SDR Archives

Yuan Devaluation:

The International Monetary Fund announced the launch of the new Special Drawing Right (SDR) valuation basket on October 1st. This basket now includes the Chinese renminbi making it the fifth currency in the SDR basket. China is noted to have a credit fueled growth. Most of the Heavy industries in the leading sectors are escaping the inflation by exporting their products abroad. But for China to fit in with other currencies in the basket, it has to depreciate Yuan. They have been holding off this move as they were in the review period by IMF. Now that they have bagged the SDR, they have started to devalue Yuan slowly but consistently. The first wave of the move was observed in the last week of October which prompted the Bitcoin prices to go up.

Ethereum Hard fork:

A hard fork is a change to the underlying Ethereum protocol, creating new rules to improve the system. After consensus is reached on what changes should be included in a hard fork, changes to the protocol are written into the various Ethereum clients. Since September 18th (UTC), the Ethereum network has been under attack by a person or group resulting in large delays before transactions were processed. The network is currently filled with pending transactions which is causing users delays in processing their transactions. Hence both Ethereum and Ethereum Classic have Hard forked on 18^th and 25^th of October respectively. This might be one of the major reasons why increased trading volumes and higher prices were observed in Bitcoin.

Bitcoin to see correction:

Owing to the above major factors, the cryptocurrency has risen beyond the $700 levels in the last week of October. But one concerning factor to this uptrend is the fact that the rise has been meteoric and not organic. The break out from $620 to $640 levels saw the prices coming down again to compensate for the lack of volumes in that region. Similarly the break out to above $700 levels saw very few volumes. This might compel the market to trade sideways in the void region for some time in the form of correction. Later the genuine uptrend might continue taking the prices further higher.

First week of October has seen a positive start for the cryptocurrency, with constant trading over $600 level. The bullish push came at the start of the second week, where market broke $620 and continued to trade higher. Market finally managed to surmount the long term resistance of 100 SMA at 618-620 level cruising to higher prices. While the setup looks bullish, let’s look into the price analysis for the coming week:

Fundamental Key Points:

The adoption of the cryptocurrency and its underlying technology has always been fundamentally positive for the Bitcoin ecosystem. Here are few highlights of the past week fundamentals that might continue to have effect on the prices:

China’s Renminibi added to IMF’s SDR as fifth reserve currency
FBI investigating into $1.3 Million Bitcoin theft of Bitfinex
Russian central bank trys first Distributed Ledger Transactions
UN testing Bitcoin and Blockchain for Remittances
Dubai to move all Government Documents on Blockchain by 2020

Adding to the above, from a macro perspective, addition of Renminibi to SDR might now see further devaluation of Yuan. As the Chinese have been holding off further devaluation till the review period of IMF, there is a good chance of further downward move. In any case, it would also depend on the timing of the news release and the trading prices at that point.

Technical Analysis:

Long Term Trades:

The Long Term chart has been in an uptrend from the start of this year, with no sign of any set up change currently. The market managed to breach the 100 SMA at $618 and close above it for three consecutive days. Now this 100 SMA can act as long term support and long term positions can be taken with adequate risks. The previous swing high at $770.89 can be a target.

On the daily chart, the Bollinger bands are still not trendy. The change from sideways to trending might be a slow one driven by good fundamental factor. Hence it is important to keep an eye on reserve currencies during this period. Long term trades from the bearish side look risky unless there is fundamental bearish news driving the markets.

Short Term Trades:

On a daily chart, the Bollinger bands are beginning to open out and indicating slow change into purely bullish trend. The market has been trending in the channel as indicated by the trend lines. 100 SMA has now joined the zone of heavy support around $600, with the middle bolligner, 9, 13 and 34 SMAs. Any short term bearish trades would be risky and futile in this period.

To get apt entry positions, let’s look into lower time frame:

On shorter time frame (4 Hrs), the setup is trending in the channel of the trend lines shown. 34 SMA has been the line of constant support and has provided good entry positions for short term trades. When the 100 SMA slowly turned from being the line of resistance to line of support was an indication to get in for the break out trade. During this change, it also crossed 34 SMA signaling even strong change which was the best indication.

While taking long term positions, keeping an eye on Yuan would be very helpful.

Tag: SDR

Ethereum Hard fork and Yuan Devaluation push Bitcoin prices higher, strong correction to follow?