Sive Morten
Special Consultant to the FPA
- Messages
- 18,669
First of all - Happy Easter to everybody!
Fundamentals
(Reuters FX news) - The dollar nursed losses on Friday, on track for a losing week as geopolitical tensions underpinned the perceived safe-haven Japanese currency.
The dollar index, which tracks the U.S. unit against a basket of six rival currencies, steadied at 100.560, flat on the day but down 0.6 percent for the week.
U.S. President Donald Trump said on Thursday that North Korea is a problem that "will be taken care of," as China urged caution and speculation rose that Pyongyang might be on the verge of a sixth nuclear test.
In another part of the world, the U.S. military said on Thursday that it dropped "the mother of all bombs," the largest non-nuclear device it has ever unleashed in combat, on a network of caves and tunnels used by Islamic State in eastern Afghanistan.
"I think that the 'mother of all bombs' was intended to show the power of U.S. forces to North Korea," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.
"But maybe we won't see big market moves today, because I think the short-term players already have put on short-dollar positions, and now everyone is just waiting for the next trigger," he said.
The dollar edged up 0.1 percent on the day to 109.17 yen , but was down 1.7 percent for the week.
Market liquidity was thinner than usual because of this week's Passover and Good Friday holiday observances around the world. The market for U.S. Treasuries finished trading early on Thursday, and will be closed Friday.
The benchmark U.S. Treasury yield skidded to its lowest levels since November on Thursday, after President Donald Trump said in a Wall Street Journal interview published late Wednesday that he favoured low interest rates.
He also said the dollar was "getting too strong" and would eventually hurt the U.S. economy.
"Yields declined, and were seeing a softening of the dollar," said Bill Northey, chief investment officer at the private client group of U.S. Bank in Helena, Montana.
"It's unique to see that level of focus coming from the White House on economic topics that haven't usually been the purview of the administration," he said, explaining why markets continued to focus on Trump's remarks.
The euro edged up 0.1 percent to $1.0617. It was up 0.2 percent for the week, though concerns about the outcome of France's presidential election continued to limit its upside.
Far-right National Front presidential candidate Marine Le Pen, who is campaigning on a platform of economic nationalism, says France's GDP growth would accelerate to 2.5 percent towards the end of her first term if she wins the upcoming election.
Polls have suggested Le Pen and centrist Emmanuel Macron will emerge the winners of the April 23 first round against leftist Jean-Luc Melenchon and conservative Francois Fillon, with Macron seen winning the May 7 run-off.
Against the yen, the euro slumped as low as 115.72 on Thursday, its lowest level since November, and was poised to drop 2.4 percent for the week. It last stood at 115.85 yen, up 0.1 percent.
No major member of the euro area now meets the Maastricht criteria
by Fathom Consulting
The critique of a monetary union without a fiscal union is well known, not least in the euro area, and dates back at least to Alan Walters, adviser to Margaret Thatcher in the 1980s. Those who laid the groundwork for the single currency area perceived another over-riding risk – the risk that fiscal profligacy in some member states could undermine the fiscal solvency of the euro area as a whole, since membership of a currency union carries with it an implied underwriting of individual sovereigns by the common lender of last resort, the ECB.
That was the motivation for the Maastricht criteria, which threatened sanctions on any member state who breached certain limits on the government deficit or government debt. For a country to be able to adopt the single currency, it first had to comply with the Maastricht criteria – something that all EMU members initially achieved, with the exception of Greece, who only pretended to have achieved it. Today, though, none of the major member states would meet the Maastricht criteria for euro membership.
As our chart highlights, it is not just the periphery whose fiscal position has deteriorated – it is also France, Germany and other core members. Along the way, the peripheral member states (governments and private sectors) borrowed far beyond their means – our analysis suggests that the net present value of the total stock of peripheral (including Italian) sovereign debt will ultimately have to be reduced by at least 1.5 trillion euros. In spite of that profligacy, markets were profoundly relaxed about the risk of default on that debt ahead of the global recession, with spreads between peripheral and German sovereign debt narrowing almost to zero.
