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FOREX PRO WEEKLY #2, October 16-20, 2017

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Oct 15, 2017.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Greetings,

    Today, guys, I thought, it makes sense to replace gold analysis by some FX pair, just because on gold market we do not see big changes on long-term picture and daily videos will be enough to keep finger on the pulse.

    At the same time we see significant changes on Kiwi dollar and it is long time passed since we've taken a look at it last time.

    Fundamentals

    In fact just one month ago NZD had positive perspectives and indeed, it has shown pretty nice rally. Last time we positively assessed kiwi future in long-term period, but it was a bit overextended by CFTC data
    and we suggested some retracement down.

    In reality overbought situation coincided with political elections in NZ and turmoil that has followed to it. Shortly speaking political rivals have got approximately equal amount of votes and this has made creating of
    government rather difficult.

    (Reuters) - New Zealanders will likely need to wait several more days to find out who will form the new government in the South Pacific island nation, the small nationalist party holding the balance of power said on Thursday.

    The New Zealand First Party was holding a fifth day of talks with both the ruling National and the opposition Labour Party to form a coalition government, almost three weeks after an inconclusive general election.


    Prime Minister Bill English’s ruling National Party won 56 seats in the Sept. 23 election, while a Labour-Green bloc have 54 seats, leaving both needing New Zealand First’s nine seats to meet the 61 seats needed for a majority in parliament.

    New Zealand First leader Winston Peters said that he was “pretty confident” that those talks with the main parties would conclude on Thursday evening, but said the NZ First board would not meet to discuss its options until the weekend at the earliest.

    “It depends upon the logistical availability of the board which will be Saturday, Sunday or Monday,” Peters told reporters. “I’ll know that before too long.”

    Asked whether the public would know who the government is by the end of next week, Peters said yes,the Stuff.co.nz media website reported.

    The political limbo has pushed the New Zealand dollar, the world’s 11th most traded currency, down by around 3.3 percent since the vote. The Kiwi was trading at $0.7103 mid-afternoon on Thursday after hitting a four-month low earlier this week.

    Two recent independent surveys have suggested the uncertainty is curbing business sentiment, although official data released on Thursday indicated that consumer confidence remained robust.

    There are also concerns that a government including the nationalist NZ First would lead to more interventionist economic policies. Peters fueled those fears earlier this week when he said that exporters should welcome the recent fall in the local currency.

    NZ First also wants to restrict foreign investment, curb immigration and renegotiate certain trade deals.

    Strong immigration has been blamed for the country’s hot housing market and unaffordable prices. Data from the Real Estate Institute of New Zealand released on Thursday showed that the number of properties sold in September was the lowest for that month for six years, as the market awaited an election result.


    Peters lost his own seat in the election to a National candidate but remains the lead negotiator and eligible for a ministerial post as leader of NZ First.

    He said talks so far had focused on policy, with no discussions yet on ministerial portfolios or offices.

    Peters said he was aiming for a “serious consensus” from the NZ First board on which party to support, but he declined to identify or number those board members.


    But this is only the half of the problem. Another half is impact on NZ Central bank, which policy principals could change vector:

    Reuters: New government in New Zealand could spell changes for pioneering central bank

    The formation of a center-left government in New Zealand after an inconclusive election last month would likely spell big changes for its central bank, the pioneer of the inflation-targeting regime adopted across the world.


    The Labour-Green bloc has an even chance with the ruling National Party to form a government, if it can agree to a deal with the nationalist New Zealand First Party after talks this week.

    For 28 years, New Zealand’s central bank has had the single aim of keeping inflation between a set range. But Labour wants to add employment to the bank‘s mandate, a goal shared by NZ First which also wants to broaden the Reserve Bank of New Zealand’s (RBNZ) focus to include greater management of the local dollar’s value against other currencies.

