August Seems Hot for the Currency Market, Trump’s Sanctions or Tariffs Spook Emerging Markets Currencies

This August seems hot. Not only temperature but also currency market volatility is rising. The period of active vacations, which is accompanied by a decrease in volumes, this time result in increased volatility. So far we have seen this in the EM currencies that have been subjected to sanctions or tariffs from the United States. However, the British Pound is also in the camp of suffered currencies.

More “hard” Brexit than it was expected earlier causes the weakening of sterling. Since the beginning of August, the British currency has lost more than 2%, dropping below the important level of 1.30 dollar. By the euro, the pound had sunk yesterday to the lowest values since September last year.

On Wednesday, the Russian ruble lost more than 3% on fears of new sanctions from the U.S. and as a result of a sharp drop of oil. The dollar rose to the highest rates in 21 months above 65.5 and completed the summer consolidation period.

Earlier the week, the Turkish lira lost more than 6.5% in a day, rewriting the historical highs to 5.42. Some rollback of the lira was short-lived, and today in the morning it has lost 2.4% and has returned to 5.40.

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The commodities market also cannot boast of the summer lull. Gold at the end of last week dropped to $1204 per ounce, and now stabilized near 1215. The main support factors, in this case, are the demand for protective assets against the Sterling backdrop and EM currencies drop and the extreme oversold of gold in the previous months. The recent report of the World Gold Council has shown a record volume of net short positions on this metal. Often, the excess oversold is a good signal for bulls to start buying. This is also evidenced by the RSI dynamics.

Oil abruptly lost on Wednesday amid the report EIA on the return of shale companies to net positive cash flow, which promises the growth in production, despite the rise in interest rates in the United States. As a result, Brent Crude oil lost more than 3%, fell below $72 at some point. WTI rewrote 2-month lows near $65.80.

It is noteworthy that the weakening of the pound has not caused any pressure on the euro. However, the euro is potentially vulnerable to this topic as investors switch their interest to the regions that are farther from the epicenter of the problems.

The positive dynamics of the euro and the strengthening of the Japanese yen constrain the dollar index from the growth, despite the pound weakness. As a result, DXY Remains near the upper limit of the trading range of the last months, adding 0.1% on Thursday. However, the increased demand for security is likely to allow U.S. currency to demonstrate its strength soon. It is also worth paying attention to the U.S.PPI figures, the acceleration here could give support to the American currency.

This article was written by FxPro

China Fights the Trade War Through Fiscal Stimulus, US Dollar Retains the Potential to Strengthen

American indices added yesterday on strong earnings reports, where tax cuts were favorable for profit. Asian indices in the morning add-on speculation that China will protect local companies from the trade conflict with the U.S. through fiscal stimulus. Besides, the restrictions on speculation introduced by Beijing a few days ago had a positive impact on Chinese bourses and the yuan. As a result, The Renminbi increased by more than 1% to U.S. Dollar.

Globally, the dollar recedes this week and turns lower from the important resistance levels. The dollar index has turned to a decline, failing to gain a foothold above 95, and this morning it loses another 0.2%, increasingly receding in the middle of the three-months trading range. The important resistance has once again shown its strength. Often, after an unsuccessful testing of extremums, it is necessary to expect a rollback in the middle of the trading range (-0.5% to 94.4) or to its bottom (-1.3% to 93.60).

However, it should be noted that global risks are still offset in favor of the dollar: the fears of trade wars and a slowdown in the growth of the global economy.

In these circumstances, beyond short-term fluctuations, the American currency still retains the potential to strengthen and exit the trading range of the recent months. August is considered to be a quiet month with low activity in capital markets, but at this time usually, the basis for the rally builds up for the next few months.

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The period of trading in the channel can quickly be changed by the rise of volatility, as it was in April after the consolidation in January-April when DXY had added 6% for a month and a half with almost no adjustments. A similar scope of movement this time will allow the dollar index to return to the psychologically important boundary of 100.

As we wrote yesterday, in the short-term the dollar growth can reduce inflationary pressure in the US and deter the Fed from an excessive tightening of monetary policy.

This article was written by FxPro

Bitcoin Might Plunge to $5800 Mark, But It’s not Enough for Wall Street

The crypto market cap lost 20% in the last 2 weeks, falling from $300 bln to $250. The Bitcoin is trading now at around $7,000 comparing to $8,400 in the same period. Although analysts remain bullish on the BTC perspectives, currently they warn us to be cautious. 

In the short terms, technical analysis is still on the bears’ side. The RSI indicator has decreased in the recent days but it is still far from oversold levels. Moreover, the benchmark currency doesn’t have important levels of consolidation near current trading marks. It means that after a short pause Bitcoin could slide down to the nearest consolidation level close to $6200 mark, and even lower to $5800.

The wide circle of investors needs more time to realize the new reality and to be confident of a new asset. The regulators need time to work out the rules. The institutional investors need lows to enter the market, and the large financial institutions need an infrastructure to bring the cryptocurrencies into the mainstream. And while everyone is waiting for a better time, cryptocurrencies can expect new lows, market clean-up, and increased volatility on the swings between optimism and

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ICE announced the cryptocurrency platform Bakkt in cooperation with Microsoft and Starbucks but the prospects did not provoke much positive impact. Such impressive brands, involved in one project that is aimed at adapting cryptocurrency to retail and pension funds, certainly reaffirm the desire of big firms to cover the crypto-sector. 

Jamie Dimon, CEO of JP Morgan, once again named the Bitcoin “scum” and stated that “he was not interested” in the Bitcoin. Goldman Sachs intends to offer customers “crypto-depositary”, although the official line of the Investment Strategy Group report declares insolvency of the current cryptocurrencies. It seems that Wall Street wants to see really “extreme lows.”

According to unofficial data, on August 10, the US Securities and Exchange Commission (SEC) will approve the Bitcoin ETF from the Chicago Stock Exchange (CBOE). The review of other applications was postponed until autumn. The launch of the ETF Bitcoin will open the door to the cryptocurrency for the insurance and the pension funds, as well as different rank investors, concerned about the security of possession and storage of digital assets. If these risks would be borne by intermediaries with a strong technical and legal basis, an additional strong factor of support for the cryptocurrency and the Bitcoin market will appear.

This article was written by FxPro

Is a Strong Dollar Good for the US Economy?

China, Iran Russia, and Turkey are under Pressure

The threat of sanctions and tariffs from the United States puts pressure on a large part of developing markets. Chinese bourses are under pressure because of the threat of tariff wars. Iran is under threat of imposing sanctions because of the Iranian nuclear programme. Russia is vulnerable because of the suspicion of its interference in the elections. Turkey is under pressure because of the reluctance to release the American pastor. All these threats have already had an extremely negative impact on the business sentiments in the emerging markets, causing capital outflows and national currencies weakening.

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Strong Dollar: Good or Bad?

The big question is whether such strengthening of the US dollar is favorable for the American economy or not. For the long-term distance, the answer is simple – «No».  This is exactly what the President and the U.S. Treasury Secretary have said in the past. Nevertheless, in the short–term the dollar’s growth could help to reduce the US inflationary pressure, avoiding even more abrupt tightening from the Fed. Moreover, it should not be forgotten that the American budget has a huge deficit, and the States actively attract market capital to finance it.

As one of many consequences, the USD receives additional demand due to the flow into the liquid U.S. Treasuries (UST), which is abundantly offered to the markets in order to finance the enormous fiscal deficit.

Coincidence or not, but the effect of the U.S. president’s active economic pressure on other countries is counterbalanced by the effect of the overgrown debt securities offer. As a result of the increased demand for safe-heavens, the yield for 10-years treasuries bond remains close to 3%, reluctant to grow higher, as it was widely expected earlier and despite the Fed Funds rate hikes and acceleration in inflation.

At the same time, strong macroeconomic data of the U.S. economy and company reporting support the positive dynamics of American stock indices. On Monday, S&P 500 added 0.3%, and the index futures add another 0.1% on Tuesday, reducing the gap from January’s historical highs to only 0.9%.

Among individual shares, it is worth noting the growth of Facebook shares. In the recent days, the stocks had stabilized after a collapse and now attract investors who are betting on the rebound after an excessive decline. Taking an important line of 200-day moving average and exiting the oversold zone for RSI also support the bullish sentiment among those investors who look at technical indicators. Twitter shares have not turned to rally yet, but technical indicators demonstrate this possibility.

This article was written by FxPro

The Japanese Yen Loses Its Safe-Haven Status as China-US Trade Conflict Intensifies, Global Stocks Slightly Lower

The dollar adds at the start of a new week, despite the weak employment growth in July report. The EURUSD pair is trading near the 6-weeks lows at 1.1550. Despite a poor number of jobs created, market participants felt that the Fed would maintain its commitment to the gradual tightening of the policy with two more hikes this year.

Nevertheless, the US market continues to attract investors’ interest. The strong company reporting pushes US stock indices back to the January highs. A year earlier, the rally of the indices was partially supported by the dollar weakening, but now the USD is experiencing an impressive demand. Global stocks trade slightly lower on Monday morning as trade war tensions weigh on markets.

In addition to data on the labor market, the demand for the dollar is also supported by the growing trade conflict between the US and China. China proposes to expand tariffs on US goods, including such sensitive sectors with a trading volume of $ 60 billion as liquefied natural gas and aircraft.

