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17.08.2020 – Special Report. Deflation or inflation? Recession and crash on the stock market or new inflation due to the flood of money from central banks? No one can currently answer this question of all questions. Two assets protect against both threats: Gold and big tech stocks. And the latter also offer a call option for an economic recovery.

Price Overshoot

The central banks are responsible for a “price overshoot” in big tech and gold, Mohamed Aly El-Erian, former CEO of the Pacific Investment Management Company, recently wrote in the “Financial Times”. PIMCO is one of the largest fund managers in the world. For one thing, the rally in gold was an unintended outcome in an ever-lengthening list of extraordinary central bank interventions in the market.

Gold is bipolar

Viele Anleger hätten Gold zuvor als kurzfristigen Momentum-Trade gesehen; nun aber nehme es eher den Status als Standalone-Investment ein. Denn Gold habe eine bipolare Funktion: Als Hedge gegen einen Deflation, sprich eine Depression und einen großen Crash an einem Aktienmarkt, der komplett von der Realwelt entkoppelt ist. Und auch als Absicherung gegen eine Inflation, die durch die Entwertung des Papiergeldes entsteht.

Big Tech gegen Inflation und Deflation

Und es gibt laut El-Erian noch eine zweite Assetklasse, die diese Bipolarität aufweist: Die Big-Tech-Aktien. Die großen Titel an der Wall Street versprächen Wachstum sowie eine Verschiebung des physischen Handels in die virtuelle Welt während der Pandemie; außerdem eine Absicherung nach unten wegen der massiven Cash-Positionen, niedrigen Schulden und der positiven Cash-Flow-Generierung.

Ausnahmestellung der Tech-Konzerne

Tatsächlich hatte die Berichtssaison im zweiten Quartal die Vormachtstellung von Big Tech eindrucksvoll belegt: Der Gewinn je Aktie der FAAMG – Facebook, Amazon, Apple, Microsoft und Google – stieg um 2 Prozent. Die anderen 495 Aktien im S&P 500 mussten ein Minus von 38 Prozent hinnehmen, wie das Blog ZeroHedge auswertete. Und die Earnings per Share bei kleinen Unternehmen sahen noch schlimmer aus: Im Russell 2000 rutschte das EPS um 97 Prozent ab. Goldman Sachs kommentierte: “The FAAMG stocks benefit from secular trends expedited by the coronavirus, such as cloud spending and e-commerce, and continue to capture an increasing share of their respective market.”

Let inflation run

In fact, there is no end in sight to this trend – unless the White House smashes the increasingly powerful conglomerates. But monetary policy should continue to fuel the bipolar trend. The US television station CNBC, for example, has ruled that the Federal Reserve will let inflation run in the future. Specifically, everything would lead to the Fed allowing inflation above the actual target of 2 percent with regard to the job market. This would mean zero interest rates for years. The Fed has already indirectly announced this target several times with the term “symmetrical inflation target”. An internal review of the Fed’s own strategy is currently underway.

Goldman sees S&P 500 at 3,800

Our conclusion: Uncertainty coupled with a flood of money – these are the factors that support the two asset classes gold and big tech. Particularly attractive are equities that additionally benefit from an expected economic recovery. Goldman Sachs, at any rate, sees the S&P 500 now at 3,600 points at the end of 2020 and 3,800 points in twelve months. As recently as March, the investment bank had announced a target for the SPX of 3,000 at the end of this year.

Chief equity strategist David Kostin said that optimism about an economic recovery is returning, and he estimates that US gross domestic product will rise by 6.4 percent in 2021. Incidentally, the consensus estimates are plus 3.9 percent. Goldman also expects a positive boost from a working vaccine. This hope overshadows the short-term risks from the US presidential election.

2008 revisited

But the trees do not grow into the sky. In the FT, El-Erian also warned of the inevitable end of current monetary policy: „In the short term, this pushes prices higher, reinforcing the attitude change and lulling politicians and central bankers into believing that the market cycle has been conquered. But they are likely to prove as wrong as those who, before the 2008 financial crisis, erroneously believed they had vanquished the business cycle.“
The Bernstein Bank will keep an eye on the matter for you!