    “It’s a huge change. We’ve had over 25 years of an extraordinarily successful monetary policy that has been copied around the world,” said Arthur Grimes, RBNZ’s chief economist in the early 1990s and Board Chair between 2003 and 2013. Any change without careful consideration and analysis would be “extraordinary”, he added.

    New Zealand was first to formally grant its central bank independence and first, in 1989, to introduce an official inflation target after grappling with annual price rises as high as 18 percent during the 1980s.

    Though its economy is only the world’s 53rd largest, New Zealand has earned a reputation for its economic experimentation and free market approach over the past three decades.

    Its inflation targeting soon became the global economic orthodoxy.

    “I don’t think people treated it terribly seriously (at first),” said Ted Truman, a former U.S. Federal Reserve official, who spent a month in New Zealand 16 years ago researching inflation targeting.

    “Five or six years later it was much more respected and people flocked to New Zealand to find out how they were doing it... which is why I was there.”

    Don Brash, who was governor when the inflation target was introduced, said the idea came from a TV interview with Roger Douglas, a Labour finance minister in the 1980s. Douglas was asked if he was happy with a drop in inflation to below 10 percent.

    “He said: ‘No, I‘m looking at price stability like zero to 1 percent’ and that was I think the first formulation of the target in numerical terms,” Brash told Reuters.

    The initial 0-2 percent target was widened in 1996 and then lifted in 2002 to its current 1-3 percent.

    New Zealand’s per capita income dropped during the radical reforms of the 1980s but has since stabilized. Its employment rate has consistently out-performed other developed countries for the past decade and inflation has remained in check.

    DUAL-MANDATE CLUB
    Labour has said it is committed to the inflation target but wants to add the goal of full employment, bringing it in line with the likes of Australia and the United States.

    Reserve Bank of Australia (RBA) Governor Philip Lowe is a fan of his broader mandate which comprises stable inflation, full employment and “economic prosperity”.

    “It’s meant that we’ve been able to take our time in getting inflation back (to target),” he said recently. “We’re prepared to be patient.”

    Grimes, however, argues that history proves monetary policy cannot have a sustained impact on employment.

    “It would be like having someone who is running for health minister argue for a cancer drug to be used for heart issues,” said Grimes, who was in close contact with central bank officials from Britain as they moved to inflation targeting.

    Analysts say the proposed change could lead to a higher bar for the central bank to raise rates as the RBNZ balances the need to keep inflation in check with that of securing employment growth - a trade off other central banks with dual mandates have had to grapple with.

    “I had a conversation with Alan Greenspan once and he expressed envy for the fact that we had a single mandate,” Brash said. “He understands full well if the two are in conflict at some point, which one do you give priority to?”

    Greenspan did not respond to requests for comment.

    POLICY SINGAPORE-STYLE
    NZ First also favors greater intervention in the foreign exchange market, with leader Winston Peters even touting a Singapore-style system where a currency target path replaces official interest rates and the central bank intervenes to manage currency swings.

    Paul Dales, chief Australia and New Zealand economist at Capital Economics in Sydney said this would represent “a complete shake-up” of New Zealand’s monetary policy and was unlikely to materialize.

    He said greater central bank intervention was also unlikely given the RBNZ is bound by its “traffic light” system which guides any intervention and that any changes “would be tantamount to political interference in the central bank”.

    Instead, Labour could agree to make a mention of the exchange rate in the central bank’s policy target agreement, along with price stability and full employment.

    “If they put something like that in, it would be a rhetorical win for Winston ... it wouldn’t necessarily change very much in substance at all,” said Michael Reddell, a former RBNZ official.