The consequences of the trade conflict between the US and China threaten to affect the growth of the entire region, which puts pressure on the yen as well. The Japanese currency, to some extent, loses its status of a protective currency having lost almost 6.5% to the dollar for the last 4 months as the trade conflicts have been intensifying.

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The British Pound fell below 1.30 on Friday and is now near this mark and near its annual lows.

Thus, the US currency demonstrates the strengthening of its largest competitors.

The EURUSD pair is trading at the low of the last three months. It is an important area of support, below which many orders are concentrated. A fall below 1.15 is capable of triggering an avalanche of stop orders and opening the way for a fairly rapid fall of the pair down to around 1.10, without encountering any serious technical support levels along the way.

This article was written by FxPro

Fears of Higher U.S. Rates and Trade Wars Renewed Pressure on Emerging Markets, Turkish Lira Fell to New Historical Low

The US Fed kept its interest rates unchanged and indirectly confirmed the pace for further tightening of the monetary policy. The Fed noted the labor market strengthening, as well as the strong growth in household spending and business investment. The commentary did not provoke any big market reaction as it had expected such an outcome. However, it is worth noting that the probabilities of the hike in December increased. This process provides the dollar with moderate support, it adds the third day in a row and is traded near 94.50 at the time of writing.

Also, the U.S. Dollar was supported by strong employment report from ADP. The company noted an increase in the number of private sector jobs in the U.S. by 219K, which brought back the rate of growth to the strong numbers as it was at the beginning of the year. The dollar index returned to the end of last week, but in general, the developed markets keep the calm tone of trading.

At the same time, Asian bourses restarted their downturn on the new portion of fears around trade wars, amid the increased pressure from the U.S. presidential administration that threatened to raise the tariffs for imports from China up to 25% against 10% earlier. Chinese stocks are losing more than 1% in the morning, quickly returning to the area of one-year lows achieved last month. The Chinese yuan also remains under pressure, trading in the 13-months lows.

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New evidence that Fed sticks to its plan for 4 hikes this year and the “flexibility” of the Bank of Japan with 10-years notes yield have the biggest impact on the emerging markets. The capital outflows from EM may increase due to the interest rates spread failing to the U.S. rates, as well as the fears that trade conflicts would significantly slow the economic growth in the Asian region.

Elsewhere the Turkish lira fell to new historical lows after the reports that the United States had imposed sanctions against Turkish officials who had participated in the detaining of the American pastor. USDTRY rose to 5.0, losing more than a third of its value since the beginning of the year.

This article was written by FxPro

Global Stocks Mostly Lower as Trump Raises Stakes in the Trade War with China…Again

Two opposite trends prevail in the global markets. Strong reporting of companies, including Apple indicators supports the demand in world markets. However, the Chinese bourses fall under the pressure on the news that Trump is considering 25% tariffs on Chinese goods worth $200 billion against 10% that are being discussed now.

The news about tariffs for China appeared shortly before the start of the negotiations round between the major world economies. We saw a similar move before Juncker and Trump meeting last week. The goods in the amount of $200 bln represent almost the half of U.S. imports from China and about 10% of total U.S. imports per year. 25% of tariffs can add to inflation more than 1.2 percentage points and seriously harm the established business practice in the USA.

Since July 1, the States have introduced duties for goods worth $34 bln and China responded in a tit-for-tat manner.

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It is also interesting how China intends to respond to the expansion of duties up to $200 billion. The U.S. exports goods to China amounting to $130 bln, so it is unlikely that it will be able to respond with a proportionate expansion.

It is quite possible that the US-China rates are so high that the negotiations are simply bound to move into a more constructive direction.

This article was written by FxPro

Bitcoin’s Rally Stalled Below $8000, Cryptos Are Back in Red

Last week it became obvious that the Bitcoin had big difficulties with further growth above $8000. During the weekend, it held above $8,200 mark, but yesterday it suddenly fell below $7900. Most likely, it was “a belated reaction” on SEC refusal to launch the Bitcoin ETF. Nevertheless, shortly after this rollback new buyers entered the market. As a result, trading volumes increased by 22% and the price went back to the latest levels. Market participants evaluated this movement as a large investors’ attempt to prevent the market from the deeper correction.

After a recovery in the past week, the crypto market is back in the red with Ethereum, Bitcoin, Bitcoin Cash, Ripple and Dash fall more than 5%.

