FOREX PRO WEEKLY # 2, November 21-25, 2016

[Sive Morten]

Guys, today I've decided to take a look at CAD, instead of Gold, since Gold mostly stands at the same area and major part of our analysis that we've made last week still stands the same.

At the same time, CAD right now shows very interesting picture. It has completed butterfly "Sell" pattern, that we've talked about last time and it could happen so, that CAD stands at significant changes....

COT Report

On Canadian dollar recent CFTC data shows interesting picture. Although position amount has contracted significantly during last year, almost for 4 times, recent changes in open interst and speculative positions shows moderate bullish behavior. Last week speculative short position has decreased, while open interest increased. It tells that new short positions have been taken on the market. As you can see CAD mostly was dropping recently, as well as crude oil. In general, recent drop on CAD for ~ 6 months, was accompanied by decrease in open interest and mostly looks like retracement, at least currently.

Technicals
Monthly
Here guys, we will take a look at CAD, but also at Crude Oil chart, because situation there is tricky. Here is monthly CAD. Those of you who follows our researches should remember it. After CAD has completed large AB=CD pattern, we've said that downward retracement should happen right to monthly K-area. As it was done, CAD has turned back to upward action (mean USD/CAD). Monthly chart tells that next AB-CD target stands around 1.56 area and YPR1:

But what chances that this upward action will continue? Recently there are more and more talks about crude oil, and that it could return back to former lows, or even lower. Theoretically, guys, if we will not be confused by numbers that they are too small, technical picture tells that this is possible.
Take a look at monthly chart of crude, we have also large AB=CD that has 100% extension around 18$ level. The pattern that could lead market to this level - 1.618 3-Drive "Buy":

Currently it looks amazing, but technically we can't say that this is impossible, just imagine that this is not a crude oil and you do not see price scale. You will find nothing curious with this picture.

That's being said, this is major intrigue right now here - whether this setup will start or not...

Weekly

This chart looks not quite supportive to idea of action right to 1.56 level. Actually it shows opposite picture. Story has started right from strong drop down from the top. This was a bearish reversal swing and is has exceeded previous swing up. Then even more - upside action has taken a clear shape of AB=CD retracement. Price behavior was gradual and smooth, no real upside acceleration, a lot of overlapping candles, AB and CD legs have the same speed. Combining this action with initial thrust down, actually we have here "222" Sell pattern.
Besides, upside action now meets resistance of 50% Fib level and MPR1:

But on a Crude oil weekly chart does not look as cloudless as on CAD. Take a look, here we have some kind of reverse H&S pattern, and the same AB-CD retracement was in opposite direction compares to CAD.
Crude has not broken neckline and dropped down. This is not good sign, besides, CFTC data tells that last changes stand not in favor of CAD.

This leads us to very important conclusion. Real key to solution is 40$ level on Crude oil (shoulders' bottom) and 1.36 level on CAD. Because, if CAD will break it up - it will move above MPR1, destroy the harmony of "222" and AB-CD pattern and this will be irrational behavior for bearish market. This will tell that new trend is coming.

Daily

This time frame even increases importancy of current resistance on CAD. Price has completed our Butterfly "Sell" pattern that we've talked about in last videos on CAD. Butterfly is reversal pattern that also supports ideas on weekly chart that CAD should drop as normal bearish market should. Also this is upper border of the channel.
That's why if somehow butterfly will fail and CAD will jump higher - this will increase effect of breakout. Butterflies fail very rare, but if this happens, usually they fail miserably.

Currently this reversal is also supported by crude oil DRPO "Buy" pattern:

Intraday

On hourly chart of CAD we do not see something really special. You probably could recognize wide shape of H&S pattern, but it is not perfect. Most important here is existing of WPR1 right around previous top. This level finalizes importancy of 1.36 resistance level. It includes weekly 50% Fib level, AB-CD target, MPR1 and WPR1, daily butterfly "Sell". This is enough to make normal bearish market drop out from it and continue trend down. If this will not happen - this could bring great upside impulse to CAD and downside to Crude that will lead both price to dramatical levels:

Conclusion:
Currently situation looks cloudless for CAD, but recent price action on Crude oil, especially on weekly chart, that we treat as irrational a bit, could turn everything from top to bottom. CAD now stands at the edge that separates bearish market from dramatic upside action. So, 1.36 level could become very imporant turning point on CAD.
That's being said, on coming week we will take a close look at it. If CAD will break it up, this could open road to 1.55 area in long-term perspective and lead crude oil prices back to 18$ per barrel. Now it looks unbelievable, but who knows....


