FOREX PRO WEEKLY #2, December 26-30, 2016

Sive Morten

Special Consultant to the FPA
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Fundamentals

(Reuters) - Gold edged higher on Friday as the dollar retreated from this week's 14-year high and some buyers were tempted to take advantage of prices near a 10-month low after six weeks of decline.

Volumes were thin as traders prepared for a long weekend. All floor trading for precious and base metals options will be shut on Monday, Dec. 26 for the Christmas holiday. Bullion has fallen more than $200 an ounce from the peak it hit after Donald Trump's U.S. presidential election victory on Nov. 8, reaching a low last week of $1,122.35, as his win sparked a dollar rally and drove U.S. Treasury yields higher.

It is down 14 percent this quarter, paring its gain for the year to 6.7 percent. Gold posted its biggest quarterly increase in 30 years between January and March. Spot gold was up 0.32 pct at $1,132.24 per ounce by 1:50
p.m. EST (1850 GMT), but still set to finish the week lower for a sixth straight week.

The most-active U.S. gold futures for February delivery settled up $2.90, or 0.26 percent, at $1,133.60 per
ounce. "The market is trying to base right now," said Eli Tesfaye, senior market strategist for brokerage RJO Futures in Chicago. "Unless there are geopolitical concerns, the path of least resistance is to the downside."

The dollar eased against a basket of currencies, off highs hit after this month's Federal Reserve policy meeting. The bank surprised markets by indicating interest rates could rise more quickly than expected next year. Rising interest rates increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

"There is a risk that the prices of gold and silver might fall further in the short term as the Fed hikes rates more aggressively in response to some of Trump's more inflationary policies," Capital Economics said in a weekly note. Buying in India remained subdued this week despite a sharp fall in prices as a severe cash crunch and holidays kept purchasers away from the market, while premiums in China fell from near three-year highs touched in the prior week. Investors also showed little appetite for gold. Holdings of the world's largest gold-backed exchange-traded fund have fallen more than 12 percent since November.


Today, guys, we will take a look at AUD again, but also I thought to make a research on CAD. Actually, we was not quite wrong, when we've said that CAD could break resistance and move higher, since we thought that OPEC will not come to consensus on oil extraction freezing, but they did. But right now we see that effect of this agreement was short-term, and crude oil price stagnates slightly above 50$. CAD has shown strong rally during last 2 weeks and this means that we could return back to our initial idea. This setup could wait a bit, that's why today we will take a look at AUD, but next week we could return back to CAD discussion...

COT Report
CFTC data shows gradual closing of long positions on AUD, as net positions is dropping as well as open interest. This suggests moderately bearish sentiment on AUD. But when traders start to close longs, some day they could turn to opening of new shorts. If this will happen, it could lead to downward price acceleration.
upload_2016-12-25_13-24-56.png


Things that we've said about AUD last time are still valid - After election in US situation has changed significantly for AUD. Previously AUD was seemed as alternative to USD, some kind of safe haven with healthy interest rate, high credit rating currency. Right now situation has changed significantly. US economy shows strength and growing inflation, D. Trump intends to change fiscal policy and economical policy of US which significantly decreases role of high AUD rates in a light of coming Fed tightening.
Besides, Australia itself, based on last GDP report, shows signs of economy slowdown. AUD is highly correlatied with metals - as precious as basic (steel for example). Correlation stands around 70% or even greater. But prices right now are going down due USD strength. In medium term perspective this could lead to further AUD deppreciation. And we see some technical issues that also support this view.

Technicals
Monthly


Situation on monthly chart of AUD has changed slightly, especially after US elections. Our previous analysis was based on two major factors. Technical one has suggested upside bounce due reaching of strong, major 5/8 monthly Fib level and appearing there DRPO "Buy" pattern. While fundametal factor was a healthy interest rates in Australia and so-so Fed policy on rate hiking, especially when they have said on just 2 rate changing instead of 4.
As elections have happened, now more agressive Fed policy is expected, especially in 2018, more protectionism, more stimulus from Trump to domestic economy. This combination will become a headwind to AUD appreciation, especially on a background of some issues that we've specified in last research. As a result we see CFTC data that indicates more closing of long positions, we see changing rethoric from RBA that brings more dovish hints. And we see reflection of these events in current technical picture of AUD.

