Sive Morten
Special Consultant to the FPA
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- 18,673
Fundamentals
Friday was a holiday in EU due Good Friday day, and situation on EUR has not changed significantly. That's why may be it makes sense to take a look elsewhere. It think that our Loonie update could be interesting.
In general the end of last week was a culmination of closes - end of week, month and quarter. That's why USD strength was based mostly not on fundamentals but on some technical factors:
“A key part of the dollar’s recent gains were quarter-end flows, with many investors seen to have closed out short positions on the currency to lift the dollar,” said Shin Kadota, senior strategist at Barclays in Tokyo.
“It remains to be seen if the dollar can retain its gains next week when the new quarter begins, as it will no longer have support from such flows. Much of the challenging themes will remain the same in the next quarter, such as the health of the U.S. economy and trade issues.”
Speaking on Canadian dollar, it mostly was driven by news in NAFTA negotiations. This is the only explanation, why it has turned positive last week, although statistics has shown that Canadian economy slowed by 0.1% in January showing clear sign that first-quarter growth is likely to be weaker than the
Bank of Canada had predicted.
"I think the Canadian dollar really hasn't reflected a lot of the weakness (in the economic data), said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets. "I think, in part, because it has some favorable push from NAFTA and getting excluded from the tariff actions."
As Crude Oil prices stands solid and Canada was expelled from black US tariffs list - this provides support to loonie dollar.
Returning back to trade war in general, although newspapers try to balloon this topic and show it as economic catastrophe - this is not yet so. Tariffs on $60Bln goods export from China is just 11% of total export, while mirror China measures stands just for 3Bln, which just 2% of US goods export. These volumes couldn't significantly impact on global trade.
Second, China has more to lose from a trade war than the US does, making it less likely to escalate tensions than is perhaps generally perceived; exports to the US account for a far larger share of China’s GDP than US exports to China do, as a share of US GDP.
Besides, as Mexico and Canada were exempted out from tariffs' impact, now a lot of rumors stand around massive other exemptions for old US allies, such as EU, Japan, Korea and Brazil. There are a lot of suppliers of different commodities to US with significantly greater volume that China, US has room for trading manoeuvre and distribution of import flows between other suppliers.
Other words speaking as US stands in center of global trade and a lot of trade circuits are linked to US, this is powerful tool to use economy for impact on rivals and "partners"
Fathom consulting better expresses the same thought:
"Admittedly, the President may have less incentive to soften his stance on China like he did with US security allies over steel. And by getting his allies to the negotiating table and exempting them from steel tariffs, he may well be able to garner their support in the fight to tackle China’s contribution to global trade imbalances and its alleged violation of the WTO rules. If the US does get the support of its trade allies, it makes China less likely to respond aggressively to the US trade tariffs. It could even force China to open up its markets to US firms, and firms from other countries, which would boost global trade."
Finally, last week we've said that it is short-sighted opinion to think that D. Trump doesn't understand possible consequences of real trade war. With keeping US employment and wealth of national economy in mind, hardly global trade war is possible. Now it is more looked like attempt to use economical factors and leverage to press on political rivals.
COT Report
Recent CFTC data on CAD doesn't provide any revolutionary information. Net long position mostly stands flat and doesn't change within last 4-5 weeks. Open interest is dropping, but also rather slow. The one conclusion that we could make here still... Take a look that net position stands stubbornly long, despite that CAD as dropped for 500 pips within 2 months. It let's us think that investors could treat this action as retracement and keeping longs with anticipation of bullish trend continuation.
Source: Oanda.com
Technicals
Monthly
Here we continue discussion of setup that was started almost month ago.
As two weeks has passed, market mostly has completed our suggestion on upside action to 1.3130 area. Meantime, monthly CAD keep standing in "Sell" mode, but now is bouncing up from strong monthly K-support and Agreement, as downside OP has been hit. Trend breakeven point in March by MACD stands at 1.3164. It means that until this point monthly CAD will be bearish and we could watch for chances to go short.
Unfortunately we didn't get bearish grabber as we've hoped for, as it could become a jewel in the crown of bearish setup. Still this doesn't change the core - we've got AB-CD upside retracement and "222" Sell pattern. Setup will be valid until price stands below recent top and keeps trend bearish.
You could argue that we have larger "222" Buy right from K-support area. Indeed, but this pattern is of different scale, mostly quarterly. If you're watching over it, then, you should treat our setup as retracement and chance to get better entry point in long "long" long trade
.
Weekly
So our target on weekly chart has been hit - price has reached OP.
OP creates super strong resistance area on weekly, which includes K-resistance and daily Overbought. Let's note for some case that XOP target also creates Agreement with major 5/8 resistance. Now we do not need it, but who knows what will happen in the future...
Now take a look again on monthly chart. As we've said - trend breakeven point stands around 1.3164, while our weekly resistance is 1.3131 It means that we could fade weekly "Buy" and try to sell from this strong weekly resistance, while monthly trend keeps bearish direction.
