FOREX PRO WEEKLY, 04 - 08 September, 2017

[Sive Morten]

Fundamentals

(Reuters) - The U.S. dollar edged higher against a basket of major rivals on Friday after U.S. jobs data was seen as decent enough to support the possibility of another interest rate increase from the Federal Reserve this year.

Traders initially sold the dollar in a knee-jerk reaction to Labor Department data showing nonfarm payrolls increased by 156,000 last month, below expectations of economists polled by Reuters for a gain of 180,000.

A one-tenth of a percentage point uptick in the unemployment rate to 4.4 percent and tepid wage growth also briefly sent the dollar lower.


The dollar reversed its losses and pushed higher, however, with the euro last down 0.4 percent at $1.1866 after briefly hitting a session high of $1.1979. The dollar index, which measures the greenback against a basket of six major currencies, was last up 0.1 percent at 92.801 after initially plunging 0.5 percent.

“If the markets are discounting a December (Fed rate hike) just on the back of this, it’s probably premature,” said Thierry Albert Wizman, global interest rates and currencies strategist at Macquarie Ltd in New York.

The dollar also recovered since it was oversold heading into the employment report, said Alfonso Esparza, senior currency analyst at Oanda in Toronto.

The dollar index is coming off its sixth consecutive monthly decline, although August’s drop of 0.2 percent was the smallest since the streak began in March. Through August, the index had declined 9.3 percent, the worst first eight months to a year since 1986.

The euro hit a more than 2-1/2-year high on Tuesday of $1.2069 after European Central Bank President Mario Draghi made no mention of the euro’s strength at a gathering of central bankers last Friday. The dollar index was set to gain just 0.1 percent for the week after posting its biggest percentage decline in more than a month, of 0.7 percent, last week.

“The (Fed) rate hike is still sort of a question mark, but (Friday’s jobs data) wasn’t that big a miss to take it totally off the table for the rest of the year,” said Oanda’s Esparza.

The dollar was last up 0.2 percent against the yen at 110.21 yen after slumping to a session low of 109.57 yen just after the jobs data. The dollar was set to post its biggest weekly gain against the yen since early July, of about 0.8 percent.

Chart of the Week: US Economy in Decent Shape Despite Drop in Durable Goods Orders
by Fathom Consulting

Durable goods orders may have dropped by nearly 7% month on month in July, but excluding transportation, durable goods orders increased 0.5% during the month, more than our forecast of a 0.3% gain. Core capital goods orders – a key leading indicator for business investment spending – also rose for the sixth time in seven months. With this week’s personal consumption data for July also likely to be positive, suggesting that both consumer spending and business investment got off to a good start this quarter. The first reading on our US Economic Sentiment Indicator (ESI) for Q3, based on July’s business and consumer surveys, was 4.2%, slower than in Q1 and Q2. We have always thought the pace of economic expansion implied by our ESI would decline and that official economic growth would increase in the second half of this year; last Friday’s economic data is consistent with the two converging at around 3%.

COT Report

Right now, guys, CFTC shows interesting data on EUR. Previously, guys, we've estimated that EUR stands in tricky situation. From one point of view, demand on EU currency stands strong and overall sentiment around ECB policy and EU economy is mostly positive. But, at the same time, overall bullish speculative positions stands at near all-time high ~ 99K contracts. And recent 3 month position fluctuates around this level of 90-93K. Usually, when speculative position stands near extreme levels it significantly increases chances on moderate retracement. Because when already everybody stands long there is nobody on purchase size who could support previous pace of buying. When buying drops - market turns to retracement. When positions will be off-loaded by mostly short-term speculators, market again gets ability to rise. This is simple technical background. And now EUR stands precisely in this situation.
Now, take a look at recent data - last week, open interest has increased slightly, while speculative position has dropped. It means that new shorts have come on market. The same situation was on 8th of August week. Thus, some sellers start to appear and although overall long-term situation on EUR looks promising, recent CFTC data shows that retracement' s odds increases.

