FOREX PRO WEEKLY, April 03 - 07, 2017

[Sive Morten]

Fundamentals

(Reuters FX news) - The dollar was flat on Friday as a Federal Reserve official's seemingly dovish remarks and uninspiring data on the U.S. economy "squelched" the sanguine mood from earlier this week.

The euro rebounded from a two-week trough, and the dollar fell to its low on the day against the Japanese yen after comments from New York Fed President William Dudley. Seen as one of the most important members of the Fed's rate-setting committee, Dudley said the central bank was in no rush to tighten monetary policy.

His comments followed less-than-stellar data on U.S. consumer spending that showed that even as confidence hit its highest level in more than 16 years, Americans are still holding their wallets tightly.

"We're not seeing great sentiment one way or another, but bursts of enthusiasm this morning definitely got squelched by the comments and economic data," said Boris Schlossberg, managing director of FX strategy at BK Asset Management.

"A lot of the air went out of the balloon today because we didn’t get quite the positive data set that we wanted and we’re still getting relatively cautious commentary from the Fed."

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up just 0.1 percent last month.

The dollar index, which tracks the greenback against six rival currencies, was little changed from its late Thursday levels at 100.39. Backed by early-week gains, however, it is headed for its best week since mid-February.

For the month, the dollar index fell 0.7 percent, its second fall in three months after three straight monthly gains to end 2016.

Similarly, the euro, which briefly hit its lowest since March 15, was on track for its worst week in seven as investors this week have revised their expectations for when the European Central Bank will begin to tighten monetary policy.

The euro was last flat against the dollar at $1.0686. It rose nearly 1 percent during the month.

The dollar hit a 10-day high against the yen in overnight trading, but reversed that move, touching its session low after Dudley's remarks. It was last down 0.55 percent at 111.34 yen. The dollar fell 1.2 percent against the yen in March.

Introducing Fathom’s UK STAM: Activity slows into the New Year
by Fathom Consulting

After the UK voted to leave the EU, forecasters believed that the UK economy would slow substantially. Indeed, we had expected some slowdown even in the event of a ‘Remain’ vote. Yet growth picked-up in the second half of 2016. Despite this, ‘pain deferred’ remains our central view.

Upside surprises through the second half of last year gave us little reason to change our assessment of the fundamental impact of the referendum, only the timing. But this is a judgement about the most likely outcome, and we must of course be vigilant to the fact that we may be incorrect.

In August of last year, we introduced our Economic Sentiment Indictor (ESI). Rather than attempt to forecast published estimates of GDP growth, which can be noisy from quarter to quarter, the ESI was intended to measure underlying activity based on survey responses from both consumers and businesses, produced well ahead of official data. We have subsequently created similar measures for both France and Germany.

Applying a similar methodology, we have expanded the UK ESI to create our Short-Term Activity Measure (STAM). In addition to survey results, the STAM includes a range of additional non-survey indicators of economic activity, such as unsecured credit growth and car sales.

Movements in our UK STAM suggest that underlying growth slowed through the first two months of 2017, led by weaker business surveys, and a slowdown in retail sales and car registrations. We expect that the UK STAM will fall further as Brexit negotiations get underway, but we remain alert to the possibility that we may be surprised on the upside, as we highlighted to clients in a recent Newsletter.

COT Report

CFTC data on GBP shows that cable still stands extremely oversold. Speculative net shorts stands at highest level, since 2008. Last two weeks show some fluctuations, but no major reversal has happened yet. Last week shows that some part of shorts has been closed as open interest has decreased slightly as well as net short position. For us it means that major part of potential rally on GBP still stands ahead...

Today guys, it makes sense to take a look at GBP again. Concerning EUR - we mostly have said everything yesterday: bearish reversal week and deep retracement on daily chart significantly erodes bullish perspectives. That's why there we mostly will watch for minor bounce in short-term perspective and downward continuation after this bounce in medium-term horizon...Yesterday EUR has hit our 1.0650 target. Now we will watch for respect of daily K-support area...

