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5 Things to Watch Next Week: The ECB Meeting, Crypto-Correction, North Korea, Stock Volatility, Dollar Bounce

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1.            Will Draghi Finally Show his Cards?

The European Central Bank will hold its monetary meeting on Thursday, and the financial world will be watching closely. The president of the central bank hinted several times on the dialing back of the extremely easy policies, but the bank also expressed that a strong Euro is not welcomed by it. As the momentum of economic numbers has been better in Europe than in the US lately, the common currency surged higher against the Dollar and its other important peers. The ECB is still expected to announce the tapering of its bond-buying program soon, but the timing of the moves and the exact scheduling will be crucial for forex markets, so expect huge moves should Mario Draghi announce any details.

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2.           Cryptocurrencies Entering Next Correction?

The crypto segment has been in a strong uptrend ever since the mid-July bottom, and most of the major coins rose by several 100%. The total value of the market catapulted from $55 billion to around $175 billion in the meantime, and sentiment got overly optimistic, with public interest hitting historic highs. While we expect the megatrend to continue, the market seems ripe for a durable top and an orderly correction. In the crypto world, these corrections are often violent, so leveraged traders should be cautious in the coming period as volatility will likely rise substantially. All eyes are on BTC that led the rally, and will likely be the clue for the coming period as well. For now, primary support held the most valuable coin just below $4500 after the weekend spike lower, but watch for a break below that for a confirmation of the move.

Bitcoin, 4-Hour Chart Analysis

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3.           The World Reacts to the Hydrogen Bomb Test

North Korea conducted a successful nuclear test, and one that was possibly involving a hydrogen bomb, with a magnitude more power than its previous test. While the test doesn’t mean that the country is capable of delivering such a bomb with a ballistic missile, the event is definitely a worrying sign, and could lead to an escalation of the situation, with more sanctions and tensions between the US and China as well. Safe haven assets got bid aggressively in early Monday trading in Asia, with the Yen and Gold surging by close to 1% at the open, while stock futures being down quite substantially too. The next steps of the superpowers could define sentiment globally and could contribute to a risk-off period in the coming weeks.

Gold, 4-Hour Chart Analysis

4.           September Brings Volatility Again?

Stock markets traditionally get more active post-Labor Day, and we expect this year to be no different in this matter. Trading volumes will likely jump during the holiday-shortened week, especially after the crucial ECB meeting, and volatility basically has one way to move off its recent single digit lows (as measured by the VIX). That said, the exact timing of the likely correction is impossible, and given the recent strength in the major indices, we wouldn’t be surprised by another push higher in US equities. Investors shouldn’t forget about the overvalued state of the market though and should keep their exposure controlled.

5.           Did the Dollar Hit a Major Bottom?

As the EUR/USD pair surged past 1.20 last week, the last remaining Dollar bulls likely threw in the towel, but the wave of selling abruptly stopped and the battered currency bounced back strongly. The Dollar index got another hit on Friday, from the bearish Employment Report, but the Greenback recovered well once again, possibly signaling a more durable bottom, and a vacuum of sellers after the huge drop. The next few weeks will be crucial for the currency, with the much-awaited tax-reform of Trump, and central banks being in the center of attention.

DXY (Dollar Index), Daily Chart Analysis

Key Economic Releases Next Week

Day Country Release Expected Previous
Monday UK Construction PMI 52.1 51.9
Monday US Bank Holiday 0.2% 0.3%
Monday CANADA Bank Holiday 180,000 209,000
Tuesday AUSTRALIA Rate Decision 1.5% 1.5%
Tuesday AUSTRALIA RBA Monetary Statement
Tuesday UK Services PMI 53.6 53.8
Tuesday US Factory Orders -3.1% 3.0%
Wednesday AUSTRALIA GDP 0.8% 0.3%
Wednesday CANADA Trade Balance -3.8 bill -3.6 bill
Wednesday US Trade Balance -44.6 bill -43.6 bill
Wednesday CANADA Rate Decision 0.75% 0.75%
Wednesday CANADA Monetary Statement
Wednesday US ISM Non-Manufacturing PMI 55.5 53.9
Thursday AUSTRALIA Retail Sales 0.2% 0.3%
Thursday AUSTRALIA Trade Balance 0.95 bill 0.86 bill
Thursday UK Halifax HPI 0.2% 0.4%
Thursday EUROZONE ECB Rate Decision 0.00% 0.00%
Thursday CANADA Building Permits 2.2% 2.5%
Thursday EUROZONE ECB Press Conference
Thursday US Unemployment Claims 245,000 236,000
Thursday US Crude Oil Inventories -5.4 mill
Friday JAPAN Final GDP 0.7% 1.0%
Friday CHINA Trade Balance 321 bill
Friday UK Manufacturing Production 0.3% 0.0%
Friday CANADA Employment Change 15,000 10,900
Friday CANADA Unemployment Rate 6.3% 6.3%

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Analysis

Daily Analysis: No Questions Answered

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Thursday Market Recap

Asset Current Value Daily Change
S&P 500 2718 0.97%
DAX 12,468 0.31%
WTI Crude Oil 62.61 2.02%
GOLD 1332.00 0.52%
Bitcoin 9780 -8.00%
EUR/USD 1.2324 0.26%

It was a strange day indeed in equity markets, with mixed signals popping up across the board after yesterday’s crazy quasi-FED day. An ugly overnight session, followed by a strong pre-market rally, an early-day pump, and a late-day dump. That is the summary of the day, but under the surface, there is a real struggle between market forces, with still an edge for bears in the battle for control.

