Bitcoin has been vastly oversold due to the fact of regulation concerns from the US government wanting to make a more controlled market just like stocks. For over 2 months, the crypto has fallen nearly 42% from the highs in November, but it looks like it has found a bottom in the $39Ks.
Although Bitcoin received very little interest in COT data last week, I think it's about to gain a lot of attention soon. With the crazy inflation status for the USD, crypto might become something investors would like to put their money in to. Gold, recently, has been underperforming and moves slow even though it has a bullish bias against the USD, and bitcoin looks like the better play in the coming months. The image below is CPI on the USD.
Until the Fed makes a move, the dollar will continue to look weak. And people are tired of waiting on gold, so why not get in on something that can be more lucrative? It is a risky bet for sure, but now is a time where buying something to hedge inflation will be a key play going forward.
Concerns regarding the USD are pretty clear, but there is also an issue being presented in the bitcoin market that needs to be addressed. A technical concern I want to point out is the potential death cross pattern happening with bitcoin where the 50 DMA and 200 DMA intersect and the 50 crosses below the 200. This indicates a bearish move on a technical level, but if we see a swing up from the lows, the two moving averages might cross again signaling a bullish move.
Concluding, I think this this a potentially big opportunity for bitcoin investors especially as we will catch COT behavior later today and where the money is flowing. Interest rates are the biggest concern, but I do think this month and next will be big for bitcoin as the Fed does not intend to raise rates in February at all.
CPI numbers came in yesterday indicating a 7% climb in inflation from last month. This is some bad news for the Fed, USD, and stock market which could lead to a short term bearish trend until the Fed raises rates. This report should be bullish for the USD in the longer term since investors can be more certain that rate hikes are coming, but the dollar is still dropping. Here's why the USD could be bearish.
There are a couple reasons to why the dollar could still be bearish right now. That is probably because the three 25 bp hikes the Fed wants to do might not be enough to offset the rapid rise in inflation. According to TradingEconomics, the inflation rate is expected to trend upward to 1.90% by 2023, so even the 0.9% interest hike the Fed plans to do might not be enough to a big enough policy to keep inflation under control.
We also don't know for sure whether or not the Fed will pursue this plan to go from near-zero percent interest to nearly 1% by the end of the year. The original plan was a 0.3% hike, now it's 0.9%. We may have to see a larger hike for investors to feel comfortable with the USD's strength. So, in the meantime, the USD could be bearish.
According to COT data, institutional interest is on the short side of the trade which means it's more likely we see a downtrend than a rally. The way CPI is trending seems like the 7% rise is not the top for the inflation index.
Fed Chairman, Jerome Powell, is giving his testimony today and has already mentioned a few things. One, that tapering is confirmed to end in March, and that interest rates will likely rise later this year. The Fed still plans to adjust their monetary policy throughout the year as the recent Omicron surge pans out and uncertainty lingers in investors minds.
The Chairman also stated that the recovery has been impressive thus far and the banking system in continuing to look stronger. We can likely see better earnings throughout the year to, and this could be a major driver for the market in value companies as well as growth.
COT data also suggests a move higher as interest is gaining across the board and futures contracts are being picked up. Retail is also trying to get in on the action as investors are now 99% long on the NAS100 tech stock index. The S&P and US30 are trailing NASDAQ's gains, but are up overall for the day.
On a technical scale, if price on the indices closes with the bullish hammer they have now, we could likely expect another test at the highs. That is about a 2% move for the SPX500 and a 5% move on the NAS100. It's tough to say how long this rally will last, and it could even dwindle by the end of today, but it will be important to watch price action on today's candles and see where we end up at the close. So, before you trade do a quick analysis on the charts to see whether or not you feel confident in the potential market moves later this week.
GBP, JPY, CAD Forecast: As we watch some of the biggest movers today and as of recent, check out our forecast on these three forex currencies.
The pound continues to look bullish on most accounts as investors expect a total of 4 rate hikes from the BOE this year after the 15 basis point raise in December. With heavy bearish sentiment by retail traders and COT data, the pair keeps pushing up but is now slowing the pace as the pound-dollar cross is down -0.23% today.
Additionally, fears of Omicron slowing the global economy have staggered the major pairs going into the New Year, but the sterling was able to outpace most currencies with the anticipation of future rate hikes while trying to lock in their 2% inflation target. GBP seems mostly bullish over the yen and loonie for this week’s forecast.
With a near-certain continuation of the decade-long loose monetary policy, investors do not expect the yen to see much demand in the coming months while other major governments attempt to increase their hawkish stances toward the economy and fiat money.
Thus, the negative (-0.1%) interest rate could be starting to look less attractive to banks and financial institutions as other countries are tightening their monetary grips. The yen forecast looks bearish mostly against JPY, GBP, and CAD. But it looks bullish against USD this week.
Driven primarily by oil prices, the Canadian loonie is now slowing down as we start this week. Institution interest has not been very prevalent lately, so big money shifts aren't going to be much of an influence on this currency. An article by Reuters mentioned that the quick rise in demand combined with the harsh cut-back in production has caused "backwardation". This means that global supplies will start to rise again, and this will incentivize producers to sell oil quickly causing the price of oil to drop in the coming months. Overall, CAD's forecast looks strong against the yen, but weaker against GBP and USD.
