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Market Overview

It’s a Shake Up

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For the first time in a long while, things are getting interesting across all the financial markets. From stocks to bonds, to currencies and commodities and even crypto.

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Even though the volatility levels are far from historic, this type of increased movement across assets can easily lead to something greater. So it pays to keep abreast of the weather and if a storm does emerge be ready to take swift action in your portfolio.

@MatiGreenspan
eToro, Senior Market Analyst

Today’s Highlights

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Dollar Strength on Weaker Bonds

Two Major Speeches Today

Crypto Premiums are Flattening

Please note: All data, figures & graphs below are valid as of January 30th. All trading carries risk. Only risk capital you’re prepared to lose.

Traditional Markets

The big talk is about bonds. I know this is not the most comfortable subject for most of us but when it’s causing a sell-off in the stock markets, this is the time to pay attention.

Most specifically, investors are watching the Yield on the 10 Year US treasury bonds, which reached a multi-year high yesterday.

Investors have right to be worried because bond yields can be compared to tectonic plates under the Earth’s surface. When they move slowly and gradually it’s quite normal, but when they make any sudden adjustments they can cause Earthquakes and Tidal Waves.

Concerns over the lack of demand for Apple’s latest iPhone sent shares of the larges company in the world notably lower, which also weighed on the major indexes.

Between the rising bond yields, falling Apple, and the sell-off in the China 50 yesterday, stocks on Wall Street ended their poorest performance so far this year. Of course, they’ve been rising at a record-setting pace so if this little sell-off does end up reversing it will only look like a minor blip on the charts in a few weeks time.

We also need to keep a close eye on the US Dollar, which has been gaining a lot of strength so far this week. Here we can see the slide in the Dollar index since Trump’s inauguration. The fall below 90 points was a sure sign of weakness but nothing ever moves in a single direction for too long.

No doubt those on the buy side have been sitting out for a while and are now ready to get in at the reduced price. Also, take a look at the 200-day moving average (yellow line). If we do see a rally in the Dollar there’s certainly plenty of room to grow.

As I’m writing, I can see the European Markets have just opened with a sizable gap down. Not a very positive sign there.

Two Speeches Today

First up is Mark Carney from the Bank of England who will be grilled today in the House of Lords at 3:30 PM London Time.

The Pound seems to be going back and forth between reacting to updates about Brexit and reacting to updates from the economic side. Over the last few days, we’ve seen Theresa May’s government get even weaker as her cabinet ministers still don’t seem to be on the same page as to what type of Brexit they really want.

Today Carney’s questioning will very likely pivot back to the matter of inflation. Lawmakers will test his confidence to gauge whether or not he really believes in the aggressive forecasts the BoE has been putting out lately.

The Pound Sterling has been showing incredible signs of strength lately and has been one of the strongest performing currencies so far this year. Of course, as we mentioned above, nothing ever moves in a single direction for too long, especially when volatility is rising.

Here’s the chart of the GBPUSD. As we can see a retracement could be due on the technical side and a move back to support could ultimately be a sign of further strength.

Also today, we’ll hear the State of the Union speech from Donald Trump. Despite the high profile nature of this speech, I would be very surprised if it ends up having any real impact on the markets. Still, Donald is an entertaining speaker so we’ll definitely be watching.

Crypto Land

Though the crypto-markets have been relatively calm, they’re still a lot more volatile than any of the other assets mentioned above. For example, the sell-off of 1.5% in the Nikkei 225 this morning is kind of a big deal.

Meanwhile, Ripple has fallen 3.8% yet somehow still seems tame when compared to the action over the last few weeks.

As we’ve discussed in these updates several times, this calm is a blessing for the markets as it allows brokers, exchanges, and even blockchains to scale up and prepare for any further surges that we might see.

In the meantime, I wanted to give an update on the premiums in East Asia. As we’ve noted before, cryptotraders in South Korea and Japan are used to paying 25% to 30% more per coin than the rest of the world. imho, this was one of the major contributing factors of the recent pullback.

I’m pleased to report that the premiums have been drastically reduced. At the time of this writing, Japan is overpaying by just 6% and South Korea’s premium is down to 7%.

The volumes also seem to have stabilized. Though we’re not seeing any surges and certainly no signs of FOMO, there also isn’t any FUD. At the time of this writing, Japan is up at 42% volumes, though it does seem that Korea is still lagging behind.

