Forex and Cryptocurrency Forecast
The US Federal Reserve's victory over inflation remains a long way off, according to January data released on Tuesday, February 14. Every month, the core Consumer Price Index (CPI) remained unchanged at +0.4%. At the same time, despite being slightly lower than the previous value (+6.4% vs +6.5%), the annual data exceeded the forecast of +6.2%. The following day, February 15, another set of American statistics was released. After two months of decline, retail sales in the United States increased at the fastest rate in nearly two years, rising from -1.1% in December to +3.0% in January (versus a forecast of +1.8%).
The first reaction was a strengthening of the dollar (the DXY index reached 104.1 points, its highest level since January 2009), as well as a dramatic decline in stock indexes. Market participants concluded that such macroeconomic data will push the Fed to actively tighten monetary policy. If the interest rate peaked at 4.9% in early February, with a subsequent decline of 50 basis points (bp) by the end of the year, the top is currently forecast at 5.25%, with a likely decrease of just 25 b.p. in 2023. At the same time, there is a 50% chance that the rate will be raised three more times, in March, May, and June.
As previously stated, the market's initial reaction was a strengthening of the dollar and a dramatic drop in stock indexes. But then there was a sudden turnaround, and investor risk appetite returned. The stock market indices rose. The market concluded that if the US economy could comfortably handle the most aggressive interest rate rise in decades, it could handle it in the future. Not only are retail sales up, but other economic indices are as well. So, employment increased by an amazing 517K new jobs, and the country's GDP, according to the Atlanta Fed's leading indicator, may expand by 2.4% rather than 2.2% in Q1 2023.
The market attitude then shifted once more. Another set of data revealed that the number of Americans filing new claims for jobless benefits dropped unexpectedly, while producer prices (PPI) climbed to a 7-month high in January. In this context, market expectations for the next round of monetary tightening have risen once more. The S& P 500, Dow Jones, and Nasdaq all fell simultaneously, while the DXY rose to a six-week high of 104.58. The Dollar Index then slipped to 103.85 points on the eve of a long weekend in the United States.
The EUR/USD responded in line with the wild DXY movements. As a result, it began last week at 1.0679 and concluded it at 1.0694, yielding essentially little results. At the time of writing (February 17 evening), 80% of analysts anticipate the dollar to strengthen more, 10% expect the euro to rise, and the remaining 10% are neutral.
This time, the oscillator readings on D1 almost exactly match the analysts' opinions. 80% of them are red (20% indicate that the pair is oversold), while the remaining 20% are grey neutral. Sixty percent of trend indicators advise selling and forty percent advise purchasing. The pair's closest support is in zone 1.0600-1.0620, followed by levels and zones 1.0560, 1.0500, 1.0440, and 1.0370-1.0400. The bulls will face resistance around 1.0700-1.0710, 1.0745-1.0760, 1.0800, 1.0865, 1.0895-1.0925, 1.0985-1.1030, and 1.1110, before attempting to acquire a footing in the 1.1260-1.1360 echelon.
The publishing of business activity indices (PMI) in Germany and the Eurozone on Tuesday, February 21, is among the upcoming events. On Wednesday, February 22, the German Harmonized Consumer Price Index (CPI) will be released. The minutes of the most recent FOMC (Federal Open Market Committee) meeting will also be released on this day, late in the evening. On Thursday, February 23, statistics on Eurozone inflation (CPI), unemployment, and US GDP will generate volatility. On Friday, February 24, we shall receive German GDP indications as well as information on consumer expenditure by American individuals.
Traders should also bear in mind that Monday, February 20 is a holiday in the United States as the country celebrates President's Day.
GBP/USD: The Bank of England May Cause the Pound to Collapse
The pound attempted to recoup some of its losses at the start of the week. After a recovery from the level of 1.2030 on February 13, GBP/USD achieved a two-week high of 1.2270 the following day. The pound then began to fall against the dollar, along with the other currencies in the DXY Index. As a consequence, the local minimum was determined to be 1.1915. This was followed by a return to the starting levels, with the GBP/USD closing the week at 1.2040.
Neither inflation nor unemployment figures from the UK supported the British pound (CPI fell to +10.1% in January, vs forecasts of +10.3% and +10.5% in December). The market also overlooked retail sales figures, which grew by +0.5% in January vs a prediction of -0.3% and a prior result of -1.2%. The announcement that the UK and the EU had reached an agreement in their lengthy Brexit discussions had no discernible impact on the pound's movements.
