FOREX PRO WEEKLY, April 11-15, 2016

Sive Morten

Special Consultant to the FPA
Messages
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Fundamentals

(Reuters) The yen retreated broadly on Friday after posting gains this week, weighed by warnings overnight from Japan's finance minister of possible intervention by the government to weaken the currency.

Gains in global stock markets and oil prices also bolstered the market's appetite for risk, diminishing the appeal of the safe-haven yen.

The yen surged as much as 2 percent against the dollar on Thursday. Japanese Finance Minister Taro Aso responded early on Friday by warning that rapid currency moves were "undesirable," and the yen's moves were "one-sided."

That is language that Tokyo has used in the past to flag intervention. The yen has rallied to 17-month highs against the dollar, but investors expect Japanese policy makers to hold fire on a rate decision at least until after next week's G20 meetings in Washington.

"The speed of the yen's move is going to be more important than levels when it comes to intervention," said Alan Ruskin, global head of FX strategy at Deutsche Bank in New York.

"Dollar/yen at 105 yen is still well above medium-term valuation estimates where the yen can be seen as expensive. The much more solid justification for intervention that Japan can make ... is that the speed of the move is disruptive to the Japanese economy and perhaps the global economy."

In late trading, the dollar fell 0.1 percent against the yen to 108.26 yen JPY=. This week, the dollar has fallen 3.0 percent, its worst weekly performance since mid-February.

So far this year, the yen has gained more than 11 percent versus the dollar, on pace for its strongest yearly gain in six years.

A Reuters poll of strategists showed on Thursday that the broader dollar rally that began in mid-2014 has nearly run its course and will only pick up slightly over the coming year.

On Thursday, Federal Reserve Chair Janet Yellen said the Fed was on course to tighten rates gradually, which gave the dollar some relief.

Yellen's statement last week that the Fed should proceed cautiously in light of looming global risks to the U.S. economy has been at the heart of sharp falls over the past 10 days for the dollar against the euro and yen.


Fed Caution Presents Opportunities
by Fathom Consulting

Released on Wednesday, Minutes of the Federal Open Market Committee’s March meeting revealed a split in opinion among its members, but ‘caution’ was very much the byword. Indeed, concerned that global developments continued to threaten the US economy, at the March meeting FOMC participants cut in half what they had previously judged to be the appropriate pace of tightening for this year.
1.jpg


FOMC Minutes reveal split but underlying caution
Although concern among investors about the US economy appears to have eased in recent weeks, the Minutes revealed that the FOMC remained worried that global developments continued to threaten the US economy. Indeed, several members felt that the underlying factors that had led to a sharp deterioration in financial conditions earlier this year remained unresolved.

Participants were split on issues such as whether the labour market had reached full employment, and the extent to which the recent pick-up in inflation was sustainable. Several participants expressed the view that a rate increase as soon as April would “signal a sense of urgency that they did not think appropriate,” while some other participants indicated that a further rate increase might well be warranted if upcoming data remained consistent with their expectations.

The Minutes reinforced investors’ expectations that the prospects for rate rises were limited. Market pricing now sees no more than an evens chance of a rate hike this year. Recent comments from Chair Janet Yellen suggest that she lies on the dovish side of the split. And the Minutes revealed a concern among many that the asymmetry of possible interest rate movements warranted caution. Caution is very much the byword for the Fed at the moment.

We now expect the Fed to deliver just a single 25 basis point increase by December. That represents a downward revision to the path that we set out in our previous quarterly forecast, and explains why we are now more positive about the outlook for US equities.

Weak Q1 likely … again

US growth looks to have been far from stellar over the turn of the year. Households appear to have been cautious during the period of financial market turmoil, choosing to save rather than spend much of their steadily rising income.