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.

 

[Zilvinas]

Hi, Sive,

why do you always as measure for CAD direction use Brent but not WTI? Brent is from the North Sea and WTI is from the North America. Shouldn't be WTI oil chart a better comparison to CAD than Brent?
Thanks.

 

[shahsavari]

Hi Sive
thank you for your exact and continues analysis
But for USDCAD I think yearly pivot points are not correct and actually the pivots are :
PR1 =1.4670
PP=1.3157
PS1 =1.2313
THANKS AGAIN

 

[Sive Morten]

Hi, Sive,

why do you always as measure for CAD direction use Brent but not WTI? Brent is from the North Sea and WTI is from the North America. Shouldn't be WTI oil chart a better comparison to CAD than Brent?
Thanks.

Yes, there are some difference exists in charts of Crude and WTI. But for the way, how we use it in this research, this is no as important.

 

[Sive Morten]

Good morning,

(Reuters) Gold prices climbed for a second day on Tuesday, buoyed by an easing U.S. dollar and physical buying in Asia.

Spot gold was up 0.3 percent at $1,217.35 an ounce by 0628 GMT. The previous day, it advanced 0.4 percent to snap three sessions of losses. U.S. gold futures were up 0.64 percent at $1,217.50 per ounce, after earlier rising as high as $1,220.90.

"Gold prices have factored in the December (U.S. rate hike) move. Now it is a matter of bargain-hunting," said Spencer Campbell, general manager with Kaloti Precious Metals in Singapore. "We are seeing a lot of activity in Southeast Asia. The drop in prices and inverse pricing against the local currency are driving the buying."

Gold has fallen more than $120 an ounce from its post-U.S. election peak on Nov. 9 as U.S. Treasury yields posted their biggest two-week rise in more than five years and the dollar shot higher. But the U.S. dollar weakened on Tuesday, supporting bullion. The dollar index, which measures the greenback against a basket of major currencies, slipped 0.15 percent to 100.910, falling further after snapping a 10-day rising streak on Monday.

"Gold kept its head above water, with technical-based buying supporting the market. However, with the market increasing bets on a December rate hike in the U.S., this buying is unlikely to persist in the short term," ANZ analysts said in a note." Gold is highly-sensitive to rising interest rates which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced.

"We still expect gold to struggle against a host of bearish elements that remain arrayed against it, including a stronger dollar, soaring equity markets and the prospect of further rate hikes that could follow the widely-expected increase slated for next month," INTL FCStone analyst Edward Meir said in a note.

The world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings fell 0.71 percent to 908.77 tonnes on Monday. Holdings have fallen 3.6 percent so far this month.

Goldman Sachs on Monday lowered its three- and six-month gold price forecasts to $1,200 per troy ounce and said downside risks remain from potential physical ETF liquidation.

Spot gold may test resistance at $1,222 per ounce, a break above which could lead to a gain to $1,235, according to Reuters technicals analyst Wang Tao.

So on gold market there are no big changes by far. Idea of large H&S pattern on weekly/daily charts makes possible scenario here of extended upside retracement , even to 1285 area. But it is not fact that it indeed will happen, mostly due upside spike on election period. At the same time gold could just continue downward action immediately. For us - this is not as important, since our primary object is to get Gold around 1160-1170, our strategical point, but how it will get there - we don't really care. Besides, currently we do not see any signs of possible upside rally in intraday charts:

On 4-hour chart we see potential resistances that could be met, if upside action will happen. 1255 K-area and 1285 area that mostly stands in relation to H&S idea. Currently it seems that market hardly will reach even 1236 level, as upside action stands very heavy and lazy. Let's see, may be something will change. For example, market could form 3-Drive "BuY' instead of current butterfly and start upward action a bit later... So, let's keep watching:

 

[Sive Morten]

Good morning,

(Reuters) Gold stuck to a narrow range in Asian trade on Wednesday ahead of release of minutes from the Federal Reserve policy meeting earlier this month amid expectations of an interest rate hike in December.
Bullish homes sales data has added to signs of an improved U.S. economic outlook, with federal funds futures implying traders are pricing in a 100 pct chance of a December rate rise, according to the CME Group's FedWatch Tool.

