Weak Economic Data Worsened Market Sentiment

The published macroeconomic data does not allow investors to return to purchases despite the large-scale stimulus and expectations of upcoming easing of restrictive measures. Market sentiment has worsened by the data on the amounts the largest US banks are saving to cover possible losses, as well as new reports of possible bankruptcies of large companies.

Weak oil producers (FTS, earlier Whiting) and retailers (JCPenney) are in the process of insolvency. However, they were not performing well even before all these events. This situation acts as a catalyst to these destructive processes. You may treat this process as a natural cleanup of the market field as long as it did not touch relatively healthy companies.

We can see the same on a country level. The International Monetary Fund reported that about 100 countries have applied to it for help with financing or requesting deferral of debt repayment. The wave of defaults at the level of states is dangerous because it will attract both changes in attitudes to other “weak” countries, and revision of the ratings of companies in these countries, increasing pressure on the financial markets.

Currency markets often mirror these hidden processes, and here it is worth noting the alarm signals.

The Australian dollar and the Chinese yuan turned to decline on Wednesday, and this process continues on Thursday morning. The AUDUSD dropped from 0.6700 to 0.5500 in March but recovered to 0.6440 by Wednesday. The Chinese yuan stopped its growth at 7.04 per dollar. In both cases, the currencies attracted bears, when they offset the decline, which was abnormal in the second decade of March. This may be a signal from Asian investors that they are not ready to believe that the situation has turned to improvement, forecasting that economic activity won’t recover quickly.

The model for the markets can be the situation of 2008/09, when the rebound after a significant decline ended in a new wave of decreasing. In AUDUSD it was a return to the same levels, while the stock market was updating its lows.

In the EURUSD, the level of 1.1000 was an essential battlefront for the bulls and bears. The recovery in the first half of the month stalled on the way to this psychologically important level. It may be an important watershed in the market sentiment. The increase in sales reflects investors’ caution, and the ability to stay above this level and growth above the 200 SMA (now passing through 1.1050) might act as a turning point. But we have not passed this point yet.

by Alex Kuptsikevich, the FxPro senior market analyst

Oil and the Euro are Bureaucracy Victims

However, amid the stabilization of these numbers, the stock indices showed growth, reckoning on the governments and central banks’ stimulus.

Yesterday Japan joined the US, Germany, and Italy in announced the funding of almost $1 trillion (20% of GDP) to support small and medium businesses. The US said that the unemployed would start receiving additional payments next week.

The fast and well-coordinated work of politicians promises to be a vital skill for the economy in the coming months. Fast approval of support for financial markets, small and medium companies, as well as assistance to people who have lost their income, would radically accelerate economic recovery.

This is a case where multilateral negotiations are evil. Comprehensive and coordinated steps turn into an endless chain of talks. This applies to both the oil market and the pan-European support package.

Europe’s bureaucratic machine showed itself in a negative light this morning when the EU could not agree on a €500 billion stimulus package, postponing negotiations to Thursday. These reports turned the euro down, taking about 0.5% in half an hour.

This situation brings us back to the era of Greek and Spanish debt problems, which almost cost the region the unity and took from the euro about 30% of its value against the dollar. Investors are afraid that the countries did not draw the main conclusion from the situation at that time. In essence, a quick decision decreases the final price.

The same can be said about approaching Mega-Opec negotiations. The inability of the officials of Russia and S. Arabia to reach an agreement and the subsequent show of muscle caused a significant drop in oil prices, i.e. to deeper economic pain for these countries. Now, a month later, they are already discussing almost ten times larger cuts.

The chances that the US, Canada and, say, Norway will join the agreement are decreasing. The US said it would not participate in the voluntary reduction, because now there is a decline in production due to the collapse of prices.

In the long term, this is the right market approach, giving an advantage to those who have a lower price. However, now, when the energy market is in a shock, it does not need to float freely, but rather to support itself by regulating production or consumption at the government level.

Without that, oil prices may face another decline in search of a bottom, a path that promises to be difficult for both oil producers and financial markets that are nervously responding to oil price volatility.

by Alex Kuptsikevich, the FxPro senior market analyst. 

Gold and Silver’s Shining Future

Both indices closed above the levels of the previous rebound at the end of March, further fueling the growth of foreign bourses at the start of trading on Tuesday.

The positives come from several directions at once. For the second day in a row, the number of new COVID-19 infections in the world is decreasing. In most European countries, the trend for reduction is confirmed. This is evidence that quarantine measures have the right effect by knocking down the spreading wave.

At the same time, the authorities of the most affected countries are not tired to declare new funds to fight the consequences. Italy has announced a new package of measures worth 400 billion euros to support small and medium businesses, increasing the overall package to more than 800 billion (about 50% of GDP).