Far more crucial for the British currency's quotations were macroeconomic data from the United States, as well as the anticipation that the Bank of England (BoE) will shortly approach the conclusion of its rate rise cycle. "The Bank of England is concerned that a significant rate hike could significantly slow the economy," Commerzbank economists wrote, explaining their bearish view of GBP's prospects, and colleagues from Singapore's United Overseas Bank agreed, saying GBP/USD could retest the 1.1900 level shortly.
When it comes to the median projection of experts, 70% believe the pound will continue to fall, while 10% believe forecasts should be avoided. Just 20% of analysts believe the pound will strengthen and the pair will rise. The balance of power among the trend indicators on D1 is 85% to 15% in favor of the reds. Among oscillators, reds have a 100% edge. The pair's support levels and zones are 1.1990-1.2025, 1.1960, 1.1900-1.1915, 1.1840, 1.1800, 1.1720, and 1.1600. Resistance will be found in the levels 1.2085, 1.2145, 1.2185-1.2210, 1.2270, 1.2335, 1.2390-1.2400, 1.2430-1.2450, 1.2510, 1.2575-1.2610, 1.2700, 1.2750, and 1.2940 as the pair advances north.
In terms of the UK economy, the release of the country's business activity figures (PMI) on Tuesday, February 21 is important on the schedule for the next week.
USD/JPY: QT Expectations Continue
"The Japanese government has appointed Academician Kazuo Ueda as the new Governor of the Bank of Japan based on forecasts of stable inflation and structural wage increases," stated Finance Minister Shunichi Suzuki. Yet it does not appear that this decision favored the Japanese yen. USD/JPY began the week at 131.39, reached a local high of 135.15, and closed the five days at 134.17.
Remember that 71-year-old Kazuo Ueda, a former professor at the University of Tokyo, joined the BOJ's board of governors in April 1998 and served until April 2005. Ueda stood out against the Central Bank's termination of the zero-rate policy in 2000. Even today, it appears that he would not rush to end the ultra-easy monetary policy. This is reinforced by Ueda himself, who indicated on February 10 that the regulator's existing approach is appropriate and that it must be maintained.
Notwithstanding such assurances, the issue of how this policy would be implemented under the new leader remains unanswered for the time being. The majority of specialists (60%) are waiting to see what happens. 15% predict USD/JPY to rise shortly, while 25% expect it to decline. In a three-month outlook, just 10% of analysts expect the Japanese currency to decline further, 25% remain neutral, and 65% anticipate tightening monetary policy (QT) and the yen rising, contrary to Kazuo Ueda's pronouncements.
Danske Bank experts, for example, expect that the USD/JPY rate will decline and hit 125.00 in three months. BNP Paribas Research strategists hold a similar viewpoint. "We believe the US dollar's rise to be transitory," they add. "We believe the US dollar has entered a multi-year bearish trend, and portfolio flows are turning negative for the currency." According to BNP Paribas, favorable rates in Japan may encourage local investors to repatriate cash, causing the USD/JPY to fall to 121.00 by the end of 2023.
On D1, 100% of the oscillators indicate north (15% are in the overbought zone). In terms of trend indicators, 75% look north and 25% look south. The next level of assistance is in zone 134.00, followed by levels and zones 133.60, 132.80-133.20, 131.85-132.00, 131.25 130.50, 129.70-130.00, 128.50, 127.75-128.10, 127.00-127.25, and 125.00. 134.40, 134.75-135.10, 135.60, 136.00, 137.50, 139.35, 140.60, and 143.75 are the levels and resistance zones.
This week, no significant macroeconomic data on the status of the Japanese economy are expected. Also, keep in mind that Thursday, February 23, is a holiday in Japan as the country commemorates the Emperor's Birthday.
CRYPTOCURRENCIES: Five Reasons for BTC’s Growth
Since last spring, the idea of regulating the bitcoin industry has become more popular. Several influencers think that a clear legislative framework is required before one can expect a significant infusion of capital from institutional investors. Here is one of MicroStrategy's co-founder Michael Saylor most recent remarks. "What we truly need is oversight," he remarked. [...] Congress must provide clear direction. The SEC (Securities and Exchange Commission) of the United States must provide unambiguous norms of behavior." Such appeals from representatives of large capital, it should be noted, respond to the thoughts and actions of government officials.
Senator Elizabeth Warren, for example, is already actively recruiting conservative Republicans in the US Senate to support her legislation that considerably tightens crypto sector regulation.
We note that the sad events of 2022, triggered by the fall of several industry leaders, resulted in a significant increase in the activities of US supervisory agencies. This year, regulators began to operate with increased vigor. To begin, they targeted the Kraken cryptocurrency exchange, which was officially prohibited from providing staking services. But, the vehicle continued and collided with the infrastructure business Paxos, which is in charge of issuing the USDP, PAXG, and Binance BUSD stablecoins.
