Hoping into this Weekly Insights at Overbit.com, we're going to discuss a few of the major insights we can take away from the cryptocurrency and forex markets this week. The first aspect of the forex market we cover will be the British market, and more specifically, the GBP/USD. In the last newsletter released, we spoke of the resurging US Dollar, which obviously brought down most pairs traded against it. On 20 August 2020, GBPUSD rallied back to the point of rejection at the 1.32 level, before being rejected for a second time and almost completely retracting back to 1.30854. However, this rejection seems to be caused by the less-than-reassuring Brexit negotiations rather than the initial cause of USD strength. On 21 August 2020, news outlets across the EU and the UK reported on the recent Brexit negotiations held over the past week. In no surprise, the negotiations have gone nowhere. Despite "friendly" and "courteous" discussions, the BBC reported that, "As ever, the EU and UK are hardly seeing eye-to-eye though." According to reports, the two parties are still deadlocked on even the most straightforward issues such as UK fisheries. This should give any GBPUSD investor pause, as these issues are just the simplest components of a broader trade deal that seems entirely far off on the horizon at this point.
On the other side of the Brexit negotiations, the picture in Europe appears a bit murky as well. "Speaking after the latest round of talks, [EU negotiator] Michel Barnier said he was "disappointed" and "concerned." Unlike GBPUSD, the EURUSD forex pair has not attempted much of a rally at all since 19 August 2020. Instead, the pair has moved almost straight downward since then, suffering a nearly 1.5% loss. At this point, the EUR/USD rally is certainly losing a lot of its momentum, being heavily rejected at such a significant resistance. Part of this is obviously driven by the US market's intricacies, but much blame can be simply placed on the Eurozone. Covid-19 cases are skyrocketing in prominent countries like Germany and France, which has a trickle-down effect in the rest of the area. In addition, Eurozone PMI's, which is a survey used to measure service & manufacturing output in each European country, was much below most analysts' predictions, and even contractionary in some countries. As FXStreet reported, "IHS Markit noted that the expansion in new orders had slowed to a snail's pace, while there had been a reacceleration in the rate of job cutting". This means that despite any news reports to the contrary, the Eurozone is struggling with the response to the pandemic just as much as any area. With investors de-risking across the board, being in uncertain forex pairs such as GBPUSD or the EURUSD seems like a very cheeky move at this point.
In our final section on forex, we take a look at Japanese markets and the USDJPY forex pair. In our last edition, we mentioned the changing dynamic of USD vs. JPY, and how that recent analysis suggests that USDJPY could rally in times of investor fear, despite the yen remaining a safe-haven asset. This was evident last week when the entire market tanked with USDJPY being one of the sole exceptions. It seems since then, USDJPY has retraced a bit and currently sits at the 105.758 level. Some analysis suggests that the pair could fall even further to 104, which was its July 2019 low. Going forward, it will be important to watch the risk sentiment of investors given this pair's correlation. In addition, eyes should be focused on the changing seasons, as we are emerging out of the worst season for trading. One analyst from DailyFX thinks this changing of the season will benefit the Japanese Yen, stating that "Seasonal volatility suggests that the Japanese Yen may outperform its major counterparts in the coming weeks".
Bitcoin and Ethreuem (BTC/USD) are both at interesting price points at the time of writing, as Digital Dollars and central bank digital currencies are rapidly expanding as China announced a pilot program for its digital yuan rolling out this month. This digital yuan is in stark contrast to the US's attempt to bring the USD into the digital realm, which is still years out (2022 & 2023) according to recent news from the Federal Reserve. The implications of the Digital US Dollar, is hard to understate, and there is a rush by the US Government to not fall behind other countries, or even in some cases, private companies, al la Facebook's Libra.
We heard recently on CNBC that the former Governor of the Reserve Bank of Indian, Raguram Rajan stated that both Facebook's libra project, and Bitcoin, could act as near-direct competition, with state-backed central currencies. We could see the next 10 years, be riddled with currency wars (both state-backed, corporate-backed, and "movement"-backed), collide over the coming years, but some could argue that more options are better for consumers. In conclusion, now is a great time to be paying attention to what's happening in the world around currencies. And to give a quick market price action summary, both ETH/USD and BTC/USD are in short-term bear trends, bouncing back under key levels of support both $12,000 and $400, respectively - but for the moment, still bullish on the macro trends of these two important cryptocurrencies.
We close out with stating that BTC/USD is currently ranging in the mid-$11,000, with $11,525 and $11,900 acting as strong resistance points on the way back to $12,000, but if BTC/USD breaks down more, we could see a new support in the $10,000 range. And closing out with the ETH/USD pair, we could see it following continuous, short-term, downward movement from current levels and is hopefully heading towards strong support either at the $380, $370, or $350 ranges. Time will tell, but right now, it looks like we might be possible in the "healthy retracement" cycle of the Crypto Bull Market.
Our publications do not offer investment advice and nothing in them should be construed as investment advice. Our publications provide information and education for investors who can make their investment decisions without advice.
The information contained in our publications is not, and should not be read as, an offer or recommendation to buy or sell or a solicitation of an offer or recommendation to buy or sell any positions. Our publications are not, and should not be seen as, a recommendation to use any particular investment strategy.
Risk Warning: Margin Trading carries a high level of risk to your capital and you should only trade with money you can afford to lose. Margin Trading may not be suitable for all investors, so please ensure that you fully understand the risks involved, and seek independent advice if necessary.