Spot gold was unchanged at $1,212.45 an ounce by 0626 GMT. In the previous session, the metal eased 0.15 percent, hurt by strong equities. U.S. gold futures rose 0.1 percent to $1,212.40 per ounce.

Analysts cautioned that higher interest rates and a more positive sentiment in equity markets could weigh further on gold prices. 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.

"The risk-on sentiment continues to prevail in the market and gold prices will not be able to perform," said Helen Lau, an analyst at Argonaut Securities in Hong Kong. "People would want to participate in the equity rally. The gold ETFs continue to decline and investors are trying to reduce their exposure to gold."

SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.42 percent to 904.91 tonnes on Tuesday. Holdings have dropped 4 percent so far this month.

While Trump's U.S. presidential victory has spurred safe-haven buying of physical gold in Europe, traditional bullion holders in the United States are standing pat.

"It seems that there is little on the horizon that could materially change the bearish trifecta comprising of a stronger dollar, higher U.S. rates and U.S. equities," INTL FCStone analyst Edward Meir said in a note.
"These are formidable headwinds for gold to get through and as a result, we suspect that the precious metal will be under further pressure, likely taking out $1,200 support in fairly short order."

Spot gold looks neutral in a range of $1,204-$1,222 per ounce, and an escape could indicate a direction, according to Reuters technicals analyst Wang Tao.

"Expectations leading into the Thanksgiving holiday on Thursday are that gold will continue to trade heavily but rangebound," MKS PAMP Group trader Sam Laughlin said.

So, on gold market we're mostly interested in intraday chart right now, since on daily chart there are no big changes, gold stands relatively quiet. Price stands at support and currently still keeps chances on meaningful retracement up. At the same time we still keep our suggestion that this will be just retracement before further drop, since previous action down was too strong:

Yesterday we've brought an idea that gold could form something else, since upside reaction after butterfly was too weak. Indeed, our idea of 3-Drive pattern starts to materialize. Here we have as potential 3-Drive "Buy" as Dinapoli bearish dynamic pressure, that suggests at least short-term drop below 1202 lows to 1197$ area. May be after this drop gold will show something...:

 

[Sive Morten]

Good morning,

(Reuters) Gold prices fell on Thursday as the dollar strengthened on growing expectations of a Federal Reserve rate hike in December following positive U.S. economic data.

Spot gold was down 0.2 percent at $1,185.55 an ounce by 0606 GMT. It dropped 2 percent in the previous session to touch its lowest in 9-1/2 months at $1,181.45. U.S. gold futures eased 0.3 percent to $1,185.60 per ounce.

Fed policymakers appeared confident on the eve of the U.S. presidential election that the economy was strengthening enough to warrant interest rate increases soon, minutes from the Fed's Nov. 1-2 meeting showed.

"There is a downtrend for gold prices due to interest rate hike expectations," said Mark To, head of research at Hong Kong's Wing Fung Financial Group. He added that he saw a "100 per cent" chance of a rate increase in December.

"Some of the largest ... investment figures have been winding down their long positions in gold in the past quarter. We are going to see many more followers. It is not a good idea to trade for a rebound in prices," To said.

New orders for U.S. manufactured capital goods rebounded in October, driven by rising demand for machinery and a range of other equipment, the latest indication of an acceleration in economic growth early in the fourth quarter. Recent positive economic data has been pressuring gold prices as investors raise bets on a U.S. interest rate hike that would increase the opportunity cost of holding non-yielding bullion, while boosting the dollar. Investors are now pricing in a nearly 100 percent probability of a December Fed rate increase, according to CME FedWatch, and some investors expect more hikes in 2017 if economic momentum is sustained.

