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Market Overview

Bitcoin’s Future

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Have you ever thought about a futures market for bitcoin. It seems the CME Group has.

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The idea is the same as the futures for any commodity really. Just as a gold miner or a farmer has a relatively fixed cost but unknown yield, bitcoin miners have the same type of deal. They know how much they’re about to spend, but have less of a clue as to how many coins they will produce or how much those coins will be worth in the future.

If the patent passes regulation, this new Bitcoin Future will allow miners to lock in current prices before starting on their venture. Pretty neat huh?

Thanks to @Jaynemesis for posting this on eToro.

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Meanwhile, the overall market cap of all cryptocurrencies has maintained above $29 Billion for the past few days despite some trouble in the industry that we’ll describe below.

Today’s Highlights

Stocks continue declines

Bitcoin breakout may be imminent

Carney & Mnuchin Tonight

Please note: All data, figures & graphs are valid as of April 20th. All trading carries risk. Only risk capital you’re prepared to lose.

Market Overview

Markets are still trying to process the shock delivered by Theresa May on Tuesday. This week was supposed to be all about France but now we’ve had another huge event thrown into the mix. After gaining overwhelming parliamentary approval yesterday, the UK will be going to the polls on June 8th.

Let’s be clear, this is not designed to be an election, more of a power grab ahead of the negotiations with Europe. However, as we outlined yesterday, it’s a national election and anything can happen. And, as we’ve seen twice recently, just because polls indicate one thing doesn’t mean that that will be the outcome.

The French elections are still very relevant and are taking place this Sunday. If you haven’t seen it yet, please review the video that we made outlining the potential moves in the market.

Watch the Video ->

The odds of a La Pen Vs Melenchon run-off are increasing. With Melenchon now trailing the front-runner by just 5%.

The United States indices put on a poor performance after lukewarm earnings reports and a sudden drop in the price of oil.

The USDollar is also taking a bit of a beating so far this morning, though I couldn’t say why exactly.

Perhaps this has nothing to do with it…

Opening the Spread

Two of the largest cryptocurrency exchanges have recently run into a bit of trouble. It seems that due to regulatory issues, Bitfinex and Poloniex are no longer able to accept transfers in Fiat currencies and have been restricted to only making deposits and withdrawals in cryptocurrencies.

At the moment, it seems that clients of these exchanges are getting more than a bit scared. Anybody who does have US Dollars sitting in those exchanges is currently exchanging it for digital and getting their money out.

The spread has widened significantly too. On most exchanges bitcoin is trading at around $1215 a coin but on the Bitfinex and Poloniex, the price is more like $1260 per coin as they try to discourage people from cashing out, or at least make a bit of money before they completely crash and burn.

If we look at the chart of bitcoin it does appear that a breakout may be imminent. After receiving strong support at $950 a coin (orange line), the price has managed to maintain a steady incline.

There was a tame retracement over the past week, but support came much sooner than expected at $1150 (blue line). At the moment there’s a free pass with no real resistance until the all-time high of $1294 (yellow). If the price forges new territory past $1300, the sky is the limit.

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4 Comments

4 Comments

  1. Ershad

    April 20, 2017 at 3:29 pm

    Hi Mari,

    Would you say that it’s safe to be using poloneix or should I try finding another exchange? Can you recommend one that allows deposit and withdrawals in USD and also allows the buy and sale of major cryptocurrencies ?

    Thanks
    Ershad

    • Mati Greenspan

      April 20, 2017 at 4:16 pm

      Hi Ershad,

      Thanks for asking. I’ve pulled my funds from bitfinex already.

      For BTC and ETH, you’re welcome to open an account with eToro. We have thousands of other markets as well. Keep in mind that crypto’s are traded as CFDs so once your account is verified all deposits and withdrawals will need to be done with Fiat currency.

      Best of luck!

  2. JonasMertens

    April 24, 2017 at 1:22 am

    You say the sky is the limit if BTC reaches new ATH but the higher the price goes, the less likely miners will be to evolve the protocol and the less useful BTC becomes as a payment mechanism. I can see how BTC could still serve as digital gold if we keep it untouched, but I am afraid funds will instead flow into another alt that has higher capacity and tank BTC.
    This might drive miners to adopt either BTU/Segwit/something else, but it might be too late by that time.

    Is the sky the limit for BTC without capacity upgrade?

  3. Mati Greenspan

    April 24, 2017 at 5:07 pm

    Hi Jonas,

    That’s indeed an excellent point.

