Sive Morten
Special Consultant to the FPA
- Messages
- 18,655
Fundamentals
Reuters reports dollar drifted lower on Friday in thin, listless trading ahead of next week's Federal Reserve policymaking meeting that may yield the first interest rate increase in the United States in nearly a decade.
The dollar index, a basket of currencies valued against the dollar, traded in a small range and rose briefly when the government reported U.S. producer prices were unexpectedly flat during August.
Tame inflation, combined with a rapidly tightening labor market, are a dilemma for the Fed officials meeting Wednesday and Thursday to contemplate raising rates. A policy statement will be issued on Thursday.
Investors and currencies analysts were divided over whether a rate hike was likely and would keep the dollar in a tight trading band through next week, according to Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
"A lot of investors are willing to remain sidelined until we either get some sort of macro development or some sort of clearer indication that the Fed is more biased toward either raising rates or not raising rates," Esiner said.
Another economic indicator issued on Friday, The University of Michigan's preliminary September reading on overall U.S. consumer sentiment index, was unexpectedly soft and briefly knocked the dollar down before it regained the losses.
The September survey slid to 85.7, compared with the final reading of 91.9 in August and a median forecast of 91.2.
The dollar index was last off 0.35 percent and reflected a 0.60 percent decline in the dollar against the euro . The yen was flat against the dollar at 120.5 yen and mixed against other major currencies.
The dollar gave up early gains against the Swiss franc and was last off 0.50 percent to 0.9888 franc.
The franc also weakened to more than 1.10 francs per euro for the first time since the Swiss National Bank lifted a currency cap last January.
The franc's move reflected some easing of the anxiety afflicting markets in the past month, with dealers saying the franc had been hit by a trimming of bets on the franc by long-term investors.
"The break of the psychological resistance at 1.1000 has triggered heavy franc selling," said Peter Rosenstreich, head of Market Strategy at Swissquote Bank.
"Should larger, macro risk events hit the market, such as Greek uncertainty or China growth worries, we will see a flight back to the safe-haven franc."
CFTC data does not show big changes last week. Short positions slightly have increased while longs mostly stands the same. But here we should take a look at longer time period. Thus, since May we see solid downtrend in bearish speculative positions and upside trend in bullish positions. At the same time we have to acknowledge that they are a bit different scale. Shorts are 3 times greater than longs and although they have contracted for 100K+ contracts, they still 2 times greater.
Second important moment is overall drop in Open interest. Since May total investors' positions in EUR have contracted for 30%. It could indicate some dropping in economic activity foreign countries with EU - mutual export/import contraction, thus hedgers have decreased positions. As cutting EUR exposition by financial investors, so they could express some caution on perspectives of EUR investments.
Open interest:
Speculative shorts:
Speculative Longs
Other hot topic is refugees of cause. Definitely this will impact on EU financial system soon, so despite what picture of long-term perspective we will get today - it could change fast under impact of geopolitical factors.
Thus, currently some messages from Munich comes, that refugees are trying to challenge University campus building and hotels to live there. There are more conflicts with police, and this is only beginning...I will not even try to make any forecasts on perspectives of these events and possible turmoil that they could trigger. The most scaring event that EU could meet is massive rising of black flags of Khalifat on demonstrations... but something tells me that we will see it.
Technicals
Actually, guys, EUR does not bring right now any bright setups. But we've said everything on GBP last week, CAD just needs to completed 1.34 target and everything was said here either. Other currencies have not formed any clear patterns or setups, that's why we will update our view on EUR, but do not expect something thrilling today.
If you remember when we've spoken on EUR last time we had a concern on what we will get B&B or DRPO?
Right now situation partially was resolved and we've got second close above 3x3 DMA, and market even stands in upside action in September. Still, there are big event in perspective - Fed meeting and situation could change drastically. Besides, as we've said above, refugees' collapse brings news every day and situation changes rapidly.
So, DRPO... It looks curious. We have no recognizable second bottom as usually it should to, also we have this untypical spike up that confuses the idea and market mechanics of DRPO.