To find more analysis, visit the A1Trading for more price predictions and forecasts.
Should we be preparing for a stock market crash in 2022? For nearly two years, stock market gains have been unprecedented due to the Fed-induced rally. Now that the US is near full recovery in the jobs market, investors are looking towards a more hawkish stance in monetary policy. Tapering has already begun, and soon enough, interest rates will rise. Investors expect three hikes this year just as the Fed signaled, but nothing is certain yet. Should the Fed stop purchasing assets and start raising interest, everyone is debating whether or not to be ready for another stock market crash or correction while the Fed steps out of the market.
Just as we discussed earlier, a rate hike will probably be bearish on stocks as investors might find more value in higher treasury yields. Without any fuel from the Fed, the natural market might stumble without its monetary backbone that held it in place for so long.
Additionally, if jobs data keeps missing expectations like we saw in November and December, we could be looking at a slowing economy. This will only add to the pressure on stocks as demand for risk-on trades will fade.
Omicron and future variants could topple the economy if the strains get more contagious and more severe. The fear of another government shutdown is still in the backs of our minds too. Up until March, the markets may just be choppy. This means technical analysis is much less effective with neither a bullish or bearish direction.
One major driver of the stock market is earnings. If companies that are making money can continue to make money, we might be looking at higher stock prices. This year was projected to be a heavy growth year as well, so small caps could be on the rise should they demonstrate large growth.
Despite the Fed’s statements, there is a possibility that they decide to hold off on three hikes in 2022. Because jobs are slowing, the Fed might take a step back and reconsider three interest raises. If interest rates are rising but at a slow pace, yields may still be stock-friendly as the amount of interest does not outweigh market gains.
Overall, no one really knows what is in store for us this year, but a crash seems unlikely after considering all these factors. That is because each variant seems to be weaker than the last, earnings growth is still strong, and the rate hikes discussed still seem that they wouldn’t hurt the market too badly. However, we still might see further correction in the meantime, and this year may even be flat for the most part. But a 20-30% crash like in 2020 seems unlikely.
Here on the daily timeframe, we see two hard rejections from the lows while price sits near support around $4718. If today’s candle can close with a bullish hammer formation, we could see a day in the green tomorrow. If not, it looks like price can find some heavy support on the two rising trend lines below.
After The BOE's latest announcement of their rate hike, pound (GBP) pairs went flying higher. Some of this has to do with the fact that England is one of the first to tighten their grip on monetary policy while most other countries like the US are only pointing towards rate hikes without actually doing it yet. With that said, here are some of the biggest setups on GBP pairs.
The December 16 rate hike to .25 from .1% was the first step to keeping their 2% inflation target in sight without getting out of control. The current inflation level is sitting around 5% according to CNBC, which is still pretty high but not too out of control for the Sterling.
Additionally, Endgland is projected to be the fastest recoverer from the pandemic in the G7 countries, more so than the US and Canada.What we may start to see is a sentiment shift from USD and CAD to GBP.
Pound aussie showing significant strength on the daily timeframes price comes up to test a previous top around 1.89000s. Continued momentum looks probable as demand drives up the pair's price for a second test at resistance. A break above this level could push price higher to the 1.90000s.
Pound yen still looks strong on the 1D after pulling back to a steeply rising trend line. Support lies below around the 156 and 155 levels should price move lower. However, if price closes with rejection form today's lows, we may see a continuation to the highs around 158.
The yen has been the most volatile across the board all day, and there a few reasons why. It seems that investors are more hesitant on the Japanese economy now that stricter monetary policy seems to be more prevalent in other countries more so than in Japan. The economy is expected to continue recovering, but it will do so at a slower pace. Super loose monetary policy for the past decade is likely to continue this year causing the yen will be consistently out of favor. Having said that, here are some yen pairs to watch on this wild trading day.
Bullish potential still seems probable for these three pairs right now although COT is buying up lots of futures contracts on the yen. However, the persistent easing drives investors away from the yen and brings them towards stronger currencies that plan to tighten monetary policy this year.
Dollar yen had a strong day as the pair flew up to the highs of 116.300s before taking a minor retrace on the 4H. Although the previous candle showed rejection from the lows, we still might see a further move downward to support which lies around 115.500s. UJ is now at the levels not seen since January of 2017.
Driven by higher oil prices and bond yields, the loonie gained more demand over the yen in late December. Price crossed above resistance at 91.186, but it hasn't closed above. Also, two trend lines look noticeable on the 1D timeframe, and price has broken above one of them.
Across the pond, pound pairs are in a similar boat as the dollar with the expectation of higher rates going forward. This factor is helping to drive price up closer to highs around 158.239. A trend line formed on the 4H where the pair has respected that level twice. Support lies around 156.000 and 154.746 just below.
To read more about GBP pairs, click here.
It should come to no shock as to why the USD is getting stronger after the Fed's recent statements. The fact that we are seeing a massive shift of money into the dollar helps us determine the overall direction of the safe-haven This can also cause a reverberation throughout other markets as well, such as the gold bullion. So, before you start your 2022 off, we suggest taking a look on how to trade gold right now amidst a powerful greenback.