Meantime let's take a look at GBP.

Technicals
Monthly

Right now monthly trend is bearish, but market is not at oversold on monthly chart. Market has completed all-time 0.618 AB=CD target and right now stands around it. Overall consolidation remains bearish flag pattern. Now meaningul upside reaction has followed yet on completion of the target.

Overall picture looks bearish by some signs. First is - acceleration down to AB-CD target. Usually fast drop on this point tells that market has chances to continue to AB=CD target, which stands at 1.06 area. Currently it seems too brave suggestion, but at least some minor continuation down is very probable. At the same time, last week we've mentioned HSBC bank forecast that it suggests to see pound around 1.10 area by the end of 2017. Thus, may be our view is not absolutely crackpot...

The point is if you will take a look at all-time GBP chart, you'll see that market already has broken major 5/8 Fib support and on a way down, drop is really fast since first leg was on 2008 crisis. Overall fundamental situation is mostly supportive to this scenario, besides, 20 points is not really big distance to GBP that is more volatile than many other major currencies. Fundamentally, as we've read above, Fathom consulting also supports idea of further GBP weakness.

But right now we're mostly interested in possible short-term tactical upside bounce.

Here we have two factors that in general support idea of possible upside bounce. First is - sentiment analysis as GBP is extremely oversold according to CFTC data. Second - on monthly chart we have small W&R of 1.2020 lows. This is very weak context, but we need to take in consideration all details. March candle has closed and we do not have bearish grabber here. Also take a look - flag consolidation could hold reaching of our minimum target by weekly bearish grabber. So, this target could be completed without breaking monthly picture. Market could even test YPP and flag will not hurt significantly.

Weekly

On weekly chart we have our major pattern that could push cable slightly higher. This is bullish grabber that was formed 2 weeks ago. In general, since October market shows signs of bearish dynamic pressure. Another risk factor is untouched 1.618 AB-CD target. That's why, as we've said overall bullish setup is arguable or at least brings more risks to fail than usual.

Still, although untouched targets exist - speculative position is too short. Markets needs more shorts to come to complete AB-CD, but it doesn't have it right now. That's why there are chances exist that first we will get upside bounce and only after that GBP will drop to next downward target:

Thus, here we can specify our "at least" target for this setup. This is previous top at 1.27 area. It should be taken out. But what other targets could be reached here? Well, we have also nice harmonic pattern here that points on 1.3350 area. As market has not touched Yearly Pivot by far around 1.3130, this makes chances on reaching 1.3350 feasible. But first let's focus on 1.27, because 1.3350 now stands even beyond weekly OB area..Due existing of the grabber, invalidation point also becomes clear - this is 1.21 area. Also it is clear that we mostly should focus on most recent upside candle for trading, we do not need swings of larger scale for this setup.

Daily

So daily trend is still bullish. Unfortunately we didn't get bullish grabbers last week, although price stand rather close to MACDP line. As you can see market has completed our first destination point, which is 0.618 AB-CD target. Retracement after it has been hit was really small, just 3/8 Fib support and this is good sign.

At the same time, we can't exclude that GBP still could turn to some intraday AB-CD. Right now upside bounce looks strong and hence, chances on intraday AB-CD are not too significant, but, who knows...

Daily picture is important as it brings array of patterns. First one that we will deal with is upside AB-CD to 1.2830 area. Mostly it matches to grabber pattern and leads to completion of its target.

In general, sideways consolidation since September reminds the shape of H&S pattern. Yes, it doesn't hold ratios, but still, shoulders are rather equal, head also is well recognizable. If upside action will continue by some reason, we could pay attention to more extended patterns that are 1.618 AB-CD and upside butterfly. By the way, it stands rather close to 1.3350 harmoic target that we've discussed above.

Right now we're mostly interested in 1.29 area. This is AB-CD destination, major 5/8 Fib resistance (which creates an Agreement resistance, right?) and 1.27 extension of possible butterfly pattern here:

Intraday

For shorter term perspective we have another question: whether market immediately will continue move up to next daily target, or, we will get deeper retracement first.