On monthly chart, as AUD has reached YPP early, in the beginning of the year - for the whole year it was not able to break it up. So 50% FIb resistance level has not been completed. Besides, right now AUD drops below YPP. This, in turn, could lead AUD lower to YPS1 level (although there is not much time till the end of the year). Something of the same kind we saw on EUR, but there drop out from YPP has happened earlier than here. Although very soon we will get new yearly pivots, but they will be almost the same as now, because AUD spend whole year in tight range.

So this action could take a shape of double bottom (conservative scenario) or, even butterfly "buy" that has 2 extensions - 0.65 and 0.61 levels. Both stand around previous lows of 2008.

Still you could argue that recent action doesn't break yet chances on upside butterfly as well and AUD still could reach YPR1, at least until lows around 0.7150 holds. This is true, formally. But We see price action on weekly chart that mostly unspecific for bullish market. It leads us to conclusion that further drop has more chances than reversal up...
aud_m_26_12_16.png


Weekly

What particular we do not like in recent action?

Take a look at weekly picture. Here we have clear reverse H&S pattern, and initially this was a pearl in our analysis that provided confidence in possible upside reversal, so everything was as it should to be. AUD was going to become a safe haven and replace US for investors in coming uncertainy of US elections, Middle East war, Separatistic sentiment in EU etc. But situation has changed as well as price behavior.

Take a look what AUD shows right around neck line. It has reached it, then has turned to long-term consolidation but was not able to break it up. In fact AUD was not able to pass through nearest 3/8 FIb resistance level and dropped. This is not the way how upside reversals and breakouts happen usually, right?

Now AUD stands below MPP, trend has turned bearish here. So, on weekly chart, major level is 0.7150 lows, bottom of right shoulder. As we've said above - it is important, since it keeps valid (at least theoretically) chances on appearing upside butterfly. But not only due this reason. This level is important also, because this is a key to massive drop. If AUD fails around right shoulder - it will drop below head's bottom and this will open road to previous lows around 0.68. Last week AUD has made another step in this direction and now it stands in fact, right at 0.7150...
aud_w_26_12_16.png


Daily

Daily chart brings most important information for us. Here two major things that we sould pay attention to. First of all is "B" lows. This is the point, where even theoretical chances on upside rebound will be vanished as soon as market will pass through it. But what chances that this will happen?

To answer on this question we need to take a look at second subject. This is large AB=CD pattern (green). Take a look that market already has reached 0.618 target and shown minor upside retracement as respect of it. Right now AUD shows downward continuation and price already has dropped below 0.618 target. Last week it has moved even lower. It means that currently market stands in extension stage and should continue action to next 1.0 target at 0.71 area.

0.71 AB=CD target stands below "B" lows and this fact significantly reduces chances on lows' survival. They are mostly doomed.

Also you can see lack of Fib levels here. The only real support will stand around 0.7210 area - major 5/8 level and MPS1. But it already has been tested once and now price already stands below it.

Also we have minor AB=CD pattern here (red). But it has target very close to the large one, and probably both will be hit at the same time, especially if stops below "B" point will be triggered.

Last week we've watched for DRPO "Buy" on intraday chart, but market had no sufficient power to form it. Even more - CFTC shows long position covering but not short. So, AUD is so weak that was not able to show even minor bounce on intraday charts before Xmas holidays.

As we haven't got DRPO on 4 hour chart and price has dropped lower last week - now we could look for DRPO "Buy" on daily chart. But probably it has chances to appear only as major targets around 0.7050-0.71 will be hit.
Also pay attention that DRPO here is just co-pattern, not major context. It is mostly short-term pause in major downside tendency. It is tactical and we should treat is correspondingly.

aud_d_26_12_16.png


4-hour

Besides of DRPO failure, here we have another bearish signs. First is butterfly collapse. Market has passed through all extesions. Thus, butterfly has failed. Usually if butterfly fails, it fails miserably, which means that market drops further.

Last week, price also has dropped below WPS1 that is also bearish sign and suggests existence of bear trend. As price stands not too far from major daily destination - 100 pips maximum, and it is not oversold and has not strong support below, we probably could get only minor retracement on Monday. Most probable action is to 0.72-0.7215 area - to test WPP, MPS1 and one of the Fib levels. After that, following to logic of technical picture, downward action should continue:
aud_4h_26_12_16.png


Conclusion:

Due changing geopolitical situation and force balance in US economy, AUD could meet strong headwind in medium-term perspective. This could press on AUD and lead it to previous lows around 0.68 area or even lower if monthly butterfly will be formed.
In shorter-term perspective we see bearish signs on AUD and expect that it will continue move down. Nearest target stands at 0.7050-0.71 area.


