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Bitcoin Surges As USD Bounces Back

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Bitcoin crosses $7,500 as momentum builds up

Cryptocurrencies surged across the board on Tuesday evening as Bitcoin crossed the $7,000 threshold for the first time in the last four weeks. During the Asian session, the largest cryptocurrency by market capitalisation hit $7,543 as it added $780 (+11.60%) in less than 10 hours. Ethereum followed the lead and climbed to $514, up more than $45 on the day. Looking at the big picture, the total market capitalisation increased by almost $30 billion to reach $300 billion, its highest level since mid-June.

Given the lack of fresh news in crypto industry, the reason behind the rally remains unclear. However, there are a lot of moving pieces as investors await regulators to provide rulings on key topics. More specifically, the SEC will have to decide whether it approves the creation of a Bitcoin ETF. The Chicago Board Options Exchange (CBOE) has filed for a rule, which would enable the listing of such type of products. The SEC is expected to come with a decision on August 10; however, a 45-day extension cannot be ruled out. Finally, on the technical side, the price of Bitcoin seems to have reach the bottom. The $5,922 support (low from February 2) was broken on June 29 but bulls outnumbered bears as the price quickly bounced back. This morning Bitcoin tumbled on $7,560, which correspond to the top of March downtrend channel. Of break of that level would open the door towards $9,180 (200dma), the next resistance area lies at between $9,795 and $10,000 (high from May 4th and psychological level).

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Given the quick appreciation of Bitcoin, a period of consolidation is more than likely. However, in the longer-run Bitcoin should continue to appreciate as the regulatory background improves.

Rebound for the pound ?

Despite May 3-month unemployment data given at 1975 low (4.20%), sterling dropped against its major peers amid disappointing wage growth and mounting uncertainties relating to yesterday’s parliamentary vote.

Indeed, despite a tight majority (6 votes difference), May’s government had the final word on an amendment bill that would have required the UK to try negotiating a customs union arrangement with the EU in the scenario of a no-deal by 21. January 2019 deadline, which already supports free trade for goods. Prior vote on an amendment to remain within EU medicines regulatory framework endured a different fate as it got accepted by a small majority of four votes.

Accordingly, the narrow victory against soft-Brexit supporter MPs is an obvious sign that May is having difficult times to maintain a majority of supporter of her Brexit plan within the Parliament. Therefore, risk of seeing May being overthrown is mounting due to a greater number of soft-Brexit advocates within the parliament and increasing questioning of May’s leadership. Recent amendment refusal will not be helping the situation in any case, as it rather reinforces the course of a hard Brexit.

Hence, amid rising uncertainties around Brexit orientation, the BoE will be looking at UK – EU negotiation development before announcing further rate hikes after 2. August 2018 meeting. In any case, recent labor market data, and most certainly June inflation data as well, will tend towards further policy tightening.

As August rate hike is a priced in scenario and inflation data will remain pound supportive, the pair will most likely benefit from a weak boost in the short-term, which will most probably fade out due to increasing political worries. GBP/USD is approaching its 03. November 2017 range, currently trading along 1.3083 and heading towards 1.3070.

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