US lawmakers are considering another package “for at least $1 trillion” in addition to the $2.6 trillion. Federal Reserve said it would allow banks to cash out loans issued under the program of assistance to small and medium businesses – a way to put money into the economy quickly.

These measures reduce the pressure on the markets, causing some weakening of the dollar. Of course, it’s too early to try to estimate whose incentives will be larger and faster to enter the economy. The answer to this question will help to understand the future trends of the currency market. Initially, the side, whose “supply” of currency will increase more strongly will feel worse.

At the same time, gold and other commodity assets may experience additional growth impulse on the background of widespread money printing by governments around the world.

For example, after the market storm in October 2008, the price of gold tripled within three years. We are witnessing similar processes now. Lower currency market volatility and a trend reversal on stock exchanges allowed gold to strengthen by $220, or 13%, in slightly more than two weeks.

Silver rose by almost a third at the same time, to $15 per ounce, recovering strongly from earlier losses.

After a reversal to growth in 2008, silver’s value increased by almost six times, from $8 to $50, twice as fast as gold.

Silver is much less considered an asset to save the value of capital. It is more affected by production trends, that makes it vulnerable to market collapse since late February.

Strong government support measures for business activity give hope for a V-shaped recovery in the industry, as we saw in China earlier this month. Together with the almost ubiquitous flooding of money, this will allow silver to turn towards growth, potentially more solid growth than gold.

by Alex Kuptsikevich, FxPro’s senior market analyst.

Markets are Ignoring the Economy; Coronavirus is in the Spotlight

Previously, we have repeatedly noted that markets can get support when the daily increase of new cases decreases. Of course, this does not mean the end of the disease and it won’t be evidence of solving all economic problems.

But it can be the point where markets can form the basis for further growth. The incidence statistics now looks like a more reliable economic indicator than the actual data, which is noticeably lagging. Economists are catastrophically far from reality in their estimates, but markets do not notice this.

Extreme monetary easing and unprecedented stimulus announced by major governments have allowed markets to soften the decline and move away from lows.  Unprecedented restrictive measures managed to reduce the spread of the disease, which restrained the market’s freefall and reduced their volatility.

We may cautiously speak about some decline of the uncertainty because with the decreasing rate of spreading the infection, the measures to contain it are also softening.

The US labour market data published on Friday showed a decline in employment by 701k in March, compared to expected 100k. However, the employment estimates are based on data from the first half of March – even before there were 10 million initial claims for unemployment benefits in two weeks.

If the situation does not improve significantly in April, the number of lost jobs could reach millions this month. The good news is that the markets are not scared. They probably took this into account in asset prices earlier during the decline in March.

Another critical factor, as we mentioned above, was pumping the financial system with liquidity. As a result, we are witnessing the financial markets flooded with money, which reduces their value. By flooding the markets with liquidity, central banks are raising stock prices as if the tide is lifting all the boats in the harbour. However, the water in the sea is stormy, and the bottom is still rocky.

by Alex Kuptsikevich, the FxPro senior market analyst.

From Panic to Rebuilding?

Asian indices also started trading on Thursday with a decline. However, they turned to growth amid signs of stabilization of new cases of infections. Without spreading acceleration, medical professionals and the government have a chance to build sufficient capacity to help patients in critical condition.

For markets, this could be a signal that there will be no new quarantine toughening (just an extension). Possibly, analysts may start their forecasting of a recovery in business and consumer activity.

Unfortunately, the recovery is unlikely to be as sharp as the downturn in March and April. After all, we are not talking about long New Year’s or Christmas holidays, but numerous breaks in logistics chains. It won’t be an exaggeration to say that in many cases, business processes have to be rethought. And it’s a long way with a possible change of stock market leaders.

Now it seems evident that there is a growing “interest” in pharmaceutical companies and online services. Asia has maintained a culture of social distancing and hygiene for years after previous outbreaks of infectious diseases. With some changes, this culture may come to Europe and the USA.

Another critical consequence promises to be the strengthening of the role of the state and increased measures to control the movement of citizens. A vital result should also be increased government infrastructure spendings. For the most part, this did not happen after the global financial crisis, as budget committees were concerned about inflating government debt.

Those fears are overshadowed by a renewed focus on the value of human life.

The foreign exchange market, an indicator of the significant capital’s mood, is already showing a change in sentiment, as can be seen in the fall of volatility to early March levels. Commodities are rebounding from extreme lows, where they mostly fell on emotions earlier this month.

Changes may also affect the currency market. The euro is at risk of becoming a hostage to the EU governments’ need to print much money to get the economy back to growth. Under these circumstances, EURUSD may decline in the coming weeks and months until there are signs of accelerated growth.

 by Alex Kuptsikevich, the FxPro senior market analyst.

