The theme of Overbit's last week "Saturday Sitdown" was on how it appears the global markets' pace has been picking up steam. A week later, it seems this trend continues to gain momentum, driven by a multitude of significant economic and geopolitical events. We will evaluate the drivers of this trend in this week's edition of "Saturday Sitdown," and try to assess where we're potentially headed.
For some of the most significant economic news of the week, we first take a look at the EUR/USD. On July 21st, 2020, the European Union inked a stimulus package valued at 750 billion euros or 858 billion USD. This package will send money across Europe, primarily focusing on some of the areas hit harder by the virus, like Spain and Italy. A deal of this stature was not without fierce negotiation, as opposition came from members like the Netherlands and Austria. Markets across the world responded positively, especially European stock markets like those in Paris and Frankfurt. On the forex side, this deal pushed the EUR/USD pair to highs not seen since October 2018. The pair eventually topped out at a massive resistance at 1.601, but it has since found support at the 1.5629 level. Given the relatively lackluster US fiscal response to the virus, there's no reason to think this is the end of the trend for EUR/USD. With a deal wrapped up for the EU and a stable trend established, we now shift our focus to the EU "Leavers," the UK.
Last week, we touched on GBP/USD's technical bearishness, yet we noted the importance of USD's weakness. It appears the latter outweighed the former, as the British Pound has rallied above the 1.26 resistance and currently sits at the 1.27949 level. Part of this move can obviously be attributed to the greenback's all-around weakness, which hit lows not seen since March 10th. However, another aspect of this rise is certainly due to the US Secretary of State Mike Pompeo's welcomed visit to the UK over the weekend. Discussions included topics on 5G, China and the coronavirus, and, most importantly, a US-UK trade deal in a post-Brexit world. Looking ahead, we hope to hear more developments on the Brexit negotiations as key negotiators meet in London this week. One of the key points to watch will be the debate on UK fisheries, as UK fishermen demand access to the same waterway as before. In the end, one would imagine upside will be relatively capped for Sterling until some sort of Brexit agreement is made, but price movement above 1.26 is undoubtedly an encouraging sign.
Moving over to digital assets, we take a look at Bitcoin. Since the last edition, the most significant change is the chart significantly broke out of the low $9,000 region. BTCUSD saw a slight uptick earlier in the week and is now breaking the top of its range at $9,500, causing shockwaves across the market. When price grinds sideways as it has over the past few weeks, it's easy to forget the fundamentals of a market, so we briefly review them. Bitcoin is the best performing major asset of the last decade. After ten years, the niche asset has gone mainstream and continues to gain credibility daily. Institutional investors such as Grayscale are accumulating at massive quantities (and premiums). Institutional funds such as Fidelity are offering trading services. On July 22nd, 2020, the US Office of the Comptroller of the Currency even ruled that institutional banks have the legal right to hold custody for their customers' cryptocurrency assets. Simply put, fundamentals are stronger than they've ever been, and with RSI hovering at a neutral 50, and volatility at all-time lows, it's safe to say BTCUSD is setting up for a massive trade.
As for Ethereum, the ETH/USD pair has been flirting with the $250 target for a while now, and just this week, it broke above, which could propel the price into a heavily bullish uptrend. Such an uptrend would make it hard to place targets, but conservative estimates are around the mid $300s. However, inversely, with an overall interest in ETH and its related new tech, DeFi, at all-time highs, we could see bulls continue to win this one easily.
Ending with traditional markets, we can see the USD/JPY continues to range tightly. Recently, the pair failed even to reach the 107 area, the top area of its current range. This weakening range indicates US dollar bearishness against the Japanese Yen, which would come as no surprise given greenback's bearishness against almost all other 6-10 currencies. Failure to break the 107 range could see a breakdown to the 106 and even a substantial break to the 105 levels. Of course, this all depends on the global recovery, the flight to dollars, and the Japanese manufacturing and service economy rebound. It all depends on how long this economic recovery lasts and if the US dollar will be seen as a safe haven asset or if countries feel independently economically robust themselves. Time will tell.