Overall shape mostly reminds bearish flag and logically it better agrees with all this stuff that now stands in EU. Besides, here, on monthly chart we have another issue - possible bearish grabber that could be formed in September. Now price is crossing MACDP line but the major question what will be close price. Thus, except suspicious DRPO we have no bullish patterns here.
It means that next possible target @1.22 currently stands under question. It should follow from DRPO, but due to the reasons that we've placed above, we can't rely on it.
Finally despite the depth of current upside retracement, we still will treat it as bounce, if even EUR will reach 1.20-1.22 area. Market too long stands in downward action, especially during recent year and market has solid bearish momentum. Also take a look at butterfly pattern. Here we see definite acceleration right to 1.27 target point. Usually it leads market to next 1.618 target after retracement.
So, monthly analysis tells that we do not have yet any clear long-term direction, or better to say we have bullish directional pattern - DRPO "Buy", but it looks suspicious as well as market action. It means that we need something else to create reliable trading plan.
Weekly
Here we have moderately bullish setup. Trend is bullish. Although we easily could recognize here potentially bearish pattern - flag, where market stands right now, but it does not mean that breakout should happen immediately. EUR could stay inside the flag a bit longer and even could complete another swing up. Right now market stands above MPP.
If we will take a scrutiny look previous downward action inside the flag, then you'll see that it was compounded and took the shape of AB-CD. Currently market has done a harmonic swing down, i.e. current move down equals AB leg of previous retracement. So it leads us to the thought that maybe another leg down is possible right to lower border of the flag and current move up is some sort of BC leg. But as you can see, if even market will drop to lower border of the flag - it will keep trend bullish by MACD.
Only if EUR will drop below 1.08 lows - trend will shift bearish and upside wide AB=CD will be broken. This will be bearish sign and probably will lead market to 1.04 lows again at the least.
Now to think again on possible long entry we need to get reversal on daily chart and wait when daily trend will shift bullish. Last week this was a question on daily-intraday scale, while right now it comes on higher level and becomes the scale of weekly-daily frame as daily chart has turned bearish.
Daily
Here unfortunately we hardly will be able to come to definite opinion on EUR perspectives. Too many different scenarios are forming.
For example, inside channels and flags markets mostly show harmonic action. Following this logic we could suggest that EUR could creep slightly higher but later should turn downside with some AB=CD pattern, since previous retracement was also 2-leg. Besides, EUR keeps harmonic swing very well (see green line).
At the same time market has stuck in our major support area - K-support and major 50% support and right now shows upside action. Since butterfly has been formed, market has shown reasonable respect and retracement and right now are turning to upside continuation.
Finally, on Friday we've got bearish grabber and trend has not turned bullish yet. That's being said, we probably should wait grabber's failure and final trend shifting before thinking about long entry.
Conversely, bearish grabber is temptation also, since market has closed near its top that is also invalidation point. That gives very attractive risk/reward trade.
What conclusion we could make from all this stuff? Since we have mostly bullish context on weekly chart, here we need to get confirmation - grabber failure and trend shifting to bullish as well. Only after that we could think about long entry.
Scalp traders could try to ride on grabber (what if it will work and market will turn down? This is also possible), especially because risk of this trade very small.
Now let's take a look at intraday charts and try to find any additional clues
4-hour
Not much additional information we have here. Last week market has closed above WPR1 (not shown) and it could mean that current upside action is not just retracement and market really could move higher.
At the same time the shape of upside action looks a bit choppy, no signs of thrust or they have appeared just recently.
Another important issue that relatively supports idea of the grabber is uncompleted 1.618 AB-CD target. Market slightly has not reached it and turned north.
Since here we do not have rock hard confirmation of bullish reversal, the conclusion will be the same - wait for trend shifting into bullish on daily chart (or try to trade grabber down - choose what you like)
Conclusion
EUR forms very contradictory signs on different time frames. If long-term charts still have weak but bullish setup, daily and lower charts have not been formed necessary conditions for taking long positions. That's why we have to wait for daily trend change to bullish for long entry, or try to make scalp trade on bearish grabber that has been formed recently.
