adding over 50% against Tuesday’s lows when it was down to $13. Several factors support the recovery of prices – from growing investor optimism to signs of the balance recovery beginning. In the case of the United States, we see signs of progress towards the balance both on the supply and demand sides.

Firstly, the change of sentiment on the Oil took place against the stabilization of the world financial markets. The news about the success of testing the Remdesivir became a fresh driver. Besides, countries report about the gradual easing of restrictions and hope that demand will start to recover further.

Weekly data showed an increase in commercial stocks in the U.S. by 9 million, less than expected 11.2 million, and markedly below the growth of 15 million and 19.2 million in the previous two weeks.

Interestingly, production has been declining very slowly. Last week’s average daily production was 12.1 mln, i.e. -0.1 mln against previous week and -1 mln against historical peak levels in mid-March. Other weekly data from Baker Hughes show an extremely sharp decline in drilling activity. However, these figures may be 6-9 months ahead of production as an indicator of sentiment for next year.

In our view, it is worth noting an increase of 1mln barrels in U.S. strategic storage (SPR). This is a small, but very symbolic increase, because before that the volume of Oil in SPR had been gradually declining for three years.

Apart from this, OPEC countries and some other major producers announce their production cuts. Previously agreed cut by about 20% from OPEC+ comes into effect in early May. Additionally, Norway promises to reduce its production and suspend work on new projects until the end of the year.

All this is not so much a goodwill gesture and a desire to save the Oil from decline, but rather an economically logical step to secure the status quo in the share of production and at the same time to support prices.

In any case, the positive dynamics of Oil is an additional stabilizer of market sentiment, bringing back interest in buying risky assets and allowing hope that the worst moment has already passed.

by Alex Kuptsikevich, the FxPro senior market analyst

The Currency Market Tuned for Positive

Growth in the number of cases on April 27 was the lowest in more than a month. Besides, the number of recoveries is increasing, and the number of patients in critical condition is falling. Australia, which has avoided a significant spread of the disease and many deaths, is beginning to ease restrictions for businesses.

This news spurred demand for risk assets and helped the Australian currency to rise to a 6-week high, recovering three-quarters of its decline from the peak levels of March.

Aussie

The positive dynamics of the Australian currency may be a manifestation of a broader business recovery process in the Asia-Pacific region, which was the first to suffer from the new coronavirus. Also, in 2008 AUDUSD reversed towards growth shortly before the beginning of a broader markets reversal. Then the driver for the Australian dollar was an extensive stimulus program in China. Now there are many smaller programs, but they are supported by softening of credit conditions from the People’s Bank of China. So the experience of 2009 may well apply to the current situation, making AUDUSD an indicator.

Swiss Franc

Elsewhere there is an interesting turn in the European currency market. EURCHF in the previous two weeks found its “bottom” near 1.05. Considering the nature of the movement, it was managed by the Swiss National Bank. SNB may use ceiling for EURCHF in attempt to stop the strengthening of the franc above 5-year highs against the euro. Earlier, on March 9 the USDCHF also turned sharply up from the lower bound of its 5-year trading range.

EURCHF rose yesterday by 0.8% as speculators may act on the SNB side selling the franc along with the markets. However, with tightening credit conditions on the markets, a fundamental stream may push EURCHF down again, forcing the central bank of a small country to protect its economy from an excessive strengthening of the franc.

It is interesting to know how many monetary authorities of other countries will perceive direct interventions at a time when everyone would like to push the competitiveness of their exports through currency depreciation

by Alex Kuptsikevich, the FxPro senior market analyst.

Bitcoin and Ether see Signs of Bullish Movement?

Bitcoin has risen 7% over the past week. Trade volume in the Bitcoin network has increased by 17% over the last day. The Crypto Fear & Greed Index rebounded by 7 points during the day, switching from “extreme fear” to “fear” mode. This is quite a significant result, as the index has been extremely depressed since mid-March. The altcoins from the top ten show mixed dynamics waiting for new triggers.

From the technical analysis, the bulls got the upper hand as BTCUSD closed above the 50-day average on the daily charts last week. In February 2019, the same signal flagged the start of the 4-month rally, that quadrupled the Bitcoin’s price.

The leading altcoin Ethereum (ETH) rose over the week by more than 7%, approaching the $200 threshold. The technical picture for ETH is even more optimistic. Last week the Ethereum gained ground above the 50 and 200-day averages.