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NASDAQ 100 Futures, 4-Hour Chart Analysis

It seems that the Nasdaq is still the key, as the relative strength of the tech benchmark is the most reliable gauge of the market direction, at least regarding the intraday trends. That said, at the end of the day, the Nasdaq closed in the red 4 times in a row, at least as far as the normal trading day is concerned, and still, the major indices are trading not far off last Friday’s top, despite the downward drift.

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Forex Markets and Commodities

Adding to the confusion, the Dollar corrected lower after a positive period, and with Treasury yields trading all over the place, investors were left scratching their heads yet again. The Japanese Yen was the clear winner of the day among currencies, as the primary safe-haven got bid heavily during the Asian session, and it remained throughout the up-and-downs of the day, despite the strong bounce in stocks and risk-on currencies.

USD/JPY, 4-Hour Chart Analysis

The EUR/USD pair had a very active and volatile session, but the common currency remained above the lows from two weeks ago, while also halting below yesterday’s highs, so all-in-all, no technical conclusion to draw. As in stocks, the next clear directional day will be crucial, as the tug of war is getting tenser and tenser.

EUR/USD, 4-Hour Chart Analysis

The Canadian Dollar plummeted during the day, thanks to the dismal Retail Sales figures, but it finished well off its lows, boosted by the stock recovery and the jump in the price of crude oil. The Black Gold was pushed higher by the surprisingly bullish US inventory data, and the WTI contract closed back above $62.50 per barrel.

USD/CAD, 4-Hour Chart Analysis

Gold continued to follow the Euro, finishing the day slightly higher, but the precious metal showed notable relative strength during the Asian session, and that could be the precursor of a move to new rally highs, should the bearish scenario play out in equities.

Cryptocurrencies

The segment had another bearish session, and the bleeding continued after the US session, with BTC leading the way lower this time around after a long period of relative strength. A crucial test might be ahead of the most valuable coin, as the $9000-$9200 support zone would be a perfect target for the current correction, to keep the uptrend going. That said, that zone is still almost 50% above the prior low, leaving plenty of room for the coin to bottom out.

BTC/USDT, 4-Hour Chart Analysis

With all of the major altcoins also sporting significant losses, bulls would like to see more of the early relative strength that some coins have been showing, to establish a leadership that can guide the segment out of the plunge. For now, the crash lows are way below the current levels, and the bullish long-term scenario remains intact.

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Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Analysis

Technical Analysis: Correction Continues but Coins Remain Stable

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It’s been another mixed session for cryptocurrency investors as judging by only the price action, the segment suffered losses across the board, but comparing the current sell-off to the January plunge reveals that the majors are much more resilient this time around.

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The largest digital currencies are holding on to most of the gains of the recent weeks, and the price action near the crucial support zones is also encouraging. With all that said, the correction is not over yet, and further losses are still in the cards, but barring a substantial change in price action, the coins will likely continue the rally.

BTC/USD, 4-Hour Chart Analysis

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Bitcoin has been trading around the key $10,000 level all day long, and, so far, a clear break-down has been averted. The short-term momentum indicators are now in neutral territory regarding the most valuable coin, and that could mean that a bottom is close, and investors should already add to their holdings here. Further strong support is found between $9000 and $9200, while targets are ahead at $11,300, $13,000, and $14,250.

XMR/USDT, 4-Hour Chart Analysis

Correlation between the majors has increased during the sell-off, but there are still clear outperformers and laggards, adding to the bullish case. Monero remains among the strongest coins from a technical perspective, trading right at the lower boundary of the bullish consolidation pattern, with the $280 price level holding up for now. The coin faces strong resistance near $300 and $335, but we expect the uptrend to continue with the next target being ahead at $400, while further support is found at $240.

(more…)

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Analysis

Pre-Market: Bulls Try to Fight Back after Ugly Overnight Session

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Following the steep late-day downturn on Wednesday, which followed the not-to-hawkish FED meeting minutes, Asian markets and US equity futures continued lower with a vengeance. The very active overnight trading is another sign of the regime change in traditional financial markets that we have been monitoring for the last two weeks, ever since the “Black Monday of 2018”.

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Dow Futures, 4-Hour Chart Analysis

EUR/USD Changing Behavior

The European session brought about an oversold bounce that stabilized markets from stocks to currencies. The EUR/USD pair that has started acting “normally” considering its relationship with US Treasury yields lately, is headed south once again, trading only 0.5% above its recent correction lows after clearly breaking below the rising trendline.

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EUR/USD, 4-Hour Chart Analysis

The bull-trap that we identified a few days ago was the start of the current leg lower, and if the regime change will be persistent, the most traded forex pair could be back to the role of the “risk-on/risk-off” indicator that has been the privilege of commodity currencies in the last couple of weeks.

USD/JPY, 4-Hour Chart Analysis

The Japanese Yen is showing notable strength after its overbought dip, and the primary safe-haven currency could be in for more gains, should the risk-selloff continue. The Yen also gained ground on the common European currency, following the dovish ECB meeting accounts and the misses in the German IFO business climate indicator and the British GDP, which all question the European growth-monetary tightening narrative.

Canadian Dollar in for a Wild Ride

USD/CAD, 4-Hour Chart Analysis

With the Canadian retail sales report and the US crude oil inventory data coming out soon, forex traders should expect sizeable moves in the recently weak currency, while the USD should also be very active during the US stock market session.

All eyes are on Treasury yields again, with the slight correction today helping the bounce in stocks and other risk assets. The Nasdaq could be the motor of a stronger rally on Wall Street, but we wouldn’t bet the house on that, as the short-term technical setup remains bearish, and a re-test of the correction lows is still the most likely scenario for the coming weeks.

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Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 109 rated postsTrader 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.




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