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 dollar drifted lower on Friday in thin, listless trading ahead of next week's Federal Reserve policymaking meeting that may yield the first interest rate increase in the United States in nearly a decade.
The dollar index, a basket of currencies valued against the dollar, traded in a small range and rose briefly when the government reported U.S. producer prices were unexpectedly flat during August.
Tame inflation, combined with a rapidly tightening labor market, are a dilemma for the Fed officials meeting Wednesday and Thursday to contemplate raising rates. A policy statement will be issued on Thursday.
Investors and currencies analysts were divided over whether a rate hike was likely and would keep the dollar in a tight trading band through next week, according to Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
"A lot of investors are willing to remain sidelined until we either get some sort of macro development or some sort of clearer indication that the Fed is more biased toward either raising rates or not raising rates," Esiner said.
Another economic indicator issued on Friday, The University of Michigan's preliminary September reading on overall U.S. consumer sentiment index, was unexpectedly soft and briefly knocked the dollar down before it regained the losses.
The September survey slid to 85.7, compared with the final reading of 91.9 in August and a median forecast of 91.2.
The dollar index was last off 0.35 percent and reflected a 0.60 percent decline in the dollar against the euro . The yen was flat against the dollar at 120.5 yen and mixed against other major currencies.
The dollar gave up early gains against the Swiss franc and was last off 0.50 percent to 0.9888 franc.
The franc also weakened to more than 1.10 francs per euro for the first time since the Swiss National Bank lifted a currency cap last January.
The franc's move reflected some easing of the anxiety afflicting markets in the past month, with dealers saying the franc had been hit by a trimming of bets on the franc by long-term investors.
"The break of the psychological resistance at 1.1000 has triggered heavy franc selling," said Peter Rosenstreich, head of Market Strategy at Swissquote Bank.
"Should larger, macro risk events hit the market, such as Greek uncertainty or China growth worries, we will see a flight back to the safe-haven franc."
CFTC data does not show big changes last week. Short positions slightly have increased while longs mostly stands the same. But here we should take a look at longer time period. Thus, since May we see solid downtrend in bearish speculative positions and upside trend in bullish positions. At the same time we have to acknowledge that they are a bit different scale. Shorts are 3 times greater than longs and although they have contracted for 100K+ contracts, they still 2 times greater.
Second important moment is overall drop in Open interest. Since May total investors' positions in EUR have contracted for 30%. It could indicate some dropping in economic activity foreign countries with EU - mutual export/import contraction, thus hedgers have decreased positions. As cutting EUR exposition by financial investors, so they could express some caution on perspectives of EUR investments.
Open interest:
Thus, currently some messages from Munich comes, that refugees are trying to challenge University campus building and hotels to live there. There are more conflicts with police, and this is only beginning...I will not even try to make any forecasts on perspectives of these events and possible turmoil that they could trigger. The most scaring event that EU could meet is massive rising of black flags of Khalifat on demonstrations... but something tells me that we will see it.
Technicals
Actually, guys, EUR does not bring right now any bright setups. But we've said everything on GBP last week, CAD just needs to completed 1.34 target and everything was said here either. Other currencies have not formed any clear patterns or setups, that's why we will update our view on EUR, but do not expect something thrilling today.
If you remember when we've spoken on EUR last time we had a concern on what we will get B&B or DRPO?
Right now situation partially was resolved and we've got second close above 3x3 DMA, and market even stands in upside action in September. Still, there are big event in perspective - Fed meeting and situation could change drastically. Besides, as we've said above, refugees' collapse brings news every day and situation changes rapidly.
So, DRPO... It looks curious. We have no recognizable second bottom as usually it should to, also we have this untypical spike up that confuses the idea and market mechanics of DRPO.