The closely watched GDPNow, provided by the Atlanta Fed, which seeks to provide an estimate of GDP growth up until the first estimate from the Bureau of Economic Analysis puts first quarter growth at a rate of just 0.4% (SAAR). A number in this region would mean two quarters in a row of disappointing growth.
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However, weak growth through the winter months of the year has been something of a feature of this US recovery. Since the end of 2010, average growth during the fourth and first quarters has been almost a percentage point below average growth during the second and third quarters. This can be seen in our next chart.
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Labour market still tightening
Growth may not have been stellar, but it has been enough to absorb more economic slack. Growth in GDP is significantly outpacing growth in productivity, pulling more people into employment. We examine the reasons behind the slowdown in US productivity growth in ourGlobal Economic and Markets Outlook for 2016 Q2, due to be presented to clients over the next few weeks. We find that the previous high level of oil prices may explain some of the decline in US productivity growth, but more importantly, our analysis suggests that prolonged low rates of interest have been a significant contributory factor.

We expect the labour market to continue to tighten. Job creation has continued unabated through the soft patch, and the tightness of the labour market will put more upward pressure on wages and core inflation.

The US economy looks to have gone through another soft patch over the past six months. Nevertheless, job creation has continued unabated. And the tightness in the labour market is encouraging people, particularly those of prime age, to return to the labour force.
COTW.png

The US economy created 215 thousand net new jobs in March and the participation rate rose to 63.0%, up from 62.9% in February. Demographics continue to place downward pressure on participation, but in spite of this it has picked up by the most in more than 20 years on a 6 month basis. The tightness of the labour market is encouraging people, particularly those of prime age, to return to the labour force.

Our labour market model suggests that wage inflation for non-farm private sector employees may rise towards 4% by the end of next year. The model does allow for cyclical movements in participation, but the extent to which the tightness in the labour market encourages people to actively seek work remains uncertain, meaning the wage forecast embodies that uncertainty too.

Inflation to rise for core, and possibly non-core reasons

The longer that China’s economy remains in the doldrums – China’s true rate of growth is a long way south of the official data – the greater the chance that Beijing decides to throw in the towel on rebalancing. Indeed, our central view is now that it does precisely this, seeking to stimulate growth largely through a combination of increased investment and increased public spending, much as it did through 2008 and into 2009. In this environment, we would see some upward pressure on commodities prices, and by extension, on non-core components of CPI inflation around the world. If we are right, then US inflation breakevens are too low and present a buying opportunity.
4.jpg

Rising inflation, combined with a reduction in financial market stress if China does double-down in the way we set out, would give the Fed more confidence to raise interest rates in line with the ‘dots’ curve through 2017. Next year, risks to the market curve for the federal funds rate lie firmly to the upside.


CFTC data on EUR shows moderate bullish performance - price is growing together with Open interest and net position. Currently EUR has net bearish position, but it decreases week by week, which points on decreasing of shorts/increasing long positions:
upload_2016-4-9_13-41-1.png


Technical
Monthly
Presented above research by Fanthom Consulting has great importance. They tell two major things. First - market has not totally priced-out previous FOMC policy with forecasted 4 rate hikes. Right now they expect to get at least 2 rate hikes. But Fanthom Consulting tells that they expect only one rate increase in December. It means that EUR has good chances to continue upside action till the end of the year. Major upside acceleration could happen on June, because precisely on June market expects rate increase. As this will not happen - this will be great disappointment and EUR could accelerate further. At the same time Brexit voting will take in June and this makes overall forecast very complex.
Second thing - they still expect major improvements in US economy but in 2017. Thus, downward reversal on EUR/USD should happen somewhere within a year or so. This will be great opportunity for trading since market could be caught on opposite course - just market will disappointed with 2016 policy it will meet hawkish 2017 policy that could become a reason for very strong action on market.

So, right now first thing is more important for us - pricing out of 2 times rate hike in 2016. It means that EUR should grow more against USD. CFTC data shows positive EUR sentiment. Right now we should be careful to possible bullish technical signs on market. Here is interesting detail. Take a look that market has moved for 10 points as soon as Fed policy was revised. Thus, if Fed will rise rate just once in this year - it should be revised again. As result, 1.14+0.1 = 1.24. This is the level that market could reach in 2016 based on previous reaction on Fed policy changes.

On monthly chart we have two major issues. First one is DRPO "Buy" LAL pattern. I would say that this DRPO is perfect, but there is some mess with closes above 3x3 DMA has happened. The point is we've got formal confirmation in August 2015, there was second close above 3x3 DMA, but this has happened before real second bottom of DRPO has happened. In August we've talked about this moment and said that this is not DRPO by this reason. Real 2nd bottom has come in Nov-Dec. Close above 3x3 DMA last month is a real confirmation of DRPO "Buy", but as a result we've got some kind of triple REPO, that's why I mostly call it as DRPO "Buy" Look-alike (LAL).

