News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
EUR/USD
Mixed
Oil - US Crude
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Wall Street
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Mixed
USD/JPY
Mixed
More View more
Real Time News
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Silver are long at 92.76%, while traders in Germany 30 are at opposite extremes with 65.31%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/tF7NDRkMxh
  • Commodities Update: As of 08:00, these are your best and worst performers based on the London trading schedule: Oil - US Crude: 0.56% Gold: 0.32% Silver: -0.08% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/oQYFEnQWXw
  • Use this technical analysis pattern recognition skills test to sharpen your knowledge: https://t.co/Qgz89PTxnu https://t.co/5Rb6Zace9V
  • Forex Update: As of 08:00, these are your best and worst performers based on the London trading schedule: 🇦🇺AUD: 0.34% 🇳🇿NZD: 0.21% 🇨🇦CAD: 0.08% 🇨🇭CHF: -0.06% 🇪🇺EUR: -0.12% 🇯🇵JPY: -0.15% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/Ksc3KraqP3
  • Indices Update: As of 08:00, these are your best and worst performers based on the London trading schedule: Wall Street: -0.12% US 500: -0.20% France 40: -0.48% FTSE 100: -0.50% Germany 30: -0.54% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/u0DuzvS8In
  • Dow Jones, S&P 500 Perched at Key Support as Attention Turns to Powell - https://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/euro_open/2021/03/04/Dow-Jones-SP-500-Perched-at-Key-Support-as-Attention-Turns-to-Powell.html?CHID=9&QPID=917708&utm_source=Twitter&utm_medium=Moss&utm_campaign=twr $DJIA $SPX $ES $YM $DJI https://t.co/xon6vWNM7K
  • Slippage can be a common occurrence in forex trading but is often misunderstood. Understanding how forex slippage occurs can enable a trader to minimize negative slippage, while potentially maximizing positive slippage. Learn about FX slippage here: https://t.co/Blrl0uF2Ct https://t.co/523qqvxg5j
  • Central banks often deem it necessary to intervene in the foreign exchange market to protect the value of their national currency. Learn how central bank intervention can impact your trading here: https://t.co/8G8mUX4so6 https://t.co/KG9k8BnyD6
  • Gold Price Forecast: Long-Term Yields May Keep XAU/USD on the Backfoot - https://t.co/YV1gkiTPrq #GOLD $GLD $XAUUSD https://t.co/oT1lIcChN6
  • 🇳🇱 Inflation Rate YoY (FEB) Actual: 1.8% Previous: 1.6% https://www.dailyfx.com/economic-calendar#2021-03-04
Bitcoin Price Rally Driven by EM FX - Driver Flips Between CNH & TRY

Bitcoin Price Rally Driven by EM FX - Driver Flips Between CNH & TRY

Christopher Vecchio, CFA, Senior Strategist

Bitcoin Price Talking Points:

  • For the first five months of 2019, cryptocurrency markets largely followed movements in EM FX, mainly the Turkish Lira (USDTRY).
  • In recent weeks, the EM FX driver has flipped between the Turkish Lira (USDTRY) and the Chinese Yuan (USDCNH).
  • The one-month correlation between USDTRY and BTCUSD is -0.52, while the one-month correlation between USDCNH and BTCUSD is 0.84.

Looking for a guide on how to analyze Emerging Market Currencies (EM FX)? Read the Emerging Markets Crisis Monitor.

After a strong start to 2019, cryptocurrencies continued their rebound throughout May. True, the major cryptocurrencies still have market caps significantly below where they were back in December 2017, which is contributing to a ‘base effect.’ Nevertheless, Bitcoin (BTCUSD) rallied by 62.2% in May, Ripple (XRPUSD) added 43.4%, Etherium (ETHUSD) gained 66.9%, and Litecoin (LTCUSD) added 56.1%.

The main factor for bullish crypto currency price action identified earlier this year, emerging market weakness, remains in the driver’s seat. It just appears that which emerging market currency (EM FX) is in the driver’s seat may have changed.

Why Does Crypto Benefit When EM FX Suffers?

A quick recap: bitcoin and cryptocurrencies are not “safe haven currencies” per se, as they lack key features of being a currency in the first place, main of which is a ‘stable store of value.’ But if you’re not using bitcoin and other cryptocurrencies as ‘stores of value,’ then, given the electronic nature of the globalized economy in 2019, the cryptocurrency market, coins and tokens can all be used as intermediaries to move capital beyond the reach of governmental agencies.

Why would a market participant want to move capital around without government interference? If capital controls are in place, then it may be impossible to render the production of goods or services at fair value, especially in an emerging market economy. It may not be due to domestic conditions alone, either fiscally (via elections) or monetarily (via central banking independence). Instead, it could be due to external factors, like economic fallout from an international trade war.

Bitcoin Driver Flips from Turkish Lira to Chinese Yuan

Per the Emerging Markets Crisis Monitor, central bank independence and governance free of political interference are critical features of long-term stability for EM FX. The encroachment by the Erdogan government on central bank independence and non-partisan governance have been contributing factors to weakness in the Turkish Lira this year.

Over the past six months, the correlation between the Turkish Lira (USDTRY) and Bitcoin (BTCUSD) has been very significant at 0.865. Even the three-month correlation remains strong at 0.77. But that relationship seemingly weakened in recent weeks: the one-month correlation has been a surprising -0.53.

Turkish Lira (USDTRY) vs Bitcoin (BTCUSD)Technical Analysis: Daily Chart (December 4, 2018 to June 4, 2019) (Chart 1)

Bitcoin Price Rally Driven by EM FX - Driver Flips Between CNH & TRY

So, while for most of 2019, while we’ve witnessed Bitcoin prices and the Turkish Lira have traded in a diametrically opposing fashion, this has not been the case of recent. But that doesn’t mean that the relationship between EM FX and cryptocurrency markets has changed in a material way; instead, Bitcoin, Ripple, Etherium, and Litecoin are looking to the world’s second largest economy for clues.

Chinese Yuan (USDCNH) vs Bitcoin (BTCUSD)Technical Analysis: Daily Chart (December 4, 2018 to June 4, 2019) (Chart 2)

usdcnh, us-china trade war, btcusd, bitcoin price, em fx

The relationship between the Chinese Yuan (USDCNH) and Bitcoin (BTCUSD) has been much less significant than that between USDTRY and BTCUSD over the past six months; the former’s six-month correlation is 0.42 while the latter’s is 0.86.

But whereas the Turkish Lira has lost sway over Bitcoin over the past month, the Chinese Yuan has seen its influence grow considerably: the one-month correlation between USDCNH and BTCUSD is 0.84 and the three-month correlation is 0.92. In other words, since the start of March 2019, when the Chinese Yuan has weakened, Bitcoin has rallied.

EM FX and Cryptocurrency Relationship Conclusions

There is still no good reason to think that the strategy perspective initiated in early-April 2019 has been invalidated yet: what’s bad for EM FX – like the Chinese Yuan and Turkish Lira – is good for cryptocurrencies – like Bitcoin – in general. It still holds, then, if Bitcoin prices and the cryptocurrency market are going to continue their 2019 rally, the best bet may be for the US-China trade war to worsen or for Turkish credit risk to continue to rise.

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him in the DailyFX Real Time News feed and Twitter at @CVecchioFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES