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5 Things to Watch Next Week: Bitcoin at $5000?, Trump’s Only Option, Overbought Stocks, Catalonia and the UK, The Dollar Rally

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1.            Bitcoin Shooting for Record Highs?

As the bullish trend in cryptocurrencies continues to prevail, the different coins are showing more and more divergent paths, and Bitcoin and Ripple are the undoubted leaders currently. The most valuable coin is only 10% below its all-time high today, and after the shallow and encouraging correction, all looks set for at least a re-test of the previous highs. Bears would like to see a double top forming in BTC, odds favor a continuation of the trend, even amid the hard fork speculation. As for the previous fork, the market share of Bitcoin Cash continues to dwindle, and the original chain is getting stronger by the day. The technical setup is also clearly positive, and the next week could see BTC above the historic $5000 mark.

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Bitcoin, 4-Hour Chart Analysis

2.           Trump Changing the North Korea Narrative?

The North Korean crisis that is still one of the biggest short-term risk factors for the market, even as, hopefully, the involved nations are not willing to go all the way with their threats and a peaceful solution will be reached. The POTUS had a couple of serious-looking comments on North Korea and Iran this week, and he mentioned that there is only one solution left for Kim Jong Un. While we don’t know yet what Trump meant with that, a radical change in the US policy could lead the next risk-off move in the light of the overbought state of the stock market. As safe-haven assets are still being sold, with the Yen and gold being in correction mode, a risky move by the President could lead to a quick surge in volatility and risk-off complex.

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3.           Stock Markets Looking Stretched

The 8-year old bull market in equities is alive and kicking, and this week was nothing short of spectacular for bulls as the most important US and European indices all ended the week near or at their all-time highs. The short-term strength that we noted in August might be ending though, as the rally reached a strenuously overbought state, with the tax-plan induced small cap surge delivering the final blow for bears. While the valuation of the market has long been extraordinary, the “everything bubble” fueled by the main central banks is yet to pop, and the rising trend is still undoubtedly intact. That said, those investors that are overweight equities have a great opportunity to reduce their exposure here.

S&P 500 Futures, 4-Hour Chart

4.           What’s Next for Catalonia and Theresa May?

The political crises in Spain and the UK made headlines this week, with the ensuing weakness in the Great British Pound and Spanish assets showing the extent of the troubles. The Catalonian situation could easily get worse, as the tensions are still high in the region, and there seems to be little chance for a quick solution based on compromises. As for the UK and Prime Minister May, it’s probably early to say that her days are numbered, and we wouldn’t sell the Pound here based on the recent events, but keeping an eye open is certainly justified. Looking at the most affected currency pair, EUR/GBP is nearing the key $0.90 level, and we wouldn’t be surprised by a rally in the Pound against the common currency.

EUR/GBP, 4-Hour Chart Analysis

5.           More Upside for the Dollar?

The Greenback has been showing strength this week, especially against Great British Pound, the Yen, and Aussie, but also against the rest of the major currencies. After the lengthy decline of the Dollar, the hawkish change in the Fed’s rhetoric and the much better than expected PMIs boosted rate hike expectations and in turn the currency. The looming end of Janet Yellen’s term as Fed Chair also put some upward pressure on the USD, and if the positive trend in economic numbers continues, the currency could correct more in the coming weeks. Next week, the meeting minutes of the Fed Wednesday, and the Retail Sales and CPI reports on Friday will be the most-awaited releases, while Mario Draghi’s speech on Thursday could also have a meaningful effect on forex markets.

