Sive Morten
Special Consultant to the FPA
- Messages
- 18,673
Fundamentals
The dollar rose on Friday as statements from Federal Reserve officials and U.S. economic data continued to support expectations that the U.S. central bank may raise interest rates in December.
U.S. consumer sentiment beat forecasts, gaining for the second straight month and showed an improvement in buying plans for large discretionary purchases, especially vehicles.
The euro gained some ground in volatile, thin trading just as futures markets closed after news that least 40 people were killed in shootouts in central Paris.
Marc Chandler, currency strategist at Brown Brothers Harriman, said the move was more than likely smaller speculators getting out of existing positions, and not a fundamental reaction driving flows to the euro.
As a result of the modest uptick in the euro , the euro zone single currency ended the day down 0.4 percent to $1.0777.
Other U.S. data on Friday, including a weaker-than-expected retail sales report and a second straight monthly decline in producer prices, failed to knock the dollar. The soft inflation and signs of slowing consumer spending appeared unlikely to deter the Fed from a rate hike next month, economists said.
"Retail sales were disappointing again, but we've seen consistently these numbers disappoint over the past little while," said Shaun Osborne, chief currency strategist at Scotia Capital in Toronto.
"It does look as if consumer demand has gotten off to a fairly sluggish start in the quarter, but the general backdrop I would imagine for the consumer is still quite constructive in the U.S."
Comments from Fed Vice Chair Stanley Fischer late Thursday and from Cleveland Fed President Loretta Mester on Friday underpinned the widely held belief that the Fed intends to raise rates at its next meeting in December.
Fischer told a conference at the Fed Board he expects U.S. inflation to rebound next year and noted the Fed could raise rates soon. Mester, who is not a voter on the Fed's rate-setting committee this year but will be in 2016, said America's labor market appears near full strength and that the time to hike is "quickly approaching."
The dollar firmed nearly 1 percent against both the euro and Swiss franc on the day.
Versus the Swiss franc , the dollar gained 0.7 percent, moving to 1.0067 francs. It was headed for a modest 0.1 percent weekly gain.
The dollar also moved higher on the day against the yen , sterling and the Swedish and Norwegian crowns . It was also up against the Canadian , Australian and New Zealand dollars.
The dollar index, which measures the dollar against a basket of other major currencies, rose 0.3 percent to 98.948. The index is down about 0.2 percent this week as profit-taking sent it lower earlier in the week.
Sterling slipped against the dollar on Friday, pegged back by comments from a senior Bank of England policymaker who said an interest rate hike by the Federal Reserve would not automatically lead to a response in Britain.
A day after BoE chief economist Andy Haldane said Britain does not need a rate hike in the near future because wage growth has fizzled and the outlook for the global economy is uncertain, he told BBC radio that while monetary policy in other countries mattered, it would not prompt an automatic response by the BoE.
"Haldane suggested that a rate hike is a long way off due to inflation undershooting. So we are a bit bearish on sterling especially against the dollar," said a trader.
Sterling was down 0.1 percent at $1.5218 , having risen to a day's high of $1.5270 after U.S. retail sales and producer prices came below expectations. But the soft data did little to alter chances of a rate hike by the Fed next month. Markets are pricing in a 70 percent chance of a liftoff.
Sterling, though, rose against the euro, trading 0.7 percent higher at 70.50 pence , not far from a three-month high of 70.41 pence hit on Thursday.
The pound has lost ground against the dollar in recent days after the BoE cooled expectations of a rate hike in the near term, while a blockbuster U.S. jobs report kept the chances of a hike by the Federal Reserve very much alive.
Along with uncertainty over when the BoE would raise rates, sentiment towards the pound has been weighed down over a referendum on Britain's membership of the European Union.
The cost of hedging against sharp price swings in sterling's exchange rate surged on Thursday.
A fresh opinion poll showed more than 50 percent of Britons want to leave the European Union while 47 percent would like to remain in the bloc. The opinion poll was conducted by pollster Survation on behalf of the 'out' campaign.
Traders think UK inflation and retail sales data due next week are unlikely to change the outlook for monetary policy.
"Given uncertainty regarding global growth prospects, and as the BoE remains cautious regarding a stronger currency's dampening impact on price developments, we expect investors' central bank monetary policy expectations to remain strongly capped," Valentin Marinov, head of G10 FX strategy at Credit Agricole, wrote in a note.
"As such we do not expect next week's CPI and retail sales releases to have any sustainable currency impact. We remain in favour of selling the currency versus both the Swiss franc and the dollar."
So in recent comments we see confirmation of our former analysis. Another major topic right now is a terrorist attack on Paris. I feel great sorrow for Parisians since my country just recently met similar tragedy.
