Thread: ForexMart's Forex News

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October 24. The yuan fell to the minimum of the global financial crisis of 2008

On Friday, the Chinese yuan paired with the US dollar collapsed to its lowest level since the global financial crisis of 2008 – the level of 7.2515, despite attempts by state-owned banks to stabilize the market. As you know, the country's state banks sold the dollar on the continental foreign exchange market to prevent a further fall in the yuan.

At the end of the week, the USD/CNY pair strengthened by 0.78%, as the growing dollar continues to push down the currencies of developing countries. In total, the currency pair has grown by 12.3% since the beginning of the year.

Analysts note that the decline of the yuan may continue against the background of the general strengthening of the US currency. Pressure on the yuan is also exerted by a significant difference between the monetary policies of the central banks of both countries: the United States shows no signs of abandoning tough rhetoric regarding rates, while the Chinese authorities are trying to support their economy with the help of soft monetary policy.

It is also worth noting that in an attempt to maintain the stability of its currency during the Communist Party Congress, the Chinese authorities continue to set a higher than expected average yuan exchange rate. Since the opening of the market, the People's Bank of China has set the average dollar-yuan exchange rate at 7.1186 against 7.1188 on Thursday.

Analysts clarify that the high fixing, relative to which the yuan can deviate by no more than 2% up or down, limits the potential for a decline in the Chinese currency. At the average rate on Friday, the range of fluctuations of the USD/CNY pair is 6.9762–7.2610, and today it has already come close to the upper limit of this range.

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Crypto market scores gains. Experts foresee bullish rally​​​​​​​

Early on Wednesday, digital gold edged higher. At the moment of writing, BTC is seen hovering at $20,627.

Early on Wednesday, digital gold edged higher. At the moment of writing, BTC is seen hovering at $20,627.

According to CoinMarketCap, a website tracking the price of digital assets, bitcoin hovered between $20,348 and $19,261 yesterday. Overall, the coin added 5% on Tuesday.

This month, the flagship cryptocurrency used to consolidate in the $18,500–$20,300 range. However, in recent days experts noticed the potential formation of double support in the crypto market. Should bitcoin break through the mark of $20,300 and extend growth, along with noticeable trading volumes, this would be a clear bullish signal for BTC, analysts suggest.

Altcoin market

Ethereum, bitcoin's main rival, went up earlier today as well. At the moment of writing, ETH is seen trading at $1,485.

As for the top 10 cryptocurrencies by market capitalization, all coins, except for XPR, traded in the green zone yesterday, with ether leading the way (+10.66%).

Last week, ETH was also the best performer among the 10 cryptocurrencies by market capitalization, gaining 13.65%. Meanwhile, XRP, which lost 0.42%, was the list's worst performer.

This week, all the top 10 cryptocurrencies by market capitalization are scoring gains. At the same time, the former bearish resistance turned into important support for them. In light of those facts, many analysts forecast a bullish rally for popular coins in the crypto market in the next four months.

According to the world's largest virtual asset data aggregator, CoinGecko, over the past 24 hours, Aptos showed the worst performance, losing 4.98%, while the Toncoin coin showed the best results, gaining 23.10%, among the top 100 digital assets by market capitalization.

Last week, Axie Infinity (-16.19%) was the worst performer among the top 100 strongest digital assets, while Toncoin (+43.98%) showed the best performance.

Based on the CoinGecko data, the total crypto market capitalization exceeded $1 trillion on Wednesday morning. Yesterday, it grew by about 5%.

Since last November, when the daily crypto market capitalization was above $3 trillion a day ($3.08 trillion), it has more than tripled.

At the same time, the total trading volume of virtual coins over the past 24 hours reached $77.3 billion, with BTC (38.1%) and ETH (17.6%) seen as the main contributors.

De-dollarization or de-eurozation? Analysts consider both scenarios possible

Analysts have been discussing the possible ditch of the US dollar in foreign settlements for a long time. However, now, they do not exclude a similar scenario for the euro. Analysts are mulling over what could lead to such outcomes. They fear that in the near future the European currency will face the same challenges as the Us dollar. Currently, many countries are trying to replace the US dollar in mutual settlements.

Analysts pinpoint that the euro has more disadvantages than advantages. Settlements in the euro and its support are getting more expensive. According to the Eurobarometer, the euro is popular with 60% of the population. However, now many EU citizens are skeptical about the future of the euro. Some economists reckon that some EU states may leave the eurozone and ditch the euro.

Earlier, economists suggested a possible replacement of the US currency by many countries. However, the euro is now facing such a risk as well. De-eurozation looks quite feasible. However, the situation in the global financial market is unlikely to change in the near future, economists believe.