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

More recently, no one believed that the price of oil would rise to at least $40 per barrel. Sure enough, after falling to negative values of -37$, the majority of analysts predicted average cost of black gold in 15$-20$ till the end of 2020. However, only 4.5 months are left till the end of this year. And we can try to look into the future.

OIL.WTI

Oil prices may rise to $60 per barrel in the first half of 2021 due to a shortage of crude on the market. This process may begin in the fourth quarter of 2020. Futures show that longer contracts (for the next year) are priced faster than current ones. This means that the major players are waiting for a significant increase in the value of black gold in 2021.
The key factors contributing to the growth of WTI quotations:
• Investors believe that the terms of the OPEC + transaction are followed by all its participants.
• Sharp decline in shale oil production in the USA and Canada
• Oil demand is expected to increase next year due to the containment of the COVID-19 pandemic.
There is one more important point to add. In the market usually happens exactly what no one expects. Nobody expected to see negative oil prices. That’s exactly how no one sees black gold around $60 today.

And what happens next?

A weekend is a time to distract from intraday trading (the market is closed) and to look at the world globally. 2022-2023 will be years of full recovery of the world economy. Theoretically, the demand for oil should continue to grow. But there is one problem and two Black Swans for oil workers.
The problem is that after oil reaches the price of $60, unfreezing of shale wells will start again. And the longer the oil price remains at this value, the more shale oil will appear on the market.
And two Black Swans:
1. New technologies. For example, highly cheapening shale oil production, as well as the widespread transition to electricity and green energy.
2. Changing the way of life of people and business. During the Coronavirus, we realized that it was not necessary to fly to a conference in Bangkok or Paris. Or to send specialists to foreign enterprises on business trips. Everything can be successfully done online. There are many such moments. It is quite possible that the demand for aviation fuel will not return to its previous level within a decade.

What’s waiting for us today?

01.50 Japanese GDP for 2Q
14.00 New York FBI Manufacturing Index for August

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

The strong rising trend in the EUR/USD pair was stopped 10 days ago. Now there is a consolidation in the market. Recently we made an interesting assumption. The end of the trend may have been affected by the decline of new COVID-19 cases in the USA and their increase in Europe. However, new factors have been added this week.

EUR/USD

On Wednesday, the US consumer price index data for July was released. It turned out to be much higher than expected. Inflation has already accelerated to 1.6% per annum. At the same time, a similar consumer price index in Germany is 0%.
What does it say? Sooner or later the Fed will have to do something about inflation, it may reach 3% or even 5%. Interest rates, of course, will not rise for a long time. On the other hand, it will be possible to remove excess cash liquidity from the market. As always, it will lead to a shortage of dollars and increased demand for them.
But in Europe, from this point of view, everything is good. There’s virtually no inflation. So the EU Central Bank can continue to pump the economy with new money. But everything can change very quickly.
Therefore, there is a strong risk that the price will quickly return to 1.15.

WTI

Oil has been in a narrow range for 2 months now. This is not typical of such a volatile asset. At the moment the demand is balancing the supply.

Black gold is affected by 2 factors:
• Risk of a second wave of coronavirus with the onset of autumn in Europe and Asia. In this case, mass quarantine measures, closures of cities and entire countries are again waiting for us.
• The hope is that soon the world will get the vaccine, people will be vaccinated, which means that the demand for travel will again increase dramatically, closed production facilities will be thawed, etc.

Which of these factors outweighs? We don’t know. The main thing to remember is that reduced volatility is always interrupted by explosive movements, as was the case recently with Bitcoin.

What’s waiting for us today?

04.00 Retail sales in China for July
11.00 EU GDP for 2nd quarter
14.30 US retail sales for July

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Yellow metal correction thriller continues. We also advise everyone to read our previous newsletter. On Wednesday night, gold broke through the previous day’s minimum and fell by another $40. Then speculators stopped, and investors started buying huge (by volumes).

Gold

The day range was $90, which is only slightly less than the previous day. The most important question now sounds like this. Will the 1860$ price be a new long-term low? It is quite possible that it will not be broken and gold will go to new historic highs. Or the other day it will correct to 1800$ per troy ounce again.