    COT Report

    Right now CFTC data on NZD doesn't bring something really special. As total net long position has dropped from all-time high, now it stands somewhere in the middle of the range and road is open in both ways. Still it is possible to make few observations here.
    First is open interest - it has dropped as well. It means that downside action was triggered by long covering but not new short positions. Usually this type of action is natural for retracement but not for bear trend, when as position as open interest should grow simultaneously.
    Second - new extreme of net long position. If you will take a look at historical CFTC chart of NZD, you'll see that it was in flat action since the end of 2014, when investors had little interest to kiwi dollar. As long as short peaks were far from extreme points, although open interest was high. It means that investors were balanced by keeping almost equal shorts and longs, but from summer of 2017 there was a big flow into NZD longs.
    It makes us think that NZD has mostly temporal difficulties in political sphere which should not make strong impact on NZ fundamentals. As soon as they will be resolved, bullish sentiment momentum that we have on the market should support market and push it higher.
    upload_2017-10-15_12-33-26.

    Technicals
    Monthly

    Technical picture also suggests some upside continuation, as major targets have not been met here.
    Mostly scenario here looks bullish - trend stands bullish, price is not at OB.

    NZD has tested YPP and jumped up. Market is forming clear AB-CD pattern.

    This is strong resistance cluster as you can see - 0.618 AB-CD that creates Agreement with major 5/8 resistance and coincides with YPR1, which is next logical long-term destination as price already has tested YPP.

    CD leg were looking strong before retracement has started .It was faster than AB and market showed tail closing mostly.

    Now we have the only problem here is bearish engulfing pattern which has interrupted idyll here. Now we need to estimate whether this pattern will have far going consequences or, it mostly worked out already and kiwi is ready for new rally.

    Monthly chart mostly suggests reaching of 0.77-0.78 area, but it doesn't tell when this action should start:
    nzd_m_16_10_17.

    Weekly

    On weekly picture we have clear downside AB-CD pattern as a result of monthly bearish engulfing. Here we have some discrepancies. As on monthly chart as here, on weekly, major target has not been met. Take a look that NZD has turned down and has not touched 1.618 AB-CD target. This is a sign of some external factor impact.
    Now market has formed bullish engulfing right at MPS1, but slightly has not reached major weekly K-support area. As you will see from daily analysis - price has not quite completed AB=CD target.
    It keeps door open for 3rd leg down, which could create some kind of 3-Drive "Buy" pattern precisely around 0.70 area. But we will know this only around target of bullish engulfing pattern.
    Whatever scenario we have on weekly chart, but bullish engulfing suggests at least minor continuation up.
    nzd_w_16_10_17.

    Daily

    On a daily chart we have difficult picture for analysis and we need to pay attention to details. Initially we were suggested that market should reach 0.70 area and complete AB=CD pattern, which, in turn, should give us perfect "222" Buy for taking long position.

    But market has turned up too early and this turn was rather fast. What were the reasons for that? At first glance, it seems that this was oversold and Fib level, some kind of bullish "Stretch" pattern. But if we will take careful look, then we will see that this is not quite so.

    After gap down open on Monday, when OS has been reached - market didn't jump up immediately, but spent 2 days more in sideways coiling action in a very tight range with keeping gap open. Upside action has started only on Wed evening, but mostly on Thu when price already was not at oversold. It means that upside action was triggered not by technical factors.

    As a result, NZD now stands at daily Overbought area. Taking both moments together, we could suggest some retracement on Monday and then upside continuation (don't forget about weekly engulfing pattern).

    How far market could move? Well, as we do not have any other tools yet, harmonic swing points on ~0.7350 area. This will be key level that we've talked about higher. Around 0.7350 we will understand whether kiwi will follow up right to 0.78 target, or, we will get another leg down to 0.70 first. But this will happen not on coming week probably, so we could relax for awhile:

    nzd_d_16_10_17.

    Intraday

    Actually, guys, we have B&B "Sell" LAL (Look-alike) pattern on daily chart. LAL is because thrust down is a bit choppy. But, as market stands at OB and this is also K-resistance on 4-hour chart, it should work.

    Besides, combination of daily OB and Fib levels on 4-hour chart create bearish "Stretch" pattern. This is first trading setup for coming week - retracement back to 0.71 area - 5/8 Fib support level:
    nzd_4h_16_10_17.