If you remember, when saw collapse on 4-hour chart we had intention to wait for deeper retracement level - 1.23 major Fib support. But somehow GBP was able to hold around our 1.24 K-support area. This is good sign. Upward action looks very nice right now, also we have hidden bullish divergence here that brings more confidence with upside continuation, but still we have to keep in mind the strength of plunge and be prepared to unexpected situations.

Hourly chart will help us with this. As you can see on a way up cable has broken all Fib resitance levels. This is good sign. But at the same time it has completed two different extensions. This should lead to minor downside retracement in the beginning of the week. Besides, price will open around WPR1:

That's why on Monday market could show retracement to 1.25 K-support or even 1.2445 major Fib level. This will not be sign of weakness, but normal technical process. Any significant drop below major 5/8 Fib support will increase chances on large bearish AB-CD pattern right to 1.23 level.

Conclusion:
Currently we do not want to look too far in the future. Yes, market shows strong bearish action, especially on very long-term charts, drops down indeed look miserable, and from that standpoint GBP could reach even 1.06 target, but right now we're mostly interested in tactical weekly/daily setup.

Currently cable is forming the background that looks supportive for upside bounce. Another advantage of our setup is its scale - it is not too large. But, at the same time, we have some additional risk factors as major weekly target has not been hit yet.

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 Morten]

Good morning,

(Reuters) - The safe-haven Japanese yen gained broadly on Tuesday as a risk-averse mood spread through the broader markets, while the Australian dollar retreated to a three-week low after the country's central bank raised concerns about domestic labor conditions.

Investor appetite for risk has been dulled this week by a number of factors, including an anxious wait for an upcoming meeting between U.S. President Donald trump and Chinese President Xi Jinping and a suspected suicide bombing in St. Petersburg, Russia.

"The dollar is feeling pressure against the yen from an interest rate spread point of view, with Treasury yields having fallen to one-month lows as Wall Street despite decent data," said Shin Kadota, senior strategist at Barclays in Tokyo.

The dollar extended overnight losses and was down 0.4 percent at 110.440 yen after hitting 110.370, its lowest in a week. The euro lost 0.5 percent and the Australian dollar fell 0.7 percent against the yen.

"This is a case of negative mood prevailing over other factors, like positive data, which would otherwise support the dollar," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

"It is difficult to pinpoint the cause of the negative mood, but it won't go away until immediate concerns towards the Trump administration are soothed. That might not take place until the U.S.-China summit is out of the way."

Monday's largely positive U.S. construction spending and manufacturing data affirmed a steady improvement in the economy, but did little to uphold Treasury yields and the dollar.

The euro was steady at $1.0668 after rising only about 0.2 percent overnight against the dollar, its advance tempered by a sharp decline in German bund yields driven by flight-to-safety following the bombings in St. Petersburg.

AUSSIE SLIPS

The Reserve Bank of Australia's decision to keep its cash rate at a record low of 1.5 percent on Tuesday came as little surprise. But the Aussie fell after the central bank hinted that it was not too confident about domestic labor and inflation conditions.

The Australian dollar lost more than 0.3 percent to reach a three-week low of $0.7578 , having declined steadily over the past two weeks from a four-month high of $0.7750.

The pound was a shade lower at $1.2475 after dropping 0.7 percent overnight on data showing British manufacturing lost momentum last month, the latest sign the economy may be running out of steam.

The 10-year Treasury note yield hovered near a one-month low of 2.321 percent plumbed overnight.

Today guys, we will take a look at EUR, although there is not much going on there. Right now we're watching for 4 setups. On NZD and JPY everything goes as it should, downward action continues. On GBP, if you remember our major concern was around upward continuation - either it should happen immedately or cable could take large AB-CD retracement right to 1.23 area. Now it seems that we still could see 1.23, at least plunge on intraday charts is strong and it better to not go long by far...