Key Economic Releases Next Week

Day Country Release Expected Previous
Tuesday AUSTRALIA NAB Business Confidence 5
Tuesday UK Manufacturing Production 0.3% 0.5%
Tuesday UK Goods Trade Balance -11.2 bill -11.6 bill
Tuesday CANADA Building Permits -3.5%
Wednesday US JOLTS job Openings 6.06 mill 6.17 mill
Wednesday US FOMC Meeting Minutes
Thursday CANADA NHPI 0.3% 0.4%
Thursday US PPI Index 0.4% 0.2%
Thursday US Unemployment Claims 255,000 260,000
Thursday EUROZONE Mario Draghi Speaks
Thursday US Crude Oil Invesntories -6.0 mill
Friday AUSTRALIA RBA Stability Report
Friday CHINA Trade Balance 266 bill 287 bill
Friday US Retail Sales 1.5% -0.2%
Friday US CPI 0.6% 0.4%
Friday US UOM Consumer Confidence 95.4 95.1

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Analysis

Daily Analysis: Dow Leapfrogs 23,000 as IBM Beats Estimates

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Wednesday Market Recap

Asset Current Value Daily Change
S&P 500 2560 0.13%
DAX 13043 0.35%
WTI Crude Oil 52.02 0.29%
GOLD 1284.00 -0.23%
Bitcoin 5435 -3.15%
EUR/USD 1.1793 0.23%

IBM surged higher today, as the company beat analysts’ expectations across the board, pushing the company’s shares up by more than 10% and helping the Industrial Average to a new all-time high yet again. The other major US indices kept on grinding higher as well for most of the day, despite the strong overvaluation, with the Volatility Index (VIX) still hovering around the 10 level. The NASDAQ and the S&P 500 finished virtually unchanged after a late-session sell-off, while small caps outperformed in the mixed environment.

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DOW 30 Index, Daily Chart Analysis

Global stocks also edged higher, with the Nikkei still leading the way, although the momentum of the move is still weak. The Yen’s weakness was the most apparent trend in currency markets, while the Pound rebounded well, despite the persistent Brexit worries, with the Dollar giving back some of its recent gains compared to its major peers. Gold also remained under pressure after retreating back below $1300 this week, while crude oil rallied on a bigger than expected, hurricane-related decline in US production.

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Gold 4-Hour Chart Analysis

Cryptocurrencies

The major coins had a hectic and bearish session, especially in early trading, as Bitcoin’s overbought conditions coupled with Ripple’s sudden downturn led to a segment-wide decline. Ethereum continued to slip, as the Byzantium-related optimism faded away, but it remained well above the $285 level, and recovered above $300 towards the end of the session. NEO and IOTA still have a negative correlation with the rest of the market, as the two coins surged higher in early trading and gave back their gains during the late-day rebound.

BTC/USD, 4-Hour Chart Analysis

Technical Picture

The DAX closed on a marginal new all-time high again, but the lengthy momentum divergence in the MACD indicator suggests that the steep uptrend continues to be in jeopardy. The low-volatility drift carried the benchmark above the 13,000 level, but a correction towards at least the 12,850 level is likely in the coming days, with another support level at 12,650 serving as a longer-term target. As the long-term uptrend is clearly intact, bears shouldn’t go all-in here but bulls should consider exiting their positions and wait until a correction to trade the long side again.

DAX, 4-Hour Chart Analysis

Key Economic Releases on Wednesday

Time, CET Country Release Actual Expected Previous
3:30 EUROZONE Mario Draghi Speaks
3:30 UK Average Earnings 2.2% 2.1% 2.1%
14:30 UK Claimant Count 1,700 3,200 -2,800
14:30 UK Unemployment Rate 4.3% 4.3% 4.3%
16:00 CANADA Manufacturing Sales 1.6% -0.1% -2.6%
14:30 US Building Permits 1.22 mill 1.25 mill 1.27 mill
16:00 US Housing Starts 1.13 mill 1.18 mill 1.18 mill
15:45 US Crude Oil Inventories -5.7 mill -4.7 mill -2.7 bill

Key Economic Releases on Thursday

Time, CET Country Release Expected Previous
2:30 AUSTRALIA Employment Change 15,200 54,200
2:30 AUSTRALIA Unemployment Rate 5.6% 5.6%
4:00 CHINA GDP 6.8% 6.9%
4:00 CHINA Industrial Production 6.4% 6.0%
10:30 UK Retail Sales -0.1% 1.0%
14:30 US Unemployment Claims 245,000 243,000
14:30 US Philly Fed Index 22.2 23.8
15:45 US Chicago PMI 58.6 58.9

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Analysis

Technical Analysis: Bitcoin Dumps and Pumps amid Broad Volatile Correction

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The crypto segment has been in turmoil today, as the most valuable coins turned significantly lower, leading to a mini-panic, but they rallied strongly off their slows as buyers stepped in the second half of the session.

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Bitcoin fell as low as $5100, for a 15% correction top-to-bottom, but it is now trading near the prior short-term support at $5400. As the long-term picture remains overbought, investors shouldn’t open new positions here, but traders could play a likely move towards the $6000 level, although we still advise small sizes, as correction risks remain elevated.

BTC/USD, 4-Hour Chart Analysis

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The other majors were also declining in early trading, led by Ripple, with only NEO and IOTA, holding up well during the sell-off.  Both of the latter coins faded away as the rest of the market recovered, but Ripple continued to suffer. For now, the long-term bullish picture is unchanged for the segment, but BTC’s overbought correction could still cause volatility in the coming period. Let’s see the short-term charts after the busy session.

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Analysis

Daily Analysis: Dollar Rally Continues amid Fed Chair Confusion

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Tuesday Market Recap

Asset Current Value Daily Change
S&P 500 2554 -0.09%
DAX 12995 -0.07%
WTI Crude Oil 51.53 -0.66%
GOLD 1287.00 -1.22%
Bitcoin 5652 -0.86%
EUR/USD 1.1751 -0.38%

Yesterday’s trends are mostly continued in financial markets, such as the low-volatility levitation in stocks and the slightly more active trading in currencies with the apparent Dollar strength. The Great British Pound continued to be under pressure amid the amplified Brexit-related worries, but most of the other majors also lost ground to the Greenback.

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The Dollar rally has been fueled by the rise in the odds of some of the hawkish Fed Chair candidates, while overall, the “race” for the positions looks more chaotic than ever. Interestingly, the long-end of the yield curve is refusing to follow the short-term moves, and without the effects of the Fed’s QE program, the yield curve would probably be inverted by now, signaling strong recession risks.

Dollar Index (DXY), 4-Hour Chart Analysis

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The major stock indices are virtually unchanged yet again and even the previously surging Nikkei entered a consolidation, adding to the unusual October lull. Commodities have been quite active thanks to the Dollar’s vigor, with crude oil and gold both turning lower. Oil gave back most of yesterday’s gains as the Iraqi-Kurdish conflict turned out to be less violent than previously feared, and the brief rally fizzled.

WTI Crude Oil, 4-Hour Chart Analysis

Cryptocurrencies

The major coins are having a mixed session at best, as yesterday’s rebound wasn’t durable, and most of the coins turned back lower again. That said, despite the recent choppy price action, the total market cap of the segment is close to its all-time high, even as only Bitcoin is trading near its own record price level.

The optimism regarding Ethereum major Byzantium upgrade wasn’t enough to lift the second most valuable coin today, and the price of the ETH token retreated below the key $330 level after touching $350 yesterday after the upgrade’s lock-in. Ripple and NEO have been among the most active majors today, but with opposing performances, as Ripple fell significantly after yesterday’s break-out attempt, while NEO defied gravity and jumped above the $30 level after a corrective period.

BTC/USD, 4-Hour Chart Analysis

Technical Picture

The S&P 500 is grinding higher despite the overbought short-term momentum readings, and the benchmark is trading very close to its all-time high. The 2550 level is still in focus, but until volatility remains near record lows, the minuscule moves are unlikely to change the technical setup. While a sudden drop in prices could quickly negate the recent break-out, the consolidation could very well lead to further upside, as bulls remain firmly in control, despite the lofty valuation levels.

S&P 500 Futures, 4-Hour Chart Analysis

Key Economic Releases on Tuesday

Time, CET Country Release Actual Expected Previous
02:30 AUSTRALIA RBA Meeting Minutes
10:30 UK CPI 3.00% 3.00% 2.90%
11:00 GERMANY ZEW Sentiment 17.6 20.3 17
12:00 EUROZONE Final CPI 1.50% 1.50% 1.50%
15:15 US Industrial Production 0.30% 0.40% 0.20%
15:15 US Capacity Utilization Rate 76.00% 76.20% 76.10%

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