Sive Morten
Special Consultant to the FPA
- Messages
- 18,564
Fundamentals
Reuters reports U.S. dollar hit multi-week lows against the euro and Swiss franc on Friday, the day after minutes from the Federal Reserve's September meeting bolstered expectations for a later interest rate hike, while growth-linked currencies surged.
The dollar index, which measures the greenback against a basket of six major currencies, was set for its second straight week of losses after the minutes focused on external factors depressing the outlook for inflation.
Investors "certainly looked at what the minutes of the meeting said, and that encouraged people to position themselves for the dollar to sell off," said Lane Newman, director of foreign exchange at ING Capital Markets in New York.
The euro hit a three-week high against the greenback of $1.13875 and was set to mark its highest percentage gain against the dollar in four weeks, at 1.3 percent. The dollar hit a three-week low against the Swiss franc of 0.95870 franc, while the dollar index also hit a three-week low of 94.692.
The dollar rose, however, against the safe-haven yen as the outlook for accommodative central bank policy around the world drove traders into riskier currencies.
The Australian dollar hit a 7-week high against the greenback of $0.7344 and was set for its strongest weekly performance since late 2011 on gains in commodity prices and the view that accommodative central bank policies would support global growth.
The New Zealand dollar, another commodity currency, hit a more than 10-week high against the dollar of $0.6722 .
Some riskier emerging market currencies also gained against the dollar on the outlook for accommodative central bank policy. The dollar was last down 0.82 percent against the Brazilian real to trade at 3.7522 reals after hitting a more than five-week low of 3.7239 reals earlier in the session.
"Metals had a good day, which is good for commodity currencies, and central banks are not removing accommodation, which is good news as well for risk appetite," said Richard Franulovich, senior currency strategist at Westpac in New York.
External news background shows nothing new though. As we've said recently, it is definitely, geopolitics stands on first stage right now - not Fed rate, not crude oil storage, but geopolitics. This leads us to conclusion that degree of uncertainty will hold for considerable period of time, since specific of geopolitical games stands mostly in secrecy that stands under curtain of events that you see on TV and in the net. The point is that activity of political leaders increases tremendously during events of this kind, situation changes very fast. Since just small part of information comes to public, this holds markets in tension. That's why it seems that commodity currencies could become more interesting for trading activity in nearest future.
Today we will continue to create our portfolio of trading setups on commodity currencies. Thus, on Friday we've talked on NZD. Today we will take a look at CAD. Besides, CAD is close to us, since just recently we've traded very cool setup that was completed by reaching of 1.34 target.
As usual, let's start with COT data.
CFTC shows solid drop in open interest in CAD since August:
Speculative long positions stands at very low level ~ 28K contracts. This is almost lowest level since 2002. Every time when market reached this level previously - it turns to upside action.
Shorts also has started to decrease, but the pace is not as strong. Still, take a look as soon as CAD has reached our 1.34 target - almost 15K contracts were closed.
Right now short-to-total range stands around 70%. This is not critical value, but close to it. Besides, critical level was reach in mid-August where ratio was around 80%. That's being said, current action could mean the process of reversal.
CAD, as we know has great correlation with Crude Oil. Here we see some shift are coming. Mass media have explained last jump in oil prices by changes in US storage. But we doubt that this is real reason. Too strong for reaction on weekly data.
Finally, recall our recent talks on monthly Dollar Index. It has confirmed DRPO "Sell", but simultaneously has formed bullish grabber. And there was a bit contradiction here. But right now market is starting move down and grabber stands under the menace of failure, as soon as price will drop below its low.
At the same time market has untouched 1.618 target, but appearing of DRPO does not contradict to it. Market could reach 50% support of DRPO thrust and then turn to the upside. What is more important to us, is that in short-term perspective bearish action for USD could continue:
Thus, by keeping all this stuff in mind, let's turn to technical part.
Technicals
Monthly
Right now we see that market has hit our 1.34 long term target. In general this target is very strong resistance. Although market is not at overbought, but combination of AB=CD target and major 5/8 Fib level creates an Agreement resistance. If even market will continue move higher later, it should show respect to this resistance by at least minimal retracement, which is 3/8 Fib support @ 1.19 area.
