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Key economic events
Countries in economic trouble Saudi oil dependence woes
As the COVID19 crisis continues, many countries are being battered by the economic impact the virus has brought with it. One of the worst hit countries is Saudi Arabia. The country is in desperate need of economic diversification with the nation almost solely dependent on oil, with 90% of export revenue generated from petroleum exports.
With the IMF predicting that oil demand will peak in 2040, Mohammad bin Salman, the Crown Prince of Saudi Arabia, has attempted to address the economic problem with his 2030 vision. Although oil prices are at their lowest prices in decades, the Saudi Arabian economy is starting to show some cracks.
With the ongoing Yemen crisis since 2015, Saudi Arabia’s participation in the civil war has taken a significant hit on their international reserve funds costing the country over $100 billion USD. Saudi Arabia was running out of money before the crisis, seeing them publicly list a 1.5% stake in Aramco, the state owned oil company. This raised over $25 billion USD that is being used to fund the Crown Prince’s 2030 vision. Just last week, it was reported that Saudi Arabia is cutting $8 billion USD from their 2030 vision due to the recent slump in oil prices. While Aramco is reporting a 25% drop in profits from the first quarter of 2020. Armco is still paying out dividends.
The recent developments in Saudi are placing pressure on their USD currency peg, with reserves that are needed to keep the pegs in place falling. A potential break of the peg could prove disastrous for the Nation’s economy.
United Kingdom debt problem
The United Kingdom has seen a renewed threat of austerity from COVID19, something which many Brits are all too familiar with. Since Prime Minister Gordon Brown’s spending spree, following the 2009 financial crisis, didn’t work as anticipated, the Conservatives introduced austerity in order to reduce public expenditure in an attempt to repair the economy and reduce the GDP to debt percentage.
Although the COVID19 outbreak in the United Kingdom has seen extraordinary measures in order to support the economy, the cost of furloughing workers by the government is expected to reach around $150 billion USD up until the current end date of 31st of October 2020. This is alongside a $16.95 billion USD emergency fund for the NHS; the BBC have estimated the overall cost to be around $360 billion USD by the end of the year.
If the cost is $360 billion USD, this is over five times the estimated 2020 borrowing before the outbreak. The UK may also see a drop in income after the COVID19 crisis, with arms deals to the Middle East (mainly Saudi Arabia) potentially slowing, depending on Saudi’s cuts to preserve their peg and economy – the UK is currently the second largest arms exporter in the world, only behind the USA.
Tourism is also suffering due to travel bans and strict UK lockdown rules – the UK tourism industry employs around 2 million Brits and generates roughly $128 billion USD per year. Britain’s tourism industry is interlinked with many parts of the UK economy. The lack of tourism and movement of civilians has seen London Transport need a $1.94 billion USD bailout, while the UK economy has shrunk at a record 5.8% since the start of the year.
Other Key Economic News:
- The Virgin and O2 merger plan is set to challenge Sky and BT in the telecommunications and mass media industry.
- BMW is draining their cash reserves with their dividends payout, while Germany’s automotive industry is receiving Germany’s short-time work scheme.
- The Federal Reserve has warned that further economic stimulus may be needed with the Bank of England also suggesting further stimulus will be needed.
- Worldwide interest rates are at their lowest in history, with New Zealand’s central bank signalling a possible move to negative interest rates. New Zealand would not be the first country to use negative interest rates with Japan, Switzerland, Denmark and previously Sweden. The move of countries to negative interest rates has some economists worried, with the belief that the financial crisis after COVID19 could be triggered by negative interest rates due to them destabilising insurance and pension funds.
The world economy has taken a battering and countries appear split on their next COVID19 moves. Germany appears to be pushing towards a return to normality, with the Bundesliga back this weekend, and bars and cafes open (with social distancing). Whereas the UK are maintaining strict lockdown rules with the furloughing scheme extended, in order to maintain lockdown rules while preventing mass job loss as seen in the USA. The economic progress of various nations will be of great interest over the next few months, while the economic destruction of numerous industries continues, seeing many companies post profit warnings and employee layoffs.
Cryptocurrency market events:
The cryptocurrency market had some major events since the last AAX Intelligence Report, most notably the Bitcoin halving and Telegrams cancelling its intended cryptocurrency.
Bitcoin’s halving happened on 11th May 2020. The mining reward per block with Bitcoin was halved from 12.5 to 6.25 Bitcoin. The event last happened in 2016 with the next halving set to happen in 2024 when the reward per block will go from 6.25 to 3.125 Bitcoin.
