Bitcoin rallied a bit Monday, but pales in comparison to the massive selling that we had seen previously. Because of this, I think it is only somewhat positive, and we more likely than not will have plenty of headwinds above that continue to work against the value of the market. If that’s going to be the case, then I am more than willing to fade rallies as they occur.

In the short term, the $23,000 level looks to be a significant barrier, one that the market has no real momentum to break above. Even if it did, I suspect that there is a major ceiling near the $28,000 level that extends to the $32,000 level. While Bitcoin itself is still the “gold standard” when it comes to crypto, the reality is that it is just as sensitive to Federal Reserve monetary policy as gold. For the longest time, the argument was that Bitcoin was going to be a “hedge against inflation.” That has certainly shown itself to not be true.

You can’t call it a store of wealth either, because quite frankly anything like that can’t lose half of its value every time something bad happens. This is not to say that the market will go higher over the longer term, because I do believe that it will. It’s just that you need to understand that you are speculating in a highly volatile asset class, and you need to understand the inherent risks in doing so.

If and when we break down below the $18,000 level, and I do believe that’s more of a “when” than “if” type of statement, we should go looking toward the $16,000 level, and eventually the $12,000 level. There are so many people waiting for the $12,000 level to be tested, I suspect that there will be a lot of inflow into this market when that happens. It’s also worth noting that the $12,000 level was crucial before, so I do anticipate that a lot of “market memory” will occur there, causing previous resistance to be support. Because of this, I think you have plenty of time to accumulate a position, but if you choose to do so quietly and slowly, that’s also a possibility here. Either way, I am not expecting Bitcoin or any crypto for that matter to break out to the upside anytime soon.

At this point, it’s probably more or less going to be a “fade the rallies” type of situation, but a big breakdown is probably going to take some time.

The British pound fell a bit on Wednesday as we continue to see the US dollar act like a wrecking ball against almost everything. Because of this, the market is more likely than not going to continue to remain very soft, thereby allowing sellers to come back into this market every time we rally. The 1.22 level is an area that should offer quite a bit of short-term resistance, as it was short-term support until Wednesday.

If we break down below the bottom of the candlestick, then it’s likely that we will continue to drop. The 1.20 level will be targeted at that point, and it’s likely that we could see a breakdown below that level as well. If we do break below the 1.20 level, then it’s likely that this market will target the 1.18 level, and then possibly even 1.16. I don’t think that’s going to be easy, but clearly, there is much more interest in owning the US dollar than there is in the British pound. The Federal Reserve continues the tight monetary policy, and it makes quite a bit of sense that we will continue to see a lot of interest in owning the greenback as the safety currency also.

The 1.24 level above is significant resistance, especially with the 50-day EMA approaching it, as we have been dropping rather significantly. Market breaking above the 50-day EMA opens up the possibility of a move to the 1.26 level, but I don’t see that happening anytime soon. It’s not that we break above the 1.26 level that I would worry about the upside. Ultimately, the 1.30 level could be the target in that scenario, but if we were to finally break above that as well, then it becomes a complete switch of the trend. That being said, it would take a lot to make that happen, and I just don’t see things changing that rapidly. That being said, pay attention to the bond market in the United States, because if we continue to see yields rise, that will continue to put downward pressure on this pair. I do think at this point, it’s probably more or less going to be a “fade the rallies” type of situation, but a big breakdown is probably going to take some time.

Gold futures posted modest gains yesterday due to weaker US dollar and lower Treasury yields. The price of the yellow metal has been struggling over the past three months due to the Fed’s tightening efforts, which drove up bond yields and strengthened the US currency. Analysts warn that the outlook for gold is bleak, so prices may not be able to touch $2,000 again. The price of gold moved towards the level of 1855 dollars an ounce after it fell to the support level of 1837 countries an ounce in the same trading session.

Gold prices are up 0.7% over the past week and are still up about 1% YTD 2022. In the same way, the price of silver, the sister commodity to gold, is trying to stay above the $22 level once again. Silver futures jumped to $22.195 an ounce. Accordingly, the price of the white metal is looking to recoup more of its losses as silver prices are now down by about 5%.