Although this is not even close to the 2017 levels, the coin has returned to its growth track. And this cryptocurrency has every reason to do so, as the project is beneficial for the digital sector. Tezos (XTZ), Cardano (ADA), and Stellar (XLM) also show significant growth over the week with +16%, +25%, and +20% respectively.

There are only a few weeks left before halving, but so far, the main result of such an essential event for Bitcoin approaching, is that investors are holding on to their positions. The rapid attack of $8000 could be a breath of fresh air for the first cryptocurrency and can open new horizons. However, we are witnessing only super cautious optimism among market participants. Everyone understands that central banks are desperately trying to support the economy, and they are doing so at the expense of the future.

Nevertheless, Pandora’s Box is open, and the unpleasant truth is that central banks and governments are only trying to put out the fire. The quarantine cannot last forever, sooner or later, everyone will have to work in the new high-risk environment before another outbreak of the disease. The question is: how many waves of the epidemic will the global economy withstand?

Cryptocurrencies will likely be just as vulnerable to global threats as other assets of any kind. However, the difference may lie in the future. After all, some assets may lose their buyers forever, while others will build a new structure on the ruins. In the new economy, there will be a much larger space for purely digital projects.

Of course, no one needs most of the existing cryptocurrencies. Still, given the global trend towards self-isolation and the tighter digital control, many of the current leaders in the crypto market will take their place even (and especially) after the emergence of national cryptocurrencies.

 by Alex Kuptsikevich, the FxPro senior financial analyst. 

Oil Helped Revive the Bitcoin

This hardly caused widespread enthusiasm among the participants in the crypto market, as bitcoin had already been at these levels recently, but could not hold the ground. Altcoins obediently duplicate the dynamics of the first cryptocurrency, showing an increase of 3-6% within the TOP-10 digital currencies. The total capitalization of the crypto market has grown by $5 billion over the last 24 hours.

Ethereum (ETH) and Tezos (XTZ) demonstrated the highest weekly growth among the leading altcoins with an increase of 12% and 20% respectively. Among the “second echelon”, the anonymous coin ZCash (ZEC) shows the highest growth for seven days with the growth of more than 20%.

Market participants assume that the reason for the new rebound of the bitcoin may be a correlation with S&P and even with the oil market. One could write everything off as a coincidence, but such events happen more and more often. Of course, Bitcoin is not pegged to oil or stocks but there is another crucial interlink between these assets – institutional investors who classify bitcoin as a risk asset.

Oil has become a new barometer of global economic health. Trump’s latest threats against Iran and stimulus packages are indeed creating short-term speculative waves in the oil market, which are echoing in the stock market and boosting other risk assets, including Bitcoin. The open question remains: can long-term investors rely on these movements?

We are running out of storage facilities for raw materials, and the money printing press has become some stock market’s lung ventilator, just as Bitcoin is having difficulties with the realization of an original idea of p2p transactions. It is likely that as the global crisis approaches, the opportunities for speculation may be severely limited at the government level.

Bitcoin has moved quickly from a “rebel” asset to an unbelievable correlation with oil and stocks recently. And it is far from certain that a decline in institutional investors’ influence on the crypto market will hurt the prospects for the first coin and the crypto market as a whole. It is worth remembering that it was within the framework of the ‘social economy’ that the crypto received its most powerful impulse.

by Alex Kuptsikevich, the FxPro senior financial analyst

Oil is Searching for the Bottom

From today, the CME exchange introduces options with a negative strike price on Crude futures, suggesting that the Monday situation can be repeated. Most worryingly, following the decline in the oil price, there is increased pressure on Asian and European markets, net consumers of this commodity.

Once again, markets switched to risk-off mood. Month ago, this move was due to fear of uncertainty. Now the markets are afraid of a wave of defaults, starting from Oil-related producers. The problems of oil miner may affect both the jobs and processing industries, as well as cause problems for banks and brokerage companies.

That is why the decline in oil prices, which is generally good for the economy, is dragging down stocks and indices around the world and putting it back on the agenda for many politicians.

Americans have returned to the idea of buying oil into reserves, as did Australia. Some OPEC countries were discussing the situation the night before. Several Oil producers indicate their readiness to start cutting immediately, without waiting for the beginning of May.

The fact that politicians in many countries paid attention to the collapse of oil prices formed a kind of shaky support at round levels. Brent on the spot market is attracting buyers down to $20, June futures on WTI fell to $6.9 yesterday. However, on Wednesday morning, they are fighting for levels close to $10.

The oil looks extremely oversold and unreasonably low at these levels. It attracts trader speculators. However, we should keep in mind the example of the contract collapse to -$40, which we saw on Monday. Buying oil now is like catching knives falling from a skyscraper.

For short-term speculators may be wise to stay away until the first signs of a trend reversal. In 2018, 2016 and 2009, the multi-month upward reversals occurred after a sharp daily gain. The words of the officials gave this impulse to the melted demand. Then the market for.

by Alex Kuptsikevich, the FxPro senior market analyst

The Snowball of World Defaults Starts with Oil

Futures on American oil are in a free fall, and this is a clear manifestation of economic damage. The price of the May contract for WTI has collapsed 17% in the morning to the lowest level since 1999. The price of some grades of oil in the U.S. has fallen to $2, as the oil storage facilities are almost full, despite the decline in production.

In recent years, the U.S. oil industry has been increasing its influence on the economy along with production volumes. The oil shale revolution with its sharp decline in oil production costs is only part of history. The era of near-zero interest rates fed this revolution. Small American companies borrowed massively from banks and debt markets.

Now they are on the verge of collapse, desperate to find money to survive. However, bankruptcies have already begun, and further price cuts will inevitably lead to new victims. What’s happening in the oil market is increasing the anxiety of financial markets. Banks are forced to build up reserves in preparation for rising bad loans.

Unprecedented asset purchases on the Fed’s balance sheet help to keep debt markets from collapsing now, but banks are absorbing part of the liquidity and as a result, not everything reaches the markets. This was the case in 2008 when the liquidity crisis was gaining momentum despite the Fed’s credit lines and rate cuts. That was when banks became a bottleneck and a center of problems in the financial system.

Right now we are somewhere at the beginning of this process, and we have yet to see how well the government and regulators have done their work on mistakes. Direct distribution of money to citizens and active participation in lending to small and medium-sized businesses in many countries can be considered a financial innovation.

Together with the catastrophic drop in government revenues, this is putting public finances at risk in many countries. It is not an exaggeration to say that the problem of the budget deficit will affect all countries to some extent.

Governments become debtors of last resort, although even without the epidemic many have served record debts and chronic deficits. The IMF reported that about 100 countries approached it for debt deferral or restructuring (write-offs). Most of them were emerging economies. Indulgences for one of them increase the perseverance among the others, forcing investors to seek shelter.

But where can we find it if the debt markets of Europe, Japan and the U.S. (traditional safe-havens) are vulnerable to the same problem? The U.S. budget is predicted to face a $4 trillion “hole” this year – many times higher than in previous years. How can we expect Trump to turn a blind eye to an avalanche of defaults (reduced liabilities) for other countries and not push the same thing for the U.S.?

by Alex Kuptsikevich, the FxPro senior market analyst

Quarantine Softening: Light at the End of the Tunnel, But not Yet a Way Out

These announcements, as well as the easing measures in Germany, Italy and China before that, are a kind of A light at the end of the tunnel but not yet a way out.

This ray of hope has allowed markets to put aside for a while the fears of an economic collapse, which emerged after the published macroeconomic data in recent days.

The number of jobless claims last week in the United States amounted to 5.25 million. Twenty-two million of such claims were recorded during the four weeks, and this is a 23x increase compared to the previous four weeks (930K) that was the norm for over the last three years.

The continuing jobless claims data is lagging for one week. However, already now, at 12 million, this figure is almost twice as high as the highest levels in 2009, when it reached 6.4 million. The number of employed in the U.S. is just over 150 million, so the current losses already exceed 10% of all jobs.

At the same time, the shocking collapse of China’s GDP in the first quarter cannot be ignored. The second-largest economy lost 9.8% in the first three months of the year and 6.8% below the level one year ago. It was only in the 1960s that China experienced a more dramatic downturn as its relationship with the Soviet Union was severed.

Optimists now have one hope that the unfreezing of the economy will not lead to long-term job losses. These expectations are based on China’s example, where 100% of large companies and about 80% of small companies have already returned to work after the lockdown. Industrial production in China was down 8.4% y/y in March, and that’s great news! A month earlier, the decline was over 13.5%, and was expected a 10% drop.

The bad news is still weak China retail sales in March. They declined by 15.8% y/y, in sharp contrast to the average growth rate around 8% y/y until February. The bad news that for developed countries, such a downturn promises a much higher pressure for the GDP. An 8.7% decline in U.S. sales in March could only be the beginning of a much more profound fall in April and a long recovery in the coming months.

 by Alex Kuptsikevich, the FxPro senior market analyst