US 10-year bond yields spiked to 1.6710% before resting at the 1.6500s%. Yields are up .035% on the day as of writing this. If we continue to see growth like this, investors might find more security in the bond market. And that could lead to less money in stocks and gold. The Fed will meet again in a few months to talk about future monetary policy which has been a main driver in bond yields in recent months as higher interest rates means stronger dollar.
The 10-year treasury is still under under the highs of 1.74% that were reached back in March of 2021.
It has been 3 years since an interest rate hike, and there is an expectation of one to be announced in the Fed meeting in March. If we do see the three hikes Powell promised in 2022, we could be in for a year of bearish activity in the inflation-hedger, gold.
It seems that all of the fundamental reasons that should have driven gold higher are now fading. The combination of higher interest rates, stronger treasuries, and the end of Fed tapering will all contribute to the better performance of the dollar. This will directly affect XAUUSD in a negative way and cause lack-luster performance throughout the year. Additionally, a more hawkish approach in monetary policy will only hurt gold even more.
A possible head and shoulders pattern could be forming on the 1D as well as being caught up in a wedge pattern. Should price fail to move above resistance around $1825, head and shoulders will form suggesting a bearish move. Some analysts expect lower lows to the $1600s during the year which seems likely if the metal breaks under its wedge pattern.
To read more content on gold, check out our other articles here.
Wondering what's in store for GBP (pound) pairs going into 2022? There are some factors that could heavily influence the currencies price action. Here's what we think is the likely outcome for GBP going forward.
Firstly, the UK's recovery has been doing the best recovery-wise as it is projected to be the fastest one to rebound since the COVID pandemic in 2020. More information on G7 can be found here. This is a big thing in the grand scope of things and justifies further bank rate raises.
Above is a YTD chart of the employment rate in the UK. Set to outpace the other six countries including the United States, Germany and Canada, we could find a strong bullish argument for the pound.
Additionally, the Bank of England decided to raise its official bank rate from 0.1% to 0.25% two weeks ago, a 0.15 bp raise. The BOE still has a 2% inflation target goal and will need further hikes to reach that. One hike is already a big step toward the recovery since other currencies like the USD are still tentative. And because the UK is expected to grow at a quicker rate than the rest of G7, we may start to see more hikes in 2022.
Below is the performance of GBP's interest rates in the past 25 years.
I think these two reasons are going to be the main drivers in the pound's recovery as analysts have high expectations for this currency for the next year. Of course, there will always be headwinds such as Brexit and the never-ending issues involved with that.
However, I do think that the UK has a big head start on everyone else which will probably be the best thing for them as they reach a full recovery. Interest rates should keep rising, but not too quickly. Along with that, bulls should hope that the recovery projections come through. If these factors continue to improve, 2022 could be the year of the pound!
To read more of our top picks, click here.
Learn more about these picks and why they could be the biggest plays of the New Year. Here's our top 3 markets in forex right now.
The US is in a constant search for more productivity and supply in the oil market, and they are struggling to find it. As the largest producer and consumer of this commodity, the government and curators are looking for supply elsewhere. In an article by IBD, they mention that Biden and Tehran are in discussions with the potential to increase the amount of barrel supply by 1.4 million.
Another news source show us that pre-pandemic productivity has still not been reached in the US. However, we are expected to increase production by 670,000 bpd in 2022. The problem facing the US is that demand is outweighing supply, and that is causing a rather large move in the oil sector. However, under the Biden administration, oil production was cut setting the stage for higher prices. And if the administration decides against a proposed production increase, analysts fear a $100 price per barrel.
Having this information will help us look at pairs that rely heavily on oil production and demand.
Lower production as of now is putting a weaker and uncertain valuation around the dollar. However, investors expect at least one rate hike in 2022 which they could then price into the dollar's price. Additionally, if the US can manage to boost the amount of barrels manufactured without depending on foreign sources, the USD will get stronger. The dollar index has had a great year so far after reaching as high as 8%
Tensions between Russia and Ukraine have not been pleasant for a while either, and this can have a negative impact on NATO and geopolitical agreements.
Outlook on the loonie looks stronger than the USD right now after the latest take on oil's global supply and production. Canada relies on oil demand more than the United States so a less productive US could help out Canada's currency. So, Canada needs the opposite thing to happen that the USD bulls are hoping for: less production in the US and finding supply elsewhere like Tehran and/or Canada.
All three forex picks have something in common: oil production. Whether or not the US decides to up their supply will undoubtedly affect all three markets. But this also doesn't necessarily mean that one will be better than the other in the New Year. In fact, all three seem like strong picks going into 2022. Biden will likely not try to boost production, and if he does, it will probably not be by a substantial amount.
So, I think it's important to consider a market where oil demand grows, Canada's loonie gets stronger from a higher oil price per barrel, and investors begin to price in the USD after the federal fund rate hikes in 2022. All three have the potential to be very bullish especially if treasury yields continue to increase and omicron fears push through into 2022.
To read our other top picks, check out our market analysis tab on the A1 website here.