Still, this pattern has all chances to work, thrust down looks perfect. Market has reached solid support area. If you will take a look at whole monthly chart - you'll see that this is lower border of downward channel and all-time 5/8 Fib support. Here EUR has formed Butterfly "buy". Thus, if even this butterfly will not trigger upside reversal - market still should show upside retracement.

Second thing, that seems important is Yearly Pivot. Take a look that on February EUR has made an attempt to close above it but failed. On March we see second challenge and it was successful. Pivot framework suggests that next target is Yearly Pivot Resistance 1 @ 1.1831. At the same time this is 3/8 Fib resistance, 1.20-1.22 is monthly overbought and DRPO target. Trend is bullish here.

So, taking in consideration new inputs on Fed policy, CFTC report and technical picture - let's focus at first destination and will not look too far. Monthly chart tells that this area could be met. Besides, 1.18-1.19 is reasonable upside retracement for monthly butterfly.
eur_m_11_04_16.png


Weekly
This chart represents opposite picture. Once we've discussed this pattern that mostly is based on 1.08 downward breakout. Although currently phantom chances still remain on this butterfly, since price still stands below 1.1850 top, but these chances significantly decreased as market has turned to upside action again. Also we should treat this picture through the light of recent Fundamental comments. It means that hardly this pattern will work and we mostly should think about further upside action. As you can see market has stopped upward action not just occasionally, but due reaching of 1.14 long-term resistance area.

Another pattern that you could recognize here is Double Bottom with neckline around 1.1550-1.1580. Theoretical target of DB is around 1.25 (also agrees with 1.24 fundamental conclusion). Most interesting thing is what will happen around neckline, since here we have weekly overbought, MPR1. This area we will use as potential target of next week and major indicator of bullish breakout.

Last week was almost inside one, but right now EUR should not show very deep retracement, because market stands on upside extension phase and major retracement already has been done.
eur_w_11_04_16.png


Daily

This chart does not have any bright pattern or setup. Still, it is very important for short-term analysis. Here we still work with our initial AB-CD pattern. EUR has passed through all other targets except the last one - 1.618.

Here we have multiple bullish signs. Trend is bullish. After upside breakout of 1.1360 area market has not returned back and has not dropped significantly but holds around broken top and forming consolidation aka bullish flag.

EUR also stands above MPP and on a half way to MPR1. Finally on Friday we've got bullish grabber inside the flag that suggests upside continuation. If market will do this - hardly it will stop just on minimal grabber target. This probably will mean real upside continuation.

What we could say about 1.1580-1.1615 area? This is AB-CD 1.618 target, MPR1 and 1.27 extension of most recent retracement down. Previously we treated it as butterfly, but this doesn't matter how to treat it, it just gives another destination point around the same 1.16 area. The major meaning of this area stands on weekly chart - this is neckline, red line for Double Bottom pattern and depending on what will happen around it withing nearest couple of weeks could bring clarity on further perspective.

Currently we have advantage with understanding of ongoing fundamental processes and that lets us mostly expect upside breakout.
eur_d_11_04_16.png


4-hour
On intraday charts we're mostly interested with this sideways consolidation. This is the key to further action. Market should not break it down if it gravitates to upside continuation. Trend has changed bullish here already. Also we can recognize bullish dynamic pressure here.

On Thursday market indeed has dropped below 1.1370 area, thus we haven't got any upside continuation last week. But Friday action has changed overall situation. Currently price action will be held by Weekly Pivot levels that envelope current consolidation. Upside breakout and moving above WPR1 will be another bullish sign here.

So guys, taking in consideration all the stuff that we've discussed here, it seems that market should continue upside action. EUR could reach at least 1.1550-1.16 area on coming week.
eur_4h_11_04_16.png


Conclusion:
Overall fundamental picture is promised to be extra interesting within nearest 1-2 years. Currently we expect two long-term trends that will become mostly unexpected for the market. First will be to upside as market gradually will start to understand that we will not get 2 rate hikes in 2016. Perspective of this action stands around 1.24-1.25 area. Second action should start in 2017 and it will be downside as US economy will start to show real strong signs of inflation and recovery will show itself brightly. Thus this should push EUR down that also could be not absolutely expected for the markets.

