Will the US dollar continue to rally in 2023?

Asia’s stockmarkets made a wobbly start to the final full trading week of 2022, with the prospect of interest rates rising further next year taking the edge off festive cheer.

The Federal Reserve and European Central Bank hiked rates and promised more last week, and speculation is even building that the Bank of Japan, which meets on Monday and Tuesday, is eying a shift in its ultra-dovish stance in future.

Japan’s Nikkei fell 1% in early trade and the yen, which rose about 0.5% to 136.00 per dollar, was the biggest mover in quiet currency trade. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.4%.

Citing government sources, news agency Kyodo reported on Saturday that Japan is set to tweak its 2% inflation targeting policy, possibly giving the central bank more wiggle room.

“Where there’s smoke, eventually there is fire,” said National Australia Bank strategist Rodrigo Catril in Sydney.

“This sort of news we’re getting plays to this view that the government will open the door for the BOJ to have a more flexible approach,” he said, “and that some of this uber-undervaluation of the yen can be reversed.”

The yen has been the worst-performing G10 currency this year, with a 15% loss against the dollar, driven mainly by the gap between rising U.S. rates and anchored Japanese rates. Japanese government bonds were sold on Monday morning. 

U.S. rates were steady last week, despite the Fed projecting further hikes ahead, as traders fret that interest rates are already high enough to start hurting economic growth.

The S&P 500 dropped 2% last week. It is down 20% for the year and has failed in several attempts at sustainably trading above its 200-day moving average. S&P 500 futures rose 0.2% in early Asia trade.

In Europe, the bond market was caught off guard by an unexpectedly hawkish tone from the ECB.

FEEL-GOOD VIBE AWOL

Softening economic data heading to year-end isn’t offering much help to the mood either, leaving markets wondering where to look for the feel-good vibe that has rallied U.S. stocks in the last two weeks of December 11 times in the last 15 years.

“The Santa rally normally kicks in around mid-December on the back of festive cheer and new year optimism, the investment of any bonuses, low volumes and no capital raisings at this time of year,” said AMP Capital strategist Shane Oliver.

“It has tended to be weaker or less reliable in years when the market is down year to date, though,” he added.

European, Japanese and U.S. business activity shrank in December, surveys showed last week, keeping a bid for the safe-haven dollar and pausing gains for the euro. The euro hit a six-month high of $1.0737 last week, though last bought $1.0598.

Business confidence in China has also hit its lowest the World Economics Survey began collecting data in January 2013 and China’s stockmarkets have struggled to extend a rally unleashed by easing COVID controls. The Hang Seng opened steady.

Hopes for improvements in demand stabilised oil prices on Monday, with Brent crude futures up 1% at $79.93 a barrel, but it has barely gained for the year. Gold was steady at $1,793 an ounce. Bitcoin remained trading below $17,000.

(Editing by Edwina Gibbs)

Article Source： FXEMPIRE

The Federal Reserve’s strategy to hike interest rates may continue, making it difficult for the crypto industry to bounce back. For crypto assets to become the hedge against inflation, the industry needs to explore ways to decouple crypto from traditional markets. Decentralized finance (DeFi) can perhaps offer a way out by breaking away from legacy financial models.

How Federal Reserve policies are affecting crypto

In the 1980s, Paul Volcker, the chairman of the Federal Reserve Board, introduced the interest hiking policy to control inflation. Volcker raised interest rates to over 20%, forcing the economy into a recession by reducing people’s purchasing capacity. The strategy worked, and the Consumer Price Index (CPI) went down from 14.85% to 2.5%. Even now, the Federal Reserve continues to use the same methodology to bring down high inflation rates.

In 2022, core U.S. inflation reached a 40-year high, making the Federal Reserve consistently hike interest rates throughout the year. This has negatively hit the crypto market. Mike McGlone, the Senior Commodity Strategist at Bloomberg Intelligence, explained that the Fed‘s “sledgehammer” has “been pressuring crypto this year.” McGlone believes that the Fed’s policies could lead to a crash that is worse than the 2008 financial crisis.

