Kicking off Overbit's Wednesday Worldview, we dive right into covering the US dollar fundamentals and how these could influence the rest of the world. The US Dollar (tracked by the DXY index) has been quite bearish since the pandemic took hold in March. This past July has been no better, with 11 of the 14 trading days posting losses. This poor performance has been attributed to a less-than-ideal response & recovery to the coronavirus in the United States. At this point, uptrend support dating back to the February 2018 lows is threatening to fall.
Without much news lined up on the forex calendar for July, many analysts foresee a bearish continuation for DXY. One such analyst, Gareth Berry of Macquarie International, said to CNBC, "We do see scope for broad-based US dollar weakness into the US presidential election". One major point of information to be on the lookout for is earnings data. Large US companies, including Tesla, Coca-Cola, and more, will be releasing their earnings numbers soon, and increased earnings could see the USD as a haven, while a sustained drop in revenue Quarter to Quarter could push the USD bearish.
Moving right onto the GBP/USD pair, we see the pair is at 1.26752, pushing against the top of the trading range it has stayed within for nearly all of the pandemic. This trading range has been defined by uncertainty, as the Pound has struggled for years now to gain footing in a post-Brexit world. Since the referendum on 23 June 2016, GBPUSD has dropped nearly 15%. However, a glimmer of hope is on the horizon as Brexit negotiators arrived in London at the start of this week. Given the UK's recent spat with China over Huawei (and other matters), any sort of positive development on the Brexit front would surely be welcome.
As for the other side of the Brexit negotiations, we can see the EUR/USD attempting to climb higher. Early on in Monday's trading session, the Euro struggled recorded a 4-month high at the 1.1470 level, yet the pair was quickly met with heavy selling pressure, falling back to around 1.4040. The Euro has rebounded by a few hundred pips since then, but positive performance from USD later in Monday's session has put pressure on any more upward movement. On top of the greenback's performance, the prospect of a EUR750 billion economic support package from the EU is undoubtedly weighing on the EUR/USD pair. A deal is expected to be made regarding this stimulus package within the next month, though negotiations could drag on with 27 countries having to agree. With the Euro rapidly approaching the significant resistance of 1.15, it's best to keep a close eye on any news.
Moving on to digital markets, we first take a look at Bitcoin. BTCUSD continues to hold above $9000, despite several attempts to sell off below that level. For the most part, though, Bitcoin continues to trade in a tightening range. Since mid-May, BTCUSD volatility has dramatically decreased, reaching all-time lows by July. While it's tough to tell, some analysts see Bitcoin's current price action as a textbook falling triangle pattern. A breakout from this triangle would send BTCUSD through several significant resistances, such as the 50-day SMA and the $10,000 price level. On the flip side, a breakdown from this triangle could trigger a broad selloff through $8,000 and below. Either way, given Bitcoin's historic volatility compared to its current volatility, any trader should know that a reversion to the mean is bound to happen sooner rather than later.
Looking at Ethereum last, we can see the recent price action has been a bit less bullish than BTC/USD. ETH/USD has fallen for three straight days and is down nearly 4% on the week. Though a small downtrend, this recent price action has put ETH/USD below several key technical levels, such as the 20-day and 50-day SMA's. On a positive note, this recent dip was bought up from its lows at $229. It seems moving averages and the relative strength index indicator are flattening out on a technical level, suggesting a period of consolidation to come. At this current range, it's become quite opaque as to when and where ETHUSD will move. Traders should be cautious at these prices as a result. For the average investor, it may be wiser to wait until a strong trend has been established, but given the swirling storm for Ethereum with DeFi and ETH 2.0, there could be more than enough catalysts to trigger a trend.