Forex and Cryptocurrency Forecast Upcoming Weeks
EUR/USD: The Dollar is Strengthened by the FOMC Procedure
There are conflicting macroeconomic figures for the US and the Eurozone. Although inflation is declining in both regions, GDP growth is also declining, which is a good sign (which is bad for the economy). The US Department of Commerce reports that consumer expenditure growth in the nation was +1.4% in Q4 compared to +2.3% in Q3 (expected at +2.1%). According to early projections, the US GDP growth rate on an annual basis will be +2.7% (forecast and prior number +2.9%), which is less than anticipated. Yet, the employment market figures appear sufficient.
Initial unemployment benefit claims, which were expected to total 200K, instead fell by 195K to 192K. Inflation in the Eurozone decreased to +8.6% YoY in January from +9.2% a month earlier, according to official figures from Eurostat. The key engine of the European economy, Germany, is facing increasing difficulties. The annual inflation rate was 9.2% in January as opposed to 9.6% in December, but the country's GDP also decreased, falling by -0.4% (as predicted and from the prior estimate of -0.2%). The very recent February CPI figures, which showed an increase from +8.1% to +8.7%, did not impress either.
In light of this, the US dollar continues to enjoy the favorable market sentiment. The Federal Open Market Committee (FOMC) meeting minutes, which were released on February 22 by the US Federal Reserve, are mostly to blame for this. There were no shocks in the minutes. Participants in the market, however, were once more able to observe that the regulator will continue to fight against inflation.
The following is a summary of the key findings from the minutes provided by United Overseas Bank (UOB): 1) Notwithstanding achievements in the fight against inflation, the rate is still far higher than the desired level of 2%. 2) All Committee members concurred that maintaining high-interest rates until the Fed is sure that inflation is declining persistently will be necessary to meet inflation targets. 3) When the FOMC decided to raise the rate by 25 basis points (bps) in February, several members wanted it to rise by 50 bps. 4) The Fed is still more worried about inflation than it is about the slowing of the economy.
Janet Yellen, the US Treasury Secretary, endorsed these findings. At the G20 finance ministers and central bank governors meeting on Friday, February 24, she said, "Core inflation is still above 2%, but inflation is falling, measured on a 12-month basis." Janet Yellen asserts that the robust labor market and robust US balances make a "soft landing" for the economy without a recession feasible.
Due to everything mentioned above, the US dollar index, DXY, has been rising and reached a local high of 105.26 points. However, the EUR/USD pair finished the workweek at the level of 1.0546. (week low at 1.0535).
Speculations regarding the regulator's willingness to take its "crusade" against inflation to an extreme level are most likely what will have the biggest impact on the dollar's movement up until the next FOMC meeting on March 21–22. The rate may increase by 25 bps in March and May to reach 5.25% and then stay there through the end of the year, according to UOB's projection. Some predictions place the top federal funds rate for July at 5.38%.
The largest banking organization in the Netherlands, ING, has experts who claim that February and March are traditionally strong months for the dollar. They also claim that the rate of 4.50% for overnight deposits may still provide a small amount of support for the dollar. Yet, it will become harder for the American currency to strengthen versus the euro, according to their Commerzbank colleagues. There are no significant new drivers in sight, and many things have already been priced in. Particularly given that the ECB is continuing to tighten its monetary policy. The following impetus for such QT will be the final statistics on consumer prices in the Eurozone, which were revised upward to 5.3% in the core index and released on February 23.
At the time of writing this analysis (February 24 evening), 40% of analysts anticipate additional dollar gains (down from a week earlier), 50% anticipate a correction of the EUR/USD to the north, and the remaining 10% have adopted a neutral stance.
Even if 25% of the D1 oscillators are signaling that the pair is oversold, all 100% of them are painted red. 75% of trend indicators advise selling and 25% advise purchasing. The area between 1.5000 and 1.0525 is where the pair's nearest support lies. Following those levels and zones are 1.0440, 1.0370-1.0400, 1.0300, and 1.0220-1.0255. Bulls will run into resistance in the area between 1.0560 and 1.0575, 1.0680 and 1.0710, 1.0745 and 1.760, 1.0800, and 1.0865.
The US's capital goods and durable goods orders statistics will be released on Monday, February 27, among other things. A significant amount of macro information from Germany will be released on Wednesday, the first day of March. This contains the change in the nation's unemployment rate as well as the Purchasing Managers' Index (PMI) for the manufacturing sector and the Harmonized Consumer Prices Index (CPI). On this day, the PMI score for the US manufacturing sector will also be revealed. On Thursday, March 2, we anticipate the Eurozone's February CPI, the ECB's monetary policy statement, and information on American unemployment. And at the very end of the workweek, there will be more American figures, including the Purchasing Managers' Index (PMI) for the service sector.
GBP/USD: While business activity increases, the pound depreciates
The British pound is finding it difficult to fend off the dollar's rise. It continues to launch counterattacks, but it is gradually withdrawing. GBP/USD began the week at 1.2040, rose to a regional high of 1.2147, then fell and finished the five days at 1.1942.