Thus, as a result we've got "222" Sell pattern. At the same time, last time we have warned you - be patient. Despite how strong resistance is, upside action has rather good pace and momentum. So, if reversal indeed will happen - it will be accompanied by solid volatility and fluctuations around K-area, because market needs to calm down upside momentum.
It means that we should get clear signs of reversal on lower time frames. Here, on weekly we just have a kind of bearish engulfing pattern at major resistance level.
Another sign that could support idea of downside action is that MPR1 holds upside action. Usually it happens when long-term bear trend is still valid.
Daily
On daily chart everything looks fine, except may be uncompleted XOP target. It would be nice if market has hit it first, before reversal has started. That would create just perfect picture. But we have what we really have got.
Drop down was rather fast, so that market even has hit OS area. At the same time we have unfriendly issue here - strong K-area right below potential neckline - yes, now it is not a problem to recognize potential H&S pattern here.
At the same time, recall our "Oops!" Trade on EUR month ago - it has worked just perfectly as H&S has failed at K-support area right under neckline.
So, it seems that this setup is not as clear and fascinating as it could be. There are just two conclusions could be made. First is - CAD will be strong enough to break all this stuff down. Second, if our suspicious will be confirmed and CAD indeed will fail to proceed lower - reversal process around monthly/weekly K-resistance will be longer and H&S that we see right now will become a part of something bigger. Also don't withdraw our XOP out from balance sheet... as proverb tells "It's not over until the fat lady sings", and if CAD will fail to proceed with H&S - it could come back and hit XOP...
Intraday
It means that we could get different results and now it seems that it is better to focus on bearish setups with target just around daily K-support, not to count yet on 1.28 area breakout. On 4-hour chart we will stick with our H&S but also will be watching for another bearish pattern as it very often appears on right arm:
As you can see our EUR "Oops!" setup repeats here totally. Upside retracement to 1.30 will let to keep harmony of H&S and provide "222" Sell" pattern, which, in turn will have COP target right at daily K-support and creates an Agreement. This is the reason, why we think that it would be better to not marry short position and take profit around 1.28. After that we will watch what will happen around K-area and decide is it make sense to go short again.
Conclusion:
Our loonie setup stands in place as all preliminary steps have been completed. At the same time, as fundamental background is very unclear, there is a risk that large trade could be split in few small trades. On coming week we will be focused on first one. As we think right now it should start from 1.30 and last till 1.28 K-support level.
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.
Friday was a holiday in EU due Good Friday day, and situation on EUR has not changed significantly. That's why may be it makes sense to take a look elsewhere. It think that our Loonie update could be interesting.
In general the end of last week was a culmination of closes - end of week, month and quarter. That's why USD strength was based mostly not on fundamentals but on some technical factors:
“A key part of the dollar’s recent gains were quarter-end flows, with many investors seen to have closed out short positions on the currency to lift the dollar,” said Shin Kadota, senior strategist at Barclays in Tokyo.
“It remains to be seen if the dollar can retain its gains next week when the new quarter begins, as it will no longer have support from such flows. Much of the challenging themes will remain the same in the next quarter, such as the health of the U.S. economy and trade issues.”
Speaking on Canadian dollar, it mostly was driven by news in NAFTA negotiations. This is the only explanation, why it has turned positive last week, although statistics has shown that Canadian economy slowed by 0.1% in January showing clear sign that first-quarter growth is likely to be weaker than the
Bank of Canada had predicted.
"I think the Canadian dollar really hasn't reflected a lot of the weakness (in the economic data), said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets. "I think, in part, because it has some favorable push from NAFTA and getting excluded from the tariff actions."
As Crude Oil prices stands solid and Canada was expelled from black US tariffs list - this provides support to loonie dollar.
Returning back to trade war in general, although newspapers try to balloon this topic and show it as economic catastrophe - this is not yet so. Tariffs on $60Bln goods export from China is just 11% of total export, while mirror China measures stands just for 3Bln, which just 2% of US goods export. These volumes couldn't significantly impact on global trade.
Second, China has more to lose from a trade war than the US does, making it less likely to escalate tensions than is perhaps generally perceived; exports to the US account for a far larger share of China’s GDP than US exports to China do, as a share of US GDP.
Besides, as Mexico and Canada were exempted out from tariffs' impact, now a lot of rumors stand around massive other exemptions for old US allies, such as EU, Japan, Korea and Brazil. There are a lot of suppliers of different commodities to US with significantly greater volume that China, US has room for trading manoeuvre and distribution of import flows between other suppliers.
