(XTB Analysis Team)
Crypto markets attempt to recover despite the widespread panic
The panic surrounding the crypto market continues this week after further developments regarding the FTX situation led to widespread uncertainty involving the whole sector with many now questioning the safety of other major exchanges and defi protocols. Many large institutions rushed to reassure their customers, investors, and the market as a whole of their financial positions after major doubts emerged following the FTX collapse. Understandably, the Crypto fear and greed index is signaling levels of extreme fear as a large outflux of coins and cash from exchanges is threatening the stability of the ecosystem even further. Major price swings, spiky volatility, and projects approaching collapse are all factors causing an outflow of capital from the ecosystem as the overall market cap hovers around $844 billion while major cryptocurrencies like Bitcoin and Ethereum attempt to hold above their key supports. While there is a high potential for unexpected developments and high volatility, some investors may take the fact that BTC and ETH stabilized slightly as a reassuring sign, at least in the short term. On the other hand, confidence in the crypto industry is likely hovering around historic lows as many who may have been supporters have begun to doubt their conviction as they see companies that may have seemed too big to fail to crumble almost overnight leaving investors and customers to deal with the aftermath.
The pound pulls back from its highest level since August
The pound has managed to pull off an impressive recovery since the beginning of November with the GBPUSD pair rising over 6% and reaching a high of 1.185, a level not seen since the end of August. This came as the USD started to retreat following macroeconomic reports supporting a slightly less hawkish approach by the FED and as the recently appointed British PM attempted to calm investor sentiment after his predecessor. Today we can see a fairly balanced situation in the FX market with both USD and GBP performing strongly and with the pair pulling back slightly as it trades around 1.177. Many will be focused on the G20 taking place this week as progress on the geopolitical front may also help with improving sentiment while Sunak remains under pressure with regard to taxes, cuts, and migrants. From a technical perspective, the GBPUSD pair is trading at an interesting price reaction area after encountering resistance and pulling back almost 1%, and breaking below the 21SMA on the hourly chart. As the sentiment surrounding the pound remains uncertain, any major developments may cause large volatility spikes that could cause a breakout from the short-term trading range.
Is the Dollar growth over? Likely so
(Alexander Kuptsikevich – FxPro Financial Services Limited)
The dollar index lost 4% last week, the most significant drop since March 2020. Such powerful moves against the trend often signal a further trend reversal. However, it will probably be a slower pace of decline and not a one-way street as we see it over the previous ten days.
The pressure on the dollar has intensified over the past two weeks on speculation that the Fed will slow down the pace of policy tightening and that the maximum interest rate in this monetary cycle could be lower than previously feared. Signals from Fed members and slower-than-forecast inflation supported this view, triggering a wave of demand for risky assets.
At the same time, monetary regulators in other countries were in no hurry to soften their rhetoric, returning markets to a familiar situation where the Fed acts first and more aggressively than its peers in lowering and raising rates. But overall, it does not stand out for any rigidity.
The monetary watchdogs in the Eurozone have continued to signal in recent weeks that they are prepared to maintain the high speed of rate hikes, which fed their purchases in the Euro. That pressure could be fuelled by sales of dollar assets from the reserves of the SNB and the BoJ.
USDCHF and USDJPY returned under the emotionally significant levels of 1.0 and 150, attracting market-oriented and trend-following participants’ interest.
The nearest target for the Dollar Index correction is 105, actively operating as a resistance and support between May and August. This is also where the 61.8% Fibonacci retracement level of 2021-2022 comes in.
A decisive failure below would confirm that we see the Dollar moving into a decline and not just a correction in a long-term uptrend. In this scenario, the Dollar Index heads into the 90-100 area, where it has been comfortable since 2015, with a potential pullback to the upper bound of this range in the first quarter of 2023.
History has other examples. In late 2008, two weeks of a significant sell-off in the dollar were followed by three months of gains, and the DXY rewrote local highs, finally reversing only in March 2009. However, it is essential to remember that in both March 2020 and March 2009, the EUR reversal was sustained when supported by the equity market surge we also witnessed last week.