Week ahead: EUR strength could weigh over Stoxx 50 index, Bitcoin leaves higher low
|US stocks clocked fresh record highs this week and the Euro Stoxx 50 index lagged. The American dollar took a beating across the board on Fed’s less hawkish stance and due to Trump administration’s failure to repeal and replace Obamacare.
The EUR/USD rose to a high of 2-1/2 year high of 1.1777, while the Stoxx 50 index is set to end the week on a flat note.
EUR rally is here to stay…
The three-month 25 delta risk reversal turned positive this month, suggesting the market is bullish on EUR for the next quarter. The overbought condition as shown by the 14-day RSI is forcing investors to buy hedges against long EUR/USD spot positions. However, the rally is here to stay. It is being speculated that the central banks are also joining the bandwagon… for the past several years the debt crisis and low growth forced central banks to move out of the EUR, but the situation has changed for good in 2017. The debt worries are under control and the political situation is relatively stable when compared to UK and US. Hence, it is safe to assume the bid on the EUR is here to stay…
The sustained EUR rally is bad news for the Stoxx 50 index
- The chart above shows - EUR rally since May is weighing over the Stoxx 50 index.
- Euro Stoxx 50 index chart shows - Head & Shoulder neckline support of 3444 levels. A rising trend line from post Brexit referendum low is seen offering support at 3433 levels.
- An end of the day close below 3433 would confirm bearish trend reversal and open doors for 3361 levels (200-DMA) - 3280 (Feb 24 low). Also note - a break below the trend line would yield a bearish 50-DMA and 100-DMA crossover.
- A sustained rally in the EUR could yield a bearish reversal confirmation by the end of the next week. Moreover, the EUR could extend the rally if the next Friday’s US non-farm payrolls and wage growth numbers miss estimates.
Bitcoin leaves higher low, EUR rally is a boon for crypto currency
Bitcoin has gone from 7-day low of $2403 on Wednesday to hit a five-day high of $2825.11 levels today. Bitcoin Cash (BCC) futures value crashed 50% prior to its proposed Aug. 1 activation date. Some key points to note-
- It is being reported across the wires that with SegWit activation nearing closer, a large faction of miners and other individuals have decided to fork Bitcoin and create Bitcoin Cash.
- Bitcoin could break its previous all time high in market capitalization, above $50.4 billion
- The Bitcoin network hash rate continues breaking all time highs, briefly spiking to 7 trillion GH/s
- BIP91 has activated, which means SegWit should be active after the lock-in period in a few days
Higher low on Bitcoin & EUR/USD
The rebound from the Wednesday’s low of $2403 has established a higher bottom /low on the daily chart. This, if followed by an end of the day close above the Gann fan 2x1 line would open doors for fresh record highs above $3000 levels.
Watch how closely Bitcoin has followed the EUR/USD rally. Assuming the Bitcoin scaling issue does not heat up, one can expect Bitcoin to clock fresh record highs, given the EUR/USD rally is here to stay…
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