While gold hasn’t been able to shine as many thought in an inflationary environment, the precious metal has outperformed major benchmarks this year. Commenting on the performance, a team led by Michael Aaron, chief investment analyst at State Street Global Advisors wrote in their mid-year forecast, “From the beginning of 2022 to date, gold has outperformed the S&P 500, by 0.61% by 14.17%, showing its ability to Protection from declines in the stock market.

With financial markets approaching the second half of 2022, market analysts believe that investors can choose to add gold to their portfolios for an element of diversification.

The metals market found support from a weak dollar, with the US Dollar Index (DXY) sliding to 102.36, from the opening of 102.44. The index measures the performance of the US dollar against a basket of currencies. A weaker dollar is good for dollar-priced commodities because it makes them cheaper to buy for foreign investors. Another factor affecting the gold market. US Treasury yields were red across the board, with the 10-year yield falling 7.7 basis points to 2.961%. One-year yields rose one basis point to 2.206%, while 30-year yields fell 7.7 basis points to 3.114%.

Gold is generally sensitive in an appreciation environment because it raises the opportunity cost of holding non-yielding bullion.

In other metals markets, copper futures rose to $4.4385 a pound. Platinum futures fell to $1014.70 an ounce. And futures contracts for palladium fell to 1963.50 dollars an ounce.

According to gold technical analysis: The gold market may remain on hold until the announcement of the European Central Bank policy update and US inflation figures, factors that strongly affect investor and market sentiment. On the daily chart, the price of gold is still moving in its last range, and it will be the closest to new buying levels if it moves towards the support levels of 1828 and 1815 dollars, respectively. On the other hand, the bulls will need to breach the resistance levels of 1875 and 1888 dollars, respectively, to confirm the strong and continuous control over the direction of gold. I still prefer buying gold from every bearish level.

The euro initially tried to rally on Monday but pulled back a bit from the highs. In fact, by pulling back the way we have, the market is forming a shooting star. The shooting star is a negative sign, and it suggests that the downtrend is still very much intact. This is not a huge surprise, as the 50-day EMA is sitting right here, and it does have a history of being followed.

The 1.08 level above is a significant level on the charts, as it had been rather important support previously. Because of this, one would think that selling pressure should show up there, and we may have gotten as close as we are able to in the short term. If we break down below the lows of the Wednesday session, then it opens up fresh selling, perhaps for the euro to drop to the 1.06 level, possibly even down to the 1.04 level over the longer term.

That being said, keep in mind that the euro does tend to be very sluggish and choppy, so you are going to need to be very patient with your position. This does not mean that we cannot pick up momentum, just that typically this pair doesn’t move very fast. It iss likely that we will see more of a grind lower to our target prices. Given enough time, it’s very possible that the euro could go down to the parity level. That’s not something that happens overnight, but it does seem to be a reality at this point in time.

Alternatively, if we turn around and break above the 1.09 level, that might be enough to make this market continue to go higher. In that scenario, we could see the euro recover all the way back to the 1.12 level, but it would take a Herculean effort to make that happen. I believe at this point it is more or less a “fade the rally” type of situation than anything else, so the candlestick from the Friday session does not surprise me in the slightest. The US dollar continues to be the favored currency around the world, despite the fact that there has been a bit of a pullback in the US Dollar Index. I have no interest in buying this pair in the short term.

In general, this is a market that is going to be very noisy, and we are most certainly at a major level.

The British pound initially fell on Wednesday as the 1.26 level continues to be a massive barrier. If we can break above the area, then it’s possible that the market will get an opportunity to go much higher. That being said, I think what we have is a situation where we are trying to build up enough pressure to break down, but there are far too many things out there that are working against a longer-term rally.

Breaking above the 1.26 level opens up the possibility of an attempt to reach the 50-day EMA, which is sitting underneath the 1.28 level. If we can break above the 50-day EMA, then it’s possible that we could go higher, perhaps reaching the 1.30 level over the longer term. The 1.30 level is an area that I think has a significant amount of importance attached to it, due to the fact that the area is not only a psychologically important level, but it is also an area where we had seen a lot of support in the past. That being said, the market is going to continue to see this as an area that should have “market memory” attached to it.