Technical
Monthly

So, appearing of strong resistance on monthly chart, right at the moment of overloaded speculative bullish positions makes us to be careful with any bullish trades. We have two side-by-side Fib levels at 1.2160-1.2170 area on monthly chart and long-term support/resistance zone, where market stands right now. Monthly OB level stands higher in September and will not be a barrier. All yearly pivots have been broken up on EUR.
As you can see August month shows mostly indecision action. May be shadows of this candle are not as big to call it "high wave" pattern, but by it's nature, it's probably the same. Appearing of "indecision" sign at this moment mostly stands in favor of retracement rather than upside breakout.
It is a bit difficult to talk on depth of possible bounce, but monthly chart tells that it will be probably painless for bullish ambitions, if retracement will not be deeper than 1.14 area. Here we draw previous consolidation as rectangle, but in reality, if you draw upper border based on tops sharply, we will get sloped line and it stands around 1.14 area. That's why re-testing of this line is allowable and overall bullish sentiment will not be harmed:

If we recall USD Index chart as we did last week, here we have bullish "Stretch" pattern, actually. Index is oversold right at 50% Fib support. This situation also mostly stands in favor of USD. Of course, monthly chart is rather big picture and we should not treat numbers as precise levels. Mostly they are some ranges around. But they work in the same manner as on lower time frames. It means that price could fluctuate around, but sooner rather than later it will respond to support and retracement will happen. Ultimately, here we could get even H&S pattern, thus, retracement could be much stronger, compares to our minimal estimations.

Weekly

On weekly chart we have difficult situation because we do not have any tools to say whether market could climb slightly higher, or all visible targets have been achieved already and it could freely start move down. All that we have is just monthly resistance levels and, here - 1.27 major extension of big retracement plus new MPR1 in the same 1.21 area.

Last week market has not formed something special, no reversal weeks either, no Overbought. Here we could only talk on possible retracement levels that could be reached. I've drawn here sloped line that we've mentioned above and it stands in an area of K-support here.

This is our ultimate level for retracement that is allowable by bullish sentiment. If EUR will break it then medium-term picture will change. But, retracement also could be smaller. Currently weekly chart doesn't provide any clear information. Based on Pivot point framework, we could suggest - as price has dropped below MPP, it could start moving to MPS1 and previous tops around 1.16-1.17 area...

Daily

So, guys, by brief look at daily chart, it seems that our long-term analysis and discussion has minor sense. Just because we have the floor for coming week around daily OS area and Fib level. And market stands rather close to it.

Yes, we have wider bearish divergence with MACD and it comes at monthly resistance. Thus, this is probably major pattern, but it also long played pattern. Meantime, we could get some shorter patterns and setups first.

Currently intrigue stands around bullish grabber that has been formed on Thursday. Its invalidation point stands very close to daily support of Oversold and Fib level. It means that somewhere in this area we need to watch for intraday bullish patterns. If we will not get any and market will drop through this level - this will be the sign that our divergence takes the lead and deeper retracement starts:

Intraday

In fact, on Friday, by spike up, right after NFP has been released market has formed "222" Sell pattern on hourly chart. This spike also has completed our suggestion of upside action and our H&S target in shape of AB=CD pattern:

At the same time, on 4-hour chart we've got bearish grabbers that suggest drop below recent lows. This, in turn, could lead to erasing of daily grabber:

That's why, taking in consideration sentiment analysis and fundamental issues, I suggest that it would be better to wait how situation will be resolved with these grabbers. May be market will form butterfly "buy" later in the week or some other pattern, but definitely it is not reasonable to take risk right now and go long immediately. Besides, we stand at hazard of possible collapse, if retracement that we've discussed above is starting right now.

Conclusion:

In very long term perspective EUR looks positive as monthly USD index could form huge H&S pattern.

In shorter-term perspective it is unclear yet, whether monthly retracement is starting, or EUR will show some attempt to go higher first. We should get clarity on coming week. If EUR will drop below 1.18 area and erase bullish patterns on daily chart, then deeper retracement starts. But while bullish grabber stands valid, EUR keeps chance on final leg up before retracement.


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.

 

[Joh]

Dear dear Sive

Thank you Sive for another Great detailed report on the status quo of the EUR this week. It is most welcome as are all yr other reports.
The volatility the last year has made it more difficult for me to trade and may be others feel the same.. Am grateful for your reports as they give insights and warnings to stay up to date and encourage flexibility/vigilance in these uncertain times.
Please keep them coming - most appreciated

 

[cosmos]

Hi Sive, I understand that stop grabber means that the institutional traders have grabbed the stops and then reversed the market, but could you please lay out the rules for calling a candle a stop grabber, for instance in the one you refer to last Thursday on the Daily time frame. Also, could you please explain Stretch Pattern to me as I do not know what this is. Thank you. Nice to be back.

