The year is almost over, and it is time to try to figure out what 2020 has to offer. In the next few pages you will be able to get an insight into what markets could be offering the best opportunities according to the InvestingCube team.
Here are our preferred markets for the next year:
- Dow Jones Could Be Targeting 32142 in 2020
- USDJPY: Will It Be The BOJ or The Fed Who Will Take the First Step Into Further Easing?
- Weaker Eurozone Economy in 2020 Could Drive EURUSD to 1.05.
- Bitcoin outlook for 2020
Dow Jones Could Be Targeting 32142 in 2020
By Alejandro Zambrano, Chief Market Strategist.
The Dow Jones is probably one of my best trading ideas for 2020.
The Dow Jones experienced a sharp price rise following the election of President Trump in 2016, and the index took 2018 and 2019 to digest its gains.
The 2016 benefits were on the back of significant tax breaks in the US and the world economy accelerating. However, as we entered 2018 the Federal Reserve was hiking interest rates, and the ECB ended their QE program. The constrained monetary conditions and the US-China trade war took the edge further from the Dow Jones as on September 24, 2019, the US introduced tariffs on $200 billion Chinese goods, while China retaliated with tariffs on US products worth $60 billion.
From the September 2018 high until the end of the same year the Dow Jones dropped by a total of 19.77%. The December 2018 low marked a significant reversal point. However, few anticipated the strong bounce that followed, and pundits anticipated that the US economy would reflect the sharp drop seen in stock markets, and leading indicators like the US yield curve was on most investors’ minds. The yield curve was signaling how a recession was underway.
The Fed eventually cut rates by 75 basis points, and the ECB introduced QE, and the Chinese government introduced a fiscal spending deal of about 1.3% of Chinese GDP to get growth back on track. Eventually, the Federal Reserve also introduced liquidity to the market.
Using liquidity indicators they showed that the easy monetary policies worldwide should be enough to boost the world economy back on track. At the same time, the US and China appear to have found a standoff in their trade wars. China is probably waiting for the next presidential election in the US to see if they will be able to negotiate with someone else than President Trump, while the President himself, does not want to escalate the trade war, and cause the economy to dip ahead of his potential reelection.
Simple models show that the sharp rise in the Dow, suggests that investors are anticipating solid growth in the world economy. I think they will be disappointed in the short-term, yet the conditions are there for a stabilization of the world economy. The likelihood of an imminent recession is also low; therefore, I suspect traders will buy dips in the Dow index. The technicals are also supporting the same view.
The Dow Jones index carved out a major inverse head and shoulders pattern in 2018 and 2019. The March 2018 low, and June 2019 lows are the shoulders of the pattern, while the December 2018 low marks the head. The difference between the trendline that goes via the January 2018, September 2018, and April 2019 highs, and the December 2018 low is 5294 points. The difference is added to the breakout point in June 2019, and the patterns suggest that the index might reach the 32000 levels as long as the index trades above the October 2019 low. We, therefore, have a clear road map to what may happen in the next few months.
Dow Jones Weekly Chart
In the short-term we can apply Andrew’s pitchfork channel to pinpoint levels where investors and traders might be interested in buying dips. As seen in the chart below, the index is close to the upper blue-trend line, which is then followed by a green upper-trendline at 28357 (point c). The index might turn lower from these levels from short-term profit-taking. As the price is near resistance I think traders will be careful with buying near these highs.
Instead, I think they would prefer to buy near the December low at 27315, followed at point A as seen in the chart at 26740. If US economy data truly disappoints in the months ahead, the index might visit the lower green trendline at 26141, and this will probably be the last line of defense for the bulls.
Dow Jones Daily Chart
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USDJPY: Will It Be The BOJ or The Fed Who Will Take the First Step Into Further Easing?
By Angeline Feliciano, Market Strategist.
Looking at the weekly chart of USDJPY, it would seem that the dollar’s rally will soon come to a close, making it one of my best trading ideas for 2020. Connecting the highs of September 30, 2018, November 25, 2018, and April 21, 2019, we can see that the currency pair has just gotten rejected at resistance on the falling trend line. The area around 109.70 also coincides perfectly with the 61.8% Fib level when you draw the Fibonacci retracement tool from the high of April 21, 2019 to the low of August 25, 2019.
Let’s take a look at the fundamental landscape that could affect the currency pair.
USDJPY Weekly Chart
Does the BOJ have more room to ease monetary policy even further?