    The fact that segwit is on track to go into effect on Litecoin is encouraging. If it is done successfully on LTC, BTC is more likely to adopt it as well.

    If you think about the miners, their incentive is to keep the network useful, otherwise nobody will use it and as you said, will jump ship. So certainly they’ll be looking for a long-term solution, even if they are profiting in the short-term. 😉

    Thanks,
    Mati

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Analysis

Will Crude Oil Reach $68 a Barrel in 2016?

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Crude oil prices are likely to climb close to $68 per barrel mark in 2018. We believe that oil supply will be hit due to a few geopolitical issues if they play out as we expect. Additionally, though high crude prices will be a strong incentive for the shale oil drillers to pump more, their increase is unlikely to tilt the deficit into oversupply.

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Key observations

  1. The OPEC production cut is tilting the crude oil markets to a balance
  2. Rise in the shale oil production is unlikely to equal the increase in demand in 2018
  3. The geopolitical issues can tilt the markets into a deficit
  4. If crude oil breaks out of $55 per barrel, a move to $68 is likely

What are the current market conditions?

OPEC oil production cuts

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The November 2016 production cut by OPEC and its allies is helping the market stabilize. The US crude stockpiles have been decreasing over the past few months, which indicates that the OPEC cuts are having their desired effect, albeit slowly.

The stockpiles in the Organisation for Economic Co-operation and Development (OECD) nations is down to just under 3 billion barrels, which is roughly 171 million barrels above the 5-year average. The OPEC wants to bring the inventory levels below the 5-year average.

Reports suggest that the OPEC and its allies will extend the deal, which is set to expire in March 2018 by another 9-months. However, the oil cartel is unlikely to deepen the cuts. In the September quarter, it had produced 32.9 million barrels per day (bpd), as against 33.4 million bpd production in November 2016, prior to the production cut agreement.

In the fourth quarter of this year, the OPEC production is expected to further decline to 32.7 million bpd.

US shale oil production

The main threat to any recovery in crude oil prices is the ever-increasing production of the US shale oil drillers. US crude oil production, which averaged about 9.2 million bpd in the first quarter of this year has increased to 9.56 million bpd by the third-quarter.

The US Energy Information Administration (EIA) expects the average US crude oil production to increase to 9.9 million bpd in 2018, compared to 9.2 million bpd in 2017. That is an addition of 700,000 bpd of supply.

On the other hand, Investment bank Tudor, Pickering, Holt & Co (TPH) expects US crude oil production to reach 10.2 million barrels in 2018.

So, on an average, crude oil production by the shale oil drillers is expected to increase by 700,000 bpd to 1 million bpd.

Demand increase in 2018

The global economy is growing at a decent pace, which is expected to increase the demand for crude oil. The US EIA expects the global demand to increase by 1.6 million bpd in 2018.

Therefore, with everything else being equal, this will lead to a faster reduction in crude oil inventory and an improvement in sentiment, but not a large increase in price.

So, why do we expect crude oil prices to increase next year?

What are the events that have changed in the recent past that warrant a change in our view?

For the past two years, oil prices have not responded to geopolitical tensions because of the supply glut.

However, next year, when the markets are in a balance, any geopolitical event that can have an effect on the supply side will tilt the market to a deficit, resulting in a rally in oil prices. What are these events?

The Iran sanctions

President Donald Trump has been a critic of the deal between the US and Iran, which led to lifting of sanctions on the Islamic nation. The deal is called the Joint Comprehensive Plan of Action (JCPOA). As a result of this deal, Iran was able to resume its exports, which have skyrocketed from about 1 million bpd in 2013 to about 2.3 million bpd in September 2017.

President Trump decertified the deal on October 13 but has still not quit the deal. He wants the deal to be renegotiated, however, the remaining countries who were party to the deal and Iran are unwilling to do so.

This creates a tension between the US and Iran. Chances are that President Trump will withdraw from the deal sometime next year to fulfill his pre-election promise of ripping the deal apart.

What are the repercussions if the US quits the deal?

Presently, the EU nations are not in favor of scrapping the deal with Iran. If the US unilaterally withdraws from the deal, Iran’s exports are unlikely to have an immediate effect, until the EU decides to support it. After all, EU has been the major consumer of Iranian oil since sanctions were lifted.

However, Iran’s fields are aging. They need fresh investments to keep the oil flowing at the current rate. If the US quits the deal, it is unlikely that major oil companies, that have operations in the US will enter Iran. This can limit the capital flows to the Islamic nation’s oil sector.