The Stalled Rebound: Markets Brace yourselves for a Longer Recovery

Market dynamics and economic cycles have repeatedly confirmed the validity of this observation. It is very alarming that the United States is now the hot spot for the spread of the disease. New data wiped out the hopes for stabilization of the situation as the total number in the US is approaching 190k with an increase of +26.4k over the last day.

This data wiped out the stock market’s optimism. The recent bounce in stocks has again attracted sellers among those who do not believe in the V-shaped recovery. Indeed, it is hard to find in the sustainability of the rebound when medics say “we are still on the growth path”.

Our currencies as indicators of market sentiment stepped down from recent extremums, indicating that there is still a long way ahead. The USDJPY dropped 3% over the week to 107.7, reflecting the recovery in demand for protective instruments. The Aussie finished the rebound and reversed downward, paving the way back to levels below 0.6000, which in 2008 served as a solid base for the rebound. No surprises there as economic shocks for Australis also, are far worth. Now investors brace themself for prolonged belt-tightening and negative impact on the economy.

EURUSD, an indicator of European sentiment, has been declining for the third consecutive day, failing to stay above the 200 SMA where it climbed at the end of last week.

The most dangerous for the markets now may be a period of slow but persistent decline amid worsening economic expectations. The sharp collapse attracted buyers who thought that the sale in the first three weeks of March was too fast and too low. But, as we said before, you can’t bet on the recovery of the markets without sure signs of an improvement in the epidemiological situation. Perhaps, only after it will it be possible to make attempts to assess the damage to reflect this in asset prices.

USDCAD shows an indicative technical picture. From lows in January near 1.30 (crucial psychological level), the pair soared 13% to 1.4660. Subsequently, it stabilized at 1.4000 (another round level), almost clearly in line with the Fibonacci corrections, correcting 38.2% of the initial rally.

After that, the pair increased purchases again. According to this theory, the subsequent growth in the pair may target levels near 1.5700, where USDCAD hasn’t been since 2002. This level seems to be too distant for a reference point. However, oil prices returned in 2002. Keeping oil at these levels may force the Canadian currency (and economy) to adjust to this new reality.

by Alex Kuptsikevich, the FxPro senior market analyst

A New Chinese Miracle and too Much Optimism in Europe

Europe did not manage to rely on this experience, which turned out to be a disaster for Italy and Spain. The inability to quickly limit the spread has resulted in far more significant losses.

The practice showed that governments have to make a quick choice: to shut down a particular city or province today under strict quarantine, or to extend it to the whole country a week later. The US was overly optimistic about quarantine measures. However, their health care system is still far from the chaos of Italy and Spain.

Today we saw a new Chinese miracle. The PMI business activity indices in March came back into growth territory. Published service and manufacturing PMIs reached 52.3 and 52.0 in March against 29.6 and 35.7 in February. These figures should be interpreted as the economy returned to growth in March, having overcome the consequences of quarantine quite fast. The quarantine blitzkrieg may now become an economic one.

Of course, this does not mean that this will be the case in Europe and the US, where a national quarantine will destroy business activity in both March and April.

Today we will see the publication of March employment figures in Germany. Later this week, the data from the United States will be published. And for now, it should be noted that the average market forecasts are seriously lagging behind the data. Initially, we saw a sharp underestimation of the depth of the downturn in China; now the same can be said about the speed of recovery in the country.

For Europe and the United States, economists so far repeat the same mistake as before with China, expecting on average an increase in the number of unemployed in Germany by 23k, and a decrease in employment by 81k the United States. These estimates may be too optimistic, which may cause severe dynamics after the publication of the data.

by Alex Kuptsikevich, the FxPro senior market analyst.

Stronger EURUSD is a Good Sign for the Markets

The latest example was the People’s Bank of China, which on Monday announced a 20 basis point cut, while RBNZ said it would accept corporate bonds as collateral for loans.

The actions of the world’s central banks are holding back the rollback of financial markets, which have moved uncertainly into the green zone since the opening of trading on Monday. As in the past, we believe we should be cautious about spikes in market optimism as long as the coronavirus outbreak continues to accelerate.

On the positive side, there are some signs of stabilization of the daily growth of new infection cases. This allows us to make cautious predictions that current quarantine measures in Europe and the United States won’t be tightened further. But still, it is too early to talk about their removal – for this to happen, the number of new infections must shift to a steady decline.

With the authorities of all countries pushing the monetary easing pedal to the floor, it becomes even more difficult for traders in the currency market to identify trends. The last such example in modern history was in 2008/2009. As a result, we can conclude that currencies will be extremely volatile, feverishly fluctuating from growth to decline at record rates.

We saw it at the end of 2008 when EURUSD declined from 1.45 to 1.23 in 5 weeks. It took about the same time to bounce back, but then there was another 10-week decline in the area of 1.25. Subsequently, the pair returned to growth shortly before the upward reversal in the markets. If EURUSD is an equally reliable indicator for the markets this time, then we can expect with some caution the repeal of the situation towards improvement.