 

[csc2009]

Nice work, Sive.

 

[Sive Morten]

Hi Sive, I understand that stop grabber means that the institutional traders have grabbed the stops and then reversed the market, but could you please lay out the rules for calling a candle a stop grabber, for instance in the one you refer to last Thursday on the Daily time frame. Also, could you please explain Stretch Pattern to me as I do not know what this is. Thank you. Nice to be back.

Sure. So, grabber is just a failure of trend shifting. This pattern was invented by DiNapoli. It is relatively fresh because it has not been mentioned in his book. But of course it is not absolutely new, I suspect that it appeared ~7-10 years ago.
To identify grabber you need MACDP (MACD Predictor indicator). Theoretically you could do it with simple MACD, but it is more difficult.
For example we have bullish trend on daily chart by MACD, then one day price drops below MACD Predictor line during the session, but close price appears above MACDP again. It means that trend remains bullish, but intraday traders, who saw trend shift during the session have taken shorts with placing stops somewhere above either previous tops or top of the day (if this is highest point). As trend remains bullish, price continues upside action and grabs stops of those who have taken short position. The similar is correct with bearish setup...

Stretch pattern is described in the book. This is directional pattern, which means by DiNapoli that it takes priority in relation to trend direction. For example, if trend is bullish by MACD, but you've got bearish Stretch - you have to think about short entry. Direction overrules trend.
Stretch is very simple to understand. This is combination of Fib level and Overbought or Oversold. OB/OS level you can estimate by using DOSC indicator or DiNapoli Oscillator Predictor. Thus, if you have Fib resistance+OB - this is bearish Stretch, while Fib support+OS will give you bullish stretch.

Logic is simple - price just can't pass through Fib level that is accompanied by OB or OS. That's why chances on retracement increases significantly. But, Stretch has important specific. As this is counter-trend pattern, price reaction could be different - market could just stay flat for example. Or, could show normal bounce out from Fib level. When you trade Stretch - you should choose nearest targets. Target of stretch pattern is zero line for DOSC indicator or middle between OscP bands. As you understand OscP and DOSC are dynamic indicators - price could stand flat but DOSC and OscP levels will continue to change. Sometimes happens, that price just goes nowhere, but Stretch has completed its target, just because DOSC has reached "0" area.

Very similar to Stretch is "Kiby Trade" setup. This is also directional pattern and is a combination of AB-CD extension (Instead of Fib level) with OB or OS. It trades a bit differently. Let's say we have upside AB-CD target combined with Overbought. You need to drop time frame for 1 step wait when trend will turn bearish and then sell first minor upside retracement. Target will be some intraday Fib extension AB-CD of different ratios or strong support that stands somewhere below your entry.

You also could ask Butcher on this subject - he has visited private DiNapoli Seminars, so, may be he even knows more details about this stuff.

 

[Sive Morten]

Good morning,

(Reuters) - The dollar slipped against the Japanese yen and Swiss franc on Tuesday as global tensions simmered amid signs that North Korea could conduct more missile tests.

The U.S. currency was down 0.4 percent at 109.335 yen, nearing a low of 109.220 hit the previous day in a knee-jerk reaction to North Korea’s hydrogen bomb test on Sunday.

The Swiss franc advanced 0.2 percent at $0.9548 franc per dollar, adding to gains from Monday, when it rose 0.7 percent.

Geopolitical tensions flared anew after North Korea conducted a powerful nuclear test on Sunday. The region has remained nervous, bracing for more ballistic missile tests amid perceived signs of activity by Pyongyang ahead of Sept. 9, when the country marks its founding day.

North Korea has been observed moving what appeared to be an intercontinental ballistic missile (ICBM) towards its west coast, South Korea’s Asia Business Daily reported on Tuesday, citing an unidentified intelligence source.

“The situation in North Korea poses risks for the market with no clear end in sight, limiting any bargain hunting for the dollar,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust.


“It is a contingency, like an earthquake, and participants are approaching it as such. For example you won’t buy the yen just because you expect an earthquake, but you can always be poised to react to such an emergency.”

The euro gained 0.15 percent to $1.1907, edging back towards Monday’s high of $1.1922.

The common currency had risen to a 2-1/2-year high of $1.2070 a week ago and the focus was on whether it could remain on an uptrend after Thursday’s European Central Bank policy meeting.

The euro has drawn a boost on expectations that the ECB would begin exiting its massive quantitative easing policy sooner rather than later.

Many economists had initially expected the central bank to announce a reduction in September to its monthly asset purchases, but a majority now sees the ECB making the announcement in October instead.

“It would seem a risky move for the ECB to declare an end to its asset purchase programme at this juncture when the details and potential outcome of the Italian elections are still unclear,” said Daisuke Karakama, chief market economist at Mizuho Bank.

Italy is scheduled to hold elections early in 2018.

Dollar bulls meanwhile may look to U.S. political developments for potential support.

The Federal Reserve’s Sept. 19-20 policy meeting and discussions over the U.S. debt ceiling could ultimately support the dollar later this month, said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

The U.S. Treasury Department has a Sept. 29 deadline to raise the debt limit, a legal cap on how much the U.S. government is allowed to borrow.

Only the U.S. Congress can raise the debt limit and expectations have risen that the ceiling would not affect Federal efforts to clean up after Hurricane Harvey.

The dollar index against a basket of six major currencies slipped 0.15 percent to 92.503.

Against a broadly sagging greenback the Australian dollar was up 0.25 percent at $0.7962, edging back towards a one-month high of $0.7997 set on Friday.

Today guys, we will take a look at CHF, but also will make parallel relation to EUR. Franc is just bring better picture, in a light of N. Korea tensions. Last week we've talked on possible H&S pattern, that was damaged by too deep spike on NFP release, and may be it will shift to Double Bottom, who knows, but know we're mostly interested in different subject - most recent upside swing and retracement back inside of it. Since retracement has started, price has formed two different bearish grabbers. That's why we need to watch for deeper retracement here:

It means that on hourly chart we could get nice "222" Buy pattern around major 5/8 Fib support:

It is possible that we could get deeper AB-CD, may be 1.618 AB-CD if some new information will appear around N. Korea. But right now, technical issues suggest to keep an eye on 0.9520 area, because the slope of CD leg is flatter, that's why we're looking for nearest target and support area.

On EUR currency as we also have agreed to wait how situation will be resolved around 4-hour bearish grabbers, we could get another "222" Sell pattern. It will be not as strong as CHF, but mostly in the same direction:

Later this pattern could become a part of large Butterfly "buy".

 

[cosmos]

Sure. So, grabber is just a failure of trend shifting. This pattern was invented by DiNapoli. It is relatively fresh because it has not been mentioned in his book. But of course it is not absolutely new, I suspect that it appeared ~7-10 years ago.
To identify grabber you need MACDP (MACD Predictor indicator). Theoretically you could do it with simple MACD, but it is more difficult.
For example we have bullish trend on daily chart by MACD, then one day price drops below MACD Predictor line during the session, but close price appears above MACDP again. It means that trend remains bullish, but intraday traders, who saw trend shift during the session have taken shorts with placing stops somewhere above either previous tops or top of the day (if this is highest point). As trend remains bullish, price continues upside action and grabs stops of those who have taken short position. The similar is correct with bearish setup...

Stretch pattern is described in the book. This is directional pattern, which means by DiNapoli that it takes priority in relation to trend direction. For example, if trend is bullish by MACD, but you've got bearish Stretch - you have to think about short entry. Direction overrules trend.
Stretch is very simple to understand. This is combination of Fib level and Overbought or Oversold. OB/OS level you can estimate by using DOSC indicator or DiNapoli Oscillator Predictor. Thus, if you have Fib resistance+OB - this is bearish Stretch, while Fib support+OS will give you bullish stretch.