In very short-term perspective, we're mostly interested in reaching of 1.1580 major weekly resistance and price response to this level. Thus, on coming week there are really good chances on upside continuation.


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.
 
Hello all, please i am trying to locate a guy be the name of Sir Pipsalot, he was a moderator on this forum many years back,please does anyone has he email?
 
Hello all, please i am trying to locate a guy be the name of Sir Pipsalot, he was a moderator on this forum many years back,please does anyone has he email?

Hi Tun,
no, he has retired our there long time ago, more than 5 year probably.
 
Hello Sive,

I think I have found a quarterly Bread and Butter on USD/JPY :)

redir


here is the link to the chart in case the img above does not work, need to figure this out again since I changed to Ninja Trader and there I have to host the chart shots myself ...

https://onedrive.live.com/redir?res...authkey=!AGR6QE1098xcHSo&v=3&ithint=photo,jpg

maybe also "stretch" pattern as its oversold and 0,382

it would compliment your analysis and hopefully we will get the meaningful bounce from that area like you said.

regards,

Ian
 
Hello Sive,

I think I have found a quarterly Bread and Butter on USD/JPY :)

here is the link to the chart in case the img above does not work, need to figure this out again since I changed to Ninja Trader and there I have to host the chart shots myself ...

https://onedrive.live.com/redir?resid=70529B0C4017DB7A!37171&authkey=!AGR6QE1098xcHSo&v=3&ithint=photo,jpg

maybe also "stretch" pattern as its oversold and 0,382

it would compliment your analysis and hopefully we will get the meaningful bounce from that area like you said.

regards,

Ian

Hi Ian,
Interesting chart... I'm not sure about B&B - thrust is poor, but... Stretch - yes, and may be we will get lucky and price will give us quarterly grabber. This could be really interesting. So, keep an eye on it and put new charts as soon as new bar will appear...
 
Good morning,

(Reuters) The dollar slipped against the yen on Monday while weakening across a broad swathe of currencies, under continued pressure as the U.S. Federal Reserve has kept interest rate hike expectations low.

The greenback briefly gained against the yen, after hitting 17-month lows overnight as Japan warned it could intervene in the market to weaken the yen. But those gains did not last as momentum for the dollar/yen remained on the downside.

"The market is very reluctant to price in any Fed hike so that's keeping the dollar lower against the yen," said Vassili Serebriakov, currency strategist at BNP Paribas in New York. He sees the dollar testing the key 105 level versus the Japanese currency.

In late trading, the dollar was down 0.1 percent against the yen, at 107.97. Earlier the dollar fell to 107.64 yen, the lowest level since October 2014. The greenback has fallen three straight weeks against the Japanese currency.

The warning from Japan's chief cabinet secretary, Yoshihide Suga, on the yen's recent gains earlier spurred an unwinding of some one-sided trades on the dollar-yen before the pressure eased.

Suga said overnight that the Group of 20's agreement to avoid competitive devaluations did not mean Japan cannot intervene against currency moves, repeating language which has flagged intervention in the past.

"The market is not afraid of intervention at these levels," said BNP's Serebriakov. "Most people would look at 100 yen as the more realistic level in which Japan could intervene."

Any intervention by Japanese authorities would be about volatility, he added. "It's one thing if we move to 103 yen in two months. If we move to 103 in two days, that's a different story."

Suga told a news conference the Japanese government was closely monitoring the currency market with a sense of urgency, calling the yen moves one-sided and speculative.

The euro was little changed against the yen, at 123.14 yen , and was flat versus the dollar at $1.1405.

A number of Fed policymakers are scheduled to speak this week, but analysts held out little hope that their comments would significantly revive expectations for interest rate rises this year. The Fed's next policy meeting is on April 26-27.

Dallas Fed President Robert Kaplan on Monday said he does not support an interest rate hike based on the current crop of U.S. data.


