Weekly Market Analysis — Sep 6: Has the Euro gone too high?
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HIghlights:
- BTC defends 10k as it falls lowest since July.
- ETH jumped to 2-year highs, but fell to 300.00 area.
- Dollar reclaimed its crown, now on offensive; More gains?
- Euro’s turn to get pressure as ECB tries to push it down.
- Stocks experience massive sell-off; Apple, NVIDIA and Tesla down.
- Australian business confidence to be tested after experiencing its largest quarterly contraction on record.
- Potential rise in COVID-19 cases in US post Labor Day?
- Chef Nomi swapped his SUSHI holdings for $10 million worth of ETH.
The Week Ahead: Has the Euro gone too high? The ECB has the answer.
Last week, we asked ourselves about traders’ confidence in the USD rebound. The market was doubtful about the dollar’s ability to stop its losses, but it all changed by the second half of the period.
The week started with good economic indicators in the United States, then the sentiment that the United States was in a not-that-bad economic shape started to grow. The US employment report on Friday finally confirmed the idea.
The result? The USD now looks in a better position than its major competitors. The Euro is now under pressure after the European Central Bank (ECB) complained about the EUR’s high price and France’s announcement of its 100 billion Euro recovery plan.
Forex: Is the euro ready to fall?
The EUR/USD peaked at 1.2000 last week and it seems it was the trigger for officials in the ECB to say enough. Within this framework, the market will focus on the ECB’s monetary policy decision on Thursday. Traders will watch the ECB statement as well as President of the ECB, Christine Lagarde’s press conference for hints about euro price action. Keep an eye on the 1.1700 as crucial support.
On the other hand, the dollar is reclaiming its crown, and it will be trading on the offensive for a few days. It is still early to say that the falling days in USD are over, but an extension of the rebound at 91.75 is expected. 94.00 is the level to beat.
AUD/USD will watch the China Trade Balance as the country is one of Australia’s most important trading partners. The Trade Balance measures the difference in value of imported and exported goods and services over the reported period. A positive number indicates that more goods and services were exported than imported.
Also, watch for 0.7200 and then 0.7100. USD/JPY expected to extend gains after the effect of Shinzo Abe’s resignation receded.
Stocks: Time for a correction? Not so fast
Wall Street experienced a volatile week, including a sell-off in tech companies on Thursday. Among the bigger losers were Apple, Nvidia, and especially Tesla.
The technology sector was the most affected as it was also the biggest gainer in the stock recovery from March lows. On the other hand, traditional sectors keep levels decently with banks such as JPMorgan, Bank of America, and Citigroup posted solid gains on Friday. Cruise operators and airlines also rallied in the week. The reason? People are betting that we will be returning to the old normal.
The S&P 500, Dow Jones and the Nasdaq Composite, the three major indexes in the United States, posted weekly losses, but NASDAQ was the worst performer.
Australia’s ASX 200 index also performed down while the Nikkei in Japan sustained levels. The catalyst for the moves was the good performance in global economies. After the economic data in the United States, traders are assuming perhaps more stimulus packages are unnecessary so possibly no more pumped money going to the stock markets. Watch out for ECB comments and US inflation.
Commodities: Gold defends its support; Silver with mixed sentiments
Other casualties for the US dollar’s recovery were gold and silver. Both metals posted drops in the last weeks; however, they keep critical levels intact. Overall, markets still have confidence in the bullish case in XAU/USD, and they expect the 2,000 to be broken soon.
Gold traders will pay attention to Australia’s business confidence data on Tuesday. Also, the inflation in the United States as it can influence the US Treasury yields. Lower inflation will push yields and the dollar down. That means XAU/USD and XAG/USD up.
Cryptocurrencies: Ethereum under pressure; Bitcoin defends the 10,000 level
The crypto market started a correction last week, with major coins falling across the market. An explanation can be the USD strength as a higher price in the Greenback would push crypto prices down. Also, traders consider that no more economic stimulus with almost free money would impact the demand of altcoins.
Ethereum had been trading at highs since July 2018 at 488.95, but fell to the 310.00 area where it looks to have found support. It is now attempting to recover ground. Same story for Litecoin and Ripple that dropped to their lowest lows since July.
The DeFi market was under extra pressure this past week due to the SushiSwap drama. Chef Nomi, the anonymous founder, sold a significant amount of sushi tokens — 2.5 million SUSHI from the decentralized exchange for 18,000 ETH — worth approximately $6 million dollars. He also removed 20,000 ETH, worth another $7 million, from the same liquidity pool.
The move took the market by surprise, as the community rallied to figure out if it was an exit scam.
Sushi has now been handed over to FTX, where Sam Bankman-Fried issupposedly taking the lead. During this period, SUSHIUSD collapsed from 12.00 to just 1.00 and is now teetering above 3.00.
Finally, Bitcoin was sold too, but it managed to hold the 10,000 level for the whole week. Any break below that level would trigger stop losses, and the drop would be deeper.
In summary: The ECB and the return of a strong dollar
The week ahead, the market will focus on central bank meetings and monetary policy decisions. Also, keep in mind that in the United States, Labor Day will keep American traders out of the charts, and epidemiologists worried about a hike in COVID-19 cases.
The USD looks in better shape than the euro. Nothing really changed, but the perception of the US economy and what the ECB can do on Thursday. Take a look at the most critical events in the next week.
- Monday: China will publish its trade balance for August. It will provide a thermometer for the global economy in COVID-19 times. An increase in exports will create optimism, which is good for riskier assets.
- Tuesday: Japan and the eurozone will release its gross domestic product for the Q2. Keep in mind that any bad number will fuel USD purchases.
- Wednesday: Market will know August’s inflation in China. The Bank of Canada will decide its monetary policy. It would affect the value of CAD and also can influence oil prices.
- On Thursday, the ECB will decide its monetary policy and Christine Lagarde will hold her traditional press conference. It is the event of the week, especially after ECB officials have complained against the recent rally in the EUR/USD.
- On Friday, the United States will publish its CPI for August. It will be tricky as it is the first inflation report after the Federal Reserve’s decision to change the way they control inflation.
Our weekly market analysis is a community contribution and is provided for information and educational purposes only. This content should not be considered a recommendation of investment or trading advice and past performance is not indicative of future outcomes. Know the risks involved when trading.