I could say only one thing - when EU politicians will start to think on its own country and work in favor of its own people, instead to blindly follow third party external geopolitical ambitions?
Still, our forum is economical and here we will speak only on possible impact on markets, without discussing all background of this event. It seems that on Monday we could get strong bearish gap on EUR and skyrocket action on gold...
Today we will speak on EUR. GBP and NZD are also interesting, but, NZD holds well and continues action to our B&B "Sell" target. With recent events in France, it also probably will get gap and may be even will hit target on Monday. On GBP - market has reached our resistance area, but downward action has not started yet and we're waiting for reversal patterns there.
I'm not sure that it makes big sense to put here CFTC data, hardly it will have any reason on coming week... it will be nervous week, guys...
Anyway, we see that EUR mostly shows bearish sentiment - net short speculative position has increased at simultaneous increasing in open interest:
Within recent month we tell about exceptional role of geopolitics events (mostly in gold research though). World is entering in tough times, guys. And it seems that role of geopolitics will grow.
Technicals
Monthly
First, is let's take a look again at cross-section analysis. On dollar Index chart we see clear confirmation of further dollar appreciation. Market has formed DRPO "Failure" pattern which suggests upside continuation. At the same time we have bullish grabber on dollar index that suggests the same. Next target here is 1.618 extension of long-term AB-CD extension:
On EUR -
Overall picture stands bearish. Major events here are - bearish grabber, breakout through major 1.12 Fib support that is based on all times low in Dec 1999, and - bearish dynamic pressure. We see that trend holds bullish but price creeps lower with MACDP line.
Even beyond mentioned patterns picture shows other bearish signs - as market has reached 1.27 target of butterfly - EUR has turned to logical 3/8 retracement. Since acceleration to first target was fast, it increases chances on further drop to 1.618 level and this will be parity.
Also, we have bearish flag here that also suggest downside breakout as normal progress.
Our next target is parity. But, guys, we should be ready for deeper continuation. EU meets hard times - internal disagreement among members (Brexit, Greece, refugees problems), difficult economical situation and external pressure could force EUR drop significantly lower than parity stands. Even from technical point of view - parity is just psychological level, it does not coincide with any meaningful technical support. In fact, market already has broken all major supports till 0.8225 lows... After parity next step is 0.8950 - 1.618 extension of big butterfly right on 1.58 top, where bullish trend was over.
That's being said, analysis of monthly chart mostly leads us to conclusion that market mostly is bearish.
Weekly
Weekly analysis is rather simple right now. Trend is bearish, market stands in clear bearish breakout of flag pattern. Market is not at oversold and it means that it easily continue action down on next week. After Paris events we will not be surprised if EUR will appear around 1.04 right no next week.
EUR stands below major Fib support and MPS1 - this indicates existing of bear trend. Here we have only one pattern that could point nearest target - 1.618 AB-CD extension, that stands around the same 1.04 area
Daily
I do not know how useful will be daily analysis, guys, because Monday morning EUR could drop like a stone. I hope that you already have short positions according our comments on last week.
Still, let's see what we have. Market is not at oversold and could easily drop to 1.05 area. This will be also 1.27 extension of butterfly pattern.
Also we've got bearish grabber that we've discussed on Friday that gives more confidence with downward continuation.
For those of you who have missed entry as on 1.10 retracement as on 1.08 most recent retracement - hardly you will get chance to take position until 1.04. Theoretically it looks simple - "try to get short on any minor rally to Fib resistance", but the major question though is when we will get this retracement rally...
Hourly
Probably intraday analysis even less useful than daily one. Anyway... The first thing that we call - do not hurry to take position ASAP on Monday. Wait a bit when market will calm down. If you do not have short position - your rush will not help you to get it. That's why your major task it to take position at reasonable technical level. Your position has to be not just profitable, it also has to be safe. And this is primary task.
On hourly chart we see retracement up and by current picture next resistance stands around 1.0785. There theoretically we should get chance for short entry (if we would have Paris events)...
Conclusion
European problems grow with geometrical progression. The fact that all of them are mostly long-term is significantly increase bearish sentiment in EUR view. That's why in long-term perspective we look on parity but keep in mind that EUR could and probably will drop lower.
In short-term perspective we do not know how market will open on Monday, but we suggest that this will be large gap down and we will not be surprise if market will appear around 1.04 in a blink of an eye. That's why, if you do not have short position - do not hurry to take one. Wait a bit, when market will calm down. Usually after nervous action solid retracement could follow. Wait for it. It is long-time bearish journey ahead on EUR and you will get a lot of chances to take position.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
The dollar rose on Friday as statements from Federal Reserve officials and U.S. economic data continued to support expectations that the U.S. central bank may raise interest rates in December.