That is our major assumption here. Currently it is difficult to imagine what could become a reason for further CAD weakness, if even crude will drop to 15-20$, hardly CAD will reach next 1.60 target. It probably will need some domestic problems. Anyway, currently we don't care. What is important for us - CAD at rock hard resistance and is starting show response. W&R here has little chance to happen, because major target already has been hit.
Weekly
Here trend has turned bearish already. Market shows three important things here. First of all - it has finalized upward action and monthly AB=CD by reversal pattern - bearish 1.618 Butterfly. Second - market has dropped below MPS1. This moment tells that we're not in just retracement within bull trend. We're on a new bear trend. Third moment - market stands at oversold and very close to support area of 1.2870. This is not just Fib level, this is also previous top area.
As soon as market will reach it, we could get:
a) Completion of minimal butterfly target;
b) Bullish Stretch pattern which suggest upside retracement;
c) Possible B&B "Buy" pattern.
This gives us two major conclusions. First is we could trade weekly B&B "Buy" + Stretch setup on long side of the market. But major one - we should get upside rally that we will be able to Sell and take short position on our major setup on CAD
Daily
Daily trend also stands bearish. Since downturn was really fast, here, guys we do not have any clear patterns or extensions that could clear show us possible destination of first leg down. Market also stands at oversold.
Meantime we could use as approximation of possible support the same 1.28-1.2850 area. Probably market will touch it and use as background for upside retracement.
It is interesting that this level also will be WPS1. Based on action on higher time frames and taking in consideration market oversold at weekly and daily chart, retracement should be significant, I would say 50-61.8%. It means that it could reach WPR1 and this will become another check point. If market will fail pass through it - this will be another confirmation of CAD bearishness (I mean USD/CAD of cause).
4-hour
On intraday charts, guys, we do not have any clarity yet. Probably some pattern should be formed that will put the foundation to upward reversal, but now we see no hints yet, only steep downward channel. Lower border coincides with 1.2850 area, but nothing more yet.
Conclusion:
As CAD has hit major monthly target it should response on it. No matter what fundamental factors will stand behind CAD, they could be super bullish for it, but technically market should show at least minor bounce. This "minor" means at least 1.19 area. Our monitoring of the CAD will have an aim to join this possible action.
At the same time in short-term perspective we could get minor bullish setups, since market right now oversold on weekly and daily chart and needs some relief.
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.
Reuters reports U.S. dollar hit multi-week lows against the euro and Swiss franc on Friday, the day after minutes from the Federal Reserve's September meeting bolstered expectations for a later interest rate hike, while growth-linked currencies surged.
The dollar index, which measures the greenback against a basket of six major currencies, was set for its second straight week of losses after the minutes focused on external factors depressing the outlook for inflation.
Investors "certainly looked at what the minutes of the meeting said, and that encouraged people to position themselves for the dollar to sell off," said Lane Newman, director of foreign exchange at ING Capital Markets in New York.
The euro hit a three-week high against the greenback of $1.13875 and was set to mark its highest percentage gain against the dollar in four weeks, at 1.3 percent. The dollar hit a three-week low against the Swiss franc of 0.95870 franc, while the dollar index also hit a three-week low of 94.692.
The dollar rose, however, against the safe-haven yen as the outlook for accommodative central bank policy around the world drove traders into riskier currencies.
The Australian dollar hit a 7-week high against the greenback of $0.7344 and was set for its strongest weekly performance since late 2011 on gains in commodity prices and the view that accommodative central bank policies would support global growth.
The New Zealand dollar, another commodity currency, hit a more than 10-week high against the dollar of $0.6722 .
Some riskier emerging market currencies also gained against the dollar on the outlook for accommodative central bank policy. The dollar was last down 0.82 percent against the Brazilian real to trade at 3.7522 reals after hitting a more than five-week low of 3.7239 reals earlier in the session.
"Metals had a good day, which is good for commodity currencies, and central banks are not removing accommodation, which is good news as well for risk appetite," said Richard Franulovich, senior currency strategist at Westpac in New York.
External news background shows nothing new though. As we've said recently, it is definitely, geopolitics stands on first stage right now - not Fed rate, not crude oil storage, but geopolitics. This leads us to conclusion that degree of uncertainty will hold for considerable period of time, since specific of geopolitical games stands mostly in secrecy that stands under curtain of events that you see on TV and in the net. The point is that activity of political leaders increases tremendously during events of this kind, situation changes very fast. Since just small part of information comes to public, this holds markets in tension. That's why it seems that commodity currencies could become more interesting for trading activity in nearest future.
