Concerns about inflation continue to push bitcoin and commodities

Concerns about inflation continue to push bitcoin and commodities

11 January 2021 from Carlsquare

The strong market continues where the big theme is continued support. But it is just not us who are worried about what will happen in the next step. Will aid create a new wave of inflation? What will happen when the aid is to be withdrawn and the economies have to manage on their own?

Bitcoin is of course the best example of what hysteria the market can suffer from. The wave we drew before Christmas has only continued during the Christmas holidays when Bitcoin takes new highs.

The price rise is also likely to come to an end. Technically, Bitcoin is trading in a parabolic upswing that will collapse sooner or later…and today Bitcoin is trading down more than 10%, below EMA9. MA20 must hold for the short trend to be considered as rising.

The copper price is currently trading above the 4-level. Short EMA9 as well as MA20 is upwards sloping and thus supporting the rising trend. Note the negative divergence between the copper price and MACD:

In the monthly graph below, one can see that the metal is trading at levels where it also consolidated around 2011-2013.

Like copper, brent oil is trading in a strong rising trend above its EMA9 and MA20. However, for this asset, no negative divergence with MACD can be noted.

As we said, the theme is the same as before – previously unseen levels of support sweep across the world.

Below show what assets the central banks have had since the 18th century, expressed as a percentage of GDP. Blue line shows Bank of England and the red line the US Fed. From all aspects, the support is currently astronomical. To come to terms with this expanding balance sheet, one must deal with it when the economy is growing. The question is whether this will ever happen.

The graph below shows US GDP growth in the blue. Note the sharp fall in 2008 with subsequent rapid growth when massive support was pushed in- in red. The policy with QE1 was probably quite right. The financial crisis of 2008-2009 was then followed by a few years of growth. These should have been used to reduce aid. But this opportunity was not seized. A major critic of the support was Donald Trump until he became a president. After taking office, he counted the stock market as the best measure of his success. We have not counted checks, but from a stock market perspective, it is probably difficult to find a more successful president.

When the Fed, led by Jerome Powell as the newly appointed Fed chief, began to cut back on subsidies by letting rolling bonds expire without buying new ones, he received increasingly harsh criticism from Trump, who saw that this could jeopardize his popularity and ability to be re-elected. Powell joined in and started stimulating again. This was followed by an exceptional new wave of support when Covid-19 struck.

If you look at which person that led the Fed during different periods, the period with Janet Yellen as Fed chief coincides with the period when the Fed should have reduced the balance sheet.

She has already been appointed minister of Finance under Joe Biden. The same Joe Biden who on Friday started talking about trillions of USD in new support to be presented next week. There is no reason to say that the support will decrease soon. We have all learned to play in choir where new support spills over to the stock exchanges and weakens the USD. All in all, this points to another strong stock market year. With the economy in full swing back again in 2021 compared to 2020, it should also be a strong year for commodities that prefer to move in step with GDP growth.

But are there no threats? The biggest threat is that confidence in the governments and central banks disappears. We are probably well on our way in this direction, but it is a slow movement that can take decades to blossom. 2021 looks to be able to be like the happy 1920s when the champagne bottles exploded higher than the world war in the 1910s and later in the 1930s after the depression that struck in 1929.

The world is likely to face a real crisis before the current aid policy is abandoned.

Soon, inflation and interest rates will have to be monitored. There is a concern that interest rates are rising rapidly in the United States.

Below is the yield on a 10-year US-note.

Three white (green) candles speak for a continued rise. The formation is called Three White Soldiers, see explanation from Investopedia below:

As shown in the weekly graph for DXY (US dollar-index), the USD is under pressure…and some downside seem to remain.

On Friday, the USD rose on the weak job statistics in the US. In the daily graph for EUR/USD, the short rising trend is also being tested. Momentum is falling and a continued weakness in the currency pair and MA20 just above 1.2 can soon be reached:

So far, rising interest rates and the USD have not affected the stock market, but if this headwind continues, something will have to give way to the USD or the stock market. The stock exchange also received support for new statements about support packages.

The S&P 500 index set a new all-time-high on Friday. Note that MACD also has come alive and is trading upwards. Can dips be an opportunity to buy?

The Tesla stock has about the same formation as Bitcoin and can be traded in the same way, in a parabolic movement:

For those who believe in a continued price rise but want to own a little more in the form of value shares, Apple has fallen since the turn of the year but bounced nicely on MA20 and the rising trendline. Shall the previous top be tested?

The German DAX index has established itself well above the gap from February. The index is trading well above rising EMA9 and MA20 giving the upwards sloping trend some room. However, one should always be careful after a lonely red candle that was created on Friday.

Swedish OMXS30 index is also off to a good start of 2021 and set a new closing all-time-high on Friday last week. Also, note that MACD has generated a buy-signal. But again, a scary looking lonely doji was created on Friday:

The Gold price plummeted on Friday after the US job report which caused the USD to rise. The gold price reached down to MA200 and Fibonacci 38.2 serving as support. The ultimate level is the bottom from November where Fibonacci 50 meet up. Gold normally acts as a place for escape in troubled times with rising interest rates. But then the interest also decreases as gold itself does not yield anything. The attractiveness that gold has had as a haven in troubled times has been at least temporarily taken over by Bitcoin.

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The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

01/03/2021 17:35:00

 

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