Investing.com | Jan 25, 2020 18:08
Investing.com - There’s an ominous technical indicator hovering over the U.S. dollar, which could mean a move away from the greenback.
But don’t go looking for value in bitcoin, according to one fund manager speaking at the World Economic Forum in Davos, Switzerland this week.
Meanwhile, as lower interest rates have been a boon to equities, the run of ever-cheaper money may finally be coming to an end, according to one investment bank.
Here are three things that flew under the radar this week.
1. Dollar Hits the Death Cross
While markets were captivated this week on fundamentals, with some calling the Wuhan coronavirus a possible Black Swan, technicals weren’t overlooked.
The U.S. dollar could be in the crosshairs of the infamous death cross.
The death cross happens when a 50-day moving average goes below the 200-day moving average, which happened on the last day of 2019, according to Bank of America Merrill Lynch.
When that’s been triggered in the past, the dollar has gone down seven out of eight times since 1980, Merrill said.
Adding to concerns is the fundamental backdrop of a global economy that may not need the safety of the greenback as much as it used to.
"The global economy looks like it's healing," TD Securities Mark McCormick said. "The reduction of uncertainty will likely allow investors to take risks ... they didn't want to take before."
Momtchil Pojarliev, head of currencies at BNP Asset Management, is betting the dollar will fall against the euro, Japanese yen and Australian dollar as growth in those countries accelerates and their central banks raise interest rates while the Federal Reserve keeps them steady. That should narrow the gap in yields that has buoyed the U.S. currency.
2. Ray Dalio Debunks Bitcoin's Diversification Powers
Bitcoin has been hailed in some corners as the holy grail of uncorrelated diversification assets, but famed fund manager Raymond Dalio warned earlier this week that bitcoin has no place in the real of world of investing.
With interest rates looking lower for longer and rendering cash almost useless, Dalio pushed back at the World Economic Forum in Davos, Switzerland against claims that bitcoin has a place in a diversified portfolio, pointing to the popular cryptocurrency's lack of intrinsic value and wild swings.
“There’re two purposes of money: a medium of exchange and a store hold of wealth,” he said. “And Bitcoin is not effective in either of those cases now … It’s too volatile. Because of the volatility, you can’t go next to it.”
While there would be many who share Dalio's view that bitcoin currently lacks the credentials to be taken seriously as a form payment, some of the most important central bankers have conceded that bitcoin has a role to play in a diversified portfolio.
"Really almost no one uses bitcoin for payments, they use it as an alternative to gold. It's a store of value, a speculative store of value, like gold," Federal Reserve Chairman Jerome Powell said in the summer of last year.
"Bitcoin's consistent statistically uncorrelated nature provides an excellent source of diversification within a portfolio," Blockhead Capital said, citing its study that measured the correlation of bitcoin's price performance to several other assets or indices.
3. Easing Is Ending?
The main case for central banks cutting rates is receding, making the case for more accommodative monetary policy from current levels harder to justify, according to J.P. Morgan.
The argument for an economic mid-year rebound has strengthened, J.P. Morgan said in a note to clients this week.
“The easing cycle is … close to an end and central bankers can take comfort that their limited and unconventional toolbox proved effective in cushioning a substantial shock,” analyst Bruce Kasman and team said.
But the biggest challenge that major central banks will face is dealing with inflation.
“With the Fed having lost confidence in translating current growth and labor market outcomes to future inflation, core inflation will likely need to move above 2% before it considers reversing last year’s ease,” J.P. Morgan said. “In refraining from reversing last year’s mid-cycle adjustment until inflation rises, the Fed will break from its past pattern of removing insurance once it became convinced that the growth scare had passed.”
Unlike the Fed, which looks happy to overshoot on inflation, the Bank of Japan will likely be content to undershoot.
Meanwhile, the “(p)ersistently low inflation remains a prime concern” for the ECB, but “creeping financial stability concerns set the bar high for additional action.”
-- Reuters contributed to this report.
Written By: Investing.com
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