Market data shows a clear pattern where the Federal Reserve’s interest rate hikes correspond to significant drops in cryptocurrency prices. For example, Bitcoin (BTC) prices declined on May 6 after the Fed’s meeting on May 3 and 4 to increase interest by 0.5%. Similarly, Bitcoin fell to $17,500 after the Fed meeting on June 14 and 15, where they raised interest rates by 0.75%.

The rate hike in June was a significant factor for cryptocurrencies like BTC and Ether (ETH) to fall 70% since their all-time highs. As the price charts demonstrate, the Federal Reserve’s policies have a direct correlation with crypto market volatility. This uncertainty hampers the crypto industry from making a definitive comeback. Since cryptocurrencies are a risky asset class, investors are reducing their exposure to crypto due to rising interest rates and recession fears.

The Federal Reserve implemented another 0.75% hike in interest rates in November. The Fed said it was trying to bring down “inflation at the rate of 2 percent over the long run”. The Fed Committee will continue to hike federal fund rates to 3-4%. It “anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.”

As inflation remains high, there’s no reason to believe that the Federal Reserve will stop hiking interest rates anytime soon. Unfortunately, this isn’t good news for risk assets like cryptocurrencies.

The future trajectory of Fed policies

In all probability, the Federal Reserve will continue with its interest rate hikes in accordance with market data feedback. Bank of America wrote, “The Fed will stress data dependence […] they will get two more NFP and CPI prints before the [December] meeting; if they stay hot, another 75 bps is in the cards, if not, a deceleration to 50 bps is possible.” The strategists added, “The Fed isn’t done hiking until the data says so.”

Echoing the sentiment, Barclays’s credit research team said, “The Fed needs to see inflation turning … before turning meaningfully dovish.” So, there’s a high chance that even if the Federal Reserve reduces the hike percentage, they’ll keep raising interest rates. Depending on inflation figures, the Fed might slow down its liquidity tightening measures from December but won’t stop with its inflation mitigation strategies immediately. Thus, investors need to brace for a long period of crypto market volatility.

The Federal Reserve intends to create a reverse wealth effect so that investors reassess their crypto portfolio. They want to create a precarious market situation by slowing down demand but also be careful to avoid any chaos. Despite the U.S. GDP contracting for two consecutive quarters, the Fed is eager to evaluate and implement painful policies. So, the crypto industry needs to find alternative methods to tackle the Fed challenge.

The current market scenario demonstrates that crypto asset prices are entwined with the equity and stock markets. Investors still consider them to be high-risk assets and get skeptical about investing during high inflation periods. So, it is imperative for the crypto sector to distance itself from other traditional risky asset classes. Fortunately, a U.S. central bank report suggests that risk perception towards crypto is gradually changing.

According to a Federal Reserve Bank of New York report, cryptocurrencies are no longer in the top 10 most cited as potential risks for the U.S. economy. This reveals an important change in the investor mindset, demonstrating that crypto will eventually become a non-risky asset class. But, that won’t happen if crypto continues to follow the legacy financial model. To beat inflation and offset Fed policies, the crypto industry must embrace decentralized finance for a robust future economy.

Bernd Stöckl is the co-founder and chief product officer of Palmswap, a decentralized perpetual contract trading protocol.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Article Source： COINTELEGRAPH

• USD/JPY extends Friday’s losses to challenge two-week uptrend.
• Chatters over BOJ’s rate hike gain momentum as dovish leader Haruhiko Kuroda nears retirement.
• US Dollar’s failure to cheer hawkish Fedspeak adds strength to the pullback moves.
• Risk catalysts, BOJ and the Fed’s preferred inflation gauge eyed for clear directions.

USD/JPY holds lower grounds near the intraday bottom of 135.77 as the Yen buyers keep the reins ahead of this week’s Bank of Japan (BOJ) monetary policy meeting. With this, the quote prints a two-day downtrend as traders anticipate hawkish signals from the Japanese central bank as the utter dove Governor Haruhiko Kuroda nears his retirement looming in April.