At the moment technical analysis is not on a bull side. In the middle of the previous week the rally got stuck near $8300 level and since then the Bitcoin’s price has slowly decreased. RSI indicates sell signals due to its coming back again to the levels below 70 after its peaks a week earlier. This is a bear signal, which could be reinforced in case if the price drops below $7850, recent lows. Then, it might be a sell-off signal not only for the technical analysis fans but also for ordinary investors.

The desperate desire of the enthusiasts to see a new rally outweighs the fundamental basis for the growth. It is very likely that this desire is heated by Tether and Bitfinex exchange speculations. Taking into account the absence of positive drivers, the market is under the threat of correction.

Among promising news, there was a report from South Korea about the probable launch of transparent cryptocurrency and blockchain regulation in the Q4 of 2018. Korea is the third largest crypto market after the USA and Japan, so it is difficult to underestimate such prospects. The regulation in South Korea almost certainly will lead to a significant growth of crypto assets popularity and an influx of new funds.

This article was written by FxPro

Euro Steady Ahead of Major Economic Data

The single currency is increasing on Tuesday against the backdrop of the inflation in Germany, which is weaker than expected. A preliminary estimate of the inflation for July showed a 0.3% increase in prices and a slowdown in the annual rate from 2.1% to 2.0%. Usually, sluggish inflation growth provokes a weakening of currency, as it implies more dovish rhetoric from Central Bank and potentially delays the increase in interest rates.

But now the situation is slightly different. Last week the ECB confirmed its desire not to raise the stakes until at least next summer. It is highly unlikely that the ECB would break its forward guidance and take this step earlier than it promises now. Under these circumstances, lower inflation increases the real value of the investment in the euro and makes the investment in this currency slightly more attractive.

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Last Thursday inflation forecasts and the promise not to raise the stakes eroded the value of the euro, but with the softening inflation, we observe the rebound of the single currency towards the levels of the last week’s highs. The EURUSD pair is currently trying to gain a foothold above 1.1717. According to technical analysis, the nearest important level of resistance will be the area of 1.1740.

Looking at the economic calendar, Germany retail sales & unemployment rate, France inflation rate, Spain GDP and the Eurozone inflation rate, GDP, and unemployment rate can affect the euro.

This article was written by FxPro

IT Selloff Continues: Twitter and Facebook Still Did Not Find Support, Global Stocks Steady

Sale off of technological stocks continued yesterday. Twitter and Facebook, the biggest movers last week, could not find support yesterday; moreover, they fell by 7.7% and 2%, respectively. Both shares are in the oversold area, according to the RSI index that fell below the signal level 30 on the daily charts. However, the technical analysis points out that the proper moment to buy will only be when the current sales impulse will lose power and the RSI will return above 30.

Current sale of IT shares should be considered as a correction as this sector was the key driver of the market in the previous months. Twitter lost 27% in the latest three trading sessions, but this huge move returned the company’s capitalization to the levels of May.

Despite the tech sale on Monday, global stocks are trading steady on Tuesday morning with the European and Asian markets slightly higher.

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The currency market

In the currency market, the dollar was under some pressure following the data that indicated a weakening of the inflation in the Eurozone. The slowdown in prices in Germany and Spain can be seen as a harbinger of the inflation easing in the entire euro region, the preliminary statistics on which will be published later today. Low inflation increases the real value of the investment in the euro and makes it a bit more attractive to invest in this currency at a time when the ECB intends not to raise the rate for at least a year. Against this backdrop, the single currency returned to the area above 1.17 and returned back almost completely its fall after the ECB press conference last week.

The currency market on Tuesday morning managed to avoid serious fluctuations. The Bank of Japan made only minor tweaks in its monetary policy, promising more flexibility in carrying out QQE and promising to keep the rates “very low” for some time, as the inflation is still far from the target 2%. The markets had feared that the Bank of Japan would start curtailing incentives aggressively, along with the ECB, which is reducing its asset purchases to the balance and with the Fed, which raises rates and reduces its balance. The simultaneous winding down of incentives from the “big troika” would be an even more serious test for markets that are already concerned about the uncertainty surrounding international trade policy.

This article was written by FxPro

Markets Summer Lull Can Be Broken by Major Central Banks, Emerging Markets Currencies Under Pressure

The currencies of developed countries are moving within a narrow range at the beginning of the eventful week. The dollar index is around the mark of 94.50 and has been trading for two months in a range of slightly over 1% around this level. This quiet trading environment can be broken this week after the announcement of the decisions took by the Bank of Japan, the Fed, and the Bank of England, as well as the publication of the U.S. employment data.

Developed markets currencies are experiencing a period of low volatility after the dollar growth period from the end of April to the end of May. The closest market focus is how the Bank of Japan adjusts its policy. More hawkish tone can push down the Asian markets at a time when they are vulnerable amid the fears of trade wars.

With the meetings of the largest central banks and important statistics, the week ahead is able to open a period of increased volatility after a long period of a summer lull. Earlier, the Fed’s head made it clear that the U.S. central bank is set to tighten its policy. Market participants will closely monitor if the Fed is set to raise its rates in September while remaining committed to the 4th increase in 2018.

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The Fed’s hawkish rhetoric can increase the difference in the dynamics of developing countries’ currencies. Unlike the major world currencies, in the EM there has been a noticeable differentiation in recent weeks.

The Russian rubble enjoys the continuation of high oil prices period. The Mexican peso gains after the elections last month and on the expectations of the profitable negotiations on NAFTA.

At the same time, the Chinese yuan has been falling for the recent two months at its highest rate in many years on easing the PBC policy and on fears about the consequences of trade wars with the United States. The Turkish lira declined to all-time lows due to the threat of the U.S. sanctions and after the Turkish CB had kept the rates against a widely expected increase last week, which was perceived as a loss of independence of the local regulator. The Argentine peso is also under attack, despite the assistance from the IMF to the country. The Indian rupee is close to the historical minimum to the dollar, in spite of the strong growth of the economy.

The dividing line for the currencies of developing countries became the balance-of-payments factor. Turkey, India, and Argentina have a significant deficit and are dependent on the inflows of capital from outside. China formally has a surplus, however, the economy of the country’s regions depends on outward investment, requiring favorable investor relations.

This article was written by FxPro

Bitcoin Faces Difficulties with Growth over 8K

The Bitcoin course (BTC) fell below $8.000 on the news that the US SEC had rejected the second Winklevoss twins’ attempt to launch Bitcoin ETF, which negatively affected the prospects of all similar projects. The expectation that the regulator would allow ETF launches have been the main growth driver in recent weeks, and now the market can face a serious rollback.

As of Sunday morning, the benchmark cryptocurrency lost 0.37%% trades slightly above $8100 after a drop below $8000 on Thursday and Friday. The total market capitalization of the cryptocurrency market fell from $302 blnto $296 bln. The record number of bitcoin contracts on CME makes cryptocurrency vulnerable if traders start to wind down their positions.

This week, many market players have been betting that the market has passed the bottom and is moving towards highs at $20K in anticipation of new projects, the launch of ETF’s and institutional money. But it may well be that the increase observed in July is all that the cryptomarket could demonstrate in the upcoming months.

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In addition to the difficulties of regulation, security of the sector remains the Achilles heel. On the first working day of the decentralized crypto exchange DEX Waves the hackers carried out a successful attack, the funds were not stolen, but users data could leak. Such hackers attacks inhibit the positive evaluation of the regulators, although, in the end, most of the problems in the code will be eliminated, and then it will be possible to expect that crypto assets could become a real mainstream.

This article was written by FxPro

Markets Froze Before Trump-Juncker Meeting on International Trade; RUB, TRY Sharply Fell on Tuesday

The US stock markets were marked by Tuesday’s growth in strong earnings reports, which allowed S&P500 to add 0.3% on Tuesday’s results. On Wednesday, by the beginning of Europe session, the futures for S&P index remains near the closing levels of the previous day. It is also worth mentioning the growth of companies’ shares in the agricultural sector thanks to Trump’s pledges to help farmers in case of a full-scale trade war with the EU and China.

Trade wars will be in the spotlight of markets again. The negotiations between Juncker and Trump focusing on international trade issues will be held on Wednesday.

The EURUSD has traded in a narrow range for the second day in a row, remaining close to 1.17 level in anticipation of important comments in the second half of the week. In addition to the meeting of Trump and Juncker, it is also worth highlighting tomorrow’s meeting, where the markets will try to grasp how seriously the central bank estimates the economic damage from already introduced measures and uncertainty around the future tariff policy.

Among the currencies of emerging markets is to highlight yesterday’s weakening of the Russian rouble and the Turkish lira, despite the overall increase in demand for risks. TRY lost more than 4% and returned to the area of historical lows to the dollar after Central Bank of the Republic of Turkey had kept the policy rate at 17.75%. The markets considered this as a strengthening of Erdogan’s power, as he earlier had expressed publicly his preference for a less stringent policy despite inflation.

The Russian rouble lost almost 1.5% last night after Trump’s tweet stating that Russia “will be pushing very hard for the Democrats” in the upcoming elections. These words were perceived by the market as Trump’s willingness to support new sanctions against Russia. Up to these words, the Russian market almost ignored the reports of a new U.S. Senate sanctions package.

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Nor can it be ruled out that the current negotiations may also be of a positive nature. It is very likely that the stakes are high enough and the time has come to negotiate. Yet the main expectations of bidders are that the world’s largest economies can avoid full-fledged trade wars and protectionism.