So, currently EUR and JPY show most bright pictures, but Yen is a bit longer-term so it could wait a bit more. Thus, today we take a brief look at EUR, as we already have discussed most things in our weekly research.

Yesterday we've got another bullish grabber. Taking in consideration current consolidation above former top gives us very typical market behavior that is preparing for upside breakout. Nearest daily target stands at 1.1530, next one is 1.1620:
eur_d_12_04_16.png


On 4-hour chart we mostly have a deal with sideways range. Usually market moves the same distance in direction of breakout as the width of the range. It means that EUR should reach ~ 1.1580 area...
eur_4h_12_04_16.png


Hourly chart shows one a possible scenarios how this breakout could happen. For example, EUR could form butterfly pattern. It is interesting that 1.618 butterfly extension coincides with daily 1.1530 target:
eur_1h_12_04_16.png


So, let's see how it will turn...
 
Good morning,

(Reuters) The safe-haven Japanese yen slid from recent peaks against the greenback on Wednesday as solid gains in oil prices helped underpin risk appetite.

With hopes of a production cap agreed by top producers Russia and Saudi Arabia back in play, global oil prices climbed to four-month highs overnight.

"The dollar gained along with the Australian dollar as risk appetite improved in the broader financial markets. What was eye-catching was that the dollar rose without support from Japanese officials' jawboning," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

The greenback rose as high as 108.905 yen JPY=, having climbed from a near 18-month trough around 107.63 set on Monday.

The yen has mostly brushed off recent comments by Japanese officials warning that a rapid appreciation by the currency was unwelcome.

The euro rose to 123.85 yen EURJPY=R, putting further distance from a three-year low of 122.085 set last month.

The Canadian dollar hovered just under a nine-month peak, having rallied along with other commodity currencies such as the Australian dollar on higher oil prices.


Canada's loonie stood at C$1.2760 per USD CAD=D4, not far from the overnight high of C$1.2750 - a level last seen in July.

Also helping the currency, the Bank of Canada is widely expected to hold interest rates at 0.5 percent following its meeting on Wednesday. After a run of better-than-expected economic data at the start of the year, the central bank is also likely to raise its growth forecasts.

Other commodity currencies were also firmer with the Australian dollar up 0.4 percent at $0.7711 AUD=D4, nearing its 2016 peak of $0.7723 set a few weeks ago.

The Aussie extended gains as upbeat China trade data favoured risk appetite. Chinese exports in March rose a much stronger-than-expected 11.5 percent, the first increase since June and largest gain since February 2015.

The Norwegian crown pulled back slightly to 8.1718 per dollar NOK= after advancing to a six-month high of 8.1225 on Tuesday.

The euro was subdued in contrast. The common currency eased 0.2 percent to $1.1369 EUR= after turning around from a six-month peak of $1.1465. That helped the dollar index .DXY climb back above 94.000, from a near eight-month low of 93.627.

"Given that the market is quite short USD against the EUR and JPY, and with U.S. inflation data also likely to be on the firm side on Thursday, we expect the USD's corrective recovery against the core majors to extend a little further this week," analysts at BNP Paribas wrote in a note to clients.


Today we will take a look at JPY. Yesterday EUR upside breakout was not successful, but it doesn't mean that it will not make any more attempts to do it. We knew from our weekly research that an area around 1.15 is tough resistance. Market has challenged it multiple times already and it's breakout will have very important meaning...
Meantime, on JPY we see that market has started bounce after it has met major weekly target, oversold and strong support area on monthly chart:
jpy_w_12_04_16.png


Usually, such sort of "respects" takes the shape of extended pattern on daily chart. It could be H&S or Double Bottom, but almost never it takes shape of bullish engulfing. It means that while market will form something really big, we could get a lot of small tactical setups. For example, right now on daily chart we could watch for B&B "Sell" on most recent thurst down:
jpy_d_12_04_16.png

At first glance this setup looks small but still it has not bad profit potential and we do not see any reasons to ignore it.

On 4-hour chart our DRPO "Buy" pattern has been confirmed and starts push price higher. Mostly it agrees with idea of B&B on daily chart, since it has target around 110.50:
jpy_4h_12_04_16.png
 
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