    All other discussion now stands secondary for us. First we will be watching what will happen around 0.71. Whether market will form some bullish pattern here. If, for example, we will get reverse H&S, then, indeed, some action to 0.73 will be possible. Otherwise, breakout of 0.71 could lead market lower, even to 0.70. Currently it difficult to foresee all scenarios.
    So, let's go step by step, and first step is B&B "Sell" trade with 0.7110 target...

    Conclusion:

    In general as it is seemed from fundamental data, NZD has not bad long-term perspectives, at least for nearest 3-6 months. But there are some variations on daily/weekly basis in the shape of this action. Precisely speaking, whether NZD will go up to 0.78 target right now or, it will compete 0.70 target first. We should get clarity within few weeks.

    Meantime, on daily/intraday charts we have clear setup for next week. This is retracement somewhere to 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.
     
  2. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Good morning,

    (Reuters) - Gold prices were mostly steady on Tuesday, pressured by a firmer dollar but supported by worries
    over geopolitical tensions in the Middle East and on the Korean peninsula.

    Spot gold was little changed at $1,293.24 an ounce at 0344 GMT, while U.S. gold futures for December delivery were down 0.6 percent at $1,295.2 per ounce.

    "A lot of the price drivers that are clouding gold prices are really geopolitical tensions rather than fundamentals," said OCBC analyst Barnabas Gan. "But geopolitical tensions are a crucial and unquantifiable
    factor when it comes to affecting prices, so it (gold) is just all over the place now."

    Iraqi government forces captured the major Kurdish-held oil city of Kirkuk on Monday, responding to a Kurdish referendum on independence with a bold lightning strike that transforms the balance of power in the oil-producing country.

    Elsewhere, the United States is not ruling out the eventual possibility of direct talks with North Korea, Deputy Secretary of State John J. Sullivan said on Tuesday, hours after Pyongyang warned nuclear war might break out at any moment.

    The dollar edged up against its peers on Tuesday, supported by a rise in Treasury yields following a report that U.S. President Donald Trump was favouring a policy hawk as the next head of the Federal Reserve.

    Trump will meet with Fed Chair Janet Yellen on Thursday as part of his search for a new candidate for her position, a source familiar with the planned meeting said. The Fed will probably need to raise interest rates in
    December and then three of four times "over the course of next year", assuming the U.S. unemployment rate continues to fall and inflation rises, Boston Fed President Eric Rosengren said.

    Higher U.S. interest rates tend to boost the dollar and push up bond yields, putting pressure on greenback-denominated gold.

    "On the bearish side, a resilient dollar and rising interest rates (and stocks) are all impacting gold negatively, while the fragile geopolitical mosaic is offering an element of support," INTL FCStone analyst Edward Meir said in a note.

    Spot gold may drop to $1,281 per ounce, as it failed to break resistance at $1,305, said Reuters technicals analyst Wang Tao.


    So gold market gives us two perfect setup for trading with thrilling potential. First is a kind of B&B "Sell" on daily, but not quite B&B as it doesn't match to conditions. Let's call it as some momentum trade, but the core is the same - market should show deep retracement. Besides, on daily price has formed nicely looking bearish engulfing pattern, which also suggests deep retracement:
    gold_d_17_10_17.

    meantime, whole this mess on daily is perfect "Morning star" on weekly. And it means as retracement on daily will be over - we should be ready for another leg up above 1305 area. By combining of these two patterns we could make forecast of price action. This picture looks indicative, but you'll see the idea. Daily engulfing should lead to appear of downside AB=CD and most probable H&S pattern. It could be used for scalp trades for short trading.
    Later, as it will be completed we will turn to weekly bullish pattern, and upside action will start most probably by "222" Buy. This is the scenario that we will keep an eye on within 1-2 weeks...
    gold_1h_17_10_17.
     
