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Dollar, Nasdaq or Bitcoin - Which of These Benchmarks Can Sustain a Trend?

Dollar, Nasdaq or Bitcoin - Which of These Benchmarks Can Sustain a Trend?

John Kicklighter, Chief Strategist

Nasdaq, Dollar and Bitcoin Talking Points:

  • Though important, the FOMC rate decision urged little in the way of meaningful change for markets to draw upon for risk trend
  • The Nasdaq 100 edged up to a record high close, but the risk appetite implications was shared little by other speculative assets – the a Dollar slip could draw on data
  • While carrying more speculative weight, the Nasdaq’s record high and EURUSD’s overtake of a historical technical level are unlikely to keep better pace than Bitcoin’s 20,000 break

Record Highs Post FOMC…at Least for the Nasdaq 100

In the aftermath of this week’s top scheduled event risk we have come to a few critical bullish technical breaks. The confluence of technical milestone and fundamental update would naturally suggest intent and momentum, but I retain a deep sense of skepticism that the impressive milestones on paper will bear genuine fruit through trends that override restrictions of liquidity and anticipation for a rapidly deflating fundamental backdrop. It that proves true, it is likely to catch more than a few ambitious traders off guard. First and foremost, consider the state of ‘risk trends’. In the aftermath of the Fed rate decision and a run of smart data including global December PMIs, the Nasdaq 100 earned a record high close. As the favorite speculative vehicle for so many over the balance of the past few years, that may seem an appropriate cue to conviction. However, the lack of confluence from the Dow and S&P 500 – not to mention the wide range of alternative sentiment measures – dims the sense of intent we could draw others.

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Chart of Nasdaq 100 with 20 Moving Average and Donchian Channel (Daily)

Chart Created on Tradingview Platform

As I’ve suggested numerous times these past weeks, the top market hurdle for the immediate future is not a fundamental shortfall or technical barrier, but rather the inevitable throttle for liquidity as holiday conditions crush in on traders. While historical averages (in my data, focusing on the S&P 500) suggest a default bullish bearing for capital markets, the more reliable development is the fade in both volume and volatility. Those conditions will cap momentum for the financial system and undermine the intentions of extending otherwise critical breakouts – at least until conditions return to normal.

Chart of S&P 500 and VIX Seasonal Performance by Month Back to 1980

Chart Created by John Kicklighter with Data from Bloomberg Terminal

The Fundamental Fodder and Its Limitations

While I consider the conditions underlying the financial system primary to my fundamental and technical analysis, it is still not a basis for certainty. To override a drift in speculative assumption though, a strong fundamental shove would best be able to extend the bounds of quiet trade. The combination of the Federal Reserve rate decision and December PMIs would seem to represent that degree of influence for which I would be looking. That said, the US central bank really wouldn’t alter the landscape to override reservations for holiday conditions. While the group maintained efforts to purchase approximately $120 billion in bonds for a longer period than previously stated, they wouldn’t extend duration or entertain any additional measures. An updated growth forecast was another boon, but hardly a windfall for optimism.

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Federal Reserve Summary of Economic Projections

Table from FOMC Monetary Policy Statement SEP December 16, 2020

Similarly, the December PMIs from Markit would do little to alter my view of the global forecast. Improved readings from the Eurozone, UK and Australia were worth noting; but the slip for the US from multi-year highs and a general struggle for the global pace does little to promise windfall. Ultimately, an underwhelming Fed effort compared to say the ECB, the slip in the US PMI and unexpectedly sharp -1.1 percent drop in US retail sales during November’s holiday shopping makes more of a case for a US and Dollar disadvantage. Perhaps that is enough motivation for the Greenback’s breakdown.

Chart of Developed World PMIs (Monthly)

Chart Created by John Kicklighter with Data from Bloomberg Terminal

Dollar Hits Multi-Year Lows and EURUSD Overtakes Its Historical Midpoint

I have been watching EURUSD’s chart for weeks with special attention to the 1.2150 level which represents the midpoint of both the 2014-2017 range (a period defined by a dramatic shift in relative monetary policy) and the dead center for the pair’s historical range. The market made an unexpected move to overtake that technical barrier this past session and in turn draw reasonable attention to the FX market. As the world’s most liquid currency pair, perhaps this was signaling a unique charge to the asset class. Alas, the insinuation was not replicated by other Dollar-based majors.

Twitter Poll on Whether EURUSD Will ‘Break’ 1.2150 Before Year End

Poll from, @JohnKicklighter

As can be seen below, I would not dispute that the past few weeks of congestion from EURUSD has broken to the upside with the pair ultimately trading at levels not seen since April 2018. Yet, intention for follow through should always be evaluated more closely as conviction that overrides market tempo should be held to a higher standard. On a higher time frame charge – weekly or monthly – this development represents progress that further cements former resistance standing as support for continuation. Yet, the scale means such a move would play out on a monthly scale and not be the necessity of these coming final weeks of 2020.

EUR/USD Bullish
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -14% 30% -4%
Weekly -21% 4% -14%
What does it mean for price action?
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Chart of the EURUSD with 20 day Moving Average (Daily)

Chart Created on Tradingview Platform

Bitcoin and Cryptocurrency Don’t Trade at the Same Rhythm as Other Capital Assets

Another remarkable technical development this past session was the breakout by Bitcoin to drive the most popular cryptocurrency to fresh record highs. A 9.9 percent rally to overtake a very prominent 20,000 figure a very prominent technical signal. Conditions are just as interesting in this case as the charts. This asset class is not your typical speculative vehicle with a different participation mix and circumstances like weekend trade which can make for a different outcome. That said, the cadence of the financial system is not without relevance here.

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Chart of the BTCUSD with 20 day Moving Average (Daily)

Chart Created on Tradingview Platform

What is the drive of Bitcoin and other cryptocurrency? There are many different opinions, but I believe there are two basic categories: either the market is treating it as a speculative vehicle that is just as exposed to the wax and wane of popularity as any asset; or it is a financial utility that is finding its place in the open market. True believers in blockchain would inherently support the latter which would argue a more permanent place in the pantheon, but the market is trading more like a speculative asset. A drive to participate in the charge reads more likely enthusiasm for momentum which would inherently contradict the stoicism we typically see from utilities. If any of the aforementioned trends can hold fast through the close of 2020, I would suspect it is this one. However, I don’t believe there is any greater virtue to this drive than what we are seeing in risk appetite or global capital rotation away from the Dollar. That means it is just as prone to second guessing.

Twitter Poll on Whether Bitcoin Better Reflects a Utility, Speculative Asset or Both

Poll from, @JohnKicklighter

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