Currently, the authorities of many countries are trying to diversify their foreign exchange reserves to reduce dependence on the greenback. However, a sharp decline in the dollar share of international reserves looks unlikely as roughly 40% of the world's transactions are done in dollars.

The use of national currencies in international settlements spurs their demand and reduces dependence on the Fed's monetary policy. At the same time, the current geopolitical turmoil is fueling a rally of the US dollar as many countries prefer to keep the US currency in their reserves.

At the start of the week, the euro was trading almost at the same levels. On October 31, the EUR/USD pair was fluctuating near 0.9952, slightly below the previous pivot level of 0.9963.

Investors are now awaiting the release of the euro area's important macroeconomic report, namely GDP for the third quarter of 2022. According to preliminary estimates, from July to September, the economy declined slightly to 2.1%. In the second quarter of 2022, this figure totaled 4.1%.

The greenback has been rising for some time thanks to the Fed's hawkish stance. On November 2, the Bank of England and the Fed will hold their meetings. The Fed is widely expected to raise the key rate by 75 basis points to the range of 3.75-4%.

The Fed's key rate decision may significantly impact market sentiment. Some analysts believe that the regulator could switch to less aggressive tightening despite a 75 basis point rate hike. However, other analysts are certain that the regulator will hike the rate by 75 basis points at the next meeting scheduled for December 14.

At the February meeting in 2023, the watchdog is expected to increase the key rate by 25 basis points to 4.50-4.75%. Analysts suppose that three will be more 25 basis point rate increases next year. Such a scenario is bearish for the US dollar. The euro is also unable to regain long-term rise. Thus, it is recommended to buy the EUR/USD pair with a long-term target level above 1.0500.

Many economists are afraid that sentiment will become more bearish on the US currency. Last week, large traders initiated a sell-off of the greenback. As a result, the number of short positions during the week increased by 21%. If there are no positive fundamental favors, the greenback may drop lower.

Nevertheless, the US dollar remains the most popular currency, with close to 90% of all currency trades having the dollar as one leg of the transaction. It has been rallying for some time amid the Fed's aggressive tightening. In the last few months, the US dollar has reached multi-year highs against the euro, the pound sterling, the yen, and the yuan. It also took advantage of a recession in the eurozone as investors got rid of the euro in favor of the US dollar.

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November FOMC meeting: what to expect and how to act

Today, what many are expecting will not happen: it is unlikely that the Federal Reserve will announce a change in the future course of its policy, so it is possible that we may repeat the summer scenario, when everyone was about to expect one thing from the FOMC, but everything turned out completely otherwise. Let's figure out what to expect and how best to act today.

Most likely, the US central bank will hold a fourth super-scale interest rate hike, and Fed Chairman Jerome Powell will repeat his pledges to fight inflation. But whether it will open the door for a possible rate cut in the future is a big question. The Federal Open Market Committee is expected to raise rates by 75 basis points on Wednesday, to a range of 3.75% to 4%, the highest level since 2008. By doing so, the central bank will continue its most aggressive tightening campaign since the 1980s.

During his press conference, Powell may emphasize that the Fed remains steadfast in the idea of fighting inflation, leaving open options for further aggressive rate hikes at a meeting in mid-December this year. However, the markets are already divided into two camps: some expect another rate hike of 0.75%, while others believe that the Fed will slow down and raise them by only 50 basis points.

As I noted above, Powell's July speech was misinterpreted by investors as a short-term policy reversal, in response to which the markets rallied, which softened financial conditions and reflected on bond yields. This made it more difficult for the Fed to contain prices, which forced Powell to return to a tough tone of statements again. With the latest CPI data coming out, the Fed needs to continue to maintain tight financial conditions to keep the economy cool, only to help stop price increases in the near future.

Another important point is that the expected move from the Fed today will take place less than a week before the midterm elections in the United States, where the main accusations from Republicans are based precisely on high inflation, which was allowed by the Democratic Party and US President Joe Biden. Last week, two Democratic senators urged Powell not to cause unnecessary pain to the economy by raising rates too high.

As for the statements made today after the meeting, the dollar's succeeding direction will depend on them. If promises of a "further increase" in interest rates persist, the US dollar will strengthen its position against the euro and the British pound, as well as other risky assets. If the promises are "slightly changed", for example, in order to show that the Fed is getting closer to the economy, then this may have a positive impact on stock markets and risky assets, which will pull up the euro and the British pound.

Most likely, the Fed will recall its plans to reduce its huge balance sheet. Economists predict that the balance will reach $8.5 trillion by the end of the year before dropping to $6.7 trillion in December 2024.