S&P500

This week the S&P 500 index is again in the historic high zone. As we predicted, speculators are eager to remove the bear stops in stocks. Just like the bear stops in gold were taken off.
We believe that analysts are not paying attention to the important point yet. And the markets are already putting it into future prices. In Russia, COVID-19 vaccine has been officially registered. In a couple of weeks, the industrial production of its first batches will start. Virologists from many countries of the world rightly point out the following. Vaccines should not be mass vaccinated so quickly.
Virologists are certainly right. However, markets think otherwise. If the Russians have already received the vaccine, it means the Americans will get it a couple of months later (taking into account additional tests). Accordingly, by the time the population is vaccinated, the market will already receive a huge positive. At which, by the way, it will be possible to fix a large speculative profit. If you look at events from this point of view, there is indeed a certain potential for growth.

What’s waiting for us today?

03.30 Unemployment rate in Australia for July
08.00 Consumer price index in Germany for July
14.30 Initial weekly base unemployment applications in the United States

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

What the bears have been waiting for so long has finally happened. Correction in the gold market. The last time such a significant decline was 5 months ago. Since then, the yellow metal has only been growing. And 3 days ago it was $400 above the maximum values of March.

Gold

The absurdity of the situation is that 95% of bears did not wait for this correction and were closed by stops with huge losses. According to the market law, this is the moment when the correction occurred. As we noted earlier, the latest movements in the gold market were not initiated by new buyers. It was the sellers of yellow metal, who closed their shorts in stops. It is quite logical that when the shorts closed almost all their positions, there was no one else to buy gold and it fell sharply.
Naturally, it was just a temporary break on the way to new highs. A large number of trading strategies gives signals to enter exactly after such corrections. And this is the first signal for the last 5 months.
Particularly impatient speculators will enter the position at the opening of the next day candle. Other players will first wait for confirmation that the fall of gold has stopped. This could be a green daylight candle. The entrance at the opening of the next daily candlestick and the stop under the green candlestick minimum. And the size of Take Profit in this case is not limited. Such constructions on the price chart are so loved by medium-term investors. Unfortunately, they do not occur as often as they would like.

Bitcoin

The first cryptocurrency rushed down following gold. It was falling over 4%. Is there any potential for a bigger fall? Yes, there is. In theory, the BTC can easily test the 11.000$ mark. However, the movement below 10.000$ is already a very big doubt.
Why? Look at one of our mailings last week. We told you what new fundamental factors have appeared in the market. The main one is the arrival of large institutional investors who buy Bitcoin through companies officially approved by the regulators. And these investors, bought by BTC, will not sell at any price. And if the price drops, they will buy even more.

What’s waiting for us today?

04.00 Decision of the Reserve Bank of New Zealand at interest rate
08.00 UK GDP for 2nd quarter
11.00 EU Industrial Production for June
14.30 US Consumer Price Index July

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

10.08.2020 – Special Report. The cyber-foreign currencies have recently shown an extremely bullish performance. Bitcoin, Ether and co. are the stigma of the criminal currency – the e-foreign currencies can be stored uncontrolled anywhere on the web. Now the absolution is looming: Requests to speak from the financial world point to a new acceptance. Apparently, the once ostracized foreign currencies are now becoming capable of satisfying their own needs.

Amazing turnaround at Goldman Sachs

Of all people, one of the biggest opponents of cryptos to date has just presented a massive 180 degree turn and signalled interest in the asset class. The Goldmans are considering introducing their own cryptocurrency, Mathew McDermott, the new global head of Goldman’s also new Digital Asset division, told CNBC television last Thursday.
Goldman Sachs had denied Bitcoin asset class status as recently as May. According to “Forbes”, the investment bank held a presentation in spring entitled “U.S. Economic Outlook and Implications of Current Policies for Inflation, Gold and Bitcoin”. It listed five reasons why Bitcoin is not an asset class in its own right.

