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EUR/USD: Pause in the 1.0600 Zone

On Thursday, March 2, the DXY dollar index broke again through the bar at 105.00 points, but it could not stay there. As usual, the dollar was supported by an increase in US government bond yields. The yield on 10-year securities rose to its high since Nov. 10 at 4.09%, while the yield on 2-year securities rose to 4.91% and updated its maximum since 2007.

The revision of US labor market statistics in Q4 2022 and the ISM Manufacturing Business Activity Index (PMI) in the country's manufacturing sector also supported the US currency.

On the other hand, the dollar was pressured by the yuan, which is getting stronger against the backdrop of macro-economic statistics from China. The PMI manufacturing index in China was the highest since 2012. Activity in the service sector has also increased, and the Chinese real estate market has stabilized.

However, the main factor determining the dynamics of the US dollar is still the expectation of the Fed's further actions in an attempt to curb inflation. Since the Consumer Price Index (CPI) rose more than expected in January, reaching 6.4%, market participants started talking about the fact that the regulator may raise the rate not by 25 basis points (bp) in March, but immediately by 50.

At the time of writing, CME's FedWatch tool estimates the probability of such a move at 23%.

This forecast was supported by hawkish comments by some FOMC (Federal Open Market Committee) members. The head of the Atlanta Fed, Rafael Bostic, said that the key interest rate should eventually be raised to 5.00-5.25% and be kept at this level until 2024. Minneapolis Fed chief Neil Kashkari has yet to decide whether he will vote for a 25 bp or 50 bp rate hike in March, but hinted that the Fed's own dot plot could be raised.

At the same time, both officials stressed the need to fight inflation, emphasizing that a strong labor market and the US economy are able to withstand the pressure caused by the aggressive monetary policy of the Central Bank. However, Rafael Bostic then softened his hawkish mood and said that the regulator may suspend the rate hike cycle in the summer. After that, the dollar slightly retreated from its gains.

Some analysts do not rule out that the peak US dollar rate will reach 5.5% in September, and maybe even 6.0%. There is no question of reducing it at the end of the year at all. And these expectations play on the side of the US currency, which is confirmed by the futures market. But when talking about the EUR/USD currency pair, one cannot focus only on the actions of the Fed. They don't sleep on the other side of the Atlantic, either.

Inflation data for a number of European countries suggest that the ECB will also be forced to maintain a hawkish position for longer than previously expected. The opening of the Chinese economy could put pressure not only on the US, but also on Europe, making it difficult for both regulators to curb inflation.

Therefore, market participants expect further tightening of monetary policy on the part of the European Central Bank, which has recently kept the pair in the 1.0600 area.

Last week's finish was at 1.0632. At the time of writing, the analysts' forecast looks as uncertain as the flat quotes of EUR/USD: 50% of them have taken a neutral position, 30% of experts are counting on further strengthening of the dollar, and the remaining 20% side with the euro. Among the oscillators on D1, 50% are colored red, 15% are green, and 35% are neutral gray. Among trend indicators, 35% recommend selling, while 65% recommend buying.

The nearest support for the pair is located at 1.0575-1.0605, and then there are levels and zones of 1.5000-1.0530, 1.0440, 1.0375-1.0400, 1.0300, and 1.0220-1.0255. Bulls will meet resistance in the area of 1.0680-1.0710, 1.0740-1.0760, 1.0800, 1.0865, 1.0930, and 1.0985-1.1030.

There will be quite a lot of economic statistics and events in the coming week. Data on retail sales in the Eurozone will be released on Monday, March 6. Fed Chairman Jerome Powell will address the US Congress on Tuesday and Wednesday. Also, there will be data on retail sales in Germany, Eurozone GDP, and employment in the US on Wednesday, March 8.