Right now, at the start of trading at the beginning of the week, we are witnessing EURUSD rollback by 0.6% to 1.1070 from 1.1140. At the same time, the movement towards the dollar may be due to the end of the quarter dollar demands. Thus, have a short term impact on markets. An important signal for traders is last week’s closing EURUSD above the 200-day average, which often precedes a significant increase in pair purchases in the coming days and may also serve as a harbinger of a global trend reversal in the pair for growth.

by Alex Kuptsikevich, the FxPro senior market analyst. 

The Pandemic will Accelerate Crypto-Processes

Bitcoin has been trading for a few days at around $6,700, setting the tone for the entire sector. Remarkably, the recent sharp rebound of the stock market has not affected digital currencies in the same way.

The sideways under current conditions is quite good news for all market participants. If the trend reverses downwards, we will see a surge in demand for stablecoins again. Coin Metrics has calculated that at the moment of the highest market turbulence on March 13, stablecoins attracted a historical height of more than $400 million from other cryptocurrencies.

Nevertheless, too long sideways trend will remind the participants of the crypto market that more often than not, these trends are ending with decline.

What do the technical indicators say about this? The RSI index, which has broken out of the downtrend, indicates growth prospects. The Crypto Fear & Greed Index has been in the “extreme fear” area for a long time, which again shows a favourable growth outlook.

However, we are now at a point where market trends can quickly change due to pandemia. Constant analogies with the times of the Great Depression and panic in the market lead to the promise of unprecedented stimulus measures by the world’s leading central banks. The recent sharp growth in stock indices has eased the panic somewhat, but this may only be a short-term step towards a depression for the entire traditional financial market.

Against this backdrop, both the prospect of tight regulation of the crypto sector and purely “crypto-triggers”, including the upcoming halving, took a back seat. What will happen when smaller miners switch off their ASICs? We will be witnessing the continued centralization of the computing power of the Bitcoin network. Large players can use their firepower to buy the equipment from small miners and keep the network hash rate stable despite operating losses for some time. In the end, we will get a few owners of the Bitcoin hash rate, which will be “too big to ignore them”. That makes them target for regulators, whose victims were previously the Facebook and Telegram projects.

The attitude of the U.S. regulator to digital currencies can be seen in the litigation of the SEC and Telegram. The latter is desperately trying to appeal against the regulator’s decisions. Still, it seems very likely that the position will be principled to indicate the prospects for other participants of the crypto market. This year may become not only the control of people free movement but also a year of regulators and authorities attempt to get full control of money flows through crypto-flow limitations.

 by Alex Kuptsikevich, the FxPro senior financial analyst.

Markets are Trying to Buy the Dips of Quarantine

On top of this, governments are increasing measures to support small businesses and large companies. These decisions lead to an increase in demand for the purchase of shares of strong companies, which, according to market participants, were undeservedly sold out during the market crash earlier this month.

The announcement of new liquidity support measures by the Fed and the impressive (almost 20% of GDP) stimulus package in Germany have renewed the interest of markets for purchases. Futures on US and European stock indices have been rising more than 4% today.

At the same time, the markets are moving in contrast to the economic news, which is showing a decline in business activity on PMI indices. These indices have become a kind of universal measure in recent months, as the same methodology is used for different countries, with most of them publishing in the course of today.

Already released data from Japan and France showed a sharper than expected decline in activity in the service sector. In France, the PMI for the services sector collapsed by 29, the lowest level in the history of this study with a large margin. Business activity in the country collapsed at its highest rate in 22 years of research, indirectly indicating a more than 3% decline in the coming quarters.

Germany’s composite index was also weaker than expected. In essence, the service sector index declined to 34.5 vs 43 expected, the composite index fell to 37.2 from 50.7 a month earlier, vs 41.5 expected.

Indicators for Italy have not been published, but they would have come out even worse than these.

A month earlier in China, we also witnessed higher economists’ expectations against real statistics. Such dispersion once again shows a substantial undervaluation of quarantine impact on the economy.

The markets are reacting as if the data is the matter of the past. And the best strategy, for now, is to try to buy at the peak of fears. But this can be a dangerous mistake.

Quarantine measures have increased dramatically in recent weeks, but they were not enough to contain the increasing number of new cases in Germany, Spain, France. Even more so in the United States. Over the past 24 hours, the number of new cases there grew by more than 10K, accounting for more than a quarter of all new cases. In other words, neither the pandemic situation, nor economy has reached a turning point.

With such background, the final business activity data in March and statistics in April may turn out to be even worse, risking turning the health care crisis into an economic one. The proactive steps of the Fed, ECB and many other central banks has so far helped to offset the risks of a full-fledged financial crisis. But this means that markets have passed the peak of volatility, but not the lowest point. After a short bounce, stocks and commodity assets may turn back to decline, without a real recovery in demand.

 by Alex Kuptsikevich, the FxPro senior market analyst. 