The New York State Department of Financial Services (NYDFS) has begun an inquiry into this firm. Then, the regulator ordered the company to stop issuing the BUSD stablecoin. The SEC also stated its intention to sue Paxos.
This circumstance resulted in a large outflow of cash from the stablecoin. Numerous individuals have begun to exchange BUSD for USDT. Yet it's just half the battle. Several terrified users simply abandoned Binance. The net outflow of capital from this exchange was $831 million on February 14, a record since FTX's demise.
Binance CEO Changpeng Zhao replied to US authorities' pressure by urging industry players to consider migrating to another nation. He sees Dubai (UAE), Bahrain, and France as having favorable regulatory environments. Hayden Adams, the creator of Uniswap, backed Binance's CEO. "It's a pity to see the United States' efforts in the crypto sphere," he wrote. "Innovative enterprises are given an additional incentive to expand internationally. It's as if the government outlawed Internet development 30 years ago."
Remarkably, despite this gloomy backdrop, the price of bitcoin increased, reaching $25.241 on February 16. The last time Bitcoin/USD reached this level was in mid-August 2022. The present rally has occurred for a variety of reasons.
The first of them is the previously reported NYFDS and SEC attack against Kraken and Paxos. Because of the passive revenue from staking, US regulators consider PoS coins to be toxic investments (expectation of profit). As a result, such coins may be designated as a security, with all of the legal implications it entails. Bitcoin, on the other hand, is still the result of miners' labor, which permits it to avoid (at least for the time being) a similar fate. The network hash rate is still breaking records.
Another factor driving the rise (and subsequent decline) of digital "gold" quotations is their relationship with the stock market ( S&P500, Dow Jones, and Nasdaq).
The third reason is that in 2022, the primary cryptocurrency was oversold, causing the average manufacturing cost to fall below the market price. Furthermore, the majority of miners were compelled to sell their BTC inventories to meet operational costs and secure account payable payments.
The next explanation is the Ordinals protocol, which was implemented at the end of January and allows not only financial transactions in the bitcoin network, but also the transmission of any digital item, such as photos, audio, and video files. The implementation of this protocol also increased network activity. Miners got $876,000 in commissions in less than a month, setting a new record for the number of non-zero wallets.
Short-term speculators were obliged to settle short positions at the start of the BTC rise, which fueled bitcoin's growth even more. It was the fifth reason.
The current fair value of the main cryptocurrency, according to Glassnode experts, is $33,000. This is the target price for bitcoin. Kaleo, a popular analyst with 563,000 Twitter followers, cites a comparable value of $30,000. His prediction for the main cryptocurrency was likewise fairly bullish. The goal objective for ETH/USD, according to Kaleo projections, is about $3,000. Former Goldman Sachs CEO Raoul Pal also provided an Ethereum projection, estimating the coin's price to be around $10,000. Of course, such development will take time.
If we go out three years, well-known expert Willy Woo predicts that the number of users of the first cryptocurrency will increase from over 300 million to 1 billion. This corresponds to around 12% of the world's population. Willy Woo noted that it took bitcoin six months to attract the first 1,000 users. It took five years for that figure to reach one million. The network reached its present size of more than 300 million people 13.8 years after the genesis block was formed.
Anthony Scaramucci, founder of SkyBridge Capital hedge fund, named 2023 a "recovery year" for bitcoin. Nonetheless, his prognosis appears to be very conservative. According to him, the value of Bitcoin may "just" double over the next two to three years, reaching $50,000.
Another influential figure, best-selling author of Rich Dad Poor Dad, Robert Kiyosaki, predicts that bitcoin will reach $500,000 by 2025. "A massive crash is on its way. Depression is a possibility. The Fed was obliged to produce billions of dollars in counterfeit money. "By 2025, gold will be $5,000, silver will be $500, and bitcoin will be $500,000," Kiyosaki said. He also stated that gold and silver are the money of the gods, but bitcoin is equivalent to a dollar for common people.
Risky assets fell precipitously in the latter days of the previous week. Following the lead of the market indexes, cryptocurrency quotations dipped but swiftly rebounded. At the time of writing (Friday evening, February 16), BTC/USD is trading about $24,600. The overall market capitalization of the cryptocurrency market is $1.106 trillion (up from $1.10 trillion a week ago). In one week, the Crypto Fear & Greed Index increased from 48 to 61 points, moving it from the Neutral to the Greed zone.