Significant macroeconomic releases include the publication of sales statistics for new homes in the United States, as well as the reporting of such companies as Facebook and Visa.

This article was written by FxPro

Bitcoin Hits $8000 for the First Time in Two Month

Cryptomarket actively replaces altcoins in portfolios with the Bitcoin. Over the last 24 hours, BTC added more than 4% and overcame an important psychological level of $8,000, which sets optimists on the proximity of the new milestone of $10,000. Bitcoin was trading at $8189 at the time of writing.

The top 10 coins for capitalizations show either a decrease or a slight increase from + 1.5% for Ethereum (ETH) to -52% for the Bitcoin Diamond (BCD), according to CoinMarketCap.

The increase in the demand for the Bitcoin (BTC) coincides with the boost for daily volumes traded by 60% from $3.5 billion on Monday to $5.6 billion today. Investors bet for the market warming up with institutional money, as well as for the creation of investment products that would lead the demand for the Bitcoin (BTC) to a new mainstream level.

Over the past month, the Bitcoin grew by 36% which contrasts sharply with 14% growth of the whole market ex BTC. The total cryptomarket capitalization without Bitcoin almost stagnated around $150 billion level for the previous month.

At the moment, the share of BTC in the total cryptomarket cap has reached 47% (the maximum since December 20). In addition, many analysts believe that the Bitcoin (BTC) had bottomed out on June 24 at $5,900 level.

Some technical indicators, including the popular Relative Strength Index, point to an overbought of the BTC, that stands at the level of 73 now. According to analysis rules, the loss of the growth impulse by the price in these conditions and the falling of the indicator to the area below 70 can provoke the beginning of the correction.

Therefore, in the current circumstances, it is better to remain cautious in assessing the prospects. The fact that the growth of  Bitcoin has been fuelled by the outflow of funds from altcoins since last week raises doubts about the stability of the rally. Without further significant news triggers, the growth of the reference cryptocurrency can awash before reaching $10,000.

This article was written by FxPro

Stocks are Growing while Bonds Under Pressure

The situation in the world markets looks controversial. Shares are growing after strong reporting of companies. The shares of Alphabet (#Google) jumped by 3.6% after the market closed on Monday, bringing capitalization of the company to $870 billion on strong quarterly reporting, despite a big fine imposed by the EU. By capitalizing the search engine giant is at a striking distance of Amazon, the 2nd most valuable company after Apple.

In Asia, positive stocks dynamics is supported by news that Beijing will soften the fiscal policy, intending to spur the growth of the economy. The factor of positive dynamics of China looks strong in the short term, probably supporting the demand for risks at the start of trading on Tuesday.

In the calculation for a longer perspective, it is worth paying attention to the yields growth on debt markets and strengthening of safe-haven currencies. In the global market, the dollar grew on Monday, adding 0.3% against the backdrop of fears that the central Bank of Japan and the Eurozone would give up incentives at the time when world growth became less synchronous and robust. These fears fuel the sale of bonds, causing the yields increase.

This is a precondition for a dangerous situation. Bilateral trade tariffs additionally stimulate inflation, which is already close to the target levels or slightly exceeds them in some countries. The lowest unemployment rate in the decade will only accelerate this process.

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At the same time, fears around trade wars harm economic growth, which already shows a slowdown. As a result, global growth is becoming more fragile and less able to survive the tightening of monetary policy. In addition, high inflation will limit the ability of the CBs to stimulate growth.

This article was written by FxPro

US Dollar Extends Losses on Trump’s Comments, Now Focus Shifts to ECB

Despite doubts that the influence of the president’s comments will be long, tactically they came out at an opportune moment, not allowing the growing index of the dollar to gain momentum after touching highs for the last year. At least for the short-term, the scales turned to dollar bears and sent DXY (Dollar Index) from the recent highs.

In addition to the direct reaction of the currency market, it is worth noting the flattened yield curve for of U.S. Treasuries. This is good news for the markets, mostly for the EM, that slightly decreases the degree of uncertainty around trade wars. 

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Despite the weakening of the dollar in the second half of last week, the upcoming ECB press conference on Thursday has a chance to exacerbate the competition of bulls and bears on the currency markets. 

After ECB head’s comments on the previous meeting, the Euro collapsed by 2.5% and the EURUSD pair dropped to the area of 12-month lows. However, it is more likely that this time, the balanced-comments-scenario of Draghi in the range from neutral to positive for the currency after a portion of criticism from the American president about the active pressure on their currencies in Europe and China.

The weakening of the dollar also helped gold, oil, and Chinese exchanges to grope some support last week. On Friday, the oil also gained some help from reports about a reduction in drilling activity. As a result, Brent trades above $73 a barrel at the time of writing against last week’s lows at 71.30.

