The Weekly : 2020 #47

Markets consolidate on hopes of a vaccine as the bitcoin breaks out continues.

Markets hold their ground, and the dollar and gold remain weak as vaccine hopes rise. The main headline though this week is bitcoin; up nearly 40% since the start of November.

November 21, 2020 / 2 min read

Markets consolidate on hopes of a vaccine as the bitcoin breaks out continues.

The main Indices around the world remained steady this week holding their gains after the recent vaccine announcements from Pfizer and Moderna (although Pfizer’s CEO selling 60% of his stock on day of the announcement didn’t instil great confidence). Although undoubtedly positive news, given the damage done to the economy and the unlikelihood of restrictions being fully lifted anytime soon, exuberance seems premature.

The dollar (DXY) continues to look weak, and could fall further should the U.S. Senate approve the next round stimulus. Dollar weakness is traditionally positive for commodity prices.

Gold ended the week sitting on support of $1860 following a failed breakout attempt. It’s been forming a descending triangle for nearly 6 months now and it’s getting to crunch time. Stimulus would favour a break to the upside, but further news of vaccines and hope of an economic recovery could see a short-term drop. The long term case for gold remains compelling though so expect any breakdown to be bought aggressively.

Oil continued its creep back up towards $42 but price action remains flat. Although US crude production being expected to decline over the next few quarters, demand and sentiment remain weak, so not expecting any fireworks in the short-term.

Bitcoin continues to rally

Bitcoin closed the week above $18k and going off Google Trends at least, not because of retail, strengthening the case of it being fuelled by institutional buying.

Almost as validation, American hedge fund billionaire Stan Druckenmiller admitted to CNBC last week that he owned bitcoin. Very keen to emphasise that it was a very small amount and that he owns far more gold in comparison, he described how he’d “warmed up to the fact that bitcoin could be an asset class that has a lot of attraction as a store of value”.

Although the popular narrative surrounding bitcoin remains largely skeptical based on pieces published this week by BBC News and the Financial Times, the concept of Central Bank Digital Currencies (CBDC) continue to gain traction. Bitcoins place in that future might be unclear, but with central bank adoption of its technology, and institutions buying it up, its legitimacy only gets stronger.

With bitcoin up 40% since the start of November, at $18.7k and 55% above the 20-week EMA at time of writing, the short-term move is clearly overextended but how much higher it goes before the inevitable violent correction is anyone’s guess.