Daily Analysis | 27 November 2017
The euro surged on Friday after the leader of Germany’s SPD party signaled that he is open to the possibility of another “grand coalition” with Merkel’s CDU. The SPD is Germany’s second largest party, led by Martin Shultz. This news likely came as a surprise to many market participants, considering that the SPD had ruled out the possibility of another “grand coalition” with Merkel following the elections. Although such a coalition is far from being finalised, as the two parties would need to negotiate the terms of continuing their alliance, the fact that the option of another CDU-SPD coalition is on the table is a very encouraging development for both Germany and the EU. If this political deadlock is resolved swiftly, the euro could recover even further as uncertainty dissipates and investors turn their sights back to the prospect for institutional reforms in the EU.
EUR/USD advanced on Friday, breaking above the resistance (now turned into support) hurdle of 1.1860 (S1), before finding fresh sell orders marginally above the 1.1930 (R1) level and subsequently retreating somewhat. The decisive break above the 1.1860 (S1) hurdle signaled that the retreat started back on the 20th of September was just a corrective phase and that the short-term outlook is back to positive. As such, we would expect the bulls to remain in the driver’s seat and aim for another test of the 1.1930 (R1) territory soon, where a clear break could open the way for the psychological territory of 1.2000 (R2). The catalyst for such a break could be more encouraging news regarding the prospect of a coalition in Germany. On the downside, a break back below 1.1860 (S1) is needed to turn the near-term bias back to neutral.
Bitcoin breaks another record high, tops USD 9700
Bitcoin opened with a large positive gap this week, to hit yet another fresh record high. Even though the fundamental catalyst behind the surge is not clear, a reasonable explanation may be news that South Korea’s second-largest bank announced that it is testing a bitcoin vault and wallet service for its clients. This is a major development as it could add further legitimacy to the cryptocurrency, especially coming on top of the CME Group’s upcoming launch of a bitcoin futures exchange. Bearing this in mind, and the fact that there are no “hard forks” or any other clear dangers for Bitcoin on the horizon, the cryptocurrency could well continue to gain moving forward.
Bitcoin gapped higher on Monday, to find resistance near the 9700 (R1) level. The price structure on the 4-hour chart still suggests higher peaks and higher troughs above the short-term uptrend line taken from the low of the 22nd of September and thus, the picture remains positive. As such, we would expect buyers to stay in charge and aim for another test of the 9700 (R1) barrier soon. A clear break above that hurdle could set the stage for further bullish extensions towards the psychological area of 10000 (R2).Having said that though, considering that the latest surge appears somewhat overextended, we would stay mindful of a potential corrective setback before the bulls decide to shoot again.
The economic calendar is almost empty. The only noteworthy indicator we get is US new home sales for October.
We have only one speaker on the agenda: ECB Vice President Vitor Constancio.
As for the rest of the week:
On Tuesday, the only event that is likely to attract some attention is a US Senate hearing on the nomination of Jerome Powell to become the next Fed Chair. On Wednesday, we get Germany’s preliminary CPI for November and the US second estimate of GDP for Q3. On Thursday, the highly-anticipated OPEC gathering will be in focus. Given that a 9-month extension of the current deal is widely expected by now, the market focus may be primarily on whether the producers will deliver anything more, or less, than that. As for the economic data, we get Eurozone’s preliminary CPI for November while in the US, personal income and spending data for October will be in focus. Finally, on Friday, Japan’s CPI for October and Canada’s employment data for November are due out.
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