Telegram ICO cancelled
What is Telegram?
Telegram is a messaging platform founded in 2013 with around 200 million users. Telegram is a cloud based messenger service which allows users to make calls and message other users. Unlike WhatsApp, Telegram allows users to use multiple devices, while the messaging service focuses significantly on user privacy with their multi-data centre infrastructure.
On May 12th, Telegram’s CEO, Pavel Durov announced that Telegram’s cryptocurrency project would be terminated. TON (Telegram Open Network) was going to be a decentralised cryptocurrency which would allow anyone with a smartphone to send payments anywhere in the world. Telegram’s project intended to be similar to Facebook’s, soon to be released, stablecoin Libra.
Why was it cancelled?
The project was cancelled due to the U.S. courts claiming that the cryptocurrency would bypass global jurisdictions. TON’s cancellation has angered the CEO as he believes that Grams should be allowed to be distributed around the world, especially when other cryptocurrency projects, such as Ethereum which allow payments to be made globally, have been allowed to flourish.
The future of TON
Investors in TON have been offered an immediate 72% refund, or they can choose to wait until 2021 for a 110% refund. It appears as though most investors have chosen to immediately cut their losses and leave with a 72% refund.
Italy to combat counterfeit goods with blockchain
Italy has set aside $16 million USD in order to fight against counterfeit goods, to preserve the ‘made in Italy label’. This fight will be led with blockchain technology, with the Italian government working alongside IBM to find a supply chain solution to combat the problem.
Who have IBM been working with in the blockchain space?
IBM is working with Hyperledger – a company created in 2015 by the Linux Foundation, who are pushing forward innovation within the blockchain sector. Hyperledger has various subsections within their company. For example, Hyperledger Composer allows for the creation of blockchain applications, with templates for businesses, meaning that companies do not have to start from scratch. The templates are created by community developers, therefore reducing risk and increasing ease of use.
IBM are working closely with Hyperledger Fabric, a foundation which allows for large scale performance and privacy. Fabric uses the EVM (Ethereum Virtual Machine) for smart contracts, allowing for confidential and private transactions; the blockchain used with Fabric is not open source. In order to view the Fabric blockchain you must be a member – this is likely what the Italian government will use. They will potentially become a member of Hyperledger Fabric with a collective of Italian artisans. This will subsequently allow them to use a level of data sharing and privacy with the end goal of ‘made in Italy’ achieved. Hyperledger Fabric has been used by Walmart, allowing them to trace the origins of products in 2.2 seconds rather than the previous time of seven days. This can then be implemented with Italian artisan products as well, bringing back the prestige of Italian design, and quality, supporting Italian businesses which should crucially help the struggling Italian economy.
Other cryptocurrency news:
- Ripple has become an ISO 20022 standards body, pushing forward new standards for payments and the messaging of data between financial institutions across the globe. Ripple has also been selected to help RAKBank create a payment corridor with Bank Asia. This will allow for the transfer of money using Ripple’s consensus protocol.
- Robinhood have sealed a $280 million USD funding round – with various venture capitalists investing into the company. Robinhood have had recent problems, seen with their logjam, and have a federal lawsuit against them because of it.
- com Visa cards are now available in 31 European nations.
Cryptocurrency Market Outlook
Market correlation over the past 90 days
Many cryptocurrencies hold a close correlation to Bitcoin. In order to understand the overall market outlook, Bitcoin is the most reliable cryptocurrency for judging the direction of the market. Here are a few examples according to market data for Bitcoin correlation. The score ranges from -1 to 1:
- Ethereum (ETH) price correlation : 0.92
- XRP (XRP) price correlation : 0.87
- Litecoin (LTC) price correlation : 0.88
- Monero (XMR) price correlation : 0.89
BTC price review of last report
In the last report on 4th May 2020 we looked at a BTC bullish and bearish short term price scenarios. With Bitcoin’s price moving up 9.73% since the last intelligence report was published. The bullish scenario came to be.
On the previous chart, Bitcoin had just broken the ascending triangle before seeing a slight pullback. BTC was then unable to break below the 0.382 Fibonacci level, seeing the cryptocurrency test the 0.786 Fibonacci level. The previous report then went on to state that Bitcoin could test the $10,000 USD region in the bullish scenario, provided that BTC has a daily close above the 0.786 Fib retracement.