The banking crisis changed all that, and widening spreads threatened imminent collapse of the EMU ahead of Draghi’s speech in 2012. That speech saved the euro – at least until now. Spreads have narrowed, but underlying structural problems remain in place, and the divergence between the member states of the euro area is still unsustainably large. That divergence is unlikely to disappear of its own accord, and the last few years show that it strengthens the political momentum of parties across the euro area who are committed to withdrawal.
For now, the euro area will continue muddling along. But in the end, the structural problems will have to be resolved. Without structural changes, the current up-tick in short-term cyclical indicators will prove to be just another in the sequence of ‘saw-tooth’ bumps in growth that have characterised the euro area since the recession, and Japan for the last twenty-five years.
COT Report
Recent CFTC data mostly support moderate bearish sentiment as last three weeks bearish speculative position has increased. Last week it has become even more obvious as open interest supports this trend and also has become greater. It means that last week new shorts on EUR has been taken:
Our 2 cents on France elections:
So, we're coming to very important event in EU - France elections. In general to speak on different political subjects we need to make huge background work to explain our position this demands separate thread, dedicated to political affairs (and FPA is working with it - look for announces). That's why right now we just provide some snapshots on France elections. First point and it is very important - 30% of people do not decide yet for whom they will vote. This is unprecedented level of indecision. And this will be major driving factor for election results. France elections could bring a lot of surprises as social polls can't foresee who will be chosen by this 30% of people.
Second - do not believe much preliminary social polls in different newspapes and internet. Mass media are strictly controlled and used for mind manipulation. By providing "not quite correct" polls result they try press on indecision auditory. Recall what we saw in US. All papers talked in multiple polls results on H.Clinton victory. But we know the result. I'm sure that it could be truth - all people by polls were intended to vote on Clinton but Trump won. This is absurd...
Finally, currently we do not have enough time to explain all background but we strongly suggest that E. Macron will not become a president. He is Rothschild's person as N. Sarkozy and Hollande before him. As global political balance is changing - E. Macron stands opposite to interests of another pole forces who now is taking global lead. That's why we believe that either M. Le Pen or F. Fillon will take the presidency in France. F. Fillon is better choice, now it stands on 3rd place and we will not be surprised if "30% undecided persons" reserve will be used to close the gap to second round on 7th of May.
So if you think about taking a bet on France election results - think twice to bet on E. Macron
On US elections our suggestion was correct, one month before elections we talked on Trump's victory. Let's see how correct our understanding of global processes is based on France elections results...
Technical
Monthly
Situation has changed significantly since our last discussion. Mostly it makes impact on additional USD demand rather than on EUR directly, but anyway this has pushed EUR/USD down. Last week we've mentioned already all major factors - clarification on Fed balance off-loading, D. Trump domestic fiscal policy (tax reform, healthcare voting etc.) and recent geopolitcal tensions. Sentiment analysis also doesn't look supportive for EUR.
From technical point of view we have untouched long-term targets around parity and some time it should be met, but somehow I think that it should happen on a background of surprising tightening policy from the Fed, which has more chances to happen only in 2018. So, in perspectives of 1-2 years EUR looks weaker than USD. In coming years EU will meet hard restructural political process that could change the structure of the Union, role of different members and financial relations. Also it is a question what will be with newbie members in Eastern Europe.
In short-term perspective EUR mostly has completed AB-CD retracement on weekly chart when it has reached 1.0930 area two weeks ago. On monthly chart it looks like third unsuccessful challenge of YPP. In fact, the third failure to pass through YPP looks as sign fo weakness and could lead to downward action at least to previous lows around 1.03 or even lower. It is too difficult make any long-term forecasts with precise numbers, as there too much imputs that stand out of control, mostly political ones...