This article was written by FxPro

Trump Wants a Strong US Dollar but Not Too Strong; Trade War Escalates

The dollar index reached the one-year highs on Wednesday due to the demand for safe assets. USDX reached level 95.43 on Thursday, breaking the peak levels from November and May-June. However, Trump’s comments have caused pressure on the American currency, throwing the dollar from the recently achieved highs.

The U.S. president, in an interview on CNBC, noted that the yuan “was dropping like a rock”, and the rising dollar and higher interest rates raise concerns about the potential impact on the economy. The strengthening of the currency makes the production of local companies comparatively expensive, which is able to slow growth.

Trump, most likely, wants a strong US dollar. It represents the strength of the American economy. On the other, he also knows that a strong dollar puts the American economy at a disadvantage.

At the same time, the weakening of the dollar has not yet unfolded the demand for protective assets, including bonds, and the decline in shares. On Thursday and Friday fears about the escalation of trade wars between USA and China caused a new easing of yuan, as well as pressure on the stock markets.

On Friday morning the yuan sank to new lows compared to the last 13 months. Since the beginning of the month CNY lost 3%, and for three months of active sales, it sagged 9%. Chinese largest companies also remain under pressure on Friday morning, despite the weakness of the national currency, which often supports stocks.

The EURUSD pair fell on Thursday to 1.1575 but rose to 1.1676 due to market reaction to the Trump’s comments and closed the week at 1.1721. For the year from January 2017 to January 2018 EURUSD added more than 20%, on accelerating eurozone growth and low inflation in the US, but half of this increase was erased in the first half of this year, when fears around trade wars and a more stringent tone of the Fed caused an increase in demand for the U.S. currency.

The American president also attacked China and the EU of currency manipulation by keeping their currencies low while the US continues to raise its inters rates.

It is not necessary to overestimate the influence of comments of the U.S. President. Previously, it was limited and short-lived. He has repeatedly expressed such a point of view, but it did not prevent the Fed to tighten the policy and it even increased its pace. It should also be remembered that similar comments in Davos at the beginning of the year caused an immediate reaction to the weakening but had no long-term consequences. The American dollar soon after the similar comments of Trump and Mnuchin stopped a month-long fall and soon turned to growth. However, with the additional tariffs imposed on $500 Billion in goods from China and the expected meeting of Trump-Juncker, a trade war escalation is more than likely.

This article was written by FxPro

The Potential of USD Growth is Limited, Global Stocks Edge Higher after Powell’s Testimony

The Fed’s confidence that the years ahead of the low unemployment and sustained growth have increased the demand for risks at the stock markets. As a result, S&P500 has overcome the downturn of the previous two trading sessions and has updated the highs since February, rising by 0.6%. The credibility of the Fed’s forecasts is an important factor for markets. The optimism in the estimates supports the stock indices. In the morning the Asian platforms have picked up the relay, also adding about 0.6%-1.0%. European markets also trading higher the day after Powell’s economic outlook.

Powell’s speech also helped U.S. currency. The dollar index has added 0.5% on comments that the Fed intends the raising of rates regularly further. As a result, the Dollar index returned to the area of the trading range highs for the last year. The EURUSD pair fell to 1.1619 to start of the Wednesday, USDJPY has reached 113 – the highest level for the last six months.

It should be noted that the simultaneous growth of the dollar and American stocks is quite rare and short-term phenomenon. Strengthening of the dollar reduces the competitiveness of American companies and it is often caused by a tighter monetary policy that harms equities. However, this time it is still more likely that markets will continue to grow, while USD will lose its momentum.

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Entered tariffs and strengthened over the last year oil spur inflation, which undermines the real value of the dollar. A recent update of IMF projections has highlighted the trend towards accelerating growth in Emerging economies and slowing the Developed. The impressive US trade deficit is alarming, which also negatively affects the currency exchange rate. It should also be noted that the Fed’s plans for 4 increases this year were confirmed by yesterday’s speech but had already been taken into account by the markets earlier. Under these conditions, the dollar again could become in the offensive, as it was in the 2000s when the dollar retreated to most currencies.

From the technical perspective, strengthening of the dollar in the area of current highs, near 95 on the index DXY In November of the last year, and also in May-June of this year was accompanied by an increase of pressure on the American currency. This area of resistance can act again as a serious obstacle if new drivers for the dollar do not appear.

This article was written by FxPro

Markets Under Pressure after Oil Hits 3-Month Lows, Powell’s Testimony in Focus

After returning to the highs area since March, the American S&P 500 lost growth momentum in anticipation of further signals from the economy or the Fed’s chairman.

