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Weekly Analysis: All Eyes on the FED as Cryptocurrencies Shoot for the Moon

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Asset Current Value Weekly Change
S&P 500 2380 1.30%
DAX 12470 2.11%
WTI Crude Oil 49.19 -1.45%
GOLD 1269.50 -1.71%
Bitcoin 1332 9.34%
EUR/USD 1.0898 1.63%

 

 5 Things to Watch Next Week

  1. Will the FED shock the market?

The consensus among investors is that the FED won’t hike its benchmark rate next week, and the recent weakness in economic numbers makes that even more likely. That said, the central bank was upbeat in recent months, and a surprise rate hike is not out of the question. Stocks and gold could take a hit in the event of a hike, but a cautious monetary statement could propel a new swing higher in the Shiny Metal, and the major indices while pushing the Dollar even lower.

  1. Will Cryptocurrencies keep rising?

The cryptocurrency market remained active this weekend after the week that brought huge moves for almost every major currency. As the mainstream investment world increasingly turns its attention to this segment, volatility is expected to remain elevated, as the stellar returns might continue to attract additional capital. It will be interesting to see if the currencies can hold onto their gains next week or even surge higher.

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  1. The strength of the Nasdaq or the weakness of the S&P 500 will dominate?

The relative strength of the US technology index was even more apparent this week, as the benchmark jumped to new all-time highs while the S&P 500 and the Dow remained below their respective maximums. These types of divergences usually don’t last too long, so or the broader market will join the party or bulls will be in for a painful hangover after the post-election euphoria.

  1. Another round of crucial earnings coming up

So far first quarter earnings in the US were much better than expected, and what’s more, stocks reacted well to the positive surprises. Next week Apple, Facebook, Alibaba, Mastercard, and dozens of other companies will release their numbers possibly having a major impact on the market. Although corporate earnings are at a very high level historically, until the global economy keeps growing (thanks in part to the unprecedented central bank measures) there could still be room for growth.

  1. Job’s Friday after the FED

This month’s US employment numbers could be even more crucial for investors than usual, as they will be released just after the Fed’s interest rate decision and monetary statement. As traders expect the central bank to reflect on the slowing growth in the country, another weak report could cause major turmoil before the weekend, especially if the FED turns more cautious. Initial jobless claims have been showing some worrying signs lately, and that might translate to a negative surprise in the coming report.

In Focus: Cryptocurrencies

 

Weekly performance comparison of the major cryptocurrencies, Hourly Chart

The chart above shows just how strong this week was for the cryptocurrency market, as only Bitcoin advanced by slightly less than 10% since last Sunday, while all the other coins all posted double-digit gains. Ethereum Classic and Ripple rose by more than 80% and 55%, but Ethereum, NEM and Dash are also up significantly. With almost all currencies at or near their long-term highs, traders can choose from several strong trends in the segment. The structure of the market shift continuously, as Bitcoin’s weight is progressively decreasing, despite the new all-time highs in BTC. We are expecting another busy week for the segment, with Dash and Monero edging towards their long-term highs as well this weekend, possibly preparing to follow the explosive break-outs of the other majors.

Currency Weekly Volume Monthly Volume Market Cap
Bitcoin 2,118 9,037 21,514
Ethereum 858 2,787 6,247
Ripple 247 1,072 2,018
Litecoin 336 2,574 814
Dash 99 497 681
Ethereum Classic 230 425 492
NEM 55 100 436
Monero 50 197 331

 

Key Economic Releases of the Week

Day Country Release Expected Previous
Monday UK Treasury Sec Mnuchin Speaks
Monday GERMANY Personal Spending -0.10% 0.20%
Monday US ISM Manufacturing PMI 56.6 57.2
Tuesday CHINA Manufacturing PMI 51.4 51.2
Tuesday AUSTRALIA Base Interest Rate 1.50% 1.50%
Tuesday UK Manufacturing PMI 54 54.2
Wednesday UK Construction PMI 52.1 52.2
Wednesday EUROZONE Prelim GDP 0.50% 0.40%
Wednesday US Crude Oil Inventories -3.6 million
Wednesday US ADP Employment Report 178,000 263,000
Wednesday US FOMC Statement
Wednesday US Base Interest Rate 1.00% 1.00%
Thursday AUSTRALIA Trade Balance 3.3 bill 3.57 bill
Thursday UK Service PMI 54.6 55.0
Thursday CANADA Trade Balance 0.3 bill -1 bill
Thursday US Initial Jobless Claims (weekly) 246,000 257,000
Thursday US Trade Balance -44.9 bill -43.6 bill
Thursday EUROZONE ECB President Draghi Speaks
Friday CANADA Employment Change 20,000 19,400
Friday CANADA Unemployment Rate 6.70% 6.70%
Friday US Employment Change 194,000 98,000
Friday US Unemployment Rate 4.60% 4.50%
Friday US Hourly Earnings 0.30% 0.20%
Friday US FED Chair Yellen Speaks
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Analysis

Daily Analysis: Volatility Near Record Low 30 Years After Black Monday

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Monday Market Recap

Asset Current Value Daily Change
S&P 500 2555 0.12%
DAX 13003 0.09%
WTI Crude Oil 51.88 0.82%
GOLD 1296.00 -0.61%
Bitcoin 5680 2.95%
EUR/USD 1.1793 -0.25%

Stocks markets in the US are at a standstill near their all-time highs, with the major indices trading in extremely narrow ranges yet again. Volatility, as measured by the VIX, is close to its all-time high, in stark contrast to the average October readings, as this month is the most negative for equities regarding seasonality. In fact, this October is the least volatile ever so far, while this week is the 30th anniversary of the most volatile day ever on Wall Street.

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A Riskless Market?

On Black Monday in 1987, the Dow crashed by more than 23% during one session, as widespread bullishness coupled and novel portfolio techniques lead to a massive wave of selling. Although such one-day moves should be prevented by circuit breaking rules in today’s market, the notion that risk is non-existent in the current environment is as dangerous as it was three decades ago.

VIX, Weekly Chart

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Stocks have been very quiet across the globe today, with only the Nikkei continuing its break-out to two-decade highs yet again. In Europe, British assets were the most active, as the Brexit talks seem to be in quite a big trouble, and that pushed the Pound and the Euro lower compared to the Dollar. The Greenback’s rally put pressure on gold as well, and the Japanese Yen also declined, as safe-haven assets were sold in the calm environment.

Nikkei Index, 4-Hour Chart Analysis

Oil has been very active as the Iraqi army took control of Kirkuk defying the Kurdish resistance, the WTI contract rose as much as 2% before retreating below the $52 per barrel level, and as we speculated during the weekend, the spike is unlikely to cause a structural change in energy markets, and we expect the range trading environment to continue in the crucial commodity.

WTI Crude Oil, 4-Hour Chart Analysis

Cryptocurrencies

Today was a big day for the crypto segment thanks to the Byzantium update of the Ethereum network, and although the hard fork went smoothly, the session ended on a slightly negative note. Ethereum pulled back towards the $330 support/resistance level, while Bitcoin remained stuck near the $5700 level after recovering from Sunday’s dip.

Ripple has been the other major mover of the day as the coin first surged higher and hit the $0.30 resistance just to fall back swiftly below the $0.26 level towards the end of the day. Despite the decline, the currency is still in a clear uptrend, but more volatile moves are expected in its price. Among the smaller coins, Stellar Lumens more than doubled in price after the announcement of a deal with IBM, as blockchain adoption continues in full force, pointing out the sound fundamentals behind the boom in the segment

ETH/USD, 4-Hour Chart Analysis

Key Economic Releases on Monday

Time, CET Country Release Actual Expected Previous
3:30 CHINA CPI 1.6% 1.6% 1.8%
3:30 CHINA PPI 6.9% 6.3% 6.3%
14:30 US Empire Manufacturing Index 30.2 20.3 24.4

Key Economic Releases on Tuesday

Time, CET Country Release Expected Previous
2:30 AUSTRALIA RBA Meeting Minutes
10:30 UK CPI 3.0% 2.9%
11:00 GERMANY ZEW Sentiment 20.3 17.0
12:00 EUROZONE Final CPI 1.5% 1.5%
15:15 US Capacity Utilization Rate 0.4% 0.2%
15:15 US Industrial Production 76.2% 76.1%

Featured image from Shutterstock

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Analysis

Technical Analysis: Ripple Breaks Out Amid Ethereum Upgrade

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The major cryptocurrencies are on the rise once again today, with Ethereum’s major Byzantium update being in the center of attention. The second largest blockchain network has been updated through a hard fork, as usual, and the successful lock-in led to an initial surge in the price of the ETH token. The digital currency recovered above the $330 level after Sunday’s pull-back, but so far it failed to durably break-out above the prior swing high just above $340.

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With the long-term momentum readings still being neutral, the coin could be on the verge of testing the $380 resistance soon, with the all-time high near $400 being the last major technical obstacle. Below $330 further support is found at $300 and $285.

ETH/USD, Daily Chart Analysis

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Bitcoin is also on the rise after dipping below $5500 during the weekend, and the most valuable coin is joined in the rally by Ripple, which most likely finished its short-term correction and could be ready for another leg higher. The other majors are also generally higher, with NEO and IOTA being ahead of the pack, while the rest of the market trading near unchanged. As the broad rally seems to be well and alive, let’s see how the short-term charts are shaping up.

(more…)

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Analysis

5 Things to Watch Next Week: Byzantium, Bitcoin Stretched, Gold’s Strength, The Next Fed Chair, Kirkuk and Crude Oil

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1.            Ethereum’s Byzantium Upgrade is Here

In only a few hours time the second largest blockchain network will go through one of its biggest upgrades yet, when the block 4,370,000 is hit sometime around 6:00 UTC on Monday. The large Byzantium upgrade, the first part of Metropolis, seems to be in for a smooth start, but the coin is headed into the much-awaited event with mixed price action. The digital currency first hit a 5-week high above $340 on Saturday, thanks to the positive prospects of the fork, but it pulled back today to trade back below the crucial $330 support/resistance line.