During the weekend, Reuters reported that Japan's government is set to revise a decade-old joint statement with the Bank of Japan (BOJ) that commits the central bank to achieve its 2% inflation "at the earliest date possible," Kyodo news agency reported on Saturday, citing government sources.

Following that, BOJ’s former deputy governor Hirohide Yamaguchi said, “Bank of Japan (BOJ) must make its monetary policy framework more flexible and stand ready to raise its long-term interest rate target next year if the economy can withstand overseas risks.”

However, the latest comments from Japan’s Chief Cabinet Secretary Hirokazu Matsuno challenges the USD/JPY bears while pouring cold water on the face of hawkish expectations from the BOJ. “The government hopes to continue working closely with the Bank of Japan (BoJ) to achieve sustained economic growth and price stability, based on the agreement made in the joint statement,” said Japan’s Matsuno.

On the other hand, the US Dollar Index (DXY) prints the first daily loss in three, down 0.20% intraday near 104.55, amid cautious optimism in the market. In doing so, the DXY struggles to justify the recently hawkish comments from Federal Reserve Bank of Cleveland President Loretta Mester and New York Federal Reserve President John Williams. The reason could be linked to Friday’s downbeat prints of the preliminary US PMIs for December, as well as the Fed’s 0.50% rate hike.

Elsewhere, the US Treasury yields portray recession amid hawkish Fedspeak and hence challenge USD/JPY bears amid a sluggish Asian session.

Looking forward, USD/JPY traders should pay attention to the risk catalysts, as well as BOJ-linked chatters in the market ahead of Tuesday’s Monetary Policy Meeting. Even if the Japanese central bank isn’t expected to alter the current monetary policy during this meeting, the hints for future moves could be enough to please the bears.

Technical analysis

A two-week-old rising wedge formation restricts immediate USD/JPY moves between 134.85 and 138.30.

Additional important levels

Article Source： FXSTREET

Bitcoin price declined heavily and traded below $17,000. BTC is consolidating losses and remains at a risk of more losses below the $16,500 support.

• Bitcoin started a fresh decline below the $17,200 and $17,000 support levels.
• The price is trading below $17,000 and the 100 hourly simple moving average.
• There is a key bearish trend line forming with resistance near $16,800 on the hourly chart of the BTC/USD pair (data feed from Kraken).
• The pair could continue to move lower unless it clears the 100 hourly SMA.

Bitcoin Price Tumbles

Bitcoin price restarted a fresh decline from the $18,400 zone resistance zone. BTC gained pace below the $17,500 and $17,200 support levels. The bears even pushed it below the $17,000 level and the 100 hourly simple moving average.

It tested the $16,500 support zone. A low is formed near $16,541 and the price is now consolidating losses. It climbed a few points higher and traded above the $16,700 level.

Bitcoin price is now trading below $17,000 and the 100 hourly simple moving average. On the upside, an immediate resistance is near the $16,800 zone. There is also a key bearish trend line forming with resistance near $16,800 on the hourly chart of the BTC/USD pair.

The first major resistance is near the $17,000 zone and the 100 hourly simple moving average. It is near the 23.6% Fib retracement level of the downward move from the $18,387 swing high to $16,541 swing low.

Source: BTCUSD on TradingView.com

A clear move above the $17,000 resistance might call for a move towards the $17,500 resistance. It is close to the 50% Fib retracement level of the downward move from the $18,387 swing high to $16,541 swing low. The next major resistance is near $17,800, above which the price might gain pace and rise towards the $18,000 level.

More Losses in BTC?

If bitcoin fails to clear the $17,000 resistance, there could be more downsides. An immediate support on the downside is near the $16,600 level.

The next major support is near the $16,500 zone. A downside break below the $16,500 support might call more losses. In the stated case, the price could decline towards the $16,000 support in the near term. Any more losses might send the price towards $15,500.

Technical indicators:

Hourly MACD – The MACD is now losing pace in the bearish zone.