Other words speaking as US stands in center of global trade and a lot of trade circuits are linked to US, this is powerful tool to use economy for impact on rivals and "partners"
Fathom consulting better expresses the same thought:
"Admittedly, the President may have less incentive to soften his stance on China like he did with US security allies over steel. And by getting his allies to the negotiating table and exempting them from steel tariffs, he may well be able to garner their support in the fight to tackle China’s contribution to global trade imbalances and its alleged violation of the WTO rules. If the US does get the support of its trade allies, it makes China less likely to respond aggressively to the US trade tariffs. It could even force China to open up its markets to US firms, and firms from other countries, which would boost global trade."
Finally, last week we've said that it is short-sighted opinion to think that D. Trump doesn't understand possible consequences of real trade war. With keeping US employment and wealth of national economy in mind, hardly global trade war is possible. Now it is more looked like attempt to use economical factors and leverage to press on political rivals.
COT Report
Recent CFTC data on CAD doesn't provide any revolutionary information. Net long position mostly stands flat and doesn't change within last 4-5 weeks. Open interest is dropping, but also rather slow. The one conclusion that we could make here still... Take a look that net position stands stubbornly long, despite that CAD as dropped for 500 pips within 2 months. It let's us think that investors could treat this action as retracement and keeping longs with anticipation of bullish trend continuation.
Source: Oanda.com
Technicals
Monthly
Here we continue discussion of setup that was started almost month ago.
As two weeks has passed, market mostly has completed our suggestion on upside action to 1.3130 area. Meantime, monthly CAD keep standing in "Sell" mode, but now is bouncing up from strong monthly K-support and Agreement, as downside OP has been hit. Trend breakeven point in March by MACD stands at 1.3164. It means that until this point monthly CAD will be bearish and we could watch for chances to go short.
Unfortunately we didn't get bearish grabber as we've hoped for, as it could become a jewel in the crown of bearish setup. Still this doesn't change the core - we've got AB-CD upside retracement and "222" Sell pattern. Setup will be valid until price stands below recent top and keeps trend bearish.
You could argue that we have larger "222" Buy right from K-support area. Indeed, but this pattern is of different scale, mostly quarterly. If you're watching over it, then, you should treat our setup as retracement and chance to get better entry point in long "long" long trade
. Weekly
So our target on weekly chart has been hit - price has reached OP.
OP creates super strong resistance area on weekly, which includes K-resistance and daily Overbought. Let's note for some case that XOP target also creates Agreement with major 5/8 resistance. Now we do not need it, but who knows what will happen in the future...
Now take a look again on monthly chart. As we've said - trend breakeven point stands around 1.3164, while our weekly resistance is 1.3131 It means that we could fade weekly "Buy" and try to sell from this strong weekly resistance, while monthly trend keeps bearish direction.
Thus, as a result we've got "222" Sell pattern. At the same time, last time we have warned you - be patient. Despite how strong resistance is, upside action has rather good pace and momentum. So, if reversal indeed will happen - it will be accompanied by solid volatility and fluctuations around K-area, because market needs to calm down upside momentum.
It means that we should get clear signs of reversal on lower time frames. Here, on weekly we just have a kind of bearish engulfing pattern at major resistance level.
Another sign that could support idea of downside action is that MPR1 holds upside action. Usually it happens when long-term bear trend is still valid.
Daily
On daily chart everything looks fine, except may be uncompleted XOP target. It would be nice if market has hit it first, before reversal has started. That would create just perfect picture. But we have what we really have got.
Drop down was rather fast, so that market even has hit OS area. At the same time we have unfriendly issue here - strong K-area right below potential neckline - yes, now it is not a problem to recognize potential H&S pattern here.
At the same time, recall our "Oops!" Trade on EUR month ago - it has worked just perfectly as H&S has failed at K-support area right under neckline.
So, it seems that this setup is not as clear and fascinating as it could be. There are just two conclusions could be made. First is - CAD will be strong enough to break all this stuff down. Second, if our suspicious will be confirmed and CAD indeed will fail to proceed lower - reversal process around monthly/weekly K-resistance will be longer and H&S that we see right now will become a part of something bigger. Also don't withdraw our XOP out from balance sheet... as proverb tells "It's not over until the fat lady sings", and if CAD will fail to proceed with H&S - it could come back and hit XOP...
Intraday
It means that we could get different results and now it seems that it is better to focus on bearish setups with target just around daily K-support, not to count yet on 1.28 area breakout. On 4-hour chart we will stick with our H&S but also will be watching for another bearish pattern as it very often appears on right arm:
As you can see our EUR "Oops!" setup repeats here totally. Upside retracement to 1.30 will let to keep harmony of H&S and provide "222" Sell" pattern, which, in turn will have COP target right at daily K-support and creates an Agreement. This is the reason, why we think that it would be better to not marry short position and take profit around 1.28. After that we will watch what will happen around K-area and decide is it make sense to go short again.
Conclusion:
Our loonie setup stands in place as all preliminary steps have been completed. At the same time, as fundamental background is very unclear, there is a risk that large trade could be split in few small trades. On coming week we will be focused on first one. As we think right now it should start from 1.30 and last till 1.28 K-support level.
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.