Overall shape mostly reminds bearish flag and logically it better agrees with all this stuff that now stands in EU. Besides, here, on monthly chart we have another issue - possible bearish grabber that could be formed in September. Now price is crossing MACDP line but the major question what will be close price. Thus, except suspicious DRPO we have no bullish patterns here.
It means that next possible target @1.22 currently stands under question. It should follow from DRPO, but due to the reasons that we've placed above, we can't rely on it.
Finally despite the depth of current upside retracement, we still will treat it as bounce, if even EUR will reach 1.20-1.22 area. Market too long stands in downward action, especially during recent year and market has solid bearish momentum. Also take a look at butterfly pattern. Here we see definite acceleration right to 1.27 target point. Usually it leads market to next 1.618 target after retracement.
So, monthly analysis tells that we do not have yet any clear long-term direction, or better to say we have bullish directional pattern - DRPO "Buy", but it looks suspicious as well as market action. It means that we need something else to create reliable trading plan.
Weekly
Here we have moderately bullish setup. Trend is bullish. Although we easily could recognize here potentially bearish pattern - flag, where market stands right now, but it does not mean that breakout should happen immediately. EUR could stay inside the flag a bit longer and even could complete another swing up. Right now market stands above MPP.
If we will take a scrutiny look previous downward action inside the flag, then you'll see that it was compounded and took the shape of AB-CD. Currently market has done a harmonic swing down, i.e. current move down equals AB leg of previous retracement. So it leads us to the thought that maybe another leg down is possible right to lower border of the flag and current move up is some sort of BC leg. But as you can see, if even market will drop to lower border of the flag - it will keep trend bullish by MACD.
Only if EUR will drop below 1.08 lows - trend will shift bearish and upside wide AB=CD will be broken. This will be bearish sign and probably will lead market to 1.04 lows again at the least.
Now to think again on possible long entry we need to get reversal on daily chart and wait when daily trend will shift bullish. Last week this was a question on daily-intraday scale, while right now it comes on higher level and becomes the scale of weekly-daily frame as daily chart has turned bearish.
Daily
Here unfortunately we hardly will be able to come to definite opinion on EUR perspectives. Too many different scenarios are forming.
For example, inside channels and flags markets mostly show harmonic action. Following this logic we could suggest that EUR could creep slightly higher but later should turn downside with some AB=CD pattern, since previous retracement was also 2-leg. Besides, EUR keeps harmonic swing very well (see green line).
At the same time market has stuck in our major support area - K-support and major 50% support and right now shows upside action. Since butterfly has been formed, market has shown reasonable respect and retracement and right now are turning to upside continuation.
Finally, on Friday we've got bearish grabber and trend has not turned bullish yet. That's being said, we probably should wait grabber's failure and final trend shifting before thinking about long entry.
Conversely, bearish grabber is temptation also, since market has closed near its top that is also invalidation point. That gives very attractive risk/reward trade.
What conclusion we could make from all this stuff? Since we have mostly bullish context on weekly chart, here we need to get confirmation - grabber failure and trend shifting to bullish as well. Only after that we could think about long entry.
Scalp traders could try to ride on grabber (what if it will work and market will turn down? This is also possible), especially because risk of this trade very small.
Now let's take a look at intraday charts and try to find any additional clues
4-hour
Not much additional information we have here. Last week market has closed above WPR1 (not shown) and it could mean that current upside action is not just retracement and market really could move higher.
At the same time the shape of upside action looks a bit choppy, no signs of thrust or they have appeared just recently.
Another important issue that relatively supports idea of the grabber is uncompleted 1.618 AB-CD target. Market slightly has not reached it and turned north.
Since here we do not have rock hard confirmation of bullish reversal, the conclusion will be the same - wait for trend shifting into bullish on daily chart (or try to trade grabber down - choose what you like)
Conclusion
EUR forms very contradictory signs on different time frames. If long-term charts still have weak but bullish setup, daily and lower charts have not been formed necessary conditions for taking long positions. That's why we have to wait for daily trend change to bullish for long entry, or try to make scalp trade on bearish grabber that has been formed recently.
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.