Coronacrisis as an Impulse for Faster Monetary System Digitalization

After a short two-way deviation, the cryptocurrency returns to the current price level. Over the previous 24 hours, bitcoin climbed by a per cent and changed hands at $5,300. According to CoinMarketCap, since March 17, daily trading volumes have been stable at around $40bn.

The Bitcoin Dominance Index is at 64.2%, having lost about a percentage point over the week. Like bitcoin, altcoins have fallen just as much, so they can also attract investor demand.

Technical indicators, including Crypto Fear & Greed Index and RSI, show that the first cryptocurrency is still in the deep oversold territory. At the moment, the most acute problem is the growth in the number of infected. It seems that investors can stay away from active purchases until this indicator begins to show a steady decline.

The spread of the virus, closed borders, destruction of supply chains, falling demand for commodities, rising unemployment and a crushing blow to small businesses are what awaits us. The consequences may turn out to be what they were after the wars, while the tools of central banks are rapidly reducing. The longer countries are isolated, the more global the consequences will be.

Apart from the purely negative consequences, we can also observe quite exciting processes, like faster digitalization of our life. Remote work has long been gaining popularity around the world. Now it is a necessity. The Internet had a long time ago made it possible to work from home in many sectors of the economy.

There is a growing expectation that against the backdrop of the coronavirus epidemic, many employers will finally choose this employment model. Remote work, online education, online medical consultations, even robot management in factories, ordering products at home – the economy is becoming more and more digital. Digital currencies in it look like a natural evolutionary stage.

Recently, we are continually witnessing comparisons with the Great Depression. Indeed, a lot of things are similar except for technology. The authorities of all countries of the world should take the next step and create, for example, their digital national currencies with limited emission and much greater transparency.

The Fed should understand that cryptocurrencies are already playing in its field with competitive advantages that will become increasingly evident as the new crisis grows.

by Alex Kuptsikevich, the FxPro senior financial analyst.

On the Verge of a New Great Depression?

Of the six most significant one-day declines in the US market, three occurred in October-November 1929, two (probably two, so far) in March 2020, and one in Black Monday 1987.

Unfortunately, comparisons with the troubled 30s of the last century go beyond the fluctuations of stock indices. Previously, similarities were limited only to the rudiments of trade wars. However, now as more and more countries are going into self-isolation, it breaks the established logistic chains. While coronavirus is spreading across Europe and America, there is a higher chance that governments will turn to stimulate domestic demand that will accelerate deglobalization.

Deglobalization in the 1930s caused the oversupply crisis and stretched the economic recovery to many years. It was even worse for the markets because they only returned to peak levels of 1929 a quarter of a century later.

Of course, such forecasts is just a grim reminder of the lessons of the past and not a guide to next markets or governments move. However, the world is already facing oil producer price wars. Russia and Saudi Arabia flex their muscles, causing the groaning of other producers who were unable to raise reserves like Russia or have higher production costs than Saudi Arabia.

One way or another, new oil lows on Wednesday morning is a warning for investors about weak real demand. The media are predicting that oil storage facilities will be filled in the coming weeks. Filling the US and China’s strategic reserves will buy some time, but can hardly be seen as a support factor for oil prices in the next few weeks or months. Right now, a decline in oil prices is further destabilizing the markets, pushing down not only stocks of producing companies, but stock indices as a whole.

by Alex Kuptsikevich, the FxPro senior market analyst. 

When will the markets return to growth? Here is the answer

It was the third biggest one-day decline in the index after 1987’s Black Monday (-20.5%) and October 1929 crash (-13%). The Volatility Index, VIX, closed at its highest level in history, clearly reflecting the extreme fears in the markets, even at the end of trading in the United States.

On Tuesday morning, the indices rebounded, with futures on the S&P 500 adding almost 5% since the beginning of the day, touching the upper bound of the trading range. FTSE100 futures have returned to the levels of the beginning of the week. This reverse gives hope that positive sentiment will prevail in the markets today.

Many observers note that the current market rebound may be as deceptive as last Friday’s upswing, as the coronavirus continues to spread rapidly, and we see an ever-growing new daily cases numbers.

In our view, market sentiments are pegged to the daily number of new infected. When China and Korea managed to seriously slow down the spread of the virus, markets returned to growth. In the first half of February, Asian indices were falling more in the countries with the biggest number of detected cases. Later, on February 21, European and American indices began to decline. And the turbulence is increasing in line with the growing number of new cases there.

If our observations are correct, the stock markets may gain ground for growth when the number of new cases start to decrease day after day. Yesterday we saw such a decline, although it is more of a formality. Worldometer showed 12,896 new cases on March 16, compared to 12,924 a day earlier.

