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Weekly Analysis: Deep Crypto-Correction amid the Central Bank Show

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Weekly Recap

Asset Current Value Weekly Change
S&P 500 2434 0.23%
DAX 12750 0.31%
WTI Crude Oil 44.68 -2.24%
GOLD 1256.00 -1.02%
Bitcoin 2565 -10.11%
EUR/USD 1.1195 -0.10%

Central banks and cryptocurrencies stole the show this week, as the Bank of England, The Bank of Japan, the SNB, and most importantly, the Federal Reserve all held their monetary meetings, while the coins went through a major correction that shook the dominance of Bitcoin.  The banks sent unusually mixed signals, with the Fed alone causing confusing reactions in the different assets classes. The BOE also shocked the market with a very hawkish vote, while the BOJ reacted to the recent strength of the Yen in the only way that it possibly could, reiterating its uber-easy policies

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Donald Trump continues to be under fire regarding his campaign’s Russian ties, but the market more or less ignores the scandal, even given the heavy media concentration. The flash-crash of the big tech names last Friday is something that is still making waves, as the NASDAQ remains technically wounded, and that could drag down global stocks in the coming week, despite the proximity of the all-time highs. The other major markets were generally flat, with the Japanese Nikkei outperforming in the second half of the week, as the Yen got weaker.

The Dollar’s rebound was all the rage in the fiat-currency world, although the Greenback ended the week on a negative note following the notoriously coming misses in the US economic indicators. Oil led the way lower for commodities lately, and the WTI contract is currently below $45 per barrel, while gold fell to $1250 and industrial commodities also remained under pressure.

WTI Crude Oil, 4-Hour Chart Analysis

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Cryptocurrencies

-30%. Almost all major coins registered losses near or above that level this week, and although most of them are back way higher, the shadow of the correction is still on the market and on traders. Bitcoin triggered the broad sell-off, although Ethereum was also ripe for a deeper decline according to the long-term picture. Our pick Litecoin emerged strongly from the move lower, as it catapulted to new all-time highs today, hitting our trading target in the process. Ethereum rebounded by $100 or 40% in two days, and it sits 10% below its all-time highs, with BTC being down by 15%. Ripple, NEM, and Monero are the current laggards, while Dash and Ethereum Classic are holding on above their break-out levels from last weekend. The total value of the coin market is also back above the $110 billion level after falling below the $100 billion mark.

Litecoin, 4-Hour Chart Analysis

Economic Numbers

Economic releases were negative concerning most of the major countries once again, with the US indicators disappointing across the board. The CPI index and retail sales both missed by a mile, and although the Fed remained hawkish in the face of the deterioration, the bond market tells a different story, with US yield hitting a seven-month low during the week.  Australia and Canada delivered some good numbers, with the Employment Report and Manufacturing Sales surprising on the upside respectively. European indicators were mixed, with the UK showing weakness (retail sales, employment) and the Eurozone inflation finally matching expectations.

Technical Corner

NASDAQ 100 Futures, 4-hour Chart Analysis

The NASDAQ remained in the centre of attention this week, after the tech giants flash-crashed on last Friday, which caused nervous trading throughout the period, even as central banks took centre stage. The benchmark also finished the week on a negative note, following the announcement of the acquisition of Whole Foods by Amazon. The index finished near the recent lows, and it might be ready to hit new short-term lows next week, and test the long-term trendline near 5600.

Key Economic Releases of the Week

Day Country Release Actual Expected Previous
Monday JAPAN PPI Index 2.10% 2.20% 2.10%
Monday US Federal Budget Balance -88.4 bill 182.4 bill 182.4 bill
Tuesday AUSTRALIA NAB Business Confidence 7 13
Tuesday UK CPI Index 2.9% 2.7% 2.7%
Tuesday GERMANY Zew Economic Sentiment 18.6 21.8 20.6
Tuesday US PPI Index 0.0% 0.1% 0.5%
Wednesday CHINA Industrial Production -0.20% -0.20% -0.10%
Wednesday UK Average Earnings 2.1% 2.4% 2.4%
Wednesday UK Unemployment Rate 6.4% 6.4% 6.5%
Wednesday US CPI Index -0.1% 0.3% 0.2%
Wednesday US Core Retail Sales -0.3% 0.2% 0.3%
Wednesday US Crude Oil Inventories -1.7 mill -2.3 mill 3.3 mill
Wednesday US Fed Interest Rate Decision 1.25% 1.25% 1%
Wednesday US Fed Monetary Statement
Wednesday EUROZONE ECB Monetary Statement
Thursday AUSTRALIA Employment Change 42,000 10,300 37,400
Thursday AUSTRALIA Unemployment Rate 5.5% 5.7% 5.7%
Thursday SWITZERLAND SNB Monetary Statement
Thursday UK BOE Monetary Statement
Thursday US Philly Fed Index 27.6 25.5 38.8
Thursday US Initial Jobless Claims 237,000 241,000 245,000
Thursday US Industrial Production 0.0% 0.2% 1.0%
Friday JAPAN Monetary Statement
Friday EUROZONE Final CPI 1.4% 1.4% 1.4%
Friday US Building Permits 1.17 mill 1.25 mill 1.23 mill
Friday US Housing Starts 1.09 mill 1.23 mill 1.17 mill
Friday US Prelim Consumer Sentiment 94.5 97.2 97.1

