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

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.

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.

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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Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.