How the previous report played out
After the report, BTC had a daily closure above the 0.786 Fibonacci level; BTC then proceeded to test the $10,000 USD region before hitting major resistance. This was a 15% gain from when the report was published. From $10,000 USD, BTC then fell from this region back to $8500 USD where support was found, breaking below the 0.786 Fibonacci retracement level. The bears were subsequently unable to push BTC further down after the halving (represented by the red line), as we saw BTC rise again above the 0.786 region. That takes us to the current price where there is a clear battle between the bears and bulls around the significant $10,000 USD region.
Long term BTC price scenarios
Long term Bitcoin scenario 1 – Bullish price action
Bitcoin is currently at a pivotal moment regarding the long-term price scenario – it’s presently outside of a symmetrical triangle, appearing to test a push upwards, as shown below:
In the bullish scenario, the weekly candle will close above the triangle. This will then lead to positive price action as Bitcoin moves higher. The RSI shows that Bitcoin is slightly overbought, although there appears to be room to move higher.
In the bullish scenario, we would see BTC close the weekly candle above the 0.382 level (pink). The $10,000 USD region would then act as support for a test of the 0.236 Fibonacci retracement level. Bitcoin would then continue to break through the Fibonacci levels, until 0 is tested. The SAR (yellow line) shows that BTC has momentum on its side, although the indicator does lag somewhat. Therefore, through using the RSI, which is a leading indicator, we can see that BTC still has room to move upwards.
There may be an increased amount of capital flowing into Bitcoin with the second round of stimulus checks likely to appear soon after the HEROES Act was passed. In a bullish scenario, this would see BTC head into the very overbought area of the RSI.
Long term bullish conclusion
If the bullish scenario takes place, BTC will first move 17% up to $11400 USD. BTC would then increase 43% to $14,000 USD.
Bearish LT outlook – Bitcoin
With the bearish outlook on BTC, we are still looking at the symmetrical triangle, although rather than BTC making a positive break above the triangle, in this scenario, BTC will remain within the triangle.
Bitcoin is showing similar characteristics to the previous move up. If we look with Keltner Channels we can see that Bitcoin rose from below the channels, then into the upper regions and above only to stall at the $10,000 USD region. The same thing happened in early 2020, as indicated with the yellow squares:
In the bearish scenario, if we saw BTC reject $10,000 USD, the cryptocurrency would likely fall to the lower regions of the BB as demonstrated below:
In the BTC bearish scenario, Bitcoin would find resistance at the two yellow lines, with the first potentially stopping the move down to the second in its tracks. The first resistance which would need to be broken is at $8100 USD. In this scenario, BTC would break through the first resistance and hit the second at $7100 USD, a 26% loss from current prices.
Short term BTC price scenario
Bitcoin is currently trading within the 0.236/0 region of the trend-based Fibonacci extension, currently up 153% from its 2020 low. Alongside the short term bearish and bullish price action, I will also have a look at the impact of the Bitcoin halving.
Short term bearish BTC scenario
In the bearish scenario, we can see that the daily MACD has had a negative crossover in an upper region. This usually indicates that the price will move lower, until a lower region positive crossover is seen, as demonstrated in the examples below:
BTC negative cross over in the upper MACD region leading to a 38% loss, until the MACD has a lower region positive crossover.
BTC negative crossover in the upper MACD region leading to a 11% loss, until the MACD has a lower region positive crossover.
We can see on the current chart below that BTC has had a negative crossover in the upper regions, indicating a move to the downside.
Fibonacci trend based extension
We can see that since March, BTC has very much obeyed the Fibonacci trend based extension, which is demonstrated below:
In the bearish scenario, the $10,000 region is the peak. In this scenario, BTC will likely attempt to test $10,000 again, although will fail sending it back down to the 0.236 Fib level which has already acted as support, seen with the blue upwards arrow. This would then see BTC fall into the lower region of the Bollinger Bands, below the white median line, as demonstrated below:
On this movement down, in this scenario, BTC would see resistance at $9100, although a clear break below this would see BTC hit $8500 at the 0.236. After this, the bears would likely be in control of the market, pushing BTC down to $7500 USD with the 0.382 the next trend based Fib level, tying in with the LT BTC bearish scenario. From current prices, this would represent a 24% loss. BTC is also moving within an upwards channel. In the bearish scenario, with the 0.236 level broken, BTC will exit the channel confirming short term downwards movement.