Right now on monthly chart there are more chances on reaching parity but it is difficult to judge on timing of this process. As usual, dealing with step-by-step action on daily/weekly chart, based on some patterns should help us:
Bullish perspectives are also exist, but we could speak on them only when downward action to parity will end. Right now it seems that some bullish reversal pattern could be formed around it:
Picture shows classical action. Take a look that since 1999 - EUR was forming upside reversal swing that lasts till Dec 2007. Now market stands in deep retracement - this is typical action as new upside reversal swing has been formed. Based on this picture EUR is approaching to area where this retracement should over and it could get chance to starts extension leg of bull trend that could lead EUR as far as to 1.76-1.82 area. Also you could recognize here some signs of reverse H&S pattern. That's why on big weekly picture we also have made a suggestion on big H&S pattern with head around parity....
Weekly
Last week action mostly stands inside of previous one. So our analysis on monthly/weekly charts is mostly the same as it was previously.
Theoretically trend by MACD is still bullish, market is not at oversold. But overall situation has changed drastically. As we've briefly mentioned previously - last week EUR has formed bearish reversal candle. This is strong signal, that upside action is over, at least in short-term perspective. As we've seen above - this mostly has happened due changing in financial background and global politics shifts.
At the same time, weekly chart mostly has completed normal upside reaction on reaching 100% extension of our large bearish AB=CD pattern. This reaction has taken the shape of upside AB=CD pattern and stopped at weekly K-resistance and YPP.
This action could mean two things. First is upside retracement is over. Second - EUR is turning to extension mode of action with existed long-term bear trend. Next major target here is parity, but it is too extended and we will focus on closer ones - previous 1.03 lows first of all. We choose this target because it stands in logical relation with patterns that are failed on daily chart:
Daily
This is very important chart for us. We've announced correct doubts when EUR suddenly has turned to retracement after upside gap and breakout neckline of our H&S pattern. According to our view - small retracement "yes", deep retracement - "no", i.e. it will destroy all bullish context. And this has happened. As soon as EUR has broken K-support on 4-hour chart around 1.08 area - price action has turned to "irrational" that doesn't match to driving patterns, which is H&S.
Finally, speaking on last week action - EUR was not able even to show minor bounce from strong K-support area. This just shows how market week is. Also this fact significantly diminishes chances on survival of other support levels. If K-support was not able to hold price and even trigger minor upside reaction -what chances that weaker levels will.
This leads us to important conclusion in estimating short term targets. Major conclusion if failure of H&S pattern and inability of market to jump up thorugh neckline. If even we hesitate with H&S shape, but will treat it as triangle - anyway, EUR has failed to break it up for three times.
It means that opposite extreme points should be broken. And they are - right shoulder around 1.05 and next one is head around 1.03...
Right now EUR stands at trend line support. In fact this is lower border of triangle that I've mentioned above. Slightly below stands major 5/8 Fib support, but as we said - they have small chances to keep this drop.
As we've expected market has shown minor upside bounce, triggered by D. Trump speech on USD overvaluation. But this reaction was very short-term and EUR has dropped back to trendline. It makes us think that downward breakout is close. At least right now we have definite signals to watch for. First - no higher upside retracement should happen to keep bearish picture valid. Second - trendline breakout will be very important sign and should lead price to MPS1.
Intraday
Actually, situation has not changed significantly since Friday. Market has some freedom in fluctuations without risk to break bearish setup, at least until it stands below 1.0675 area. Major thing stands the same - breakout of trendline.
On 4-hour chart price has not exceeded our limit for upside bounce - it has stopped right around K-resistance and WPR1. Thus, it was acceptable and desn't break overall bearish picture. Here price action could take the shape of downside butterfly and this should let EUR to complete our short-term target:
On hourly chart we continue to monitor our wedge pattern.
Conclusion:
Strong bearish reversal 2 weeks ago could mean that EUR steps back on a way of long-term bearish trend, as situation in global politics, domestic US finances has changed.
On daily chart we will watch for gradual breakout of 1.05 and 1.03 areas as EUR has put a background under final failure of daily bullish patterns.