As for the technical picture of EURUSD, the bears actively counterattacked, which led to a new wave of decline. For growth, it is necessary to return the pair above 0.9900 and 0.9950, which will spur the trading instrument to growth towards 1.0000 and 1.0040. However, the upward prospects will depend entirely on the further reaction of buyers of risky assets to the Fed meeting. The breakthrough of parity has taken place, which, for now, allows us to keep the market at the mercy of the bears. An exit below 0.9850 will increase the pressure on the trading instrument and push the euro to a low of 0.9820, which will only aggravate the position of buyers of risky assets in the market. Having missed 0.9820, it will be possible to wait for new lows around 0.9780 and 0.9750.

As for the technical picture of the GBPUSD, although the pound is being corrected, it has already reached quite important levels. Now the bulls are focused on defending the support at 1.1500 and breaking through the resistance at 1.1550, limiting the pair's growth potential. Only a break of 1.1550 will return prospects for recovery to the area of 1.1610 and 1.1690, after which it will be possible to speak of a sharper upward spurt of the pound, to the area of 1.1730 and 1.1780. We can talk about the trading instrument being under pressure after the bears take control of 1.1500. This will deal a blow to the bulls' positions and completely cancel out the short-term prospects of the bull market. A break of 1.1500 will push the GBPUSD back towards 1.1440 and 1.1345.

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Bullish sentiment in gold is growing​​​​​​​

Gold's bounce off a two-year low, followed by a nearly 3% gain on Friday, is creating solid bullish momentum among Wall Street analysts; however, some also point out that the precious metal still has some work to do to reverse the months-long downward trend.

The latest survey shows that market sentiment continues to improve and most market analysts expect prices to rise in the near future. Retail investors are also looking positively.

Bullish sentiment has been on the rise all week after gold prices ended October with their seventh straight monthly drop, the longest losing streak in 50 years.

Rising bond yields and the US dollar, which is at its highest level in 20 years, remain critical headwinds for gold; however, some analysts note that growing fears of a recession are driving demand for gold as a safe-haven asset.

Ole Hansen, head of commodity strategy at Saxo Bank, said the US recession would force the Federal Reserve to end its tightening cycle before it reaches its 2% inflation target. He added that a stagflationary environment of low economic growth and high inflation would be bullish for gold.

However, in anticipation that gold prices will have enough momentum to rise, a return to $1,680 will simply return the market to neutral territory.

Christopher Vecchio, senior market analyst at DailyFX.com, said he is neutral on gold as he would also like to see an initial push above $1,680 leading to $1,730.

Last week, 20 market professionals took part in the Wall Street survey. Ten analysts, or 50%, said they are optimistic this week. Two analysts, or 10%, said they were bearish. Eight analysts, or 40%, said they were neutral about the precious metal.

As for retail, 520 respondents took part in online surveys. A total of 240 voters, or 46%, called for an increase in the price of gold. Another 169, or 33%, predicted a fall in prices. While the remaining 111 voters, or 21%, were in favor of a side market.

Friday's rally helped gold prices end the week positively.

Problems in the labor market adds to the recession fears. On Friday, the Bureau of Labor Statistics said 261,000 jobs were created in October, exceeding all expectations. However, some analysts believe that if you delve into the essence, you can see a growing weakness.

Along with rising bullish fundamentals for gold, many analysts note that the technical outlook has turned positive as well.

"Gold had been building a technical base above $1,620 support and appears to be starting to launch up off of there," said Colin Cheshinsky, chief market strategist at SIA Wealth Management.

He added that bond yields remain well above 4%, which would be a deterrent for gold. And the Fed continues to raise interest rates, and in these conditions, gold's rally may turn towards sales.

November 10. Amazon's market value has fallen below $1 trillion

Amazon became the first public company to lose $1 trillion in market value. On Wednesday, the company's shares fell 4.3% to $86.14, bringing its market value now to $879 billion. For comparison, back in July 2021, it was almost $1.9 trillion.

Analysts note that such a decline is almost equivalent to the loss of the market value of Google's parent company Alphabet, which now stands at about $1.13 trillion.

In 2022, Amazon shares lost about 48% of their value. The company's market value fell below the $1 trillion mark on November 1, a few days after the publication of the third quarter report and the forecast of the slowest growth in the fourth quarter in history.

Experts note that not only Amazon has suffered losses: due to rising inflation and other macroeconomic shocks, 5 other leading American technology companies have lost almost $4 trillion of their market value this year. The reason for this, analysts call the impoverishment of people's budgets, still high inflation and rising energy costs.