Besides this, on Monday, the markets continued massive liquidation of all positions, including traditional safe-havens. Ten-year Italian government bonds showed a yield increase from 1.2% to 2.2% in just a few days.

And this can easily be explained by the expectation that the measures taken by the government will destabilize the Italian budget, increasing the debt burden on the government.

And it is still undefined how the government of Italy or other countries will subsequently deal with the extremely high debt burden. Besides short-term market turbulence, investors are beginning to fear that the longer the recession lasts, the higher the chances of default. A milder scenario suggests high inflation, allowing debt inflation. This means that bond prices may continue to decline on fears of a similar depreciation in the debt of large economies and companies.

by Alex Kuptsikevich, the FxPro senior market analyst. 

Bitcoin: Back to the Roots

Never say “never.” The benchmark cryptocurrency collapsed to $3,800 at the end of last week and had unsuccessful attempts to get back above $5K over the weekend.

The overall financial markets panic amplified the sell-off impulse, despite many central banks, including the Fed, cutting their rates and increasing QE and liquidity measures.

Markets took this decision as a sign of the regulator’s panic. Indeed, if the world’s largest central bank were confident in economic prospects, it would have waited three days to announce new measures at the scheduled meeting. Anyway, it is essential for crypto traders that the sale-off of assets around the world pushes down Bitcoin too. And all capital is flowing into several major currencies.

Such news are not set to a positive mood even if one believes that the cryptocurrency will get support on the back of a new global economic crisis. All market participants saw how Bitcoin was sold together with other market instruments. Opinions on reasons are also divided. One side blames institutional investors. Another – believes that institutions have nothing to do with this, and blames doomsters with a high leverage. All opinions may be correct at once.

Nevertheless, in a week the crypto market lost $89 billion of capitalization. Hardly anyone will be very frightened by this on the traditional financial market, where we have already talked about trillions of dollars. So what do we expect shortly for Bitcoin and then for the whole crypto market? Even with the significant rebounds, you can see that there are still more sellers than buyers.

The dynamics of the markets in recent days clearly shows that the crypto market has room to decline even at the current lowest levels since mid-February (capitalization was $300 billion).

However, it is worth trying to look at the situation from a different angle. Most of the decline occurred against the background of a surge of panic, which means that such a sharp decline may be short-lived.

Sooner or later, the dust will settle. Once again, the same issues as they were 12 years ago in the midst of the global financial crisis will be on the agenda: trust in the traditional financial system and fear that the endlessly running printing press will devalue capital.

Also, Bitcoin has established itself in recent years as a means of payment and capital saving in countries where borders have been closed, and capital flows frozen. Isn’t that what we see now? Bitcoin may not replace the dollar or the euro in the coming months, but in a number of smaller countries where local currencies are flying into the abyss, it may prove to be a safe-haven for capital.

by Alex Kuptsikevich, the FxPro senior financial analyst

Moment of Glory for Bitcoin?

The first cryptocurrency was created as a response to the reckless policies of central banks and governments that led to the financial crisis of 2008. And what do we see ten years later? The global financial system is again in an incredibly vulnerable position.

Hardly anyone would have guessed that the trigger for the next crisis would be the virus. However, the further the situation develops, the more realistic is the fact that the whole planet is sinking into self-isolation. In a globalized world, this is becoming an incredibly damaging factor for all countries, and the situation shows no sign of improvement.

Over the past 24 hours, Bitcoin has shown high volatility. The first cryptocurrency bounced to a local high of $7,900, slipped to $7,000 amid the European session, and then faced a massive dip, collapsing to $5,600. It was like a flash crash on the background of algorithmic trading.

So, at the moment, we are witnessing the outcome of institutional investors’ participation in the pricing of cryptocurrencies. The total capitalization of coins collapsed by $55 billion over the past 25 hours.

The RSI index found itself in the oversold zone below 30 for the first time since December 17, 2019. Last time it was there before the rally started, but now it isn’t easy to predict such an outcome.

The Crypto Fear & Greed Index is in the zone of “extreme fear”, fully reflecting what is happening in the market. Alternative cryptocurrencies are showing an even more significant decline. The top 10 cryptocurrencies are falling by 30-36%. Against this background, the Bitcoin Dominance Index has risen by 1.83 percentage points to 65.9% over the last 24 hours.

Bitcoin was conceived as a counterbalance to the traditional financial system. Gaining on this idea, the collapse of the stock market, policy easing, sharp fluctuations in national currencies, destruction of supply chains and other problems should lead to increased demand for Bitcoin.

It is likely that over the next few months, we may see what status Bitcoin has in the market — the approaching of halving overshadowed by coronavirus and turbulence in the markets. However, one should not write off purely crypto events that may also have an impact on the sector’s prospects. Now the question is, can the leading digital currency surprise market participants with something new?