Something that does seem to be concerning the market though is the increase of Tether volumes. Virtually in-existant two months ago, USDT now takes more than 10% of bitcoin volumes.

One thing I can tell you with a fair amount of certainty, this is going to be a very interesting week for all markets.

As always, let me know if you have any questions, comments, or feedback and please continue to share your thoughts and opinions. It’s extremely helpful.

Wishing you an amazing day ahead.

This content is provided for information and educational purposes only and should not be considered to be investment advice or recommendation.

The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro.

Past performance is not an indication of future results. All trading involves risk; only risk capital you are prepared to lose.

Cryptocurrencies can widely fluctuate in prices and are not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework.

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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Market Overview

Play that Funky Market

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There’s only one way to explain what’s happening in the markets right now.

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It’s FUNK!

@MatiGreenspan
eToro, Senior Market Analyst

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Today’s Highlights

  • More Market Funk
  • No way but Right?
  • More Crypto Vol

Please note: All data, figures & graphs are valid as of February 22nd. All trading carries risk. Only risk capital you can afford to lose.

Traditional Markets Funk

Everything was going fine on Wall Street, they came back from lunch in a buying mood, but somehow things started to turn sour. By about an hour before the close things started to get downright ugly and by now we’re more than 500 points off the peak of that yellow circle and we’re now 3.82% from the all-time high.

Once again, the movement began in the bond markets, with the yields on the 10 Year spiking to a new high of 2.94% by the end of the day.

And of course, volatility can be seen with the VXX shooting up into the close.

Italian Splinters

It’s been five days since Italy stopped publishing opinion polls ahead of the national elections on March 4th in order to stop them having an influence on polling day itself.

That said, as we learned in Brexit and the Trump elections, polls can’t always predict what’s going to happen and in Italy, even less so. And this one is set to be even more interesting than usual.

Nevertheless, some analysts have come to the conclusion that the only party with an actual shot of winning an outright majority is Forza Italia, led by Silvio (I can’t believe I’m even writing this) Berlusconi.

This is still anyone’s game though, and even though there are 945 seats across two Houses of Parliament, alliances are so fractured that candidates are now battling for every single voter.

For the markets it’s still not clear what the effects might be, but as Europe’s 4th largest economy, and with the EU’s 1st largest economy still in a political deadlock, I’m looking squarely at the Euro.

In this chart, we can see the effect that a decisive election had on the EURUSD on April 23rd (yellow circle). Notice the large gap up that seemingly took the market from flat to flying in a single weekend when it became clear that Marine Le Pen had no chance of victory.

Crypto Volatility Continues

When Wal-mart’s stock dropped 10% on Tuesday it was a really big deal but when Bitcoin dropped an equal percentage on Wednesday, somehow it just doesn’t seem all that significant.

On that thought, here’s a meme I made yesterday. 🙂

That’s just the level of volatility that we’ve come to expect from this market. So please be aware that when I say cryptos are volatile, what I mean is they’re extremely volatile.

One thing that I keep noticing in the crypto-market is that when things are going up, we can expect to see different levels of returns in different coins and general divergence. However, when things are going down the correlation gets stronger and everything falls together.
You should be able to see that in this chart pretty clearly…

As always, let me know if you have any questions or if you need anything further.

Have a groovy day!!

This content is provided for information and educational purposes only and should not be considered to be investment advice or recommendation. The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro. Past performance is not an indication of future results. All trading involves risk; only risk capital you are prepared to lose. Cryptocurrencies can widely fluctuate in prices and are not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework.

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

Daily Analysis: The Usual Post-Fed Pump and Dump…

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Wednesday Market Recap

Asset Current Value Daily Change
S&P 500 2700 -0.51%
DAX 12,470 -0.14%
WTI Crude Oil 61.28 -0.83%
GOLD 1325.00 -0.43%
Bitcoin 10480 -8.71%
EUR/USD 1.2336 0.61%

The script that we laid out for the FOMC meeting minutes has worked almost perfectly, with the major US indices completing a roundtrip that triggered most of the “weak” stop-losses, before a powerful move lower into the close.

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The predictable late-session intraday volatility aside, markets were quiet and choppy for most of the day, and the Dow, the Nasdaq, and the S&P 500, all closed just slightly lower, while covering 2% during the session, with the tech-index’s relative strength evaporating in late trading.

