The U.S. Dollar continues to strengthen this week, while stock indices have started to decline slightly. Rising inflation remains the reason, which is also aggravated by rising gas prices. In response, the US organized a campaign against further increases in energy prices, but everyone understands that this “war” was lost before it began.
- Nvidia +3.15%. Trading up with $100 and X20 multiplier, you could have easily made $63.
- ETH/USD +4.76%. Trading up with $100 and X10 multiplier, you could have easily made $47.60.
- NZD/USD -2.57%. Trading down with $100 and X500 multiplier, you could have easily made $1285.
Over the past week, the U.S. Dollar continued its triumphant climb. EUR/USD, GBP/USD and AUD/USD fell by 1.3%, NZD/USD fell by 2.6%, while USD/JPY gained almost 1% and USD/CHF added 0.85%.
However, we cannot say that the macroeconomic background was very positive for the American national currency. It was rather multidirectional. On Monday, good data was published for the U.S. real estate market, and existing home sales increased, which exceeded expectations and reached 6.34 million.
The GDP data released on Wednesday was rather disappointing. According to preliminary data for the third quarter, the U.S. economy grew by only 2.1%, while economists were expecting a 2.2% growth rate. Despite improvements in the labor market where initial jobless claims rose by only 199,000, new home sales disappointed the market for the month of October and durable goods orders numbers were not particularly strong either.
It is likely that Biden’s decision to keep Jerome Powell as chairman of the Fed influenced the growth of the U.S. dollar. Despite the scandal surrounding Powell’s trading of Vanguard units, and his subordinates E. Rosengren and R. Kaplan being suspected of insider trading, which Powell conveniently turned a blind eye to by simply letting them retire, the market appreciated the fact that it was under Powell that the markets overcame the most difficult period at the beginning of the pandemic.
However, many experts are not as thrilled with the decision to keep Powell in office. The problem is that it is not enough to start the stimulus engine, one must also be able to stop it in time. Now we are observing a steady rise of inflation in the U.S. with lagging GDP growth, and clear signs of stagflation are present. Markets are starting to stake on more aggressive actions on the part of the Fed as a result. The committee is expected to start raising the rate in the first half of 2022.
The market’s risk aversion generates a flow of funds into U.S. dollars. During the week, EUR/USD dropped below 1.1200, but to the relief of the bulls, a small correction started on Thursday. We wouldn’t be too enthusiastic if we were euro buyers. The downtrend has significantly increased and the current attempt for the euro to rise can be regarded as a local correction.
Before moving on to the stock market, we would like to briefly remind you of what happened on the market during the subprime crisis in 2007-2008.
Note that the black line on the chart is the declining Dow Jones index, while the red line representing the U.S. Dollar Index (DXY) was rising. The withdrawal of investors from risks is traditionally accompanied by sell-offs on the stock market and growth of the U.S. currency.
Last week, U.S. stock indices varied, and moved in different directions. The Dow Jones rose by 0.5%, the Nasdaq 100 fell by 1.6%, while the S&P 500 remained practically unchanged. If you pay close attention to the S&P, you’ll notice that Apple, Nvidia, Amazon, Tesla, McDonald’s, and JP Morgan Chase were the favorites on the market this week.
The Entertainment sector was hit pretty hard and Netflix shares lost about 5%. The communication services sector didn’t perform well either with Google shares dropping by 1.3%, and Twitter lost more than 6% in capitalization.
Amazon gained 0.9% over the week. We specifically built a discounted cash flow model for the company’s stock in order to estimate the real value of the company. According to the model we built, the fair value of the company will be about 3.2 trillion dollars in 5 years, with the current capitalization of 1.87 trillion.
This suggests that the company’s shares retain their growth potential in the long term. Therefore, after a general drawdown on the market, it is worth thinking about buying this stock.
The oil market remains under pressure, and the U.S. is creating a coalition of countries to combat OPEC’s production limits. The plan of the United States is to open its reserves and start selling oil with a total volume of up to 50 million barrels. Other countries such as China, India, Japan, the United Kingdom and South Korea are also working with the United States to sell additional oil. According to preliminary data, India is going to add about 5 million barrels to the market, Japan will sell 4 to 5 million barrels, and China will contribute approximately 7 million barrels.
The U.K. also plans to allow its companies to enter the market with a supply of oil from its reserves totaling about 1.5 million barrels. The problem for this coalition of countries is that their efforts amount to just a small drop in the ocean for the market.
Many reputable experts share this opinion. Goldman Sachs stated that such measures will not be productive, and the director of Navigator Principal Investor, K. Shostak said that the U.S. should use at least twice as much volume to affect the price, meaning the market needs to see increased sales of at least 100-150 million barrels.
In addition, such actions also anger OPEC countries. On Tuesday the 23rd, OPEC+ warned that in reply to the U.S. and other countries’ plan, the group will simply not increase production. As a consequence, we expect that this mini-war will not be won by the US coalition. Additionally, the current correction of the oil market should not affect the mid-term bullish trend.
Brent futures continue to trade just above $80. Resistance range for the price is between $85-$90. It might be quite difficult for the bulls to overcome this level, but it is not impossible.
Here is what’s been happening with cryptocurrencies over the past week.
As you can see, Ethereum was again the growth leader and added about 4.76%. JP Morgan Chase added to the positivity by stating that Ethereum could be even more attractive to investors than Bitcoin. However, the main reason for Ethereum’s rise is the London update, which leads to coin burning and a reduction in supply on the market as a consequence.
From a technical point of view, the coin is in a rising price channel with a resistance level around 4800-5000.
The U.S. dollar continues to strengthen and the stock market is starting to stagnate. Traders are relying on more aggressive actions from the FOMC and expect the Open Market Committee to raise rates as early as the first half of 2022.
Meanwhile, the U.S. is taking active steps in an attempt to “bring down” oil prices, but so far it is all a drop in the ocean as the experts are quick to point out.
The London Protocol has led to a decrease in supply for Ethereum, causing the price of the coin to grow. JP Morgan added optimism by stating that the coin is even more attractive than Bitcoin.