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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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3 Comments

3 Comments

  1. visiondream3

    June 17, 2017 at 6:23 pm

    Thanks for the litecoin input. Is it time to sell it yet? Is the rally losing steam?

    • Mate Cser

      June 17, 2017 at 11:08 pm

      Hi, I suggest closing a part of your position after this rally, and let some of it run further. Gradually exit the trade as LTC moves higher. It can still go higher but this way you protect your profits and it will psychologically be easier to get out before a correction.

      • visiondream3

        June 18, 2017 at 4:35 am

        Thanks Mate. Very valuable input. Keep up the excellent work you guys are doing.

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Analysis

Long-Term Cryptocurrency Analysis: Bull Market in Jeopardy

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As the crucial rally attempt that we pointed out in our previous long-term analysis failed, and the major coins sold off heavily afterwards, the segment is now in a difficult situation. While Bitcoin and especially Ethereum are still in bullish setups, the most valuable coin is now close to a major breakdown that could lead to structural bear market as we laid it out back in January.

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Some of the weaker coins are already below the large-scale consolidation patterns that developed after the year-end run-up, and as the divergence between the leaders and the laggards widens, the path of the two dominant coins even more importance.

BTC/USD, Daily Chart Analysis

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Bitcoin failed to trigger a short-term buy signal throughout the Ethereum-led rally in May and early June, and that technical weakness still persists, as BTC is now trading right at the April low, testing the key long-term base pattern.

A break below the strong support zone near $5850 would be the first similar event since the beginning of the bear market in 2014, and it could lead to an extended period of bearish bias for Bitcoin after the spectacular bull run of 2017. For now, the bull market is intact, with support found near between $6000 and $6275, at $5850 and below that at $5500, while resistance is ahead at $6500, $7000, $7350, and $7650.

ETH/USD, Daily Chart Analysis

Although Ethereum is clearly stronger from a technical perspective compared to Bitcoin, the coin is struggling to hold the key $500 level, as it is resumed its short-term downtrend. The April lows are well below the current price level and the long-term setup is bullish, so long-term investors could still add to their positions during the selloffs. Resistance above $500 is ahead between $555 and $575, while strong support is near $450, $400, $380.

(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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Altcoins

Crypto Psycho:  Crazy Price Action

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Say what you will about the cryptocurrency bubble of 2017 not making sense, what about the action lately?  Prices are acting terribly. Professor John Griffin claims last year’s bitcoin rally was manufactured by Bitfinex. Economist Nouriel Roubini proclaims bitcoin is going to zero. The founder of Crypto Asset Management says about bitcoin: “We are shorting it like maniacs at the moment.”  If that is not enough, technical indicators keep barking downtrend.

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Over the past week already depressed prices have fallen further with things like bitcoin down 14%+, Ethereum 17% and XRP 21%.  Yes, there were those stories about the CFTC digging into price manipulation and demanding more data from Coinbase and other exchanges. And then there was the hack on that small exchange in South Korea.  But nobody could reasonably pin the blame of this week’s performance on these two factors.

MarketWatch quoted Matt Hougan, head of global trading at Bitwise Asset Management: “The big story to me is the absence of positive news”.  There is some truth to this but that is only part of the story. As we pointed out in a recent article, most serious investors in crypto don’t pretend to understand what is causing the mess.  

When bitcoin evangelist Alistair Milne published a survey of his Twitter followers, 81% of them had nary a clue.  Interestingly enough though, almost half of these respondents checked the box “Crypto iz ded”.

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What exactly to conclude from this is open to interpretation but one thing is clear.  It is a big part of the problem long term investors face today. Crypto psychology sucks, the worst it has been since the Mt. Gox hack of 2010.