Logic is simple - price just can't pass through Fib level that is accompanied by OB or OS. That's why chances on retracement increases significantly. But, Stretch has important specific. As this is counter-trend pattern, price reaction could be different - market could just stay flat for example. Or, could show normal bounce out from Fib level. When you trade Stretch - you should choose nearest targets. Target of stretch pattern is zero line for DOSC indicator or middle between OscP bands. As you understand OscP and DOSC are dynamic indicators - price could stand flat but DOSC and OscP levels will continue to change. Sometimes happens, that price just goes nowhere, but Stretch has completed its target, just because DOSC has reached "0" area.

Very similar to Stretch is "Kiby Trade" setup. This is also directional pattern and is a combination of AB-CD extension (Instead of Fib level) with OB or OS. It trades a bit differently. Let's say we have upside AB-CD target combined with Overbought. You need to drop time frame for 1 step wait when trend will turn bearish and then sell first minor upside retracement. Target will be some intraday Fib extension AB-CD of different ratios or strong support that stands somewhere below your entry.

You also could ask Butcher on this subject - he has visited private DiNapoli Seminars, so, may be he even knows more details about this stuff.

Thank you, Sive, this is very helpful. I do have Joe DiNapoli's book, so I will review the Stretch pattern in there as well. Please tell me what the word "kiby" stand for. Thanks again!

 

[yousimon]

Thank you, Sive, this is very helpful. I do have Joe DiNapoli's book, so I will review the Stretch pattern in there as well. Please tell me what the word "kiby" stand for. Thanks again!

Kiss and bye

 

[Sive Morten]

Good morning,

(Reuters) - The U.S. dollar was on course for its biggest daily percentage decline against the safe-haven yen in more than three months on Tuesday on concern about North Korea’s largest nuclear test and a Federal Reserve official’s comments about low U.S. inflation.

The dollar fell as much as 1 percent against the Japanese currency to 108.65 yen, its lowest since Aug. 29 after North Korea conducted its sixth and biggest nuclear test two days ago. The dollar was last set for its biggest daily drop against the yen since mid-May.

A top North Korean diplomat warned that his country was ready to send “more gift packages” to the United States as world powers struggled for a response to Pyongyang’s latest nuclear weapons test.


The dollar index, which measures the greenback against a basket of six major rivals, fell as much as 0.5 percent to a session low of 92.183 and was set for its biggest daily percentage decline in eight days.

The dollar fell as much as 0.4 percent against the Swiss franc, another safe-haven currency, on the risks surrounding North Korea to a session low of 0.9545 franc .

“It’s a more risk-averse picture,” said Vassili Serebriakov, FX strategist at Credit Agricole in New York. “North Korea accounts for most of it.”

Federal Reserve Governor Lael Brainard said inflation was “well short” of target, so the Fed should be cautious about raising U.S. interest rates.

Analysts said the comments cast more doubt over the likelihood of another rate hike this year. Brainard, a permanent voting member on the Fed’s monetary policy committee, has in the past convinced colleagues to delay tightening.

“Brainard sounded fairly dovish, and talked about inflation tracking lower,” said David Gilmore, partner at FX Analytics in Essex, Connecticut. “That does not sound like someone inclined to vote for a rate hike in December.”

The Fed has raised rates twice this year. Investors have since grown skeptical and now give a December rate hike a 27 percent probability, down from 30 percent before Brainard spoke.

The euro gained as much as 0.4 percent to $1.1939 ahead of a European Central Bank policy meeting. That was still below a more than 2-1/2-year high of $1.2069 touched last week. The euro gained even as analysts expect ECB policymakers might voice some concerns at the meeting about the euro's strength.

Today, guys, we again will take a look at our CHF and EUR setups combination. As you know ECB meeting is coming and probably it will be major driving factor now. That's why flat standing that we see on EUR - may be it carries no big technical information but just indicates investors waiting for ECB. Still, if you compare previous drop and current action - the pace is very different. Currently market shows flat action, no signs of thrust, choppy and overlapping candles. All this moments are signs of retracement. Putting it's together - technically some downside action looks more probable right now. At it could take a shape of butterfly here:

The same story we see right now on CHF. Market is coming closer to completion of our "222" Buy Setup. Probably it could be completed today. This could trigger upside action:

That's the technical setups that we have right now. It is understandable that as ECB as geopolitics could overrule technical picture. But, as these factors stand beyond of our control, it is not big sense to gamble what they could bring on markets.

 

[Lolly Tripathy]

True definition