As an immediate effect, the US sanctions will “put at risk a few hundred thousand barrels of Iranian exports,” Goldman Sachs wrote in a research note. However, these are only estimates and the real impact will be known only after the US withdraws from the deal. Due to the uncertainty, the markets are likely to boost prices higher, until it gets a clear picture of the effects.

Geopolitical tensions in the gulf can lead to a severe shortage of oil

The northern Iraq region – Kurdistan – is a semi-autonomous region, which recently declared Independence from Iraq. This has led to a conflict between the two. While the Iraqi forces have declared their victory in the important oil-rich region of Kirkuk, the victory is not final because the Kurdish army did not put up a fight initially to defend the oil-rich region.

However, both the Kurdish peshmerga and the Iraqi army have been trained by the US. Therefore, if the conflict is not resolved quickly, through a dialogue, it can turn bloody and lead to disruption of about 600,000 bpd of oil supply.

“Oil prices could spike a lot higher on this development because this time is different, after years of war in the region. The battle, finally, is for the oil, and no other reason. In other words, here we go,” John Kilduff, partner at energy-focused investment manager Again Capital, told CNBC.

Unless a permanent solution is reached, we expect these issues to linger on and again crop up in 2018, propping prices higher.

What does the chart forecast?

The WTI crude has been broadly trading in a range of $42 and $55. Oil has taken support close to the $42 levels four times in the past year and a half. Therefore, this is a strong support level and can be used as a stop loss for our positions.

On the upside, the zone between $50 and $55 has been a strong resistance. Oil has struggled to breakout of this zone. However, if any geopolitical event triggers a breakout above $55, a rally to $68 levels is likely, which is the minimum target objective of a breakout from the range.

How can we benefit, if crude rallies according to our expectations?

The best way to benefit from the rise in crude oil is to trade the oil futures, but due to their volatility, it is not advisable to hold it for the long-term.

The oil-based ETFs can offer an opportunity to take a position in oil. Individual energy stocks are also another means of benefitting from a rally in crude oil.

We shall soon identify the best oil-based ETF and stocks that can offer good returns in 2018.

Risk to our analysis

Our analysis is based on the assumption that the existing geopolitical issues are unlikely to be sorted out within the next year. However, a good dialogue can easily put an end to these, thereby invalidating any risk-premium to crude oil.

Also, consistent high prices above $50 can increase the US shale oil production, much higher than the currently anticipated levels. This will prevent the markets from balancing out.

Due to infighting among its members, the OPEC and its allies can opt out of the production cut deal,  which will boost supply and can lead to a crash in crude oil prices.

Featured image courtesy of Shutterstock. 

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Analysis

Daily Analysis: Stocks Shoot for the Moon as Senate Passes Budget

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Friday Market Recap

Asset Current Value Daily Change
S&P 500 2574 0.53%
DAX 12991 0.05%
WTI Crude Oil 51.60 0.25%
GOLD 1283.00 -0.49%
Bitcoin 6038 6.40%
EUR/USD 1.1776 -0.64%

Financial markets got very active today thanks to the US Senate’s decision to pass the 2018 budget, paving the way for the tax reform plan that’s been welcomed by investors in recent weeks. The Dollar, equities, and Treasury yields all got substantially higher with the Dow and the S&P 500 scoring yet another all-time high. The NASDAQ and the Russell 2000 failed to follow the former benchmarks to record highs, but the short-term rally is still definitely intact, despite the overbought readings and the overvaluation issues.

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Dow 30, Daily Chart Analysis

Forex markets were also very active as the Dollar cruised higher against all of its major counterparts, with the exception of the Great British Pound that rebounded strongly after the optimistic words of Angela Merkel regarding the Brexit process. The New Zealand Dollar continued yesterday’s negative trend, while the Canadian Dollar was also hit hard amid the early decline in the price of oil and the negative economic surprises from the country.

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Gold is down yet again, as it failed to reclaim the $1300 level amid the improved global sentiment that also weighed on the Japanese Yen as well. The Yen’s weakness helped the Nikkei to another two-decade high, as the USD/JPY pair surged to 113.50 for the first time since July.

USD/JPY, 4-Hour Chart Analysis

Cryptocurrencies

Bitcoin’s new all-time high made headlines in the segment today, as the most valuable coin surged past $6000 for the first time ever, even as the currency traded as low as $5100 just a few days ago. BTC also reached $100 billion in market cap, and the coin accounts for more than 57% of the total value of the crypto segment.

The other majors are virtually unchanged despite Bitcoin’s rise, with only IOTA losing significant ground and Ripple trading in a volatile fashion after its crazy week. Litecoin and Monero also performed relatively well, while Ethereum got stuck below the $315 line yet again, and NEO finally settled down, although it continues to trade below the crucial $30 level.

BTC/USD, 4-Hour Chart Analysis

Key Economic Releases on Friday

Time, CET Country Release Actual Expected Previous
14:30 CANADA CPI 0.2% 0.3% 0.1%
14:30 CANADA Core Retail Sales -0.7% 0.3% 0.2%
16:00 US Existing Home Sales 5.39 mill 5.32 mill 5.35 mill

Key Economic Releases on Monday

Time, CET Country Release Expected Previous
14:30 CANADA Wholesale Sales 1.1% 1.5%

Featured image from Shutterstock

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Market Overview

Asian Market Update – Friday: Asian stocks surged from negative territory to post minor gains on US tax reform hopes

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US tax reform

The Big Question: Are markets still hopeful for a US tax reform?

Most Asian stock indexes surged back from losses in earlier trading on Friday’s morning session to post minor gains at around midday, as news out of the US suggested that a market-friendly tax reform plan sees new hopes.

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In China, the Shanghai Composite Index was up 0.05 percent to about 3,371 before midday. The benchmark was down to as low as 3,360 in early trading on Friday morning.

In Hong Kong, the Hang Seng Index was up 0.98 percent to around 28,435, more than 100 points higher than the low of 28,313 in the morning session.

In Japan, the Nikkei 225 was relatively flat at around 21,443. The Nikkei was trading between 21,363 and 21,489 during the morning session.

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In South Korea, the Kospi moved up 0.37 percent to around 2,482 shortly before midday.

Down Under, the ASX 200 was down 0.21 percent to around 5,908. Though the benchmark remains in negative territory at midday, it was still higher than daily low of 5,868.

Media reports suggest that the US Senate, majority controlled by Republicans, has approved a budget blueprint for the fiscal year 2018 – a move that would pave the way for Republicans to push for tax cut packages without Democratic support.

Markets in Asia are still digesting GDP and trade data out of China and Japan. The Chinese economy posted a 6.8 percent growth in the third quarter, slower than the 6.9 percent posted in the previous quarter.

Japanese trade data showed that the country’s exports rose for the 10th straight month in September, helped largely by a weaker yen and strong demand overseas.

Main Market Movers – Mid-day Asian Trading Session

Indexes Value at Midday Daily Change
Japan- Nikkei 225 21,443 -0.02%
China-Shanghai Composite Index 3,371 0.05%
South Korea-KOSPI 2,482 0.37%
Hong Kong –Hang Seng 28,435 0.98%
Australia-ASX 200 5,908 -0.21%

Cryptocurrencies

Prices of the main cryptocurrencies were sluggish overnight during Asia’s morning trading hours on Friday, with bitcoin and ethereum prices slightly down and litecoin price slightly up.

At midday in Asia, bitcoin price was down 0.25 percent to $5,684. Though pointing lower, that’s still higher than about $5,617 at the same time on Thursday.

Ethereum lost a slight 0.01 percent to about $308 before midday. Ethereum has been trading steadily above the $300 level since Wednesday.

Litecoin was up 0.39 percent to about $59.78 at midday. The virtual currency has been trading quite steadily around the $60 market since Wednesday.

Currencies

The Japanese yen lost 0.56 percent the US dollar at midday Friday to 113.17 per dollar.

The Chinese yuan lost 0.11 percent against the US dollar at 6.6195 per dollar.

The Australian dollar also lost 0.4 percent on the dollar, changing hands at 1.2742 per dollar at midday.

Commodities

WTI Oil was up 0.16 percent to $51.64 per barrel.

Brent Crude gained 0.17 percent to $57.36 per barrel.

Gold was down 0.37 percent to $1,283 an ounce.

Business News across Asia

In Singapore, Singapore Airlines has reported an order of 39 Boeing aircraft, costing $13.8 billion. The order is expected to be signed next week when Singaporean Prime Minister Lee Hsien Loong visits the US.

Take Away: The deal could be viewed as a major blow to Europe’s Airbus SE. Already, Airbus has fallen behind Boeing in orders in the first nine months of 2017.  

In Japan, the aggressive investors in tech – Japan’s Softbank – and it’s ever-expanding financing partners have invested so heavily in the tech start-ups that it dimmed the outlook for tech IPOs markets hoped for, per Reuters.

Take Away: Still, Softbank and its partners are showing no signs of slowing down their endeavor in investing in tech start-ups across the globe.

Featured image from Pixabay.

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