This article was written by FxPro

Bitcoin Follows the Market, Losing the Battle for Digital Gold

As a result, over the last 24 hours, BTC adds 1.5% and trades around $8,800. What is happening now can be considered “green shoots”, but they are still very vulnerable. The optimists’ margin of strength becomes more and more fragile with each new stage of the sale. Even taking into account the recent growth, Bitcoin fell by almost $800 during the week.

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The Crypto Fear & Greed Index stopped in the area of “fear”, indicating short-term confusion about the future scenario. RSI is in the neutral zone, fully reflecting the price dynamics of the crypto market. The fact that the RSI is in line with the actual situation with Bitcoin also confirms that institutional investors are heavily related to technical indicators.

Thus, we are getting evidence of a correlation between the crypto market and the traditional asset market. The past “black week” for the stock market turned out to be a decline in the crypto market as well. Although Bitcoin didn’t collapse so much compared to stock indices, institutional investors likely sold Bitcoin on a par with other risky assets, but nothing more.

Bitcoin is now losing the battle for “digital gold” status. Bitcoin was not only unable to unite with traditional safe-havens, but followed risky assets. After that, when anyone attempts to give Bitcoin the state of “crypto-gold,” opponents will always remember the February collapse of the stock market, which pulled Bitcoin with it.

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However, we also do not have a final correlation with risky assets. The fact is that Bitcoin remains a different asset, yet its main character is unpredictability. For such an asset, the best scenario is the confusion of all participants.

If we compare it to the casino, Bitcoin is now just above the stage of “one-armed bandit”, while there is a long way to the “poker table”.

This article was written by FxPro

EU Data Supported the Euro, but Unlikely to be for Long

The US reaffirms that its economy is at the forefront of the global macroeconomic cycle. This is frightening news in the short term, as can be seen from the data published in previous days. That makes us expect with caution the most influential publication of this week – Friday’s NFP.

China published its industrial and service PMI estimates for February on Saturday. They were record lows, declining below dips of the midst of the global financial crisis. The manufacturing index fell from 50.0 to 35.7. The activity in service sectors was even worse, with the index collapsing from 54.1 to 29.6. The decline was markedly more devastating than economists expected on average. However, there are more questions to their forecasts than to the reliability of the data from China.

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On Monday it was the turn for European and US data. The ISM Manufacturing PMI fell to 50.1, clinging to growth territory (above 50.0). Comments on the publication show that global supply chain disruptions have mostly affected real sectors, especially electronics.

Although the review shows that positive sentiment prevailed, on the whole, it should not be overlooked that the indicator interrupted the growth. The PMI measured by Markit (like most other global indices) confirmed a slowdown in growth, falling for the third consecutive month.

In contrast, the final Eurozone PMI data not only came out stronger than expected but also confirmed the upward trend from the lows of September-October last year.

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The weakening of the single currency in previous months was significant support for business activity and strong enough to overcome the negative sentiment from the coronavirus spread in China and beyond. Against this background, growth of the euro vs the dollar looks quite understandable. The contrast of data from the US and Europe is now clearly in favour of the latter.

However, these data should not be misleading. Business in America has traditionally been the first to respond to changes in the business climate around the world. However, it is also the first to be on the mend at a very rapid pace in contrast to Europe’s long-growing pace.

This means that we can see unpleasant surprises from the US statistics in the days and weeks ahead. On the contrary, comparatively positive data may come out from Europe, which may be late estimates of the past.

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This article was written by FxPro

The Dollar is Searching for its Price Ceiling

The dollar index tracks the USD against the six most popular world currencies, where the yen and the euro can be considered the main catalysts for a decline, having lost 3.0% and 2.6%, respectively.

Nevertheless, smaller and secondary currency pairs also deserve traders’ attention, the movement in which is a kind of manifestation of profound processes of financial markets. Judging by these movements, the longstanding carry-trade idea becoming obsolete, as the high-yielding currencies of emerging markets are no longer highly profitable and the central banks of these countries are softening their policies in the attempt to revive economic growth.

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Against the backdrop of the coronavirus epidemic and the Chinese authorities’ efforts to stimulate the economy, the Yuan is weakening. The Dollar is again worth more than 7 Yuan due to the easing of monetary policy of the authorities and fears of investors about a sharp cooling of China’s economic growth. The 7.0 mark was and remained an essential barometer of sentiment in China.

The price dynamic above this level reflects the continued uncertainty in markets about future growth prospects. In early 2017 and late 2018, the Yuan was heavily protected by PBC near this level. The signing of Phase One trade agreement also returned the renminbi underneath this waterline. However, the demand for the Dollar pushed the pair higher earlier this week.

The weakness of the Yuan and the Chinese economy also affected the Australian Dollar. AUDUSD is declining again this week, updating its 2009 lows below 0.67.  It was a kind of waterline at 0.70, and the pair failed its attempt to climb higher at the end of last year.