Stablecoin in progress

Now titled “ValueWalk”, Goldman is working on a Stablecoin. Immediately, cheering electric bulls took to the blog. Konstantin Richter, founder of Blockdaemon judged: „Customer demand will drive revenue and open up new channels so it would only be detrimental to their business if they didn’t explore this opportunity.” We complement: In view of zero interest rates and the stellar performance of cryptos, many investors have turned away from the recently weakening dollar – and are now invested in e-currencies.
Dave Hodgson, Chief Investment Officer at NEM Ventures, judged „I expect that this move will be reassuring to Goldman Sachs investors, who otherwise may find it difficult to gain exposure to this innovative asset class. (…) This is an encouraging step for the space as a whole, but altogether unsurprising given recent investments made by competitors JPMorgan and Fidelity.”

Radical turnaround at JPMorgan

In fact, in May, JPMorgan, the largest American bank, also made a radical turnaround. In September 2017, JPM head Jamie Dimon had still called Bitcoin a “fraud” after BTC had plummeted from $20,000 to $4,000.However, according to “Forbes”, the bank now allows transactions with customers of two crypto exchanges – and Dimon even secretly met with the head of the largest exchange Coinbase. So the once greatest enemy is now an ally. Last year, by the way, the bank launched its own e-currency – but JPM Coin is linked to the dollar and therefore nothing more than an electronic derivative.

The professionals are long invested

And in June, Fidelity Investments had caused a sensation. The fund manager reported that 36 per cent of the 776 investors he surveyed in the USA and Europe were invested in cryptos or derivatives. BTC holds around a quarter, and Ether around 11 percent.

US banks now allowed to handle cryptos

The trend could increase even more, because the blog CoinTelegraph had good news for the bulls on July 22nd: According to this, the American banking supervisory authority Office of the Comptroller of the Currency (OCC) has granted all officially registered banks and savings banks permission to hold and settle cryptocurrencies. It literally said: “The OCC recognizes that, as the financial markets become increasingly technological, there will probably be increasing need for banks and other service providers to leverage new technology and innovative ways to provide traditional services on behalf of customers. In other words: the strong demand from customers has made this step unavoidable – e-foreign currencies are obviously becoming socially acceptable and suitable for the masses.

The Great Dollar Debasement

This is hardly surprising in times of dollar devaluation – in the wake of the mass corona stimuli, investors are fleeing into alternatives to paper money. Gold, silver and even cryptos. The result is a respectable performance so far. Fund manager Raoul Pal of Real Vision on CoinTelegraph said that BTC is the only asset class worldwide that has balanced the growth of the balance sheets in the G4 central banks. These include the Bank of England, the Bank of Japan, the Federal Reserve, and the European Central Bank. For Pal, after all a former manager at Goldman Sachs, Bitcoin is likely to increase 50 to 100 times over the next five years due to the devaluation of global currencies.

However, we would advise you to keep an eye on government countermeasures – currency watchdogs and politicians do not like uncontrolled competition. A ban on cryptos is possible anytime and anywhere. We will keep an eye on the matter for you – the Bernstein Bank wishes successful trades and investments!

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

10.08.2020 – Special Report. The Sheriff is back in town: EUR/USD seems to be entering a resistance zone at around 1.17. A rebound seems overdue. This is due in part to the strong US labor market figures and the new support in the Corona crisis. But also the resurgent China conflict. Perhaps a gigantic short-squeeze is also imminent. In any case, Morgan Stanley has closed its short position on the dollar as a precaution. We’ll do a background check.

Tailwind for the US economy

Eine neue Dollar-Stärke könnte vor allem aus einer Erholung im US-Binnenmarkt erwachsen. Die neuen Figures from the labour market point to this: The US economy created 1.8 million new jobs in July and the unemployment rate slipped to 10.2 percent. The figures were better than expected.
At the same time, US President Donald Trump also provided a new tailwind for the US economy: in an executive order, he overruled the stubborn Democrats in Congress and ordered additional unemployment benefits of 400 dollars. At the same time, he extended the easing of the repayment of university loans and the protective regulations for evicting defaulting tenants. The Dems are now in a bind – if they appeal Trump’s move, they will be seen as the party that denies unemployment benefits.