The number of initial claims for unemployment benefits in the US and the inflation rate (CPI) in China will be known on Thursday, March 9. Meanwhile, Friday will show what is happening with consumer prices in Germany. We are traditionally waiting for a portion of important statistics from the US labor market on the same day, including the unemployment rate and the number of new jobs created outside the agricultural sector (NFP). 

GBP/USD: Sentiment Color is Red

The GBP/USD currency pair has been in a sideways channel for the second week in a row, although it has demonstrated rather high volatility. The range of its fluctuations (1.1942-1.2147) exceeded 200 points, and the last chord of the week was placed in the middle of this channel, at the level of 1.2040. We described above what gives strength to the dollar.

The British currency received some support from information received last week that an agreement was reached between the UK and the EU on the Northern Ireland Protocol. Trade disputes have now been resolved, and while this is positive for the UK economy as a whole, many experts believe that the positive effect of this agreement for the pound will be short-term.

Quotes of the pair are still determined by the actions of the Central Banks. And the head of the Bank of England (BoE), Andrew Bailey, speaking on Wednesday, March 1, further fogged the issue, saying that the final decision on the prospects for the monetary policy of the British Central Bank has not yet been made, and that the regulator should be flexible in the coming months so as not to scare the markets.

Experts' median forecast for the near future appears as thus: 70% of experts vote for the further weakening of the pound and the fall of GBP/USD, only 10% expect the pair to grow, and 20% prefer to refrain from forecasts.

Among the trend indicators on D1, the balance of power is 65% to 35% in favor of the greens. The picture is different among oscillators. The reds have a convincing advantage here, at 70%, while 10% side with the greens, and 20% have taken a neutral position.

Support levels and zones for the pair are 1.1985-1.2025, 1.1960, 1.1900-1.1925, 1.1840, 1.1800, 1.1720, and 1.1600. When the pair moves north, it will face resistance at the levels 1.2055, 1.2075-1.2085, 1.2145, 1.2185-1.2210, 1.2270, 1.2335, 1.2390-1.2400, 1.2430-1.2450, 1.2510, 1.2575-1.2610, 1.2700, 1.2750, and 1.2940.

As for next week's economic calendar, no important macro data from the UK is expected until Friday, March 10, when UK GDP and industrial production data for January are released.

USD/JPY: Patience and Only Patience

The USD/JPY currency pair rose to 137.10 on Thursday, March 2 after the release of US economic data. This is the highest level since Dec. 20, 2022. The yen was opposed by the divergence between Fed and BoJ politicians, as well as the yield spread between 10-year US and Japanese bonds, which rose to highs not seen since November 2022.

Another blow to the Japanese currency was dealt by Kazuo Ueda, who was elected as the new head of the Bank of Japan (BoJ). His position only exacerbated the disappointment of those who hoped for major changes in the regulator's monetary policy.

Investors have failed to pick up a clear "hawkish" signal in his speeches, which would have spurred the resumption of speculative demand for the yen, which was already weakening against the background of the growth of DXY and the rise in yields of 10-year treasuries.

The USD/JPY pair met the beginning of February at the level of 130.08, and it ended at 135.84 on March 3. However, a number of experts have not lost hope that the Japanese currency will strengthen.

“Since the dollar peaked at the end of September, the yen became the second best-performing G10 currency by the end of January,” economists at MUFG Bank wrote. "Some backtracking in this context is quite understandable. But we believe that inflation will decline and yields around the world are close to peaks, which indicates a recovery in the yen, especially since the policy of the Bank of Japan will also change.”

Strategists from HSBC, the largest financial conglomerate, echo their colleagues. “We will remain yen bulls in the medium-term,” their forecast sounds, "but we suspect that it will take some patience for the currency to gain independent strength thanks to the Bank of Japan. For now, USD/JPY is likely to remain influenced by developments in the US, where we see the balance of risk tilting towards a weaker dollar.”

The next meeting of the Bank of Japan will take place on Friday, March 10. It will last be chaired by the former head, Haruhiko Kuroda, after which he will hand the reins over to Kazuo Ueda. Analysts at JPMorgan (like most others) do not expect BoJ policy to change or signal correction at this meeting.