Now on EUR... On daily chart situation stands mostly the same. Price is coiling around strong support area which includes MPP and K-support. Our tactical scenario suggests minor technical bounce here as respect of this area:

For this purpose we need to get some bullish reversal patterns on intraday charts. Initially we've counted on possible DiNapoli DRPO "Buy" as thrust down looks really good. Although we've got multiple closes around 3x3 DMA, but no DRPO shape has been formed. Thus, probably we will not get it...
It means that we should watch for something else. Speaking on upside targets, they are mostly just two - either 3/8 Fib level+WPP or EUR favorite 50%. Taking in consideration the strength of the plunge, I would speak on 1.0740 - WPP and nearest Fib support:

THe only shape that is at least recognizable here is wide H&S pattern. So, if we will get neccesary harmony and with a few hours market will reach 1.07 neckline - in this case, indeed upside bounce could start by this pattern. Then, first target, as I said, will be 1.0740 resistance:

At least right now we do not see any other setups here...

 

[Sive Morten]

Good morning,

(Reuters) - The dollar regained some traction against the yen in Asian trade on Wednesday, but remained under pressure after North Korea fired a ballistic missile into the sea.

The launch, which came just ahead of a summit between U.S. and Chinese leaders, underpinned demand for the perceived safe-haven Japanese currency, which tends to gain in times of geopolitical tension or risk aversion.

The dollar got some help from Japanese importers on a "gotobi" date - a multiple of five - on which accounts are traditionally settled.

"Today, there is real demand for the dollar, on 'gotobi,' so its downside should be limited," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

But concerns about the upcoming China-U.S. summit capped the dollar's upside, as well as rising speculation that U.S. President Donald Trump will face challenges implementing his promised policies in the wake of his administration's failure to pass healthcare reform.

"People want to wait and see how Trump can carry out his promises when it comes to infrastructure" and tax reform, Ogino added.

The dollar edged up 0.1 percent to 110.85 yen, moving away from its overnight low of 110.27, but well below last Friday's 10-day peak of 112.19 yen.

The dollar index, which tracks the U.S. currency against a trade-weighted basket of six peers, was slightly down on the day at 100.50, as slumping U.S. Treasury yields also gave investors little incentive to buy the greenback.

The benchmark U.S. Treasury yield touched its lowest levels since February overnight. It last stood at 2.353 percent in Asian trading, not far from its U.S. close of 2.350 percent. It had been trading at levels above 2.40 percent as recently as Monday.

The euro, meanwhile, edged up 0.1 percent to $1.0681 after plumbing a three-week low of $1.0636 on Tuesday.

The Australian dollar added 0.1 percent to $0.7569, pulling away from a three-week low of $0.7545 hit in the previous session.

Australia's central bank held rates steady for an eighth month on Tuesday as widely expected, but expressed concerns over soaring property prices and weak employment conditions.

Today, guys we will make an update on JPY. On EUR, in turn, price keeps chances to reach at least nearest resistance as target of upside retracement. Actually EUR has formed flat 3-Drive buy pattern on 4-hour chart and has formed upside reversal swing. That's why some chances on higher upside retracement exist.

Now to JPY... If you remember the core of our scenario is big bearish engulfing pattern on monthly chart, which takes the shape of AB-CD pattern on daily. Our target here is 108.50 area. Last time, when we've taking a look at it - it was when JPY has hit minor 0.618 target at daily oversold and we've talked on upside retracement.
Now, as you can see, retracement has been completed and price has formed two side-by-side bearish grabbers that suggest dropping below recent lows. If this will happen - market will appear in "free space" and on half way to AB-CD completion. This will significantly increase chances on reaching final destination:

On 4-hour chart this action could take a shape of butterfly (here you can see, by the way, our "old" levels when we've talked on upside retracement):

Butterfly has the same destination point as daily AB=CD around 108.50-108.75, but right wing now looks too small. That's why upside action within few hours could be a bit higher. Hourly chart suggests that most probable starting point for right wing is 111-111.15 K-area and WPP:

THat's being said, our view on JPY - in a few hours market could reach 111 area and then turn down again, gradually moving to our major destination point around 108.50. IT could be completed even till the end of the week...