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.
 
Sive, as usual, you are the best!

Okay, last week I traded the AUD/USD somewhat, but was basically still very much on USD/CAD for the simple reason that I do not believe for a minute that OPEC & Non-OPEC member countries are sincere in cutting back and maintaining oil production. All of them, without exception, will be cheating like hell in their oil production especially when oil is at and over the USD55 per barrel levels....with crude oil price at these levels, the problem will be compounded by shale & fracking oil producers reviving their suspended operations. As it is, Baker Hughes weekly counts of rigs that have gone back into oil exploration and/or production for the US has been steadily increasing and, ending last Friday, 23-Dec-2016, 13 more rigs were reactivated bringing the total to 510.

Keeping in mind that the US President elect Donald Trump's pledge for "American energy independence with more fossil fuel drilling and fewer environmental regulations and vowing to cancel the "Paris climate agreement,” I don't think crude oil will advance more than USD60 per barrel (if at all) for 2017 and nor am I optimistic that it will do so even for 2018.

China is playing a huge world economic game and is heavily invested in most African and South American countries to secure their economic needs into the next century and, as such, I would not count on China"s "economic recovery" to help revive the world's weak economy.
If anything, I believe China will be a major threat to many countries' struggling economy by being an export oriented economic power house.

Going into another new year, I cannot help but to have a gloomy outlook on things to come.

Whatever the future holds, have a very Merry X'mas & a Happy & Bright New Year 2017.....and may Aliens come soon to guide us Earthlings into the next level of our existence :D
 
Good morning,

(Reuters) - Gold prices rose slightly on Tuesday but trading was thin as investors looked for directions
after the long Christmas weekend, even as a firm dollar capped gains.

The dollar rose against the yen and euro as some investors emerged out of the holiday lull to hunt for bargains as the market entered the last trading stretch of the year. Spot gold was up 0.3 percent at $1,136.80 an ounce by 0310 GMT, after earlier edging down to $1,131.35. U.S. gold futures rose 0.4 percent to $1,138.20 per ounce.

"People are waiting until Trump becomes the U.S. President and until we see his real policies or what he will do when he takes the office," said Yuichi Ikemizu, head of commodity trading at Standard Bank in Tokyo.
"People are just watching the other markets like dollar and stock markets and kind of expecting the stock market and financial market to be good under Trump government. In that case, people don't need gold and instead invest in stocks."

The U.S. currency had climbed to a 10-month high of 118.660 yen mid-month on expectations of stronger growth after U.S President-elect Donald Trump takes office in January. A firm dollar curbs demand for commodities priced in the greenback by making them more expensive for holders of other currencies.
Asian stocks were mixed on Tuesday, in thin trade and with little to guide them as most major markets were closed on Monday for Christmas holidays.

Hedge funds and money managers cut their net long position in COMEX gold for a sixth straight week in the week to Dec. 20, Commodity Futures Trading Commission data showed. Gold demand in India remained subdued last week despite a sharp fall in prices to over 10-1/2 month lows as a severe cash crunch and holidays kept buyers away from the market, while premiums in China fell from near 3-year highs touched in the prior week.


On Gold market nothing special is going on yet. It tries to show bullish activity but it looks not impressive by far. On daily chart we have small bearish grabber that is still valid. But if it will be washed out - market could move to one of the Fib resistances and first one is 1164:
gold_d_27_12_16.png


On 4-hour chart price still stands in channel. As you can see gold again and again repeats the same pattern inside of it. Following this pattern - gold should start dropping to lower border of the channel. So if this will not happen and we will get upside breakout - this could mean that upside retracement finally will happen:
gold_4h_27_12_16.png


From this standpoint recent 1142 top is crucial level. If price will take it out - then it will erase daily grabber, and probably will break up the channel. In this case upside breakout could take shape of butterfly.
If market will fail to pass through it - then downward butterfly is possible with destination around 1100-1110 area:
gold_1h_27_12_16.png


That's being said, today we're watching for 1142 top, what will happen...
 