It is unlikely that Kuroda will slam the door loudly when he leaves; most likely, the interest rate will remain at the same negative level of -0.1%. Therefore, yen supporters can only follow HSBC's advice and be patient.

So, as already mentioned, a number of experts expect a serious strengthening of the Japanese currency in the future. In addition to MUFG Bank and HSBC strategists listed above, BNP Paribas Research has a similar position, while Danske Bank economists predict that USD/JPY rate will fall to the level of 125.00 in three months.

In their opinion, in the event of a tightening of monetary policy, positive yields in Japan could stimulate the repatriation of funds by local investors, as a result of which the USD/JPY pair will be around 121.00 by the end of 2023. But these are still rather shaky assumptions, although 60% of analysts agree with them.

As for the immediate prospects, only 10% of experts are counting on the movement of the pair to the south at the moment, 45% are looking in the opposite direction, and the remaining 45% stay neutral. Among the oscillators on D1, 85% point north and the remaining 15% look in the opposite direction. For trend indicators, 65% look north and 35% look south.

The nearest support level is located in the zone 134.90-135.20, followed by the levels and zones of 134.40, 134.00, 133.60, 132.80-133.20, 131.85-132.00, 131.25 130.50, and 129.70-130.00. Levels and resistance zones are seen at 136.00-136.30, 136.70-137.10, 137.50, 139.00-139.35, and 140.60, 143.75.

Among the events of the coming week, in addition to the above-mentioned meeting of the Bank of Japan, the calendar includes Thursday, March 9, when the country's GDP data for Q4 2022 will be published.

Cryptocurrencies: Bitcoin Awaiting a New Catalyst

The first sentence of the previous review was, “Bitcoin is under pressure, but it is holding up.” Starting the current cryptocurrency review, we can only repeat: Bitcoin is under pressure, but it is holding up. Let's talk about global news. The good news is that the leading regulators will not completely ban cryptocurrencies. The bad news is that regulatory pressure on the industry will continue to grow.

The regulation of the crypto market was one of the topics that finance ministers and central bank representatives discussed at the G20 meeting. As a result, US Treasury Secretary Janet Yellen said that regulation of the crypto industry is important, while Washington is not considering a complete ban.

“It is very important to create a reliable regulatory framework. And we are working [on this] with other governments,” she said in an interview with Reuters. IMF Managing Director Kristalina Georgieva agrees with her colleague: her organization also advocates for adequate regulation of digital assets and against their complete ban.

It should be noted here that the increase in regulatory control, while forcing a number of players out of their comfort zone, could ultimately have a positive impact on the industry, relieving shocks like the collapse of FTX. In addition, clear rules will attract a significant number of new institutional investors, raising the capitalization of the crypto market to unprecedented heights.

But this is in the future. In the present, the “herd” of whales (more than 1,000 BTC) continues to decline, reaching a three-year low of 1,663 individuals. There were almost 2,500 of them at its peak in February 2021. And this despite the fact that the crypto market showed a much better result at the beginning of 2023 than most of its participants and experts expected. These are the findings of Bank of America researchers.

At the moment, Bitcoin quotes are supported mainly by small and medium-sized investors. According to analytics company Glassnode, the number of wallets with a volume of 1 BTC is constantly updating highs, approaching 1 million. The 30-day capital inflow to the market exceeded the outflow for the first time in nine months and has returned to the "green" zone.

The cumulative net realized market value position also turned positive for the first time since April 2022 (the metric has been negative for the past nine months). Long-term holders have also updated their four-month high in savings.

By the way, according to Glassnode analysts, the drop in the number of whale wallets can be considered a positive factor. This means that the asset has become more distributed and less concentrated among a handful of large holders. This option is preferable for the entire ecosystem, as it eliminates the possibility of market manipulation by several players.