Politics and the financial market

Already, the Democrats have lost approval because they blocked for weeks, demanding, among other things, stimulus for illegal migrants and, strangely enough, funds for the expansion of the error- and fraud-prone postal vote for their own $3 trillion proposal, the Heroes Act. It is no accident that the gap in opinion polls is closing. Currently, Biden is only 3 percentage points ahead of Trump at Rasmussen. Which makes the stock market happy and supports the dollar – because Joe Biden stands for new taxes, open borders, health care for all illegals, stopping the deportations of criminals. We recommend RealClearPolitics’ survey collection to anyone who wants to follow the political events. And here above all the figures from Rasmussen – the institute was the only one to be correct in 2016 with a fuzziness of 1 percentage point.

Power struggle with China

It is also possible that the dollar will strengthen against the euro, pound and franc in the future because of China – and this is because the greenback is always considered a safe haven in times of crisis. Because Trump is shooting the next poison dart in the direction of China: After fines amounting to billions, the president issued a decree prohibiting business with two of the largest IT companies in the People’s Republic operating in the US: ByteDance, the owner of the video app TikTok, and the WeChat operator Tencent. The White House fears that user data will go directly to the Communist Party. Tencent is Asia’s second most valuable company after Alibaba with a market valuation of the equivalent of 686 billion dollars.

We also recall that China has so far not fulfilled its obligations under the customs deal and is reluctant to buy from American farmers. The question is whether Trump wants to take action against Beijing before the US elections because of this, which is obviously waiting for the outcome of the presidential election.

First squeeze warning

According to Reuters, shortly before these developments, Morgan Stanley had already made an interesting announcement on Friday: The Greenback is the most oversold in 40 years. This increases the chance of an imminent reversal. That is why MS has closed its dollar short and long positions on the euro and the Australian dollar. According to the investment bank, its Combined Market Timing Indicator had triggered a sell signal for the first time since January 2018. A short squeeze for the dollar is also likely to be imminent, the short dollar trade is downright overcrowded.

Large short positions

Goldman Sachs had already made similar statements last Monday: In the week ending July 28th, non-commercial traders had sold 5.2 billion dollars net, up from 2.2 billion dollars the week before. This brought the net short positions of only these investors to 24.5 billion dollars. At the same time, asset managers had sold $6.3 billion against the euro, yen and pound.
Still, the Gold Men remained bearish lately – but Goldman Sachs is known for its tactical analyses that turn quickly and are sometimes countered by its own actions. However, Goldman Sachs warned that the dollar is 15 per cent overvalued and that the chance of outperformance in the US equity market against the rest of the world is diminishing. In addition, US real interest rates are likely to slide further into negative territory.

Is Europe catching up?

In fact, the euro had appreciated against the dollar when Europe launched a massive economic stimulus package of 1.8 trillion euros in the Corona crisis and announced joint liabilities on a large scale for the first time in history – Eurobonds with Corona camouflage coating, so to speak. This boosted expectations for growth and corporate profits. So the question is whether the pent-up demand for investments in Europe is already covered or not.
Our conclusion from this mixed situation: In the big pros and cons, you have to keep an eye on US policy and above all the customs dispute with China on the one hand, and on European economic policy on the other. And of course much, if not everything, depends on the Corona crisis. The question for the foreign exchange market is whether the economy in Europe or America will start up again in a stronger and more convincing way – and whether we will see a new wave or not. Whatever the case, speeches like that of Morgan Stanley are interesting indicators of what is happening in the currency market. Short squeeze in the dollar or not – the coming days will show. When other bears are fed up as well, the greenback will go up. The Bernstein Bank is keeping an eye on the matter for you!

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Analysts say in one voice that the exchange rate depends on the monetary policy of banks. When one country in the world starts printing money actively, the national currency rate falls. When the monetary policy is tightened, the national currency rate increases. Looking at the events of last week, another hypothesis appeared.

EUR/USD

A week ago, the number of newly detected COVID-19 cases finally began to decline. And in Europe, on the contrary, it is growing dramatically. Now we look at the chart above. And what do we see on it?
The strongest bullish trend in the EUR/USD pair has suddenly stopped. The trend exactly corresponds to the change in the coronavirus situation on different continents.
One can imagine that in one country of the world monetary policy is tightening, but in another country, on the contrary, it is weakening. And both of these processes are happening simultaneously. However, this is not happening!
If we are right, this trend will begin to gain momentum during the month of August. And the dollar, instead of falling into the abyss, will start growing again, especially towards risky assets and currencies. An additional growth factor is that August is traditionally a bad month for emerging markets. Historically, many crisis processes started in this month of the year. This means that large investors have no great desire to buy assets, which are quite expensive. Especially during the holiday season, when business activity is decreasing.
How is it that some invisible virus brought the world’s leading economies and central banks to their knees? This is a new reality, which could be read in fantastic novels, but never imagined in real life.

Gold

However, everything written above has nothing to do with gold. Currencies from different countries can devaluate relative to each other. However, all together they devaluate in relation to gold.
The worse the situation with COVID-19, the more money will be printed. And there are only a couple of months left in the Western hemisphere before the cold season. So we wait for a second wave of coronavirus, new restrictions and business closures. And new payments to companies and their employees. Accordingly, the demand for gold will continue to grow.
What will stop gold from growing? Only a confluence of the following factors:
• Coronavirus vaccine and at least 70% of the world population vaccinated with it
• Start of economic recovery
• Monetary policy tightening by central banks

What’s waiting for us today?

03:30 China Consumer Price Index for July
07:45 Unemployment rate in Switzerland for July

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Ten days ago, the first cryptocurrency was in hibernation. The narrow corridor, about 10%, was held for 2 months. The trading volumes on futures exchanges were dropping all the time. And suddenly, there was talk again from all sides that soon the BTC price will reach 15-20 thousand dollars.

Bitcoin

And that’s just the immediate future. And if it is a question of the next 2-5 years, the figures in 50-100-300 and even 500 thousand dollars for 1 bitcoin are called. Where did all this hype come from?
Bitcoin peaked at $20,000 2.5 years ago. That’s enough time for all speculative players to sell the cryptocurrency. Someone with profit, someone with loss. Today, quite different buyers have come to the market.
For example, the investment firm Grayscale. The company has regulatory permission to buy cryptourrencies and store them for its clients. In the meantime, it has bought and keeps BTCs worth over $4 billion on cold wallets. The investment flow increases every quarter. And for the last 11 days (the data were presented a week ago), the inflow of new money to BTC was 782 million dollars.
It seems that it is not so much, in fact it is huge money. The fact is that Grayscale investors do not sell BTC. They buy it and keep it. The investment horizon can be decades. In this case, you can’t really buy all issued 18 million BTCs on the market.

According to a study of analysts, about 3.5 million BTC is lost forever. And about 10 million BTC have not moved from their wallets over the past year. That is, there are only about 5 million BTCs on the free market, which can be bought. At the rate of exchange today, it is about $58 billion.
It turns out that only Grayscale has taken 1.5% of free BTC supply from the market in 11 days. This money will not come on sale very soon. And now the question. How many such firms and banks that do not advertise their activities? At some point in time, a physical deficit of BTC may start on the market, just like the deficit of physical gold. Then the consequences will be unpredictable.
We can really see very sharp movements of Bitcoin. And of course, this whole story is directly supported by the huge depreciation of the US dollar against all real and even virtual assets.

What’s waiting for us today?

04:00 Trading balance in China for July
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Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

06.08.2020 – Special Report. Déjà Vu in the currency market: The Turkish Lira plunges to unprecedented depths. Ankara had previously intervened – and mowed down some shorts with a brilliant increase in overnight interest rates. But apparently speculators are not the cause of the fall in prices. It is investors who are turning their backs on the country. Let’s look at the background.

Core meltdown continues

The Turkish Lira is already weakening again: USDTRY was recently at an all-time low of 7.2671, and EURTRY was also at a record low of 8.6190. Previously, the situation for USDTRY had calmed down since the beginning of June, with the Lira moving sideways at around 6.85 Lira per Dollar. The Turkish central bank had de facto nationalised the bond market in recent months.
However, on Monday a week ago, the situation got out of control for the first time, with the lira slipping to 6.9835. Brendan McKenna, an analyst at Wells Fargo, suspected in a conversation with Bloomberg that some Turkish banks were taking advantage of remaining gaps in capital controls. However, the lira initially returned to its peg at 6.85.