The dollar index has continued its decrease since Friday, losing 0.8% in the meantime and failing to stay in the area of year highs near 95. The pair EURUSD managed to return to the area above 1.17 on Monday and is currently trading on 1.1738 after Fed’s Kashkari calls to make a pause in rate hikes to avoid the yield curve inversion.

The gold is trading at $1240 per ounce – at around the one-year lows reached on Friday. This precious metal has lost more than 125 dollars since April on fears that trade conflicts would slow down the Asian economic growth, as well as due to the interest rates rising, which increases the attractiveness of bonds – alternatives to gold.

Quotes of Crude Oil and petroleum companies were under pressure after the report that Libya had been ready to fully resume the shipments. Brent lost on Monday more than 4% and collapsed to the lowest levels since April after US Treasury Secretary Steve Mnuchin said that oil buyers can continue buying Iriania supplies despite US sanctions on Iran., to the area of $72 per barrel Brent. In addition, the prices of oil companies had come under pressure, which caused the negative closing of the American S&P 500 with a fall of 0.13%. Besides the news from Libya, oil is pressed by the US administration’s intentions to open a strategic stock to push the quotes lower. Moreover, the attitude of Russia and Saudi Arabia to increase actively its production is an additional factor of pressure from the supply side for Crude Oil.

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Asian exchanges on Tuesday morning continue to lose its positions after the disappointment by Chinese statistics published on Monday. The growth rate of the Chinese economy sank to a two-year minimum at 6.7% YoY, and the industrial production slowed noticeably above expectations. In addition, investors are hesitant about the prospects of trade wars between the major partners. In the worst-case scenario, it will seriously suppress the global economic growth and will lead to a decline in demand for oil and other types of raw materials.

Besides, on Tuesday, the focus of the markets will be on Powell’s first speech in the U.S. Congress as a Fed Chairman. The markets are set to hear a confirmation of the tightening policy but will listen carefully to the assessments of trade conflicts risks. The confidence that the U.S. economy in the upcoming quarters will stay on track for impressive growth would support the dollar and cause a wave of growth in short-term interest rates on debt markets. The reaction of the stock areas, in this case, can be somewhat complex. Active tightening can reduce the attractiveness of stocks in the U.S. and provoke the risky assets sale all over the world.

This article was written by FxPro

Oil Prices Drop Back into the June Price Range while USD Strengthens, Global Stocks Recover

Libya has said it would lift restrictions on exports and production would return to normal levels from close to 0.5M bpd back to 1.3M bpd. Saudi production has also increased by 0.7M bpd to 10.7M bpd in June responding to President Trump’s call for lower prices. Increased production can lead to further pressure on prices.

The USD strengthened to reverse much of its declines yesterday from trade war headlines with stronger PPI data and trouble in emerging market currencies adding to the push higher. The market grew tired of waiting for a Chinese response and put a bid under the dollar while US Senators passed a motion to review tariffs based on national security grounds, opening the way for some of the recent tariffs to be repealed in future. USDJPY roared through the 112.000 level and hit a high of 112.376 overnight. Stocks markets have found support and are attempting to rally higher as the risk off mood fades. US president Trump is meeting with NATO again today before he departs Brussels for the UK.

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US Producer Price Index ex Food and Energy (YoY) (Jun) was 2.8% against an expected 2.6% from a previous reading of 2.4%. This data came above the previous reading for last month, beating the forecast and adding to the push higher in prices. The FED will be analyzing this data for developing trends in consumer inflation, with an increase in prices putting upward pressure on inflation. EURUSD moved higher from 1.17248 to 1.17579 after this data release.

Bank of Canada Interest Rate Decision and Rate Statement were released along with the Monetary Policy Report. The Rate Decision came in as it was expected to, with an increase from 1.25% up to 1.50%, the second hike this year after the Bank hiked rates in January. The Rate Statement confirmed that the Banks would like to continue to hike rates at a gradual pace that is data-driven. They said that higher rates are needed to restrain inflation. The Bank said that they are upbeat about the economic prospects for Canada while cautious on trade. USDCAD fell from 1.31446 to 1.30636 as a result of the releases but moved higher to an overnight high of 1.32175, unwinding the entire reaction move down. This was caused by a combination of factors including comments from BOC Governor Poloz in the press conference and Oil price moves.

  • EURUSD is up 0.07% overnight, trading around 1.16805.
  • USDJPY is up 0.22% in the early session, trading at around 112.255
  • GBPUSD is down -0.01% this morning trading around 1.32014
  • Gold is up 0.13% in early morning trading at around $1,243.47
  • WTI is up 0.23% this morning, trading around $69.68

This article was written by FxPro