If we were to break above the 1.31 handle, then it’s likely that the market could go much higher to reach the 200-day EMA. If we can break above the 200-day EMA, then it’s likely that the British pound will eventually go looking to reach the 1.36 level. In order for this to happen, we will have to pay close attention to the bond market, and whether or not interest rates are finally starting to drop in the United States. After the Federal Reserve Meeting Minutes, it looks as if there was more of a “risk-on” type of attitude out there, but I don’t know that it has changed a lot in the longer term.

When you look at this chart, you can see that somewhere near the 1.2475 level there is a significant amount of support. If we were to break down below there, then the market will unravel and go looking to the 1.22 level. In general, this is a market that is going to be very noisy, and we are most certainly at a major level.

DOT/USD has continued to fall and is traversing extremely important support levels in early trading this morning as buyers seem to have disappeared.

DOT/USD is trading near the 9.7000 price as of this writing.  DOT/USD was trading near the 10.7500 mark as late as the 23^rd of May, this after climbing back from a low of 9.1600 seen on the 19^th of May. On the 12^th of May DOT/USD did trade below the 7.0000 level temporarily. While optimists, if any are left, may proclaim the ability of Polkadot to climb higher off of these lows was an accomplishment, even they might not proclaim it a victory.

DOT/USD remains locked in an aggressive long term bearish trend.  Let’s please recall in late October of 2021 DOT/USD was trading near the 55.0000 level. The fall from these apex highs mirrors the results of the major cryptocurrency market, and it also reflects the seemingly dubious fact that speculative buyers are in very short supply.

DOT/USD is traversing values today, which were last traded in January of 2021.  Technically this is significant because it shows DOT/USD is trading below the over exuberant prices which started to develop in earnest around the middle of January in 2021, when prices in the digital asset sphere started to launch upwards across the board. In early February of 2021 DOT/USD was trading near the 20.0000 mark. If prices continue to slump and additional ‘supposedly’ support levels crumble, if would not be utterly shocking to see DOT/USD trade near the 6.0000 mark again and potentially even lower.

While backers of Polkadot may say its current price is vastly oversold, the lack of buyers able to produce a significant reversal higher is troubling.  If speculative buyers do not show an appetite for DOT/USD there is reason to suspect the cryptocurrency could falter more. A low of around 9.5000 was demonstrated early this morning and if this level erodes, technically traders should begin to think about important psychological marks if lower prices are sustained. This means numbers like 9, 8 and 7 could be considered in USD values.

Speculators should remain cautious and realistic about their ambitions. The price velocity of DOT/USD has not been ultra-powerful, but its inability to trade over the 10.0000 ratio could prove significant if this value starts to look like it will not be flirted with in the short term. Traders need to use solid risk management as sellers, and make sure they use entry price orders to meet expectations via their fills. Looking for more downside action with DOT/USD appears to be the logical wager near term.

Polkadot Short-Term Outlook

Current Resistance: 10.3400

Current Support: 9.5300

High Target: 11.2600

Low Target: 7.9800

Bitcoin looks miserable, right along with the rest of crypto.

The Bitcoin market initially rallied on Tuesday but gave back gains above the $30,000 level. This is the third day in a row we have struggled to get above there, after forming a massive hammer last week. This is not a good look, and it suggests that the Bitcoin market is going to continue to struggle. With this, I think it is probably only a matter of time before we reach lower levels and go looking to break down to the $25,000 level.

Bitcoin is getting hammered as all risk appetite assets are. Because of this, the market is likely to continue seeing short-term rallies being sold into, as the market has shown quite a bit of hesitation to go far out into the risk spectrum. Even if we were to break above the top of the several candlesticks, the $35,000 level would be a potential target, but really I think at this point it is almost impossible to imagine that scenario as there will not be enough in the way of momentum to make that happen anytime soon.