Short term bearish scenario conclusion
In the ST bearish price scenario, BTC would fall below the 0.236 level hitting the 0.382 Fibonacci resistance. This would represent a 23% loss from our current position, although through using AAX’s derivatives products you can set up a short position turning this loss into positive gains (potentially).
Short term bullish BTC scenario
In the ST bullish BTC scenario, the $10,000 USD region will be broken. The 0.618 Fibonacci retracement level drawn from late June 2019 must also have a clear break above in order for this scenario to occur.
If we look at the SAR, once again Bitcoin has momentum on its side with the SAR below the current BTC price. In the bullish scenario, this implies that the recent drop was simply a slight pull back before the price smashes through $10,000 into the 0.786 Fibonacci resistance level, continuing to move within the current price channel.
BTC has also recently moved above the 1/1 gann level, originating from the BTC ATH in 2017. This is the first time this has occurred in 3 years, likely acting as support in this scenario.
Bitcoin’s bullish scenario is also powered by the Keltner Channels, with BTC still trading in the upper regions. In the recent pullback, BTC did not move significantly below the median line, indicating that this was a pullback rather than a signal for further downwards movement.
Short term BTC bullish scenario conclusion.
In the bullish BTC scenario, the move to the 0.786 Fib level would see BTC rise 20% from our current position, although resistance may be seen at around $11,000 USD which if price staggered around this area would represent an 11% gain.
How Bitcoin reacted to the halving event
On 11th May 2020, Bitcoin halved, although looking at the price action it would be hard to tell apart the day of the halving to any other trading day.
The hype generated before the event is likely one of the reasons why BTC outperformed many altcoins. Although on the day of the halving from the open to closing price, BTC decreased by 1.88%.
Ninety-three percent of all Bitcoins have now been mined. When miners receive their BTC they typically sell as soon as they have it, with less BTC being mined the supply will now decrease. This means that there will now be less BTC flowing into the market from miners across the globe.
AAB Price review
In our last report on 4th May, it stated that AAB could reach the $1.7 USD price before a potential move back down to $1.15 USD.
Over the following days, AAB proceeded to hit the $1.7 USD perfectly, although a move back down to $1.15 USD did not occur with AAB finding heavy resistance at the 1.618 region of the trend based Fib extension. This saw the AAB cryptocurrency fall 21% from its ATHs. However, the value of AAB has increased 39% since the cryptocurrency was launched on the AAX exchange.
AAB Fibonacci time zones
So far, AAB has seen its major price movements correlated with the Fibonacci time zones. Fibonacci time zones are where major price movements occur, found by using the Fibonacci golden ratio. The Fib time zone tool allows us to spot when these major movements are set to occur.
As we can see from the chart above, according to the time zones, AAB is set to make a significant move within the next couple of days. In time zones 1,2,3 and 4, AAB has seen a positive move up, with a heavy retracement soon followed, although maintaining an overall upwards trend. This will likely be the case in scenario 5.
AAB price suppression
AAB Bollinger Bands
As we can see from the major contraction of the Bollinger Bands, the price of AAB appears to be building up for a big move. The BB (Bollinger Bands) suppression coincides with the Fibonacci time zones, suggesting that a major move is on its way. Due to AAB being a young cryptocurrency, we are not looking at the median line as it is unreliable, only the width of the BB.
It appears that the next move will be to the upside. As we can see on the chart above, AAB has a lower region positive crossover, which, as discussed earlier, is a bullish signal. The EFI (Elders Force Index) is also looking bullish, with a rising force index above zero confirming rising prices. This is after making a major move lower, suggesting that a reversal is soon to take place.
AAB price prediction
In the last major move we saw AAB hit the 0.786 of the trend based Fibonacci extension, as shown below:
AAB will likely see a similar scenario in the coming days; AAB will potentially hit $1.9 USD.
A move to $1.9 USD would result in a 34% gain from our current position, then followed by a retracement to $1.6 USD. Although if the 0 line is broken (invalidating the trend based Fib) we would potentially see AAB first fall to $1.3USD before hitting $1.2USD. This would see AAB decrease by 14%; however, the Risk/Reward Ratio is 2.35 for a long position in this scenario.
This external intelligence report was written by Oliver Page, and commissioned by AAX, for marketing and educational purposes only. The views, analyses and projections are based on the author’s independent research. The report should not be taken as a form of investment advice.