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Dow Drops As Cryptos Pop

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Inflation is the enemy of stock and bond investors but this is when crypto is coming to the rescue.  The market awoke to a Valentine’s Day present called the January Consumer Price Index.  It was borderline ugly at 0.5%.  After the opening, the Dow was down 142 points. At this time cryptos are going in the opposite direction: Bitcoin + 9 %, Bitcoin Cash +11%, Ether +8 % and Litecoin + 35%.   Is this a one time event or is there there a lasting connection.  Let’s take a look.

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Inflationary expectations drive the stock and bond markets.  It is not how much any one month reading shows, it is the way the market extrapolates a single month into the future. For the last 20+ years, inflationary expectations have been coming down and this has been the fuel that has fired the stock and bond markets.

Since the financial crisis of 2008, the Federal Reserve has been targeting a 2% rate of price increases.  Most times they have fallen short of their goal. This is no more the case.  The January increase annualizes to 6%.  If this were a one month event it could be ignored.  However, over the last six months since August, inflation has averaged 4% on a yearly basis. That is a troubling sign for several reasons.

Inflationary Expectations Are Growing  

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It is hardly news that the global economy has fully recovered from the financial crisis of 2008.  For the US this means the longest economic recovery in modern history.  The signs of excesses are showing.  Labor markets are much tighter than anytime in the past 50 years.  Costs have to be rising especially for the most highly sought after positions in technology and finance.

Debt financed consumer spending was adding to inflationary expectations even before the $1.5 trillion Trump Tax Cut and plans to increase spending.  Goldman Sachs CEO called this combination like throwing a bit more lighter fluid on a fire that was already going.  His concern is that the economy will get overheated, forcing the Federal Reserve to raise interest rates faster.

Add to this the news that inflation hawk Loretta Mester was being considered for the post of Fed Vice Chair and that is all that is necessary to shake investor confidence.

Storehouse Of Value

In times like this when investors are seeking safety from declining stock and bond prices, gold has been the go to storehouse of value.  Gold investors got their Valentines candy with the price shooting up over 1.5% on the day.  OK that is cool but we can’t ignore the fact that cryptocurrencies had their best day in a long time.  What is that all about?  Against the opinion of all the critics, are cryptocurrencies finally being viewed by investors as their own unique storehouse of value.

Granted recent crypto volatility makes it hard to put Bitcoin or Ether into the same category as other assets like gold.  But today’s price divergence reminds us that Bitcoin’s fixed number of coins was designed and intended to be independent of global government policies that create excess debt or excessive expansion that results increased inflationary expectations.

Blockchain technology in general is showing up more and more as a cost saving mechanism. Of course, Ethereum with its smart contracts and open source platform stand out.  

Separating Fact From Opinion

Are cryptocurrencies gaining believers as a storehouse of value.  That is one opinion. Obviously, it will take much more time to develop enough data to measure the correlation. Several things seem clear.  The massive crypto price correction that started back in December has taken a whole lot of fluff off of crypto markets.  That’s a good thing.

In recent times, prices have been directionless as investors tried to figure what to do next. During this time there was an overabundance of technical analysis but an absence of any fundamental compelling reason the buy.  Valentines Day news that pushed up inflationary expectations may have provided the single most important reason in many weeks. The critics may be right that cryptocurrencies have a way to go before becoming a storehouse of value, but at current levels, they seem to be an attractive value nonetheless.  Stay tuned for more.   

Featured image courtesy of Shutterstock. 

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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4.3 stars on average, based on 22 rated postsJames Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.




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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.

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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

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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