  3. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Greetings everybody,

    (Reuters) - Gold prices inched up on Wednesday from a one-week low with the dollar holding steady, but speculation that President Donald Trump might pick a policy hawk to lead the U.S. Federal Reserve weighed on the metal.

    Spot gold was up 0.1 percent at $1,286.11 an ounce at 0350 GMT. It hit a one-week low of $1,281.31 in the previous session. U.S. gold futures for December delivery rose 0.2 percent at $1,288.20 per ounce.

    "This morning is about President Xi talking and headlines coming out of that... we're seeing a bit of pullback (in the dollar) that's helping gold this morning in Asia," a Hong Kong-based trader said.

    Asian shares consolidated recent gains and currencies kept to tight ranges on Wednesday as investors waited to see what policies might emerge from China's Communist Party conference.

    "I would expect gold to stay gently bid in Asia in case of some surprise headlines," Jeffrey Halley, a senior market analyst with OANDA, said. The dollar was steady against a basket of currencies with investors weighing the possibility that Trump will choose a more hawkish Federal Reserve chief than current chair Janet Yellen.

    "All the rhetoric around that is that it's more hawkish... Just few surprises hitting the market there and helping the dollar regain footing and keeping yields very steady, so really putting gold under pressure," the trader said.

    Trump has a pool of five candidates to choose from for the next Fed chair and is likely to announce his choice before going to Asia in early November, a source familiar with the situation said on Tuesday.

    Jerome Powell will likely be the next Federal Reserve chairman, according to a slim majority of economists in a Reuters poll - but most of them said current Fed Chair Janet Yellen would be the best option.

    The U.S. central bank is widely expected to raise interest rates for the third time this year in December.
    Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the greenback.

    "$1300 was a very big psychological level. Just technically we needed to close above it a few times and we failed. The 100 DMA around $1,275 is kind of a big support level," the trader said adding that some buying could come in around $1260-75.


    So, the core of our scenario we've discussed in details yesterday - today is just minor update. if you will carefully take a look at daily chart, you'll see three different potential patterns here. First is reverse H&S, which we're watching for, as market is forming right shoulder right now. Then we could get either "222" Sell or even Butterfly pattern, depending on how strong gold market will be. But both of these patterns suggest action above 1300:
    gold_d_18_10_17.

    Now we're watching when intraday bearish collapse of daily bearish engulfing pattern will exhaust. Currently price stands around MPS1 and could show upside bounce. In fact, we could get only one reversal pattern here is DRPO "Buy".
    Our trading plan mostly is based on downside action first, somewhere to 1265-1270 area. That's why personally I have no intention to trade DRPO if even it will be formed. It is not forbidden though, but this is secondary issue. It is more interesting for us, to try go short if upside bounce will happen and we will get hourly H&S pattern:
    gold_1h_18_10_17.

    if no DRPO will be formed, and market will drop directly to 1265-1270 area - this will not harm our trading plan and just change the shape of action a bit. Anyway, somewhere around 1270 we will be watching for bullish reversal patterns to take position with daily/weekly patterns.
     
  4. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Good morning,

    (Reuters) - New Zealand First leader Winston Peters said on Thursday he would support the Labour Party to form government after an inconclusive Sept. 23 election, making Jacinda Ardern the country’s third female prime minister.

    “We had a choice to make... for a modified status quo or for change,” Peters told reporters in Wellington, ending nearly a month of political uncertainty following the election which has hit the local currency and business sentiment.

    “That’s why in the end we chose a coalition government of New Zealand First with the New Zealand Labour Party.”

    New Zealand First holds the balance of power with nine seats, a Labour-Green bloc controls 54 seats, and the National Party 56 seats.

    Peters’ decision to back a Labour government ends nearly a decade of National rule.


