Weekly Forecast: Cryptocurrencies Look for Direction After Turbulent Month
A wave of selling pressure has swept the cryptocurrency markets this month, casting a shadow over April’s bullish reversal. Though cryptos have declined for three consecutive weeks, downside pressure appears to be slowly fading as investors await the latest developments on the regulatory and adoption fronts.
Among correlated assets such as stocks, bonds and commodities, attention will be paid to ongoing geopolitical developments, free trade negotiations and economic data.
Cryptocurrencies: The End of the Downtrend?
Proponents of the price manipulation theory believe we may be nearing the end of the crypto-market downtrend as large investors continue to dump their oversized holdings of bitcoin.
This view is corroborated by the fact that the last three downtrends – starting in December and continuing to this day – have been accompanied by higher lows and shallower recoveries. At the same time, trading volumes are thinning with each major correction. Case in point: cryptocurrency trade volumes fell on Sunday to their lowest in six weeks.
That said, bitcoin is currently eyeing support in the high $6,000 range after briefly falling below $7,300 on Sunday. Analysts such as Willy Woo believe that a further breakdown below $6,000 is possible before we see any major rebound. Much of that will depend on bitcoin’s ability to hold the critical $6,500 support level, which the market has failed to breach since early February.
The cryptocurrency market bottomed at $320 billion last Thursday. A stalled weekend recovery knocked prices back toward $326 billion from a high near $340 billion.
Usually, signs of institutional adoption – like the ones we’ve seen repeatedly over the past three weeks – are a boon to crypto assets. However, it appears as if wider institutional adoption has already been priced into the market (i.e., “buy the rumor, sell the fact”). This suggests traders are now looking for tangible evidence of a new product or service being launched before they rally behind bitcoin like they did in December.
In the author’s view, the actual launch of Goldman Sachs’ bitcoin operation could provide that spark.
Geopolitics in Focus
A meeting between U.S. President Donald Trump and North Korea’s Kim Jon-un is back on as talks resumed in the wake of last week’s diplomatic breakdown.
The planned summit, which is scheduled to take place in Singapore next month, was salvaged after South Korean leader Moon Jae-in held an unannounced meeting with his northern counterpart on Saturday. According to Moon, the North Korean leader has “again made clear his commitment to a complete denuclearization of the Korean peninsula.”
Stock markets are likely to respond favorably to the developments, as easing geopolitical tensions tend to boost risk-on assets. Investors should pay attention to futures trading in the coming hours for an indication of how the market will perform.
In terms of economic data and other key developments, below is a rundown of everything you need to know for the next five days.
U.S. stock markets are closed for Memorial Day.
No major data releases are expected.
The Dallas Federal Reserve Bank will release its monthly manufacturing business index, while S&P/Case-Shiller will report on U.S. house prices.
Meanwhile, New Zealand’s central bank will release its Financial Stability Report.
A deluge of economic data will make its way through the financial markets Wednesday, beginning in Europe with German retail sales, unemployment and consumer inflation. Europe’s largest economy likely saw a pickup in annual inflation for May, with analysts forecasting year-over-year growth of 1.9%.
Meanwhile, the European Commission’s statistical agency will report on a series of economic and business sentiment indicators.
Shifting gears to North America, the U.S. Commerce Department will release revised first-quarter GDP data. The ADP Research Institute will also release its monthly report on private-sector employment.
In terms of monetary policy, the Bank of Canada will deliver a verdict on interest rates early Wednesday. Canada’s benchmark interest rate is forecast to hold steady at 1.25%.
Reports on Eurozone consumer prices and unemployment will headline European trading on Thursday. The consumer price index (CPI) for the 19-member euro area likely rose 1.6% annually in May compared with 1.2% the previous month.
In the U.S., the Department of Commerce will issue its monthly report on personal income and outlays. The data set also includes core personal consumption expenditures (PCE), the Federal Reserve’s preferred measure of inflation. The core PCE rate likely strengthened to an annual rate of 2% for April from 1.9%.
North of the border, the Canadian government will release first-quarter GDP figures.
U.S. nonfarm payrolls will headline Friday’s session, with the May report expected to show the creation of 185,000 jobs. Unemployment is projected to hold steady at 3.9% and average hourly earnings likely picked up to 2.7% annually from 2.6%.
Separately, the Institute for Supply Management (ISM) will report on U.S. manufacturing PMI. The May reading is expected to print 57.7 on the PMI scale. Anything above 50 signifies expansion.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock.