Energy prices keep growing. While markets are generally in the risk-off mood, stock and cryptocurrency sectors can move downwards if the same level of risk remains.
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Amazon ↓ -19.50%
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GBP/USD ↓ -1.75%
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USD/CHF ↑ 1.09%
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Central Bank Rate Hikes
Last week, central banks and interest rate hikes were in focus. Geopolitical tensions around the conflict between Russia and Ukraine remain. Energy prices are rising, and so are the prices of many other goods due to supply disruptions.
The US Federal Reserve, or FOMC, has raised the key interest rate by 50 basis points to 1%. The Reserve Bank of Australia, RBA, raised the key rate by an unexpected 25 basis points above the 15% forecast. The Reserve Bank of India, or RBI, raised its rate by 40 basis points to 4.4%, the first rate hike of such scale in India in two years. The Bank of England, or BoE, also hiked the rate by 25 basis points, aligning it with the US rate of 1%.
On the one hand, central banks are now raising the interest rates worldwide to halt inflation sparked by the turmoil. On the other hand, they fear a recession.
Currently, many economic output indicators are slowing down because of the Russia-Ukraine conflict-related tensions, sanctions, and supply disruptions. These are the primary factors that drive global inflation upwards. Therefore, trying to halt it by quickly and dramatically hiking the rates, as if inflation growth was caused by the usual economic expansion, may be a questionable method with uncertain consequences.
USD/JPY Is Still in an Uptrend
JPY is getting significantly weaker against the USD.
USD/JPY has already been rising for nine weeks in a row. Currently, the pair is trading above the resistance level of the year 2015. The level of 135.000, which may soon become the actual resistance level for the pair’s movement, was last approached in 2002.
Despite a strong divergence formed by the price and the RSI indicator, the pair keeps following an uptrend. Local support is at the level of 129.000. Taking into account the rhetoric of the central bank of Japan and the probable continuation of the USD’s strengthening, we believe the resistance level of 130.800 will soon be broken.
Stock Market May Soon Face Troubles
The US Federal Reserve's key rate hike managed to support the market only for one day. After that, the downward movement continued. According to last week's results, almost all sectors are currently in the red zone, except the energy sector. Hydrocarbon prices keep growing in the background of sanctions against Russia, and this trend may stay in the future. Continued concerns about new Covid outbreaks in China and the poor performance of the market leaders support this momentum.
Amazon Drops on Poor Report
For the company, this is its first quarterly loss since 2015. The recently released financial results of Amazon failed to meet the market expectations and made the stock plunge. The revenue in Q1 was $116.44 billion. The operating income fell 41% from last year’s $8.9 billion down to $3.7 billion. The net loss was $3.84 billion, compared with a profit of $8.1 billion in 2021.
The primary reason for Amazon's weak results is a $7.6 billion loss from its equity investment in EV-producer Rivian, whose value almost halved during the quarter. In Q2, Amazon expects revenue of $116 billion to $121 billion against the analysts’ consensus of $125.5 billion.
Amazon introduced an additional 5% fee for the US sellers and raised the cost of US Prime membership from $119 to $139, but that was not enough to deal with the losses, and its shares keep declining. In the week following the released reports, we can expect the support level to be in the area of $2,126-$2,256 per share and an attempted return to the resistance level of $2,415.
The Market is not yet Convinced that Musk Bought Twitter
Previously, Elon Musk said that he was going to buy Twitter. According to the company's announcement, the company's shareholders would receive $54.20 for each common share they own after the deal. However, the price only briefly touched this value and currently keeps trading in an ascending triangle, forming a pennant pattern. If the level of $52.22 is breached, we can expect the upward movement to continue and overcome Musk's purchase price. The fact that it hasn’t happened so far means that the market does not yet fully believe that the deal will be finalized.
Still, the deal may well go through. To finance a $44 billion deal, Musk has opened a $13-billion credit line, raised $12.5 billion in Tesla stock-secured loans, and has committed another $21 billion from his personal funds.
Last week, Musk announced new financial commitments of about $7.1 billion. The lenders will be billionaire Larry Ellison, a Saudi prince, Sequoia Capital, and even the cryptocurrency exchange Binance. Being collectively provided a loan for this deal increases its chances of success and reduces Musk's personal risks. However, it will finally become clear whether it takes place when the chart passes $54.20.
In the meantime, Elon Musk is still the head of SpaceX and Tesla, with as many challenges as those enterprises pose to their leader. Therefore, even if the Twitter deal takes place, there is a limit to anyone’s multitasking abilities, including those of Musk.
EU Restrictions are Driving Hydrocarbon Markets Up
New sanctions are pushing the Brent price higher. The European Union plans to introduce the sixth package of restrictive measures against Russia. Among them, there will be a likely ban on Russian oil until the end of the year. It will most probably intend to gradually restrict its imports and services on the Russian oil cargoes, such as resale, transportation, and insurance.
From the technical analysis point of view, the price of Brent crude oil will likely keep growing. Overall, the asset is in a global uptrend, and last week, it broke the corrective downtrend line. The nearest strong resistance can be expected at the level of the previous local maximum at $118 per barrel. The support level is $102.5.
The Aroon indicator confirms the upside indication with the Up and Down lines crossed, and the Down line starting to cross the 30 level upside-down. When the Up line crosses the 70 level and the Down line comes to 0, the indication will become re-confirmed.
Interest Rate Decision Drags the Gold Price Downwards
USD is now the main driver of the gold movement. Last week, the US regulator unanimously decided to raise its key interest rate by 0.5% to 1.0%. Such a sharp increase has not been seen in the last 22 years. Moreover, judging by the rhetoric, the Fed considers it reasonable to raise rates further, most likely by another 0.5% at one of the next meetings.
Also, the Fed plans to reduce the total value of government bonds and mortgage bonds in the central bank reserve by $3 trillion. Every month they will be reduced by $30 billion and $17.5 billion respectively in the summer and $60 billion and $30 billion further.
By doing so, the Fed primarily plans to fight inflation, which has reached its highest level in 40 years. Specifically, the regulator is trying to prevent the economy from overheating by trying to boost consumer activity. In turn, this process will likely continue to put pressure on gold prices in the medium term. However, if the US consumer inflation keeps rising during the current quarter, that could strengthen gold as a safe haven asset.
Most last week, the gold price has been declining. It broke through the 50% Fibonacci level at $1,880 and continued to go down after the retest on a stronger USD. Often, the crossing of the 50% level is a sign of trend reversal, but in this case, the global trendline will be a stronger technical analysis tool. If the price breaks through that level and the 38.2% Fibonacci level at 1,835$, the bulls will have serious problems.
Almost all indicators tell that the decline will continue, with the exception of the Rate of Change. It fell below the level of -4. As seen from the nearest historical data, it was exactly at this level where the reversal or flat, which then leads to an upward movement, began.
Therefore, we believe that the price will reach $1,835, and after that it will likely correct upwards.
Cryptomarket is at a Critical Point
Mass adoption is a decade away. Cryptocurrencies are now used by about 200 million people. Coinbase CEO, Brian Armstrong, is confident that over the next ten years, the number of users will increase to 1 billion. In 10-20 years, he expects to see a significant portion of global GDP take place in the crypto economy.
Previously, Bitstamp conducted a study that surveyed more than 5,500 institutional and 23,000 retail investors from around the world. As per the findings, 79.6% of retail investors and 72.6% of institutional investors believe in the widespread adoption of cryptocurrencies in the same time frame.
In the meantime, currently, the market is at a tipping point. The Bitcoin Fear and Greed index went to the Fear zone last week with a reading of 23. The global market capitalization of cryptocurrencies is $1.78T, down from 1.81T last week. Retail traders are in a state of uncertainty, and BTC's dominance is gradually increasing.
Bitcoin is at the bottom of the global price channel. On the Bitcoins’ Monthly time frame chart, a flag pattern and an upward price channel since early 2021 are visible. If the lower boundary of this channel is broken, the consequences for Bitcoin and the whole market will be devastating. The key levels will be crossed by 7-period and the 20-period SMA’s, which has previously resulted in multi-month downtrends.
Here are some factors that suggest that the potential target area of Bitcoin’s decline may be in the range of $20,000-22,000:
- 50-SMA, which has been acting as dynamic support for a long time, is in this area.
- During the 2017 rally, BTC came close to $20,000.
- According to MicroStrategy's strategy, they are taking out hundreds of millions of dollars in additional loans against their Bitcoins with 50% collateral at approximately $44,000. That means they will likely start selling BTC to pay off the lenders if the price drops to $22,000. While it turns out that Michael Sailor doesn’t believe that Bitcoin will fall below that level, they will aggressively sell off their 129,218 Bitcoins if it does. After that, the price may drop further exponentially.
On the other hand, If Bitcoin can still show growth, the potential target of its upward movement will be $60,000+, which is the upper border of the channel. To make this scenario a possibility, the stock market, with which the cryptocurrency market has been closely correlated lately, has to start growing.
Risk warning: The content of the article does not constitute investment advice and you are solely responsible for your trading activity and/or trading results.
While inflation generally means rising prices of goods and services, it is not bad but a common phenomenon in a healthy, expanding, and thriving economy.
Recession usually refers to a general decline in economic activity.