    Today we need to take a look at kiwi dollar instead of gold, as first step of our trading plan has been completed. Now we have a clarity on concern that we've discussed in weekly reseach. As our B&B "Sell" has been completed and market has dropped below 0.71 major intraday Fib support - it means that no 2nd leg ups will be and weekly bullish engulfing pattern is erased.
    Hence, we could totally focus on daily "222" Buy pattern and 0.70 area:
    nzd_d_19_10_17.

    On intraday charts steep butterfly "buy" is forming. Thus, may be we will need to focus not on 1.27 but 1.618 extension of this pattern. But, in general, appearing of butterfly is a good sign as we have bullish reversal pattern right at the completion point of large daily AB=CD:
    nzd_4h_19_10_17.

    That's bein said, next step of our trading plan is to be ready for upside revesal somewhere around 0.70 area. Because, on NZD, we have uncompleted major monthly target and, as soon as political turmoil will be over, kiwi should return back to normal action.
     
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  5. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Good morning,

    (Reuters) - Gold prices turned lower on Friday as the dollar regained ground after the U.S. Senate approved a budget blueprint for the 2018 fiscal year that will pave the way for Republicans to pursue a tax-cut package without Democratic support.

    Spot gold had declined by 0.4 percent to $1,284.60 an ounce by 0355 GMT. It was down 1.6 percent for the week. U.S. gold futures for December delivery were down 0.3 percent at $1,286.10 per ounce.

    The Republican-controlled Senate voted for the budget measure late on Thursday by 51-to-49, which would add up to $1.5 trillion to the federal deficit over the next decade in order to pay for proposed tax cuts.

    "The dollar is up on account of the Senate vote... which in turn could pave the way for introducing a tax reform bill. That is seen as a cause for higher (interest) rates," INTL FCStone analyst Edward Meir said.

    The U.S. Federal Reserve is widely expected to raise its benchmark interest rate for the third time this year in
    December. Higher rates tend to boost the dollar, putting pressure on the greenback-denominated gold. Meanwhile, a report that Trump was leaning toward Fed Governor Jerome Powell, who is perceived as a less hawkish candidate, as the next Fed chair had weighed on the dollar earlier in the session and lent some support to gold prices.

    Trump concluded interviews with the five candidates, including current chief Janet Yellen, he is considering to chair the Fed and could announce a decision as early as next week, a source familiar with the process said on Thursday.

    "The (gold) market has been fairly quiet lately. There has been some profit-taking. Importantly, there are no known headlines from North Korea or Iraq," OCBC analyst Barnabas Gan said. Geopolitical risks can boost demand for safe-haven assets such as gold and the Japanese yen. "The ongoing Fed balance sheet tapering does give something for gold prices to point south into the year-end," said Gan, adding that the most immediate support level for the metal would be at $1,280.

    Elsewhere, the European Central Bank will say on Oct. 26 it will start trimming its monthly asset purchases to 40 billion euros from 60 billion euros in January, a Reuters poll found.

    Spot gold may be rangebound between $1,278 and $1,291 per ounce for one day before seeking its next direction, Reuters technicals analyst Wang Tao said.


    On Gold market situation is relatively simple right now. We're dealing with the same weekly "morning star" pattern which suggests upside AB=CD action and now market stands at fulcrum point - drop here will erase bullish setup, or, at least significantly diminish chances on success and could lead price to 1250 area:
    gold_d_20_10_17.

    Deep retracement that we were waiting now is completed - indeed gold has dropped to 5/8 Fib support. This has happened a bit later, but now price stands in place. Also we have here bullish MACD divergence:
    gold_4h_20_10_17.

    Now gold is forming reverse H&S hourly pattern and also stands at the culmination point there - at the bottom of right shoulder. So, failure here could trigger chain reaction - failure of H&S, failure of daily and weekly bullish setups. That's why, this moment is very important.
    gold_1h_20_10_17.

    So, those of you who would like to go long - this is good moment, because here you could place most close stop. Upside action should start either here, or, it will not start at all.
    If you're bearish - you need to wait for signs of failure of this bullish setup that we have here.
     

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