Hourly RSI (Relative Strength Index) – The RSI for BTC/USD is now above the 50 level.

Major Support Levels – $16,600, followed by $16,500.

Major Resistance Levels – $16,800, $17,000 and $17,500.

Article Source： CRYPTONEWS

• NZD/USD prints mild gains to keep Friday’s recovery moves between 50-SMA and 100-SMA.
• Impending bull cross on MACD, sustained bounce off monthly support line keep buyers hopeful.
• 200-SMA, monthly resistance line act as additional trading filters.

NZD/USD grinds higher towards 0.6400, around 0.6385 by the press time, as buyers flirt with the 50-SMA during early Monday.

In doing so, the Kiwi pair defends the previous day’s rebound from the 100-SMA, as well as the recovery moves from an upward-sloping support line from November 17.

Given the impending bull cross on the MACD, as well as the quote’s repeated hesitance in breaking the 100-SMA, NZD/USD is likely to overcome the hurdle of 0.6392 level comprising the 50-SMA.

Following that, the run-up could aim for the 0.6400 and the 0.6500 thresholds before the monthly resistance line, around 0.6535 at the latest, could challenge the bulls.

In a case where NZD/USD manages to keep the reins past 0.6535, June’s top at around 0.6575 and the 0.6600 round figure will be in focus.

Meanwhile, the 100-SMA level surrounding 0.6345 precedes the one-month-long ascending support line, mentioned previously, to restrict the immediate downside near 0.6335.

It’s worth noting, however, that a downside break of the 0.6335 support could quickly drag NZD/USD prices towards the 200-SMA level surrounding 0.6200. However, any further downside appears bumpy.

NZD/USD: Four-hour chart

Trend: Further recovery expected

Additional important levels

Article Source： FXSTREET

The anti-crypto rhetoric has been ramping up in the United States. The latest lawmaker to deride the entire ecosystem is Senate banking chairman Sherrod Brown who suggested a full-out crypto ban.

Brown is an ardent anti-crypto campaigner, just like his Senate colleague Elizabeth Warren. The pair has been actively working to quash the entire crypto sector in the United States.

Sherrod Brown is the chairman of the Senate Banking, Housing, and Urban Affairs Committee. Over the weekend, he told NBC that the Treasury and all federal agencies should join forces to take action against the crypto sector.

He even went as far as suggesting a crypto ban in the country, according to a report by The Hill on Dec. 18:

“Maybe banning it, although banning it is very difficult because it will go offshore and who knows how that will work,”

A Crypto Ban Won’t Work

Waving angry fists at Bitcoin and its brethren will solve nothing, and neither will banning the embryonic asset class. The primary reason FTX split into two entities was that there is no regulatory framework in the U.S.

Traders and investors were forced offshore to an unregulated exchange that ultimately collapsed. Developing a productive framework to ensure there are safeguards for crypto investors should be the main priority. Not bringing down the ban hammer as these bankers and Senators would like.

Brown commented that the cryptocurrency market is a “complicated, unregulated pot of money,” declaring that the issue was much larger than FTX.

Just like Senator Warren, Brown views crypto as a threat to national security. He also believes the entire sector is a swindle designed to scam unwitting participants.

Brown said he had spent much of his eight years as the Senate Banking Chair trying to “educate” his colleagues and:

“trying to educate the public about crypto and the dangers that it presents to our security as a nation and the consumers that get hoodwinked by them.”

Last week, Elizabeth Warren unleashed another of her tirades against the crypto industry. “Rogue nations, oligarchs, and drug lords are using crypto to launder billions, evade sanctions and finance terrorism,” she proclaimed.

Her proposed crypto bill aims to force blockchain architecture, such as nodes and validators to register as “financial institutions.”

Source: Shutterstock

Crypto Markets See Red

Crypto markets are still consolidating and have been largely inactive over the weekend. Total capitalization dipped below $840 billion during Monday morning’s Asian trading session.

As a result, markets are dropping toward their cycle low again, but there has yet to be another panic sell-off.

Article Source： CRYPTONEWS