 

[Sive Morten]

Good morning,

(Reuters) - The dollar slipped against a basket of currencies on Thursday, weighed down by caution over the impending U.S.-China summit and geopolitical concerns.

The dollar index versus a basket of six major currencies was down 0.1 percent at 100.480 .

It had risen to a three-week high of 100.850 overnight on an upbeat ADP report on U.S. private sector employment.

But the currency tumbled from the three-week high despite hawkish-sounding minutes from the latest Federal Reserve meeting, which showed most policymakers think the Fed should begin trimming its $4.5 trillion balance sheet later this year.

"Although the contents of the Fed minutes should have been supportive for the dollar, it was dragged down by ensuing price action in other markets, which saw equities react negatively to the minutes and Treasury yields fall," said Shusuke Yamada, senior strategist at Bank of America Merrill Lynch in Tokyo.

Wall Street shares reversed an earlier rally and slipped on Wednesday, with sentiment soured as the Fed's minutes showed some policymakers viewed equity prices as quite high relative to standard valuation measures.

"Geopolitical risks are also weighing on the dollar. The market is only starting to factor in recent developments regarding North Korea, and it now wants to figure out the geopolitical implications of the U.S.-China summit," Yamada said.

Regional tensions have risen after North Korea test-fired a ballistic missile on Wednesday, just a day before a summit between U.S. President Donald Trump and Chinese President Xi Jinping, where North Korea's arms development drive will take centre stage.

Financial markets are nervous over the summit because of Trump's constant criticism of China's economic policies.

That caution has crimped broader investor risk appetite this week, depressing U.S. Treasury yields and dimming the dollar's allure.

With the broader markets in a risk-averse mood, the Japanese yen gained on its perceived safe-haven status.

The dollar was down 0.2 percent at 110.500 yen , having slid from a high of 111.450 struck overnight.

"The dollar looks to remain under pressure, barring developments like a swift passage of the president's budget by the U.S. Congress or an agreement on tax reform," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

The euro rose 0.1 percent to $1.0674 .

The Australian dollar fell to a four-week low on nerves ahead of the Xi-Trump summit. The currency is sensitive to potential developments in China, Australia's main trade partner.

The Aussie was down 0.4 percent and near $0.7537, its lowest since March 10.

The pound was steady at $1.2479 , after rising overnight on data showing growth in Britain's services sector.

Today, guys, we will take a look at NZD. EUR is still coiling around our major daily support, while JPY perfectly has completed our yesterday setup, and after hourly AB-CD has dropped...

On NZD we have interesting tricky issue. Last time when we've talked on it - we had two targets. First one was around 0.6960 and it was B&B "Sell" minimum target. Yesterday it has been completed, as you can see. But most interesting is what will happen with the next one.

The idea stands around AB-CD daily pattern and its 1.618 extension that has not been reached, although on a way down kiwi has shown fast acceleration and dropped through 0.618 and 1.0 extensions with no respect to them. Odds suggest that after such action, price sooner or later but should reach 1.618. It stands around 0.6850...

At the same time this target stands below previous lows which suggests some downward acceleration as soon as stops will be triggered... Now NZD could take the shape of butterfly to hit this target. Its 1.27 extension stands in the same area:

This analysis lets us specify criteria of distruction of this setup - price should not move above 0.71 top to keep valid butterfly pattern and overall bearish setup...

On 4-hour chart price has completed our minor AB-CD target around major Fib support that completes B&B trade. Now market could turn to some upside retracement:

Most probable destinations are 0.70 and 0.7030. Second one seems more probable from butterfly's shape standpoint. But both levels are combination of trendline and Fib resistances:

That's being said, today we're watching for upside bounce and on next week we will keep an eye wether market will turn to our more extended scenario (or stop just on completed B&B target...)