Recession at the end of 2022 was avoided by the UK economy, and the statistics for business activity in the UK released on Tuesday, February 21, are rather upbeat. With a forecast of 49.0, the Composite PMI Index should increase by 48.5 to 53.0 points in one month. However, these are merely provisional information; on March 1 and 3, the definitive data will be made accessible. In contrast to the financial crisis, the COVID-19 epidemic, and the recessions of the 1980s and 1990s, British consumers' confidence is currently lower.
Even though it is declining, the country's inflation rate is still double digits and five times greater than the Bank of England's target rate. (With a projection for +10.3% in January and +10.5% in December, the CPI decreased to +10.1%.) The labor market helps to keep inflation high, and there are currently no indications that wage growth in the UK is slowing down.
The market anticipates that, like the Federal Reserve, the Bank of England would increase its benchmark interest rate twice, by 25 basis points, in March and April, bringing it to a maximum of 4.5%. But, a big rate increase could unnecessarily impede the economy, according to many in the BoE leadership. As a result, the regulator's already murky monetary policy could change at any time.
In terms of the experts' median projection, 45% of them favor additional pound depreciation, 25% anticipate rising GBP/USD, and 30% would rather not make any forecasts. The balance of power among the trend indicators on D1 is 85% to 15% in favor of the red. The red oscillator has a 100% advantage over the other oscillators, 15% of which are in the oversold region. The pair's support zones and levels are 1.1915-1.1990, 1.1840, 1.18,800, and 1.16,600. The levels of 1.1960, 1.1990-1.2025, 1.2075-1.2085, 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 will act as resistance for the pair if it advances north.
We can take note of the speech by Andrew Bailey, the Governor of the Bank of England, set for March 1st, in addition to the final statistics on business activity (PMI) in the UK, which will be released on March 1 and 3.
USD/JPY: QT Hopes Weakening, but Still Exist
In our previous analysis, we stated that "it appears that the selection of scholar Kadsuo Wada as the new head of the Bank of Japan (BoJ) has not boosted the Japanese currency." Now that we've had a look at the USD/JPY chart, we can only validate this assertion. In addition to the dollar's rise, Kadsuo Wada himself delivered the yen yet another setback.
His statement on Friday, February 24, enabled the two to increase their height from 134.04 to 136.41. The future president of the central bank's remarks in the lower house of the Japanese parliament generally mirrored the BoJ's present monetary policy, which only served to deepen the disappointment of those who had anticipated big alterations. The hawkish signal that would have boosted the restart of speculative demand for the yen, which was already weakening in the face of the rise of the DXY and the rise in the yield on 10-year treasuries, was not discernible to investors in these statements.
It should be emphasized that US Treasury Bills and the USD/JPY have a direct relationship. The dollar appreciates versus the Japanese yen if the yield on securities increases.
Several analysts predict that the value of the Japanese yen would rise significantly in the future, as we already mentioned in a week-old article. For instance, according to economists at Danske Bank, the USD/JPY exchange rate will decline and reach 125.00 in three months. Strategists at BNP Paribas Research are in a comparable position. They predict that if monetary policy tightens, favorable yields in Japan could encourage local investors to bring money home, causing the USD/JPY to drop to 121.00 by the end of 2023.
Even if 75% of analysts agree with them, all of these hypotheses are still rather weak. Regarding the near-term outlook, only 35% of experts now predict that the pair will move downwards, while a similar percentage anticipate a move in the other direction and 20% are undecided. In the D1 chart, all oscillators (of which 15% are in the overbought zone) show a northward movement. 25% of the trend indicators point south, while 75% of them point north. The zone at 135.90 is where the closest support level is, and the levels and zones that follow it are 134.90-135.15, 134.40, 134.00, 133.60, 132.80-133.20, 131.85-132.00, 131.25, 130.50, and 129.70-130.00. At 136.70, 136.00, 137.50, 139.00-139.35, 140.60, and 143.75 are resistance levels and zones.
Next week, no significant macroeconomic data on the status of the Japanese economy is anticipated. On the other hand, Kadsuo Wada will deliver a further lecture on February 27; nevertheless, it is unlikely to include anything novel or innovative.
CRYPTOCURRENCIES: Under pressure, Bitcoin perseveres. still not
In light of the previous week, we can state that although bitcoin is under pressure, it is holding up. The Coinbase exchange's Q4 2022 financial report and the dollar's rise are two of the primary pressure points.
In the last quarter of last year, which was unusually difficult for the cryptocurrency market, Coinbase's revenue dropped by 75%. The reason for such a collapse is obvious: customer outflows as a result of a series of scandals and bankruptcies involving major and minor industry players. Coinbase's losses amounted to $2.46 per share as a result. (By comparison, this crypto giant's profit per share was $3.32 a year ago). It is unknown whether Coinbase will explode in the same way that FTX did. However, investors should not overlook the risks associated with this market.
Plan B, a well-known analyst, also predicts a rally, estimating that bitcoin will test the $42,000 level in March. BTC/USD is currently trading around $23,100 at the time of writing (Friday evening, February 24). The crypto market's total market capitalization is $1.059 trillion ($1.106 trillion a week ago). Over the week, the Crypto Fear & Greed Index fell from 61 to 53 points, moving from the Greed to the Neutral zone.