The Bank of Japan (BOJ) is widely known as one of the most dovish central banks in the world. Japan has been in a decades-long deflation. It has been Haruhiko Kuroda’s job, as well as all his predecessors, to stroke inflation and get it up to 2%. And so, in an effort to fulfill the central bank’s mandate, they have set interest rates at -0.10%.
Japanese policymakers have also been doing quantitative easing where in they print money to buy assets like government bonds in order to increase money supply in the economy. In 2018, the size of the central bank’s quantitative easing program ballooned to 553.6 trillion yen which was more than its GDP.
Until now, Japan has still been unable to reach its 2% inflation target. This, along with the negative effects of the ongoing trade war, have actually led to speculations that the BOJ may soon cut rates even further.
Federal Reserve to Stop Cutting Rates, For Now
Meanwhile, the Federal Reserve has been on a less dovish trajectory than the BOJ. Although the central bank has cut interest rates three times this year, Fed Reserve Chairman Jerome Powell has expressed optimism for the economy and signaled that they will not be cutting rates anytime soon. Most of the dollar’s gains can be attributed to this new-found confidence.
However, Fed officials have been quick to warn that if the economy takes a turn for the worse, the central bank will not hesitate to cut rates from where they currently stand which is at <1.75%. In fact, US President Donald Trump has not held back in his views about a looser monetary policy. He has been a big proponent of negative interest rates and has described Powell as “an enemy of America” for choosing not to cut rates even lower.
Inverse Head and Shoulders on the Daily Chart of USDJPY
Looking at the daily chart of USDJPY, the inverse head and shoulders chart pattern still seems to be intact. This suggests that buyers in the market could be priming for a move higher.
Now, if the Fed’s optimism on the economy is affirmed by data, the central bank is more likely to hold off cutting rates despite pressure from the White House. A strong bullish close above its current December highs and the falling trend line could mean that USDJPY is on its way to its April 24 highs at 112.30. For this to happen, there must be enough buyers to have price close around the 110.00 psychological handle.
On the other hand, if economic data from the US disappoint or if Japan’s economy shows signs of recovery, we could see resistance at the falling trend line and the 61.8% Fib level hold. A close below November 17 lows around 108.15 could be the start of USDJPY’s downtrend all the way to its year-to-date lows at 104.43.
USDJPY Daily Chart
Weaker Eurozone Economy in 2020 will Drive EURUSD to 1.05
By Nikolas Papas, Market Strategist
The EURUSD is my best trading idea for 2020.
Euro was under pressure against US dollar throughout 2019 mainly due to a slowdown in the German manufacturing sector amid U.S.-China trade tensions, Brexit uncertainty, and a slowdown in Chinese economic growth.
EURUSD weakness started early 2018 from the 1.25 level and drove the price down to 1.0880 in September 2019. The pair managed to rebound since September and trades close to 1.11, boosted during November by better Chinese economic data and an improvement on macro data from Germany. However, I do not expect any significant rebound in the EURUSD until there are clear signs of economic recovery in the Eurozone and especially in Germany.
2020 Another Tough Year For the Eurozone Economy
I expect 2020 to be another year of euro weakness against the US Dollar as I don’t expect any shift in growth differentials. The European Union economy according to more optimistic economists might start a recovery in the second quarter of 2020. The U.S economy will continue its steady growth while the tariffs policy from President Trump leaves some room to the upside.
Weak Europen Monetary Union economy might pressure EURUSD below 1.10 in the first quarter of 2020 ahead of a further drop to 1.05 by the end of the second quarter.
U.S. Federal Reserve is expected to keep rates steady in December after three consecutive rate cuts between July, September, and October. In 2020 will follow a wait and see stance, and I will not be surprised if it proceeds with one rate cut of 0.25%. The current focus of Fed’s monetary policy is to provide insurance against downside risks emerging from trade tensions. The positive for the US dollar is that Fed still has many options to boost growth.
ECB Runs Out Weapons
On the other hand, the European Central Bank has not many weapons in its arsenal. President Christine Lagarde in her first appearance in European Parliament reiterated that the European Central Bank would be “resolute” in restoring price stability in the euro area and the next review of the ECB’s strategy will be wide-ranging. Christine Lagarde suggested the European governments to unleash stimulus to help the regional economy, but with the political turmoil in Germany, there is no guarantee that it will arrive. In case the European Central Bank delivers a ten basis point cut in its next policy meeting and any additional easing a pullback below the 1.10 will be the possible scenario.