Today we will continue to create our portfolio of trading setups on commodity currencies. Thus, on Friday we've talked on NZD. Today we will take a look at CAD. Besides, CAD is close to us, since just recently we've traded very cool setup that was completed by reaching of 1.34 target.
As usual, let's start with COT data.
CFTC shows solid drop in open interest in CAD since August:
Speculative long positions stands at very low level ~ 28K contracts. This is almost lowest level since 2002. Every time when market reached this level previously - it turns to upside action.
Shorts also has started to decrease, but the pace is not as strong. Still, take a look as soon as CAD has reached our 1.34 target - almost 15K contracts were closed.
Right now short-to-total range stands around 70%. This is not critical value, but close to it. Besides, critical level was reach in mid-August where ratio was around 80%. That's being said, current action could mean the process of reversal.
CAD, as we know has great correlation with Crude Oil. Here we see some shift are coming. Mass media have explained last jump in oil prices by changes in US storage. But we doubt that this is real reason. Too strong for reaction on weekly data.
Finally, recall our recent talks on monthly Dollar Index. It has confirmed DRPO "Sell", but simultaneously has formed bullish grabber. And there was a bit contradiction here. But right now market is starting move down and grabber stands under the menace of failure, as soon as price will drop below its low.
At the same time market has untouched 1.618 target, but appearing of DRPO does not contradict to it. Market could reach 50% support of DRPO thrust and then turn to the upside. What is more important to us, is that in short-term perspective bearish action for USD could continue:
Thus, by keeping all this stuff in mind, let's turn to technical part.
Technicals
Monthly
Right now we see that market has hit our 1.34 long term target. In general this target is very strong resistance. Although market is not at overbought, but combination of AB=CD target and major 5/8 Fib level creates an Agreement resistance. If even market will continue move higher later, it should show respect to this resistance by at least minimal retracement, which is 3/8 Fib support @ 1.19 area.
That is our major assumption here. Currently it is difficult to imagine what could become a reason for further CAD weakness, if even crude will drop to 15-20$, hardly CAD will reach next 1.60 target. It probably will need some domestic problems. Anyway, currently we don't care. What is important for us - CAD at rock hard resistance and is starting show response. W&R here has little chance to happen, because major target already has been hit.
Weekly
Here trend has turned bearish already. Market shows three important things here. First of all - it has finalized upward action and monthly AB=CD by reversal pattern - bearish 1.618 Butterfly. Second - market has dropped below MPS1. This moment tells that we're not in just retracement within bull trend. We're on a new bear trend. Third moment - market stands at oversold and very close to support area of 1.2870. This is not just Fib level, this is also previous top area.
As soon as market will reach it, we could get:
a) Completion of minimal butterfly target;
b) Bullish Stretch pattern which suggest upside retracement;
c) Possible B&B "Buy" pattern.
This gives us two major conclusions. First is we could trade weekly B&B "Buy" + Stretch setup on long side of the market. But major one - we should get upside rally that we will be able to Sell and take short position on our major setup on CAD
Daily
Daily trend also stands bearish. Since downturn was really fast, here, guys we do not have any clear patterns or extensions that could clear show us possible destination of first leg down. Market also stands at oversold.
Meantime we could use as approximation of possible support the same 1.28-1.2850 area. Probably market will touch it and use as background for upside retracement.
It is interesting that this level also will be WPS1. Based on action on higher time frames and taking in consideration market oversold at weekly and daily chart, retracement should be significant, I would say 50-61.8%. It means that it could reach WPR1 and this will become another check point. If market will fail pass through it - this will be another confirmation of CAD bearishness (I mean USD/CAD of cause).
4-hour
On intraday charts, guys, we do not have any clarity yet. Probably some pattern should be formed that will put the foundation to upward reversal, but now we see no hints yet, only steep downward channel. Lower border coincides with 1.2850 area, but nothing more yet.
Conclusion:
As CAD has hit major monthly target it should response on it. No matter what fundamental factors will stand behind CAD, they could be super bullish for it, but technically market should show at least minor bounce. This "minor" means at least 1.19 area. Our monitoring of the CAD will have an aim to join this possible action.
At the same time in short-term perspective we could get minor bullish setups, since market right now oversold on weekly and daily chart and needs some relief.
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.