S&P 500 Futures, 4-Hour Chart Analysis

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Forex Markets and Commodities

What drove the decline in equities was the renewed rise in US Treasury Yields, and to answer the most important question of the day; yes, in fact, the yield-Dollar correlation of the past few months broke down, and today the Greenback rallied together with bond yields.

10-Year Treasury Yield, 4-Hour Chart Analysis

While that is how it should work according to common sense and economic theory, the recent inverse correlation helped a lot of trends in reaching extremes, and those extremes now might reverse.

The outperformance of US markets, the Euro strength, and the weakness in European equities were among those trends, and it’s interesting to see that the bullish technical setup in the EUR/USD is crumbling and the US indices are in the deepest correction since the Brexit.

EUR/USD, 4-Hour Chart Analysis

While there is no assurance that these changes are permanent, for now, we remain short-term bearish on US equities, and continue to look for upside in the battered Dollar.

At the end of the day, the Dollar finished higher against all of the major fiat currencies, although the Yen showed notable relative strength amid the stock rampage near the closing bell. Interestingly the USD vs. risk-on pairs trend continues to lead the other asset classes, as we have noted several times, and that could be something to monitor in the coming days and weeks.

Commodities had a mixed but ultimately bearish session, with oil and gold suffering both suffering losses amid the risk-off shift, although crude already traded lower before the FOMC release, while gold traded in close correlation with the Euro throughout the day.

Cryptocurrencies

The segment had a decisively bearish session, with only a few coins showing considerable relative strength amid the sell-off. Bitcoin, Litecoin, Dash, and Monero are still the leaders of this cycle, while Ethereum is the most notable laggard, pulling most altcoins lower as well.

ETH/USD, 4-Hour Chart Analysis

On a positive note, the majors held up relatively well amid the stock turmoil, but the next few days will be crucial, as important support levels could be tested. That said, most of the coins are well clear of the crash lows, and there is more than enough support below that, combined with the still present bullish signs should keep investors confident that a new uptrend is underway and new rally highs are ahead.

Featured image from 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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Analysis

Pre-Market: All Eyes on the FED and the Dollar (Again)

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FED-Days usually bring very special sessions with a choppy illiquid environment before the “big announcement”, an almost usual stop hunting spike in both directions right after the release, and a rather random, but strong trend in the close that usually defines trading for the next days.

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For this reason, a lot of traders like to take the day off until the FED-decision, and only trade after the event. Why are we talking about this today? Because although there is no interest rate decision this month, the meeting minutes of last month will be published this evening, and what moves the market in this period is rate expectations, not actual decisions.

And by the market, we mean basically all traditional asset classes, and through the rising trend in yields and the consequences of that, rate expectations arguably affect the cryptocurrency segment as well. So what do we expect from the FED? Nothing. We will leave that to the rest of the players, and trade upon the reaction of the market; after all that is what counts. At the end of the day, central banks will try to prop up the market, we can take that for granted.

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S&P 500, 4-Hour Chart Analysis

The overnight session in stock futures was in line with the above-mentioned expectations for a quasi-Fed day, with no clear trend in Asia or Europe, and very choppy price action across the board. Yesterday’s late-session decline is still weighing on investors sentiment, but there are clearly positive signs as well, even as we remain bearish for the coming weeks.

The key levels to watch are still the same, the 2735 and 2700 levels in the S&P 500 (25350 and 24800 in the Dow), and the Nasdaq could remain crucial to keep the hopes of bulls up, should it retain its relative strength.

Dollar-Yield Correlation Switch?

EUR/USD, 4-Hour Chart Analysis

Currency traders might have noticed a subtle shift between US Treasury Yields and the Dollar since the Volatility-Armageddon (actually a bit later than that). In the “old regime” the rise in yields was through the changes in rate-expectations was actually hurting the value of the Dollar, while lately, that negative correlation disappeared and even reversed briefly.

Why is that so important? Because the previous correlation helped the rally in US equities as yields rose, while the new regime could mean that European and Asian stocks will finally gather relative strength, should yields continue to rise. Tonight we might get closer to the solution of this puzzle, as the reaction to the FED-minutes will show how correlations are shaping up now.

Currencies and commodities are also little changed today, although the Dollar continued to edge higher overnight, while enduring a small sell-off as we approached the US open, despite the largely negative European PMI indices.

So watch the Dollar, the Nasdaq, and most of all Treasury Yields today in late trading, and expect choppy conditions until the very end of the US session.

Featured image from 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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