 

[Sive Morten]

Good morning,

(Reuters) - The dollar skidded against the safe-haven Japanese yen on Friday after the United States launched cruise missiles at an airbase in Syria, raising concerns of a sharp escalation in the Syrian civil war.

U.S President Donald Trump said on Thursday he ordered missile strikes against a Syrian airfield from which a deadly chemical weapons attack was launched.

The dollar index, which gauges the greenback against a basket of six major rivals, was down slightly on the day at 100.66, up 0.3 percent for the week.

Against the yen, which tends to gain in times of geopolitical tension or risk aversion, the dollar erased its early modest gains and dropped 0.3 percent to 110.44 yen, down 0.8 percent for the week.

"The fact that the dollar hasn't broken under 110 on this news shows how strong that level is, but we are still waiting to see Russia's reaction to the U.S. move," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust.

The U.S. military gave Russian forces advanced notice of its strikes and did not hit sections of the base where the Russians were believed to be present, a Pentagon spokesman said on Thursday.

"The news of the attack on Syria, and the resulting risk averse mood, has overtaken the U.S. jobs report as the main focus of the day," she added.

Later on Friday, the U.S. nonfarm payrolls report is expected to show an increase of 180,000 jobs in March, compared with 235,000 in February, according to economists polled by Reuters, which could reinforce expectations that the Federal Reserve will deliver two more interest rate increases this calendar year.

Falling U.S. Treasury yields also undermined the dollar. The benchmark 10-year yield touched its lowest levels since November, and last stood at 2.310 percent in Asian trading, down from its U.S. close of 2.343 percent.

The U.S. air strike came during a two-day summit between Trump and Chinese President Xi Jinping, and will add a new dimension to their talks.

The meeting had a strong focus on trade and North Korea's military programme. Trump had warned that he would be ready to act unilaterally to address North Korea's nuclear programme if China does not step up to help in the matter.

Trump's domestic policy agenda was put in the spotlight on Thursday, when U.S. House of Representatives Speaker Paul Ryan said tax reform would take longer to accomplish than healthcare reform. Ryan said that Congress and the White House were initially closer to agreement on healthcare legislation than on tax policy.

Currency policy was also in focus, after an administration official told Reuters that "misalignment" was seen as more significant than "currency manipulation" as a cause of trade deficits.

"Currency misalignment is different from currency manipulation and currency undervaluation," the official said. "So we want to see a process of analysing currency situations that includes whether it's misaligned, not just whether it's devalued or manipulated."

The euro was slightly lower on the day at $1.0643, after dovish comments from European Central Bank President Mario Draghi helped push it to a three week low of $1.0629 overnight. It was down 0.1 percent for the week.

Draghi said on Thursday that he does "not see cause to deviate" from the ECB's stated policy path, which includes bond buying at least until the end of the year and record-low rates until well after that to stimulate inflation.

Against the yen, the euro slumped 0.4 percent to 117.53 after dropping as low as 117.30 yen earlier, its deepest pit since late November.

Today guys, we will take a look at GBP. Cable holds bullish setup rather well, although doesn't show upside continuation by far. NFP is risk factor today, but at the same time, as you can see, reaction on ADP report was rather moderate...

On daily chart GBP has reached minor 0.618 AB-CD target and has shown respect to it by minor retracement. In fact price right now is coiling just under completed target, taking the shape of pennant - that is a good sign.

Our "at least" target here is 1.2720 top that should be taking out. More extended target stands around 1.2850.

Another bullish sign here - price stands above MPP. Finally, we have small bullish grabber that suggests further upside continuation. May be this is the hint on poor NFP data....

On 4-hour chart price action also looks bullish. First is, GBP stands above K-support area that we've specified two weeks ago and take a look - WPS1 holds downward retracement. It means that bull trend here is still valid. Overall action takes the shape of triangle that very often shifts to upside Butterfly. In this case it could lead market to completion of daily target around 1.2750 and MPR1.