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A separate story is a Turkish Lira. This currency does not depend on problems in China so that it can be viewed as a different story. The USDTRY broke through 6.0 this week, following another cut of the rate by the Turkish Central Bank. TCMB has been more focused on reviving economic growth in recent months, rather than curbing inflation.

The steady downward trend of the lira against the Dollar has been observed for more than a month, and last week the pair crossed the 6.0 level, returning to last year’s highs. Above the current mark (6.08) the pair was only in May 2019 and from August to October 2018 during the period of extreme volatility in the pair. It seems that now the markets are trying to find the “ceiling” for the pair, the growth above which will be sensitive for the policymakers, forcing them to stand up for their currency.

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The same can be said about the South African Rand, which crossed the mark of 15.00 in USDZAR, which was repeatedly tested for strength in recent years but did not stay long. The weakening of the Rand against the Dollar looks more surprising as it is happening against the background of robust gold price growth, that previously determined the price direction of ZAR.

This article was written by FxPro

Gold Sets Records in Euro and Strives Even Higher

The company said that the recovery of supply and sales might be delayed. Such reports from the most expensive US company, supported by a portion of cautious comments from RBA, have returned to the markets demand for save-heaven assets and was  beneficial for gold.

Earlier this morning, investors saw in RBA’s recent protocols hints for policy easing preparedness.

Gold prices rose above $1,585 per troy ounce, coming close to January high when prices reached 7-year peaks. The value of gold in the euro since this morning reached record levels above €1,465 mainly due to the single currency weakening.

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So far this year, the growth of gold was enhanced by two different drivers. The most frequently mentioned one is the demand for gold as insurance during times of geopolitical instability and financial markets storms. For this reason, gold strengthened on the news of Iranian-US conflict and at the peak of coronavirus fears.

Another reason is the demand for gold as a means of preserving capital against inflation. Massive stimulus from various central banks eventually spurred up commodity prices around the world. Last week, macroeconomic reports across the globe clearly showed an increase in consumer price growth rates.

This effect can continue to gain momentum as the People’s Bank of China and other Asian central banks strengthen the easing policy. At the same time, the Bank of Japan and the ECB repeatedly say they are ready to “strengthen monetary easing”. Now RBA has joined this company.

We see that waves of fear in the markets alternate with periods of hope that the central banks’ stimulus will work. Last week, a second factor dominated, pushing stock indices up around the world. At the same time, European and US markets were updating their historic highs.

But even with softening of fears gold was experiencing moderate correction kickbacks, maintaining the upward impulse formed in December. Moving upwards from one consolidation area to another, gold prices may grow up to levels around $1,700 (last observed in early 2013) or even jump to $1,800 (peak values of 2012) in the coming months.

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This article was written by FxPro

Inflation Threat vs Coronavirus

New methods of disease assessment have led markets to doubt that the spread of the disease is restrained, triggering the launch of a correction in financial markets.

Chinese bourses show the most significant intraday decline after the collapse on start trading in February. Futures for US indices are rolling back from their historic highs reached overnight. European markets are also starting the day with the decline from their highs on Wednesday.

Nowadays, however, not only summaries of the number of infected and affected people are in the investors’ focus but also macroeconomic data. The macro focus of the week is on the comparison of the industrial production and inflation in different regions.

Earlier this week, China surprised with an unexpectedly sharp growth in consumer prices in January to 5.4% YoY, the highest rate since October 2011. This is surprising against the backdrop of virtually stagnant producer prices. China loses its status as a deflationary force. Also, due to the coronavirus and measures to restrict movement within the country, the republic may face an even higher price spike this month.

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Consumer inflation in Germany is also systematically gaining momentum, reaching 1.7% YoY, according to official estimates released earlier today. This contrasts with 1.1%, which was observed in October-November when ECB launched the QE program.

A similar trend observes in the US. Consumer inflation estimates are due to release today expected to accelerate to 2.5% y/y. US inflation lows were also witnessed just before the Fed policy easing – in the middle of last year.

Accelerated consumer price growth could be a restraining force for central banks in Europe, the United States, and China, as they consider the need for new stimulus. However, in each case, the central bank also looks at the dynamics of production and services.

In this context, the weak production performance of the eurozone and the likely decline in China in the coming months could overcome the fear of accelerating inflation after new incentives.

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In the United States, too, last months show a decline in industrial output against the previous year to -1.3% y/y in December. The latest January data will be released on Friday. The Fed monitors industrial production statistics independently so that these data may become a determining factor in the CB’s policy. If it turns out to be visibly stronger than in Europe, it could breathe new life into the dollar rally, which returned to the DXY highs of 2019 and reached highs against the euro since April 2017.

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This article was written by FxPro