If we were to break down below the $25,000 level, that will open up the floodgates and almost assuredly kick-off a “crypto winter.” In that scenario, I will be looking to buy bits and pieces of Bitcoin over the next couple of years, because it probably will not do anything for quite some time. I know this sounds extreme, but we have lost half of the value of Bitcoin in just a handful of months, and it looks as if we are going to continue seeing a lot of struggle.

In order for the Bitcoin market to take off for a bigger move, we would need to see the US dollar calm down. The US dollar is without a doubt the favored currency of traders around the world, and I think that will continue to be the case going forward. The market has too many things working against them to think that we are going to get bullish anytime soon, and even if you are bullish for the longer term, I believe you have quite a bit of time before you have to get aggressive to the upside. Bitcoin looks miserable, right along with the rest of crypto.

At this point, I do not see a potential long set up.

The Australian dollar initially rallied on Wednesday to reach near the 0.72 handle. By doing so, it shows a real chance of trying to recover. However, the market sold off almost immediately and has since looked very poor. By forming an inverted hammer, this suggests that the Aussie is still going to have a lot of overhead resistance. Because of this, I am not necessarily interested in trying to get overly aggressive to the upside, but I do recognize that rallies should continue to be faded.

Breaking below the bottom of the candlestick for the session on Wednesday opens up the possibility that we will go down to the 0.70 level, an area that has been important more than once, and an area that would attract a lot of attention due to the fact that it is a large, round, psychologically significant figure. Because of this, I would anticipate that a lot of support should show up there, but whether or not it holds would be a completely different question. After all, the US dollar has been like a wrecking ball against almost everything in the world.

The Australian dollar is also highly sensitive to commodity markets, so you will have to keep an eye on them as well. That being said, the commodity markets have looked a little bit soft in general, so it does make sense that we may see negativity here. Although Australia has been outperforming most other economies, the reality is that there is still a lot of concern when it comes to global growth, so it does make a lot of sense that we would see the Aussie dollar reflect the uncertainty of the underlying economy. Furthermore, Australia is highly sensitive to China which has a whole host of problems at the moment.

Keep in mind with the coronavirus lockdowns that we see going on in China right now have locked down over half the economy, so it is not very likely that Australia will be a beneficiary of Asian demand for its commodities. Beyond that, we also have the Federal Reserve tightening monetary policy, which continues to drive the US dollar higher in general, which obviously has a significant effect on this market. At this point, I do not see a potential long set up.

Be cautious, but I do think a small range-bound trade should continue to be the way forward.

The US dollar went back and forth on Tuesday as we are hanging about the 50-day EMA, as well as the 200-day EMA. These are a couple of moving averages that have been relatively flat lately, and now that we are at that area, it is worth noting that the market is going to continue to pay close attention to the crude oil market because the Canadian dollar is so sensitive to that market.

The 1.25 level underneath should continue to be supported, as it has been massive in its importance over the last several months. We also had formed a massive hammer in that area, so it shows just how interested buyers are in that area. On the other hand, it is worth noting that the 1.29 level above is a major resistance barrier, and as we have gotten rather close to the middle part of the range, it does make sense to see the market stay in this area. If we can break above the 1.27 level, we could likely go much higher, perhaps reaching the top of the range yet again. On the other hand, if we were to break down below the bottom of the candlestick, then we may have to revisit the 1.26 level, followed by the 1.25 level.

This pair does tend to be very choppy overall, which makes sense considering that the two economies are so intertwined. It is the largest land border in the world, and it has a significant amount of trade going across it. Because of this, the two currencies are traded back and forth quite extensively, making it not only very liquid but also somewhat contained in general. It is not until we break out of this range that I would look to place a bigger position, and as the market has been so tight in this area, I think it is probably only a matter of time before we see another attempt to break out, but as long as we stay here, I think a nice range-bound trading system will be the best way to handle this very lackluster currency pair from a longer-term standpoint. Be cautious, but I do think a small range-bound trade should continue to be the way forward.

Fed to leave cash rates unchanged; market optimism puts downward pressure on the USD; some economic data improve.

The US Federal Reserve recently announced its decision to leave the cash rates unchanged, remaining in line with analysts’ expectations.