What can accelerate the downward move for EURUSD is a deterioration in U.S.-China trade war, tariffs in French imports in retaliation to French Government taxes on U.S. tech companies, and any complications relating to Brexit could also weigh on euro’s performance.
EURUSD 2020 Technical Outlook
Since 2018 EURUSD prices have been trending down but in choppy fashion. The weekly EURUSD chart at present is overall technically bearish. That suggests the outlook for the pair in the coming year is for more of the same—trending sideways to lower levels in the coming months.
It will take a move in EURUSD price above 1.12 the 50-week moving average to provide the bulls the technical strength to challenge the 200-weeks average at 1.1356 which will cancel the bearish bias, before an attempt to capture the longer-term technical resistance at 1.1575 the 2019-high.
On the downside, it would take a move below the 1.10 psychological mark to accelerate the downside pressure while a break below the 2019 low at 1.0880 will open the way for my target price at 1.05 at the lower band of the downtrend channel.
EURUSD Weekly Chart
Bitcoin Outlook 2020
By Eno Eteng (MSTA), Market Strategist
What is my best trading idea for 2020? My best trade idea will definitely have to be Bitcoin. Cryptocurrencies in general have had what many will describe as a difficult two years. However, they were probably difficult for the uninformed HODLers who got into the peak of the market in November 2017 and lost their shirts. Some are still dipping their hands in ice packs after getting their fingers burnt by buying into the six-figure hype that was being sold all over the internet.
Trading of Bitcoin and other major cryptocurrencies can be done in two directions. You can buy low and sell high, or you can simply go short to benefit from falling prices. Do not follow all the hype you see online: many of those making the trade calls saying Bitcoin will hit $100,000 and so on are simply playing to the gallery. We are mere mortals and no one can tell you specifically what price Bitcoin will be in a year or two. But what I can do here on Investingcube is to look at the charts, get hold of the news, and put these together to provide some actionable information on price movements. In technical analysis, we believe that history repeats itself and history has repeated itself a lot as far as Bitcoin is concerned, providing very good trading opportunities.
Bitcoin for me remains the most tradable cryptocurrency. It is liquid, commands good volatility and the technical price levels that are derivable from historical price movements have been very accurate. It has made me some money and hopefully, it should make you some too.
Bitcoin Halving 2020: Effect on BTCUSD Prices
Now there’s a major event that is lined up for next year and that is the halving event of May 2020. Every four years, the Bitcoin algorithms are programmed to deliver half of the mining rewards of the previous 4 years, thus increasing the mining difficulty. Now I will not join the league of “Bitcoin prophets” who are foreseeing and forecasting all manner of prices for the number 1 crypto. I would also urge you not to. Bitcoin is not close to its all-time highs and it is also not close to its all-time lows. Yet, there are several price levels which remain important above and below the current price levels, which is a perfect scenario for picking multiple trade opportunities.
But what is for sure is that there will be good volatility for Bitcoin going into 2020, and especially in the immediate period before and after the halving event. There will therefore be lots of opportunities to trade the BTCUSD pair, and the team of analysts at Investingcube will continue to bring you actionable analyses on this pair as well as on other top cryptocurrencies that track the price of Bitcoin. It is far better to follow the price movements as they occur, than to buy into the hype and frenzy as to whether or not Bitcoin will fly over the moon.
Technical Levels Being Watched
What are the technical levels being watched for BTCUSD? The charts will provide us with some guidance in this respect.
Take a look at the weekly chart for BTCUSD below. You will see some important technical levels we are watching, which are primarily based on the Fibonacci retracement levels that are derived from the trace from the swing high of November 2017 to the swing low of December 2018.
Bitcoin Weekly Chart
We can see that the Fibonacci retracement levels have been the main technical price levels of support and resistance. Of course there have been other minor support/resistance areas in between these levels, and these can be visualized on the daily chart and shorter-term charts.
Price is basically flirting with the 23.6% Fibonacci price level. Below this, we have the main technical support levels at 5,790, 4,620 and 3,450. These areas provided support when prices fall late last year after breaking the descending triangle marked in pink.
Following the price recovery earlier this year, price pushed beyond the 12,000 mark. The push beyond the 12,000 mark and subsequent descent from the triangle that formed defined more important price levels. You can see them all marked on the chart.
ATFX brokerage has great contract specifications on the BTCUSD CFD asset and offers you a great venue to trade Bitcoin. As we head into 2020, be expectant: great trades on Bitcoin are coming according to me.