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.
Fundamentals
(Reuters FX news) - The dollar nursed losses on Friday, on track for a losing week as geopolitical tensions underpinned the perceived safe-haven Japanese currency.
The dollar index, which tracks the U.S. unit against a basket of six rival currencies, steadied at 100.560, flat on the day but down 0.6 percent for the week.
U.S. President Donald Trump said on Thursday that North Korea is a problem that "will be taken care of," as China urged caution and speculation rose that Pyongyang might be on the verge of a sixth nuclear test.
In another part of the world, the U.S. military said on Thursday that it dropped "the mother of all bombs," the largest non-nuclear device it has ever unleashed in combat, on a network of caves and tunnels used by Islamic State in eastern Afghanistan.
"I think that the 'mother of all bombs' was intended to show the power of U.S. forces to North Korea," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.
"But maybe we won't see big market moves today, because I think the short-term players already have put on short-dollar positions, and now everyone is just waiting for the next trigger," he said.
The dollar edged up 0.1 percent on the day to 109.17 yen , but was down 1.7 percent for the week.
Market liquidity was thinner than usual because of this week's Passover and Good Friday holiday observances around the world. The market for U.S. Treasuries finished trading early on Thursday, and will be closed Friday.
The benchmark U.S. Treasury yield skidded to its lowest levels since November on Thursday, after President Donald Trump said in a Wall Street Journal interview published late Wednesday that he favoured low interest rates.
He also said the dollar was "getting too strong" and would eventually hurt the U.S. economy.
"Yields declined, and were seeing a softening of the dollar," said Bill Northey, chief investment officer at the private client group of U.S. Bank in Helena, Montana.
"It's unique to see that level of focus coming from the White House on economic topics that haven't usually been the purview of the administration," he said, explaining why markets continued to focus on Trump's remarks.
The euro edged up 0.1 percent to $1.0617. It was up 0.2 percent for the week, though concerns about the outcome of France's presidential election continued to limit its upside.
Far-right National Front presidential candidate Marine Le Pen, who is campaigning on a platform of economic nationalism, says France's GDP growth would accelerate to 2.5 percent towards the end of her first term if she wins the upcoming election.
Polls have suggested Le Pen and centrist Emmanuel Macron will emerge the winners of the April 23 first round against leftist Jean-Luc Melenchon and conservative Francois Fillon, with Macron seen winning the May 7 run-off.
Against the yen, the euro slumped as low as 115.72 on Thursday, its lowest level since November, and was poised to drop 2.4 percent for the week. It last stood at 115.85 yen, up 0.1 percent.
No major member of the euro area now meets the Maastricht criteria
by Fathom Consulting
The critique of a monetary union without a fiscal union is well known, not least in the euro area, and dates back at least to Alan Walters, adviser to Margaret Thatcher in the 1980s. Those who laid the groundwork for the single currency area perceived another over-riding risk – the risk that fiscal profligacy in some member states could undermine the fiscal solvency of the euro area as a whole, since membership of a currency union carries with it an implied underwriting of individual sovereigns by the common lender of last resort, the ECB.
That was the motivation for the Maastricht criteria, which threatened sanctions on any member state who breached certain limits on the government deficit or government debt. For a country to be able to adopt the single currency, it first had to comply with the Maastricht criteria – something that all EMU members initially achieved, with the exception of Greece, who only pretended to have achieved it. Today, though, none of the major member states would meet the Maastricht criteria for euro membership.
As our chart highlights, it is not just the periphery whose fiscal position has deteriorated – it is also France, Germany and other core members. Along the way, the peripheral member states (governments and private sectors) borrowed far beyond their means – our analysis suggests that the net present value of the total stock of peripheral (including Italian) sovereign debt will ultimately have to be reduced by at least 1.5 trillion euros. In spite of that profligacy, markets were profoundly relaxed about the risk of default on that debt ahead of the global recession, with spreads between peripheral and German sovereign debt narrowing almost to zero.