Another positive factor, according to some experts, is the weakening of the correlation of cryptocurrencies with US stocks and macroeconomic indicators. The flagship cryptocurrency was moving in a narrow range of $23,000-24,000 for almost the entire week, and it sank a little on Friday, March 3. Perhaps this was facilitated by the news that another representative of the crypto industry, Silvergate Bank from California (USA), was on the verge of bankruptcy.

According to analysts at the investment company Bernstein, the correlation of the first cryptocurrency with the Nasdaq Composite index has fallen from 0.94 to 0.58 since early February. According to them, the market is balancing between bulls and bears, "waiting for further catalysts," and its susceptibility to events in the world of traditional finance "is not the same as before."

We could also observe a weakening and then strengthening of the correlation with the stock market last August through September. And it is quite possible that the current “decoupling” of BTC from stock indices is a temporary phenomenon.

It is clear that the main concerns for all risky assets are related to the continued increase in the key rate by the US Federal Reserve, which could become a catalyst for the resumption of the bearish trend of BTC/USD.

The Eight CEO Michael van de Poppe, a well-known trader, believes that Bitcoin is currently the most undervalued asset. He has released a video review in which he predicts the growth of the coin to $40,000 this year. At the same time, both worsening macroeconomic data and the forecast for the Fed's rate failed to dampen Van de Poppe's optimism.

From his point of view, a pronounced bullish divergence on the weekly chart indicates that we have already reached the bottom. What is happening now is just a bounce off the 200-week moving average. According to the trader, sideways movement is most likely to occur at this stage. In the worst-case scenario, BTC/USD will fall to the low of the $18,000 range, and this fall will be a great investment opportunity.

According to Van de Poppe, there is no recession at the moment, but it may begin due to the collapse of the debt market and the real estate market. But before that happens, Bitcoin could rise to $40,000, as the crisis usually unfolds six to 12 months after the Fed's significant rate hike. The signal for the start of a new bull rally could be either the lifting of the mining ban in China, or the adoption of cryptocurrency in Hong Kong.

Global financial disaster is also predicted by Robert Kiyosaki, author of a number of books on investing, including the bestseller Rich Dad Poor Dad. He has long been a critic of the Fed's monetary policy and has expressed concern about the devaluation of the dollar. And now the economics writer has made a bold statement that, in his opinion, the fake dollar is leading to the decline of the American empire.

This stance of Kiyosaki has drawn approval from the crypto community as it shows the benefits of Bitcoin. Experts note that digital assets such as BTC, unlike fiat currencies, are not subject to inflationary pressure, since their supply is limited and predetermined by appropriate algorithms.

Recall that Kiyosaki has recently predicted that the Bitcoin rate will rise to $500,000 by 2025. “A giant crash is coming. Depression is possible. The Fed has been forced to print billions in counterfeit money. Gold at $5,000, silver at $500, and Bitcoin at $500,000 by 2025,” he wrote.

Matt Hougan, chief investment officer at Bitwise, said in a recent interview that he is “epically optimistic for the next three years.” In his opinion, there will be a massive adoption of cryptocurrency in 2023-2025, and its prices will grow.

“This bull market cycle is going to be the biggest cycle in terms of user adoption, in terms of the cumulative increase in market capitalization, in terms of just about every other thing we care about,” the financier says. “But it won’t happen perfectly up and to the right.” Also, “I'm actually optimistic about regulation,” Matt Hougan added.

Apple co-founder Steve Wozniak was also bullish last week. In his opinion, the main cryptocurrency has a huge potential and will increase in value in the coming years, reaching $100,000.

In the meantime, BTC/USD has recently been seen trading in the $22,250 zone. The total capitalization of the crypto market is approximately around $1.024 trillion ($1.059 trillion a week ago). The Crypto Fear & Greed Index fell from 53 to 50 points over the week, and it is in the very center of the Neutral zone.

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