Good morning,

(Reuters) - Gold rose for the fourth straight session on Wednesday, on a technically-driven rebound
in thin volume, amid a slightly weaker dollar.

Spot gold edged 0.2 percent higher to $1,141.45 an ounce by 0324 GMT. Bullion rose to a near two-week high of $1,148.98 on Tuesday. U.S. gold futures were up 0.3 percent at $1,142.40 per ounce.

"Currently we do not see many strong fundamental reasons to push gold prices further down. However, after the Fed conference in December, there should be some technical rebound in gold prices," said Jiang Shu, chief analyst, Shandong Gold Group.

"Since there are a few trading days left until the end of this year we think that the rebound will not be very strong."

Reflecting bearish investor sentiment, assets in the SPDR Gold Trust, the world's largest gold-backed
exchange-traded fund fell 0.14 percent to 823.36 tonnes on Tuesday. Holdings are down over 13 percent since the U.S. presidential elections.

"Currently there are very strong expectations of more rate hikes next year," said Shu, adding that declining gold prices have had a negative impact on the bullish sentiment in the physical gold price.

The Federal Reserve raised U.S. interest rates on Dec. 14 for the first time in a year and signalled three more increases next year from the previous projection of two. U.S. consumer confidence shot to its highest in more than 15 years in December as Americans saw more strength ahead in business conditions, stock prices and the job market following the election of Donald Trump as president in November.

The upbeat data helped underscore expectations that the U.S. central bank would raise interest rates at a faster pace next year. Expectations of further U.S. interest rate increases lower demand for the non-yielding assets such as bullion, while boosting the dollar, in which it is priced. The dollar index, which measures the greenback against a basket of currencies, was down 0.1 percent at 102.96.

"We don't think much will be going on in the markets for the balance of the week. Sharp moves in either direction must be weighed against the fact that liquidity remains fairly light," INTL FCStone analyst Edward Meir said in a note.

Currently guys, it is also very interesting setup on AUD, mostly what we've discussed in our weekly research, but probably it could wait for 1 day, so may be we will talk about it tomorrow.

As you can see upside retracement has started across the board - on currencies, on gold, etc. So, on daily chart the only pattern we could discuss is DRPO "Buy" /DRPO Failure. Hardly we will get B&B, since gold needs to reach 1204 today-tomorrow. Thus, DRPO is more probable. Background that we have is very nice - thrust looks perfect, we already have got first close above 3x3 DMA:

gold_d_28_12_16.png


Now we need to get close below green line and then close above again. After that the moment of truth will be - either stronger upside action or DRPO "Failure" and further downward drop...

But right now short term action looks bullish. On 4-hour chart price has broken channel up, and even re-tested it:
gold_4h_28_12_16.png


Thus, today gold could climb slightly higher - 1150-1160 area is most probable. After than, following to our logic of DRPO, it should drop back to 1120 area:
gold_1h_28_12_16.png
 
Good morning,

(Reuters) - Gold prices rose to their highest in two weeks on Thursday, as the U.S. dollar fell, but gains were limited on expectations of more rate hikes by the U.S. Federal Reserve next year.

Spot gold was up 0.5 percent at $1,147.56 an ounce by 0631 GMT, after reaching its highest since Dec. 14. at $1,149.84 earlier in the session. The metal was also on track for its biggest one-day rise since Nov. 28.
U.S. gold futures were up 0.7 percent at $1,148.50 per ounce.

"I think it's because of the dollar, which has weakened a little bit," said Helen Lau, an analyst at Argonaut Securities in Hong Kong.

The dollar index, which measures the greenback against a basket of currencies, eased about 0.4 percent at
102.910. The dollar sagged against the yen on Thursday, weighed down by U.S. yields slipping to two-week lows and an ebb in risk appetite that favoured the safe-haven Japanese currency. Gold was poised to end the year up after three straight annual declines. Bullion has risen over 8 percent so far this year despite an 8 percent drop in November.

"With interest rates rising in the U.S., gold will be a less attractive investment, and this explains some of the weakness the commodity has been facing in the recent months," said Mihir Kapadia, CEO of London-based Sun Global Investments Ltd. The Federal Reserve raised U.S. interest rates earlier this month for the first time in a year and signalled three more increases next year from the previous projection of two. Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced.