U.S. consumer sentiment beat forecasts, gaining for the second straight month and showed an improvement in buying plans for large discretionary purchases, especially vehicles.
The euro gained some ground in volatile, thin trading just as futures markets closed after news that least 40 people were killed in shootouts in central Paris.
Marc Chandler, currency strategist at Brown Brothers Harriman, said the move was more than likely smaller speculators getting out of existing positions, and not a fundamental reaction driving flows to the euro.
As a result of the modest uptick in the euro , the euro zone single currency ended the day down 0.4 percent to $1.0777.
Other U.S. data on Friday, including a weaker-than-expected retail sales report and a second straight monthly decline in producer prices, failed to knock the dollar. The soft inflation and signs of slowing consumer spending appeared unlikely to deter the Fed from a rate hike next month, economists said.
"Retail sales were disappointing again, but we've seen consistently these numbers disappoint over the past little while," said Shaun Osborne, chief currency strategist at Scotia Capital in Toronto.
"It does look as if consumer demand has gotten off to a fairly sluggish start in the quarter, but the general backdrop I would imagine for the consumer is still quite constructive in the U.S."
Comments from Fed Vice Chair Stanley Fischer late Thursday and from Cleveland Fed President Loretta Mester on Friday underpinned the widely held belief that the Fed intends to raise rates at its next meeting in December.
Fischer told a conference at the Fed Board he expects U.S. inflation to rebound next year and noted the Fed could raise rates soon. Mester, who is not a voter on the Fed's rate-setting committee this year but will be in 2016, said America's labor market appears near full strength and that the time to hike is "quickly approaching."
The dollar firmed nearly 1 percent against both the euro and Swiss franc on the day.
Versus the Swiss franc , the dollar gained 0.7 percent, moving to 1.0067 francs. It was headed for a modest 0.1 percent weekly gain.
The dollar also moved higher on the day against the yen , sterling and the Swedish and Norwegian crowns . It was also up against the Canadian , Australian and New Zealand dollars.
The dollar index, which measures the dollar against a basket of other major currencies, rose 0.3 percent to 98.948. The index is down about 0.2 percent this week as profit-taking sent it lower earlier in the week.
Sterling slipped against the dollar on Friday, pegged back by comments from a senior Bank of England policymaker who said an interest rate hike by the Federal Reserve would not automatically lead to a response in Britain.
A day after BoE chief economist Andy Haldane said Britain does not need a rate hike in the near future because wage growth has fizzled and the outlook for the global economy is uncertain, he told BBC radio that while monetary policy in other countries mattered, it would not prompt an automatic response by the BoE.
"Haldane suggested that a rate hike is a long way off due to inflation undershooting. So we are a bit bearish on sterling especially against the dollar," said a trader.
Sterling was down 0.1 percent at $1.5218 , having risen to a day's high of $1.5270 after U.S. retail sales and producer prices came below expectations. But the soft data did little to alter chances of a rate hike by the Fed next month. Markets are pricing in a 70 percent chance of a liftoff.
Sterling, though, rose against the euro, trading 0.7 percent higher at 70.50 pence , not far from a three-month high of 70.41 pence hit on Thursday.
The pound has lost ground against the dollar in recent days after the BoE cooled expectations of a rate hike in the near term, while a blockbuster U.S. jobs report kept the chances of a hike by the Federal Reserve very much alive.
Along with uncertainty over when the BoE would raise rates, sentiment towards the pound has been weighed down over a referendum on Britain's membership of the European Union.
The cost of hedging against sharp price swings in sterling's exchange rate surged on Thursday.
A fresh opinion poll showed more than 50 percent of Britons want to leave the European Union while 47 percent would like to remain in the bloc. The opinion poll was conducted by pollster Survation on behalf of the 'out' campaign.
Traders think UK inflation and retail sales data due next week are unlikely to change the outlook for monetary policy.
"Given uncertainty regarding global growth prospects, and as the BoE remains cautious regarding a stronger currency's dampening impact on price developments, we expect investors' central bank monetary policy expectations to remain strongly capped," Valentin Marinov, head of G10 FX strategy at Credit Agricole, wrote in a note.
"As such we do not expect next week's CPI and retail sales releases to have any sustainable currency impact. We remain in favour of selling the currency versus both the Swiss franc and the dollar."
So in recent comments we see confirmation of our former analysis. Another major topic right now is a terrorist attack on Paris. I feel great sorrow for Parisians since my country just recently met similar tragedy.