The banking crisis changed all that, and widening spreads threatened imminent collapse of the EMU ahead of Draghi’s speech in 2012. That speech saved the euro – at least until now. Spreads have narrowed, but underlying structural problems remain in place, and the divergence between the member states of the euro area is still unsustainably large. That divergence is unlikely to disappear of its own accord, and the last few years show that it strengthens the political momentum of parties across the euro area who are committed to withdrawal.
For now, the euro area will continue muddling along. But in the end, the structural problems will have to be resolved. Without structural changes, the current up-tick in short-term cyclical indicators will prove to be just another in the sequence of ‘saw-tooth’ bumps in growth that have characterised the euro area since the recession, and Japan for the last twenty-five years.
COT Report
Recent CFTC data mostly support moderate bearish sentiment as last three weeks bearish speculative position has increased. Last week it has become even more obvious as open interest supports this trend and also has become greater. It means that last week new shorts on EUR has been taken:
Our 2 cents on France elections:
So, we're coming to very important event in EU - France elections. In general to speak on different political subjects we need to make huge background work to explain our position this demands separate thread, dedicated to political affairs (and FPA is working with it - look for announces). That's why right now we just provide some snapshots on France elections. First point and it is very important - 30% of people do not decide yet for whom they will vote. This is unprecedented level of indecision. And this will be major driving factor for election results. France elections could bring a lot of surprises as social polls can't foresee who will be chosen by this 30% of people.
Second - do not believe much preliminary social polls in different newspapes and internet. Mass media are strictly controlled and used for mind manipulation. By providing "not quite correct" polls result they try press on indecision auditory. Recall what we saw in US. All papers talked in multiple polls results on H.Clinton victory. But we know the result. I'm sure that it could be truth - all people by polls were intended to vote on Clinton but Trump won. This is absurd...
Finally, currently we do not have enough time to explain all background but we strongly suggest that E. Macron will not become a president. He is Rothschild's person as N. Sarkozy and Hollande before him. As global political balance is changing - E. Macron stands opposite to interests of another pole forces who now is taking global lead. That's why we believe that either M. Le Pen or F. Fillon will take the presidency in France. F. Fillon is better choice, now it stands on 3rd place and we will not be surprised if "30% undecided persons" reserve will be used to close the gap to second round on 7th of May.
So if you think about taking a bet on France election results - think twice to bet on E. Macron
On US elections our suggestion was correct, one month before elections we talked on Trump's victory. Let's see how correct our understanding of global processes is based on France elections results...
Technical
Monthly
Situation has changed significantly since our last discussion. Mostly it makes impact on additional USD demand rather than on EUR directly, but anyway this has pushed EUR/USD down. Last week we've mentioned already all major factors - clarification on Fed balance off-loading, D. Trump domestic fiscal policy (tax reform, healthcare voting etc.) and recent geopolitcal tensions. Sentiment analysis also doesn't look supportive for EUR.
From technical point of view we have untouched long-term targets around parity and some time it should be met, but somehow I think that it should happen on a background of surprising tightening policy from the Fed, which has more chances to happen only in 2018. So, in perspectives of 1-2 years EUR looks weaker than USD. In coming years EU will meet hard restructural political process that could change the structure of the Union, role of different members and financial relations. Also it is a question what will be with newbie members in Eastern Europe.
In short-term perspective EUR mostly has completed AB-CD retracement on weekly chart when it has reached 1.0930 area two weeks ago. On monthly chart it looks like third unsuccessful challenge of YPP. In fact, the third failure to pass through YPP looks as sign fo weakness and could lead to downward action at least to previous lows around 1.03 or even lower. It is too difficult make any long-term forecasts with precise numbers, as there too much imputs that stand out of control, mostly political ones...