The bank decided to leave the rates close to zero, at 0.25 percent, claiming that the economic situation is improving, though still below pre-pandemic levels.

In addition, the Fed pledged to continue with its bond purchases until the economy substantially improves.

During a press conference that followed the announcement, Federal Reserve Chairman Jerome Powell commented that if economic recovery slows, the Fed would expand its balance sheet, reinforcing its pledge to aid the economy until it fully recovers.

Regarding current inflation levels, Powell said that there is empirical evidence that there are disinflationary pressures pushing down prices across the globe, despite the current monetary conditions.

“It’s not going to be easy to have inflation move up…it’s going to take some time. It took a long time to get inflation back to 2 percent in the last crisis,” said Powell after being asked about the price levels. He added that even with the very high level of accommodation that the bank is providing it will take some time to get inflation levels back to the desired level.

The latest Consumer Price Index figures, though higher than expected, are still way below the Federal Reserve’s inflation target, which is currently set at 2 percent.

The spread of the COVID-19 virus continues putting the economy under pressure and poses considerable risks to the economic outlook in the medium term. So far, 17,394,314 coronavirus cases have been reported in the United States, as well as 314,629 total deaths. The recent surge in infections is expected to be countered by the current vaccination campaign.

Powell commented that despite the recent, positive advancements regarding the COVID-19 vaccines, the late surge in infections is concerning, and added that the upcoming months may be very challenging.

Economic Calendar

Some important data about the current state of the US economy have been released this week. On Tuesday, the Board of Governors of the Federal Reserve reported that industrial production rose higher than expected in November, gaining 0.4 percent (month-on-month), though lower than the previous month’s 0.9 percent. Analysts had expected a 0.3 percent expansion.

On Wednesday, the markets learned that consumption levels shrank in November, signaling that the economy is in shambles. Retail sales dropped by 1.1 percent, higher than expectations of a 0.3 contraction and substantially worse than the previously reported 0.1 percent contraction. Excluding the automobile sector, retail sales dropped by 0.9 percent after going down by 0.1 percent in October. The figure was also below analysts’ expectations of a 0.1 percent gain.

The preliminary Manufacturing PMI reading of 56.5 signaled an expansion of the sector in December. This is lower than the previous month’s reading of 56.7 and higher than forecasts of 55.7.

The services sector also showed signs of expansion – albeit slower than expected – with a reading of 55.3, after the previous month’s reading of 58.4. The Composite PMI showed a reading of 58.6, higher than the previous month’s 55.7 and showing an expansion of the business sector.

Market Optimism Puts Downside Pressure on the Dollar

The optimism that has been brought into the markets due to the beginning of the vaccination campaign has put negative pressure on the dollar, favoring riskier currencies and assets like US stocks.

“As the world gets more optimistic about the outlook for growth in 2021, the dollar has softened,” said an analyst at CMC Markets.

So far this week, the US Dollar Index, which measures the performance of the dollar against a bundle of its main competitors, fell 1.18 percent, giving up the previous week’s gains. In monthly terms, the currency continues its consecutive two-month losing streak, falling by 2.14 percent after dropping 2.31 percent in November.

Economic Data Improve

Taking into account our last report, economic data seem to have improved, mainly in the inflationary realm.

The quarterly gross domestic product figure has been revised down since our last report, now standing at 33.1 percent, slightly lower than expected and considerably better than the previous quarter’s 31.4 percent contraction.

The latest Consumer Price Index report showed a better-than-expected performance in the monetary realm. The CPI went up by 1.2 percent in yearly terms in November, remaining unchanged from the previous month’s figure, though still higher than expected. In monthly terms, it rose by 0.2 percent, higher than expected and remaining unchanged from the previous month’s figure.

The latest labor market data also missed analysts’ expectations in a positive way. Unemployment stood at 6.7 percent in November, lower than October’s 6.9 percent and below expectations of 6.8 percent.

Upcoming Events

• Tomorrow, the Department of Commerce will release the building permits and housing starts data.

• Also tomorrow, the US Department of Labor will publish continuing and initial jobless claims data.

• The Philadelphia Federal Reserve will release its manufacturing survey, also on Friday.