I could say only one thing - when EU politicians will start to think on its own country and work in favor of its own people, instead to blindly follow third party external geopolitical ambitions?
Still, our forum is economical and here we will speak only on possible impact on markets, without discussing all background of this event. It seems that on Monday we could get strong bearish gap on EUR and skyrocket action on gold...
Today we will speak on EUR. GBP and NZD are also interesting, but, NZD holds well and continues action to our B&B "Sell" target. With recent events in France, it also probably will get gap and may be even will hit target on Monday. On GBP - market has reached our resistance area, but downward action has not started yet and we're waiting for reversal patterns there.
I'm not sure that it makes big sense to put here CFTC data, hardly it will have any reason on coming week... it will be nervous week, guys...
Anyway, we see that EUR mostly shows bearish sentiment - net short speculative position has increased at simultaneous increasing in open interest:
Within recent month we tell about exceptional role of geopolitics events (mostly in gold research though). World is entering in tough times, guys. And it seems that role of geopolitics will grow.
Technicals
Monthly
First, is let's take a look again at cross-section analysis. On dollar Index chart we see clear confirmation of further dollar appreciation. Market has formed DRPO "Failure" pattern which suggests upside continuation. At the same time we have bullish grabber on dollar index that suggests the same. Next target here is 1.618 extension of long-term AB-CD extension:
On EUR -
Overall picture stands bearish. Major events here are - bearish grabber, breakout through major 1.12 Fib support that is based on all times low in Dec 1999, and - bearish dynamic pressure. We see that trend holds bullish but price creeps lower with MACDP line.
Even beyond mentioned patterns picture shows other bearish signs - as market has reached 1.27 target of butterfly - EUR has turned to logical 3/8 retracement. Since acceleration to first target was fast, it increases chances on further drop to 1.618 level and this will be parity.
Also, we have bearish flag here that also suggest downside breakout as normal progress.
Our next target is parity. But, guys, we should be ready for deeper continuation. EU meets hard times - internal disagreement among members (Brexit, Greece, refugees problems), difficult economical situation and external pressure could force EUR drop significantly lower than parity stands. Even from technical point of view - parity is just psychological level, it does not coincide with any meaningful technical support. In fact, market already has broken all major supports till 0.8225 lows... After parity next step is 0.8950 - 1.618 extension of big butterfly right on 1.58 top, where bullish trend was over.
That's being said, analysis of monthly chart mostly leads us to conclusion that market mostly is bearish.
Weekly
Weekly analysis is rather simple right now. Trend is bearish, market stands in clear bearish breakout of flag pattern. Market is not at oversold and it means that it easily continue action down on next week. After Paris events we will not be surprised if EUR will appear around 1.04 right no next week.
EUR stands below major Fib support and MPS1 - this indicates existing of bear trend. Here we have only one pattern that could point nearest target - 1.618 AB-CD extension, that stands around the same 1.04 area
Daily
I do not know how useful will be daily analysis, guys, because Monday morning EUR could drop like a stone. I hope that you already have short positions according our comments on last week.
Still, let's see what we have. Market is not at oversold and could easily drop to 1.05 area. This will be also 1.27 extension of butterfly pattern.
Also we've got bearish grabber that we've discussed on Friday that gives more confidence with downward continuation.
For those of you who have missed entry as on 1.10 retracement as on 1.08 most recent retracement - hardly you will get chance to take position until 1.04. Theoretically it looks simple - "try to get short on any minor rally to Fib resistance", but the major question though is when we will get this retracement rally...
Hourly
Probably intraday analysis even less useful than daily one. Anyway... The first thing that we call - do not hurry to take position ASAP on Monday. Wait a bit when market will calm down. If you do not have short position - your rush will not help you to get it. That's why your major task it to take position at reasonable technical level. Your position has to be not just profitable, it also has to be safe. And this is primary task.
On hourly chart we see retracement up and by current picture next resistance stands around 1.0785. There theoretically we should get chance for short entry (if we would have Paris events)...
Conclusion
European problems grow with geometrical progression. The fact that all of them are mostly long-term is significantly increase bearish sentiment in EUR view. That's why in long-term perspective we look on parity but keep in mind that EUR could and probably will drop lower.
In short-term perspective we do not know how market will open on Monday, but we suggest that this will be large gap down and we will not be surprise if market will appear around 1.04 in a blink of an eye. That's why, if you do not have short position - do not hurry to take one. Wait a bit, when market will calm down. Usually after nervous action solid retracement could follow. Wait for it. It is long-time bearish journey ahead on EUR and you will get a lot of chances to take position.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.