The dollar index, which measures the greenback against a basket of currencies, was on Thursday near its highest in 14 years, a level that it touched overnight.

Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 1.47 percent to 891.57 tonnes on Wednesday from Tuesday. Holdings have declined over 5 percent so far this month.

Gold prices have dropped nearly 12 percent from a high of $1,337.40 per ounce, hit on Nov. 9, when Donald Trump was announced U.S. president-elect.

"Since no one particularly anticipated the move post the Trump win, the position cutting on the long-side has been swift on the downside," said Amit Kumar Gupta, research head at Adroit Financial Services, adding that the market has piled into the U.S dollar and equities. "Technically, $1,172 will act as support, below which the down move could be aggressive."

So, although many people are shocked by recent dramatic action on gold market, we are not surprised, since that action stands in a row with our long-term trading plan. As gold has hit record value of speculative long positions around 1370 area - we've said drop should happen. Now, market stands very close to our strategical 1160-1170 area and major question what if gold will drop further?
But this is subject for weekly research...

Right now we could say two major things. First is, gold will hit 1172, no doubts. Second - our next step will be watching for reversal patterns on daily chart. Whether gold will confirm the bottom of right shoulder or not...
On 4-hour chart our bearish dynamic pressure target has been met, gold has dropped. As a result, 3-Drive has failed miserably. This is guys, excellent example, why we warn you to not trade gold on long side now, whatever bullish patterns are formed.

That's being said - today-tomorrow we're watching for 1170-1172 level...

 

[Sive Morten]

Good morning

(Reuters) Gold fell 1 percent to its lowest in 9-1/2 months in Asian trade on Friday, heading for a third
consecutive weekly decline, on expectations of a Federal Reserve rate hike and as the dollar extended its bull run against the yen.

Spot gold was down 0.4 percent at $1,178.64 an ounce by 0604 GMT. Earlier in the session, the metal dropped 1 percent to mark its lowest since Feb. 8 at $1,171.21 per ounce. U.S. gold futures fell about 1 percent to $1,177.9 per ounce, after dipping earlier to its lowest since Feb. 5 at $1,170.30 per ounce.

The dollar rose to an eight-month high against the yen on Friday as U.S. bond yields resumed their rise in Asia after the Thanksgiving break shut markets in the United States. The 10-year U.S. Treasury note yield rose about 5 basis points to 2.405 percent from the previous close on Wednesday.

"The dollar has been really strong this morning and is pushing high. The Shanghai arbitrage is trading $25 dollar premium, which seems to be suggesting that there is selling from Asia rather than buying," an investment bank trader said.

Bullion shed over 8 percent so far this month and has lost over $160 an ounce since the peak after the U.S. election on Nov. 9, hurt by a strong dollar and surging Treasury yields as investors bet on higher growth and inflation under U.S. president-elect Trump.

The metal has also been pressured by talks of an almost certain U.S. interest rate hike in December.
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.

"The dollar is firm and triggering some selling (in gold). There were some stops around $1,180 and they were all taken," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.

"There has been some physical buying, but that is not so strong and is not helping gold," Leung added.
Spot gold is expected to drop to $1,172 per ounce, as the support at $1,184 does not look to hold, according to Reuters technical analyst Wang Tao.

As gold market is closed by far, it makes sense to take a look at something else. Thus, in our FX research we've taken a look at AUD, and here we will take a look at JPY. So, right after election session, JPY has turned to strong rally (I mean currency pair). But right now, on weekly chart yen has met strong resistance level - 5/8 resistance, 1.618 AB-CD target (this gives us Agreement resistance) and strong overbought. This background could become a reason for at least minor retracement. But, as you understand "minor" on weekly could be solid on daily:

On daily chart we have perfect thrust up, that could become a setup for DiNapoli directional pattern, say, DRPO "Sell". Right now, it just few time has passed since market has reached this 113 area, that no patterns have been formed here yet. But overall combination looks attractive and we will continue to watch over it on next week:

 

[Sive Morten]

Take a look guys, on CFTC report on Crude Oil - massive opening of shorts, even prior OPEC meeting. Our CAD setup could get a second breath on next week, it seems that our suggestion was correct: