One “financial market,” if you can call it that, that did see some emotional volatility overnight, was bitcoin. Having touched a new high of USD9,490.00 on Tuesday, the overnight session saw the digital currencies fortunes rapidly reverse. Bitcoin fell USD3,500.00 at one stage (yes you are reading that correctly), finishing the day 8.40% lower at USD17,160.00.
I had previously warned about the Dutch tulip mania afflicting the FOMO get-rich-quick herd behind bitcoin’s meteoric rise in November. Given the dollar index is testing 4-month lows today at 92.00, the overnight price action makes a mockery of bitcoin as a hedge against US Dollar debasement. Nor do I buy into the new flows of “institutional money” into bitcoin. A financial asset that regularly has USD1,000.00 to USD1,500.00 a day ranges is no place that any moderately sensible “institution” would be putting investors’ money.
The bitcoin rally in November has been entirely driven by sentiment and not reality. And as with all get-rich-quick schemes, the losers are the ones long when the music stops, and the herd rushes for the exit door all at once. The only reason it even has space in today’s note was because of the extreme moves overnight. A fall through USD16,000.00 should see more FOMO destruction. In the meantime, sensible people should stay away from the hype and wake up and smell the Dutch tulips.
Currency markets remain in a holding pattern
The US holiday torpedoed volatility and volumes on currency markets overnight, with the dollar index falling modestly to support at 92.00. The dollar weakness saw EUR/USD reclaim 1.1900, rising to 1.1920 this morning, and it retains 1.2000 as an initial target. USD/JPY eased to 104.05 but remains stuck in a broader 103.50 to 104.50 range. Long-term support and resistance lie at 103.00 and 105.35, respectively. Brexit nerves saw sterling edge lower to 1.3355, with well-defined resistance at 1.3400 and support at 1.3300. A break of either should see a 100-point move, with a Brexit trade breakthrough likely to see GBP/USD jump to 1.3500 and then 1.3800 in double-quick time.
The commodity currencies trade sideways overnight, consolidating near their recent highs. The AUD/USD continues to completely ignore Australia’s trade travails with China, suggesting the weaker US dollar remains the bigger story. Asian regional currencies are much the same, ranging quietly, but near or at multi-month highs versus the greenback.
As I stated yesterday, currency markets appear to be marshalling their forces for a large directional move. All the evidence suggests that that move will be a broader weakening of the US dollar. In the meantime, patience is required.