Good News Being Ignored

One of the barriers to progress in the crypto wars was the issue of regulatory clarification. Are cryptocurrencies simply digital assets or a class of securities that fall under the regulation of the Securities and Exchange Commission?

That question has now been answered.  On Thursday, the SEC’s announced that both bitcoin and Ethereum were not securities but digital assets.  However, the good news does not end here.

William Himman, representing the SEC, clarified the position of Initial Coin Offerings.  In cases where the ICO does not convey equity ownership of an enterprise and where the digital asset is sold only to be used to purchase a good or service available through the network on which it was created, it does not qualify as a security.

This represents one huge step forward in clarifying the regulatory environment and yet the markets response was brief and uninspiring as the full week’s performance unfortunately demonstrates. Honestly, this is a bit bizarre.

Other Good News Being Ignored

Crypto Asset Management may be short selling lots of currencies, but they are not alone.  According to www.bfxdata.com/swaphistory/usd  margin interest in bitcoin and Ethereum is in excess of $1.2 billion.  While this is down from around $2 billion last December it still represents a sizable pool of future buyers.

It’s In The Mind

For digital asset prices reflect not only investor sentiment but also those who represent ultimate users.  For a digital currency to represent a storehouse of value, it must have public trust. Right now that appears to be at a low.

According to the British publication London Loves Business, the story is pretty clear. Headlines state “71% of the UK public think the value of Bitcoin will either decrease or collapse over the next six months.”  According to LLB,  this represents a 10% fall in investor confidence since the same question was last asked in April’s 2018 poll and a 24% fall in investor confidence from November’s 2017 poll figures.  In other words, the price of bitcoin holds the same implication for investors as it does for potential users.

This Too Shall Pass

Mob psychology often proves wrong and this negative mindset appears to be feeding off of itself right now.  Even one of crypto’s biggest critics Warren Buffett would agree that betting against the mob has been a big part of his investment strategy. At some point the mob will once again be proven wrong when short sellers get spooked and forced to cover positions or value investors will filter over from an overpriced U.S. equity market.  Either way, there is value in the crypto market that has not existed for quite some time. In the end, 71% of the Brits surveyed will be proven wrong also.

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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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4.4 stars on average, based on 81 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

Stocks Pull Back as Euro Rebounds after Carnage

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Stocks are broadly lower today after yesterday’s mixed session, as European equities, which performed much better following the ECB’s meeting, also turned lower, following the major US indices. The losses are limited, as volatility remained relatively low, despite the week’s central bank bonanza that caused turmoil across asset classes.

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NASDAQ, 4-Hour Chart Analysis

The NASDAQ is still the strongest among the main benchmarks, while the Dow is the weakest, dragged lower by the weakness in financials and the energy segment. Small caps are still outperforming the broader indices together with tech stocks, and Trump’s new tariffs targeted at China boosted the segment yet again today.

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EUR/USD, 4-Hour Chart Analysis

The EUR/USD forex pair has been in the center of attention in the last couple of days as expected, while currencies turned volatile across the board in the aftermath of the Fed’s and the ECB’s monetary meetings. The Dollar index surged higher, boosted by the weakness of the common currency and after a brief positive period that weighed somewhat on stocks and other risk assets.

Economic releases were mixed today after a strong weak, at least in the US, as the Empire State Index and the UOM Consumer Sentiment Index were better than expected while Industrial Production slightly missed the consensus estimate. The Eurozone CPI was in line with expectations, while Canadian Manufacturing Production missed by a mile, putting further pressure on the already weak Canadian Dollar.

Commodities Smacked Lower amid Risk-Off Shift

Currencies were by far the most active assets, as we expected after the dovish surprise by the ECB yesterday, with the Dollar’s strength affecting the majors and the recently weak emerging market currencies as well.

USD/TRY, 4-Hour Chart Analysis

The initial bullish reaction in commodities and emerging currencies quickly faded, as the fragility of the most vulnerable countries continues to pose contagion risk, and although the Brazilian Real and the Turkish Lira are both above their recent lows, the charts still look dangerous.

WTI Crude Oil, 4-Hour Chart Analysis

The Dollar’s strength put an end to oil’s bounce, as the WTI contract fell back below the $65 per barrel level, while gold is also testing its lows from May. Oil looks bearish before next week’s OPEC meeting, but the outcome of the event is as hard to predict as ever, especially given the recent volatility in the price of the Black Gold.

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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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