Panic in the Forex Market

And on the night of Tuesday this week, things really took off: when the lira started to drift down again, the Central Bank of Turkey drastically increased the lending costs for the lira, just as it had done in spring 2019. The rate for lira overnight swap transactions in London rose from 6.8 per cent on 29 July to an incredible 1,024 basis points on 4 August. Citing two anonymous traders, Bloomberg reported that this was Ankara’s reaction to bank sales. And de facto dried up liquidity in the lira. As the current fall in prices shows, the action was ultimately in vain.

Chart analysis prevails

Told you so: Already months ago we had pointed out that with EURTYR and USDTYR a gigantic cup-with-handle formation is forming. According to the basics of chart analysis, this is usually concluded with a sideways trend and then a final selloff. Exactly this could be the case now – the sky is the limit.

Imperial policy in Ankara

It is probably not short-term short positions that are the reason for the decline in the lira. But rather a massive flight of capital by frightened investors. The “Financial Times” recently stated that foreign investors had fled the country, that they had withdrawn large volumes of foreign exchange from domestic currency bonds in the past twelve months.
A few days ago we warned you about the neo-imperialist policies of President Recep Tayip Erdogan and the consequences for the financial market. By this we did not mean the reopening of the Hagia Sofia in Istanbul as a mosque, ending the “age of interruption” – next destination Jerusalem. But rather the unilateral extension of the maritime borders in the Mediterranean. According to Erdogan’s interpretation, Turkey is entitled to a huge area under water, which continues the Turkish continental shelf. Unfortunately, this “Mavi Vatan”, i.e. the Blue Homeland, also includes some Greek islands. Erdogan recently wanted to drill for gas in the Greek Exclusive Economic Zone (EEZ) off the coast of Crete, which is covered by international law. And was stopped at the last second by the European Union and NATO. The USA has also risen behind Athens.

How many wars does Turkey want?

But postponed is not cancelled. If Turkey asserts its claims, it is threatening war with Greece. Meanwhile, the Hellenic Navy is going mobile, media such as Greekcitytimes.com called on its readers not to post photos of departing Greek warships in the social media. In addition, Europe and America are threatening sanctions against Turkey.
It is also possible to take up arms with Cyprus and Israel – because the two states, together with Athens, want to build a gas pipeline past the southern Cretan coast to Italy and would thus cross the area newly claimed by Turkey. As if that wasn’t enough, Turkey is involved in the Libyan civil war, thereby calling Egypt into action. Turkish troops are also stationed in Syria.

Full speed ahead towards national bankruptcy

Three military trouble spots at once – this is expensive for the state treasury; the printing press is rotating. Especially since tourism, which brings in foreign exchange, has collapsed in the wake of the Corona crisis. The end of the story: at some point Turkey will run out of the dollar reserves that support the lira. Admittedly, Ankara can wipe out one or two shortie with punitive measures such as the recent sudden increase in the swap rate. But given the horrendous foreign policy, it is likely that the country will remain unattractive for foreign investors. It looks a lot like a “final countdown”.

Possible assistance from China

And that could mean the mixed situation for traders and investors: Turkey might be able to get credit, for example from China. Beijing should be happy about access to Mediterranean ports in return for a large dollar remittance. Then the lira should rise. However, if the medium-term burdens are not removed, the outlook for the currency looks bleak. It is difficult to imagine that the grab for energy reserves in the waters of other countries will be successful.
However, if the situation eases and Turkey gains access to oil and gas through negotiations; or if Turkey reasonably prefers to start producing energy in undisputedly Turkish areas of the Black Sea, new petrodollars will bubble up and the lira will rise. If not, three wars at once will mean the end of the currency. And, by the way, the Greek and Turkish stock markets are under heavy pressure. We keep an eye on the matter for you – and wish you successful trades and investments!

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.