Right now on monthly chart there are more chances on reaching parity but it is difficult to judge on timing of this process. As usual, dealing with step-by-step action on daily/weekly chart, based on some patterns should help us:
Bullish perspectives are also exist, but we could speak on them only when downward action to parity will end. Right now it seems that some bullish reversal pattern could be formed around it:
Picture shows classical action. Take a look that since 1999 - EUR was forming upside reversal swing that lasts till Dec 2007. Now market stands in deep retracement - this is typical action as new upside reversal swing has been formed. Based on this picture EUR is approaching to area where this retracement should over and it could get chance to starts extension leg of bull trend that could lead EUR as far as to 1.76-1.82 area. Also you could recognize here some signs of reverse H&S pattern. That's why on big weekly picture we also have made a suggestion on big H&S pattern with head around parity....
Weekly
Last week action mostly stands inside of previous one. So our analysis on monthly/weekly charts is mostly the same as it was previously.
Theoretically trend by MACD is still bullish, market is not at oversold. But overall situation has changed drastically. As we've briefly mentioned previously - last week EUR has formed bearish reversal candle. This is strong signal, that upside action is over, at least in short-term perspective. As we've seen above - this mostly has happened due changing in financial background and global politics shifts.
At the same time, weekly chart mostly has completed normal upside reaction on reaching 100% extension of our large bearish AB=CD pattern. This reaction has taken the shape of upside AB=CD pattern and stopped at weekly K-resistance and YPP.
This action could mean two things. First is upside retracement is over. Second - EUR is turning to extension mode of action with existed long-term bear trend. Next major target here is parity, but it is too extended and we will focus on closer ones - previous 1.03 lows first of all. We choose this target because it stands in logical relation with patterns that are failed on daily chart:
Daily
This is very important chart for us. We've announced correct doubts when EUR suddenly has turned to retracement after upside gap and breakout neckline of our H&S pattern. According to our view - small retracement "yes", deep retracement - "no", i.e. it will destroy all bullish context. And this has happened. As soon as EUR has broken K-support on 4-hour chart around 1.08 area - price action has turned to "irrational" that doesn't match to driving patterns, which is H&S.
Finally, speaking on last week action - EUR was not able even to show minor bounce from strong K-support area. This just shows how market week is. Also this fact significantly diminishes chances on survival of other support levels. If K-support was not able to hold price and even trigger minor upside reaction -what chances that weaker levels will.
This leads us to important conclusion in estimating short term targets. Major conclusion if failure of H&S pattern and inability of market to jump up thorugh neckline. If even we hesitate with H&S shape, but will treat it as triangle - anyway, EUR has failed to break it up for three times.
It means that opposite extreme points should be broken. And they are - right shoulder around 1.05 and next one is head around 1.03...
Right now EUR stands at trend line support. In fact this is lower border of triangle that I've mentioned above. Slightly below stands major 5/8 Fib support, but as we said - they have small chances to keep this drop.
As we've expected market has shown minor upside bounce, triggered by D. Trump speech on USD overvaluation. But this reaction was very short-term and EUR has dropped back to trendline. It makes us think that downward breakout is close. At least right now we have definite signals to watch for. First - no higher upside retracement should happen to keep bearish picture valid. Second - trendline breakout will be very important sign and should lead price to MPS1.
Intraday
Actually, situation has not changed significantly since Friday. Market has some freedom in fluctuations without risk to break bearish setup, at least until it stands below 1.0675 area. Major thing stands the same - breakout of trendline.
On 4-hour chart price has not exceeded our limit for upside bounce - it has stopped right around K-resistance and WPR1. Thus, it was acceptable and desn't break overall bearish picture. Here price action could take the shape of downside butterfly and this should let EUR to complete our short-term target:
On hourly chart we continue to monitor our wedge pattern.
Conclusion:
Strong bearish reversal 2 weeks ago could mean that EUR steps back on a way of long-term bearish trend, as situation in global politics, domestic US finances has changed.
On daily chart we will watch for gradual breakout of 1.05 and 1.03 areas as EUR has put a background under final failure of daily bullish patterns.
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.