"Trading conditions should remain fairly uneventful for the balance of the week," INTL FCStone analyst Edward Meir said in a note. "But heading into next week, we think the Italian bank rescue and the direction of the Chinese yuan will likely dictate near-term pricing in gold, especially if equity markets start to get nervous about either of these two developments."

Shanghai Gold Exchange, the world's biggest physical bullion exchange, said on Wednesday it will curb the amount of gold investors can trade at one time, a move analysts said would limit institutional investors' influence on prices.


So, today we will take on NZD. Actually we have very similar setups on AUD, NZD and Gold. So, on Gold we've said everything yesterday, estimated retracement target and gold now stands on a road to it...

On NZD, we've said - either market will drop important level immediately or, it will turn to retracement. So, it seems that kiwi has chosen second way and bounce up has started. Now we need to watch for final point of this retracement to get entry oportunity, but probably this will happen only after New Year's day:

nzd_d_29_12_16.png


On 4-hour chart we've discussed harmonic pattern that has such features as early upside reversal (before reaching of 100% extension) and deep retracement. So, this chart suggests that upside action should reach 0.71 area:
nzd_4h_29_12_16.png


On hourly chart we have multiple patterns and extensions. So, right now NZD has completed small butterfly, AB=CD target and 1.27 of larger butterfly. But major target is 1.618 of AB-CD that should lead price to 0.70 area. This is rather close to 0.71 resistance...
So, as we have no intention to go long, let's watch for upside progress of retracement:
nzd_1h_29_12_16.png
 
I dont think the CAD will remain your initial idea as oil price control will be short-term. As market all ald know the oil impact (max.$ 55, min $50+) that will make CAD got surprised hit when export / inventory out of control. (my personal opinion only) .
 
Good morning,

(Reuters) - Gold was set to rise more than 9 percent in 2016, its first annual gain in four years, edging
higher in the final trading session of the year on Friday on the back of a weaker dollar.

Spot gold was up 0.1 percent at $1,159.36 an ounce by 0325 GMT, having earlier hit a more than two-week high of $1,163.14 an ounce. The metal rose over one percent in the previous session, its biggest daily percentage gain since late September.

Gold has added more than 9 percent so far this year despite a steep fall in November, following three successive years of losses.

"Gold made robust gains as demand surged during the periods of economic and political uncertainty until the third quarter," said Mihir Kapadia, CEO of London-based Sun Global Investments Ltd.

The safe haven asset was poised to register its best weekly gains since early June, having risen about 2.5 percent this week. However, it is still down nearly one percent in December, and about 12 percent this quarter.

"The decline experienced by the metal during December is largely due to the market tide favouring the U.S. economy which hopes for infrastructure and spending boost under a Trump administration, which has cemented expectations of higher interest rates and higher stock prices in 2017," Kapadia said.

A rising U.S. dollar and interest rates, coupled with strong equity markets, discourages the buying of non-interest-paying bullion, which is priced in dollars. U.S. gold futures rose 0.2 percent to $1,160.3 per
ounce.

"Some of the previous headwinds that have pushed gold lower are now fading; among bearish items now no longer on the list include a stronger dollar, rising U.S. rates and buoyant equity markets," INTL FCStone analyst Edward Meir said in a note.

The market could witness a countercyclical bounce that may carry on for a few more sessions, Meir added.
The dollar index, which measures the greenback against a basket of currencies, fell 0.3 percent to 102.390.

Top consumer China's net gold imports via main conduit Hong Kong fell 17.84 percent month on month in November, data showed on Thursday.


So, on gold market situation is rather similar to EUR. Gold also has hit nearest daily Fib level, but it stands not at OB. On daily chart our view mostly stands the same - we watch for DRPO "Buy" pattern. Following the logic of this pattern, market soon should start moving down again, back to 1120 area to form second bottom in consolidation of DRPO. As bearish momentum still strong here - deep downward action, back to the lows looks natural:
gold_d_30_12_16.png


On hourly chart gold has hit our targets - 1.618 AB-CD and butterfly. Also it has completed larger AB=CD. Thus, if we do not make mistake with possible DRPO pattern, this should be enough to trigger downward action again.
gold_1h_30_12_16.png


Anyway we do not call you to go short right now. Speaking on downside reversal here we mostly mean price action that suggested by DRPO pattern.
 
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