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Should the hard-fork upgrade go as planned, the price of the token might follow the path of Bitcoin after the Bitcoin Cash fork, and approach all-time highs in the coming weeks. In any case, volatility should increase significantly tomorrow, so short-term traders should be controlling position sizes even more than usual.

ETH, Daily Chart Analysis

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2.           Bitcoin Overbought but Will that Matter?

The most valuable coin had a great run, gaining almost 100% since the latest deep correction. The digital currency was the definite leader of the segment, storming past the historic $5000 price level and the previous all-time high, while altcoins lagged behind. With Ethererum and Litecoin gathering strength and Monero also showing signs of activity, another round of “rotation” might be happening in crypto world.

Low correlations are the hallmarks of bull markets, and a healthy correction in BTC would be a welcome development for bulls. That said, with the great fundamental background the coin might be in for another mind-blowing surge, so keeping some chips on the table is a good idea, without forgetting the rising correction risk, of course.

BTC, 4-Hour Chart Analysis

3.           Gold Defying Gravity

The precious metal is after an orderly correction that followed the much-awaited beak-out above the long-standing resistance at $1300. Gold spiked below the $1275 level before turning north again, and with the short-term environment for the metal being mixed at best, its performance is encouraging for bulls.

As we expect the headwinds to change in the coming months, gold might be ready to take the next step in the developing bullish trend and even reach the zone between $1375 and $1400 in a matter of weeks.  With equities still looking stretched a risk-off turn in financial markets could supply the fuel for such a move.

Gold, 4-Hour Chart Analysis

4.           Yellen or Somebody New Will Lead the Fed?

The first (?) term of Janet Yellen is ending soon, and the speculation regarding the Fed Chair is getting heated. The stakes are high, and the POTUS, as usual, has been very vague about his nomination plans. For now, Mrs. Yellen’s chances for a second term are slim, but she might turn out to be the safe bet for the sensitive position. Kevin Warsh has been the favorite for quite a while, but the hawkish candidate has lost ground to Jerome Powell lately after Trump met all the major contenders for the post.

We all know that Yellen is uber-dove when it comes to monetary policy, and both of the major candidates (Warsh is a prior while Powell is a current Fed governor) would likely be stricter with regards to interest rates and balance sheet decisions. That said, Warsh is considered to be the more hawkish of the two, and the Dollar and Treasury yields would likely rally on his nomination, with an even stornger reaction to the newly emerged name of John Taylor.

The timing of the decision is a bit shaky, as the President indicated mid-October, but even a few more weeks could pass before the real thing, so investors should be on alert for volatility spikes in bonds and currencies in the coming period.

The prediction market of the next Fed Chair as of October 15, Predictit.org

5.           The Kurdish-Iraqi Standoff Reaching the Next Phase?

Following the somewhat tricky Kurdish independence vote, which was most likely a slight bluff from the Pesmerga leadership, the Iraqi army started to assemble forces near the strategic city of Kirkuk. The territory is known for one of the largest oil reserves of the world, and as such it’s not a surprise that Iraq wants to control it, although they miserably failed against ISIS to do so. With only a few kilometers between the opposing forces, a conflict is not out of the question, although there is still chance for a peaceful solution.

The outcome could be vital for the future of the autonomous region, as Iran and Turkey are also against an independent state, and with the threat of ISIS declining the US might also back away from the Kurds. Oil could pop higher in the case of an escalation, but with the fundamental picture being mixed at best, we wouldn’t bet on a structural change in the energy market.

Key Economic Releases Next Week

Day Country Release Expected Previous
Monday CHINA CPI 1.6% 1.8%
Monday CHINA PPI 6.3% 6.3%
Monday US Empire Manufacturing Index 20.3 24.4
Tuesday AUSTRALIA RBA Meeting Minutes
Tuesday UK CPI 3.0% 2.9%
Tuesday GERMANY ZEW Sentiment 20.3 17.0
Tuesday EUROZONE Final CPI 1.5% 1.5%
Tuesday US Capacity Utilization Rate 0.4% 0.2%
Tuesday US Industrial Production 76.2% 76.1%
Wednesday EUROZONE Mario Draghi Speaks
Wednesday UK Average Earnings 2.1% 2.1%
Wednesday UK Claimant Count 3,200 -2,800
Wednesday UK Unemployment Rate 4.3% 4.3%
Wednesday CANADA Manufacturing Sales -2.6%
Wednesday US Building Permits 1.25 mill 1.27 mill
Wednesday US Housing Starts 1.18 mill 1.18 mill
Wednesday US Crude Oil Inventories -2.7 bill
Thursday AUSTRALIA Employment Change 15,200 54,200
Thursday AUSTRALIA Unemployment Rate 5.6% 5.6%
Thursday CHINA GDP 6.8% 6.9%
Thursday CHINA Industrial Production 6.4% 6.0%
Thursday UK Retail Sales -0.1% 1.0%
Thursday US Unemployment Claims 245,000 243,000
Thursday US Phill Fed Index 22.2 23.8
Friday CANADA CPI 0.1%
Friday CANADA Core Retail Sales 0.2%
Friday US Existing Home Sales 5.32 mill 5.35 mill

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