It was all about Volatility this week in the financial markets of the World – Cryptos, Stocks & Forex. We saw some wild moves, some trend changes & some newsmakers. Bitcoin finally caved into the support which it had held for months, U.S stocks continued to exhibit weakness, Oil’s longest slump continued & Pound Sterling plummeted under the weight of Brexit concerns. Let’s preview some of the weekly numbers before looking at the individual moves.
The most significant price movement was from Bitcoin with the break of its hard floor @ $5800 and a sharp rise in volatility that the Cryptocurrencies are well-known for. The price squeeze for the past so many weeks was pointing to a break out in any direction. This is disappointing for the Crypto bulls who had been expecting that digital coins had finally based out. Unless there are some external catalysts to precipitate a sharp rally, all hopes for a holiday run have been quashed for the moment.
So what really caused this downward spiral in the Crypto kingpin – a lot of pundits are of the opinion that the Bitcoin Cash hard fork was responsible for this. Let me explain how. The acrimonious split of the BCH protocol which took place on November 15th had two camps fighting for supremacy. On the one side is Craig White (self-proclaimed Satoshi Nakamoto) and the proponent of the ‘Satoshi’s Vision’ or BCH SV or BSV. The other side is led by Jihan Wu who is one of the founders of the biggest mining company Bitmain proposing BCH ABC. White is proposing to just increase the block size & not interfere with the original protocol which would make the Crypto irrelevant. While BCH ABC is a proposal to bring significant changes at the protocol level. With the split in the BCH community a ‘hash war’ has ensued where BCH ABC has taken the initial lead. So where’s the cause for Bitcoin price drop? Craig White went on Twitter and threatened to sell a lot of Bitcoins to fund this hash war (below).
To all BTC miners…
If you switch to mine BCH, we may need to fund this with BTC, if we do, we sell for USD and, well… we think BTC market has no room… it tanks.
Think about it. We will sell A Lot!
And, have a nice day
(BTC to 1000 does not phase me)
Time will tell how sustainable this move is & long-term effects on price of Bitcoin & the rest of the digital coins. Let’s look at the daily chart of Bitcoin to see some of the key levels going forward. As evident the key support level of $5800 going back to July has been breached with the recent downturn. A persistence weakness would eye the next significant level of $5000. On the upside $5800-$6000 would act as the resistance zone which needs to be penetrated towards the next target of $6600. Needless to say there are lot nervous Crypto bulls out there right now.
U.S stocks ended the week on a positive note with the healthcare & energy sectors taking the lead, but this rally still couldn’t offset the losses earlier in the week with all the indices churning out losses of close to 2%. Most of the global stocks followed the same pattern with the only exception being the Chinese stocks which jumped 3%, which for the moment looks like a technical rebound after the market dropped more than 20% for the year. Reviewing the benchmark S&P 500 it seems to have entered a consolidation phase for now making a higher low but still significantly lower than the previous high resistance in the 2815-2820 zone. This level needs to be penetrated to mark the next leg up. On the flip side, the break of the recent low around 2675 would extend further weakness. For now the RSI is supporting the move up. The other observation on the chart is the spike in the Average True Range (ATR) which is indicative of the increased volatility. Continue to expect more of this until things settle down.
Oil was able to rebound with what looks like a ‘dead cat bounce’ but the worst is not over yet for the commodity. Maybe the announcement by Saudi Arabia to cut the Oil exports unilaterally by 500K barrels a month would help it a little bit. The long term bearishness is still in play.
Forex markets saw some increased volatility as well with the most prominent move coming in the sharp fall of Pound sterling of more than 250 pips. If the finalized Brexit proposal causes further political damage in the U.K, Pound could see extended losses. However, a quick resolution to the matter, which seems unlikely at the moment, would trigger a relief rally. Looking the hourly chart of GBPUSD, gains seem capped at the ST resistance level of 1.2880, however, a break of this level would target towards 1.3000. Only a breakdown of the Resistance zone of 1.3040-1.3080 will signal a return to bullish momentum. Having said that the Dollar Index fell the from the new peak of 97.68 to end the week @ 96.42 looking at further consolidation but as long as the support @ 95.70 holds expect the bullishness to persist.
To end it all here are some of the key headlines this week:
- Alibaba recorded sales of $30.8B during its annual Singles’ Day event, representing a rise of nearly 27% year-on-year, but smaller than the 39% Y/Y growth recorded in 2017.
- Japan’s Central bank (BoJ) has become first of the G7 countries to own assets worth more than the country’s annual economic output, recorded at a staggering ¥553.6T ($4.9T). This is on the back of country’s economic contraction at an annualized 1.2% in Q3.
- Italy is on a collision course with the EU after the government refused to change the budget deficit targets as per the EU specifications. This move could risk a fine from the EU, totaling 0.2% of Italy’s annual GDP of €1.7T.
- Germany’s economy shrank for the first time since early 2015, posting a contraction of 0.2% in Q3, weighing on growth across the Eurozone.
- Canada and China are working towards an “eventual” free trade deal, according to PM of Canada. This is despite Ottawa being a signatory to USMCA (NAFTA 2.0), which specifies that if a member state enters a free trade deal with another non-member country, the others can quit in six months and form their own bilateral trade pact.
And I wouldn’t sign off with a view on the lighter side of things – represents the true depiction of U.S stocks right now. Happy Trading!