The year is winding down to an eventful end as divergence takes shapes in different sectors of the financial markets. Cryptos saw first weekly gains in a while & gave something to cheer about for the bulls after being hammered for the larger part of the year. U.S Stocks on the other ended the worst week in a decade after continued uncertainties like the trade spat with China, Global economic slowdown, an overly aggressive Federal Reserve & now adding a government shut down to the mix, which has materialized at the time of writing. A strong Greenback which has been the hallmark for the most part of 2018 in FX markets seems to be showing signs of exhaustion in the current bull run. Before looking at the details of all these issues, let’s review some numbers.
The last week has shown how fortunes can change so quickly specially in the Cryptoverse. As most of the Crypto pundits were increasingly talking about the impending doom of the digital coins, they jumped right back into the game. But let’s not get ahead of ourselves, since there are some significant levels that need to be achieved price wise before we can jump to that conclusion, however, this mini bull run could certainly be the first step towards that. There were a few factors that are being seen as the possible reasons behind this sharp recovery. The first was a report from Bloomberg that Tether, which forever has been the center of price manipulation controversy, does actually have the fiat reserves to back up the issuance of the massive amounts of the stable coin. Second was the reaffirmation from ICE (International Currency Exchange) that it will be launching the physical bitcoin futures on Jan. 24, 2019 (pending regulatory approval) – not a viable reason as far as I am concerned since this was already a given. Third & the most plausible reason in my opinion was BCH emerging from the hash-war that I have talked about on multiple occasions previously.
The digital currency BCH rocketed up more than 150% within a week leading & perhaps precipitating the recent recovery in Cryptos. Although trading within a corrective recovery zone at the time of writing it still looks constructive as long as the immediate support @ $170 holds. Purely looking at the price action in BCH & the general Cryptos it looks like the hash-war had a big role to play in the most recent slump of the digital assets. Needless to tell you that price action can reverse very quickly in Cryptos so we will keep our fingers crossed for now closely watching the technical levels. Let’s see how the Crypto kingpin fared.
Bitcoin was not only able to take over the immediate resistance of $3800 but was able to cross the psychological level of $4K & holding above it at the time of writing. Previous resistance has now changed to a support zone of $3750-$3800, above which the price looks to continue the current move. With the recent upswing in Cryptos the BTC dominance has receded from the highs & sitting @ 53% with the total market cap of $130 billion. Hoping to see the Cryptocurrencies end the year on a positive note. Before moving on, here’s an overview of the BTC wallets by AML & Compliance software Chainalysis.
All three Major U.S indices recorded hefty losses closing the worst week since 2008. Dow, Nasdaq and S&P 500 all closed down 6.87%, 8.26% and 9.61% respectively as the market sentiment turned sharply lower with plethora of bad economic news surrounding us right now. And all of this was before the U.S government shut down actually materialized over the weekend. This is putting severe pressure on the Futures as evident from the chart numbers in the first graphic. China on the other hand has been trying to prop up its economy with fiscal & monetary measures which includes large tax cuts. On a side note, China cut its U.S. Treasury holdings by $12.5B in October for a fifth consecutive month. On the surface it just seems that this happened due to a cut in demand caused by a strong Dollar, but this has certainly garnered some attention. Economic pundits have always speculated China using this as a tool to pressurize U.S government in the on going trade war.
Looking at the benchmark S&P 500 index for U.S stocks, it has accelerated the current bearish downturn as expected. The previous support levels have now changed to ST resistance. For now any gains should be capped in the resistance zone of 2600-2620. Price is closer to the channel floor with an increasing divergence in the MACD with a sharp increase in volatility evident from the spike in ATR (Average True Range). The RSI (Relative Strength Index) has dipped below the 30 mark which is considered as an oversold territory. This might provide a chance of a technical bounce in the coming days, however, the momentum remains strongly bearish in the short-term. The infographic below shows how the industrial production & trade volumes have declined around the world after the 2017 boom.
While the individual moves in USD Majors dictated the continued strength in the Greenback, the daily chart of the Dollar Index is painting another picture. With the risk-off sentiment in the financial markets, the bullish USD moves in individual pairs are warranted but considering the FOMC move towards a neutral stance going forward means a correction is overdue in the Dollar. The Dollar index chart seems to be in the initial phase of any such correction.
DXY has retreated pretty sharply from yet another failure at the previous top. Only this time it seems to have finally turned the corner. The coming days should confirm or deny this theory. Current price is sitting just on top of the support zone that needs to be broken to confirm a larger correction, but a consolidation is certainly taking shape. Considering low volume holiday trading going into the New year, we might have to wait a little further for the confirmation.
Commodity pairs USDCAD, AUDUSD & NZDUSD closed the week at the lows with the extreme risk-off sentiment in place. GBPUSD remained extremely choppy but bearish below the psychological level of 1.2700, while EURUSD receded pretty sharply after breaking the significant resistance @ 1.1440 & making a new high @ 1.1485 to close @ 1.1370. Market sentiment determining pair of USDJPY is under pressure for obvious reasons. Thin market data ahead for the week with the holidays in place. Only significant announcements will be the German CPI & U.S Consumer confidence. Signing off with a humorous depiction of how things are looking ahead in 2019 for financial markets. Happy Holidays everyone!