Sive Morten
Special Consultant to the FPA
- Messages
- 18,669
Fundamentals
(Reuters) The dollar fell broadly on Friday as a slide in oil prices ahead of weekend talks among producers in Doha and a soft U.S. consumer sentiment report capped risk appetite and spurred investors to buy safe-haven currencies such as the yen.
The dollar index, tracking the greenback's value against six currencies, posted losses after two straight days of gains. The U.S. currency's fall versus the yen was the largest daily loss in more than a week.
"There's probably some anxiety about the Doha talks," said Shaun Osborne, chief currency strategist at Scotiabank in Toronto.
Oil producers led by top exporters Saudi Arabia and Russia will meet in Doha, Qatar on Sunday to discuss freezing output at current levels to contain an oil glut. It would be the first coordinated action by major OPEC and non-OPEC producers in 15 years.
U.S. crude futures were down 2.8 percent at $40.34 per barrel CLc1.
"I think the fact that oil producers are talking suggests the psychology of the market has changed a little bit and probably the worst of the oil price declines is behind us. This would be good for risk sentiment going forward," Osborne said.
An underwhelming U.S. consumer sentiment report on Friday also weighed on the dollar and dampened tolerance for risk. The University of Michigan survey of consumer sentiment showed a preliminary reading of 89.7 for April, compared with a forecast of 92.
In late trading, the dollar index .DXY slid 0.2 percent to 94.683. For the week though, it ended on a positive note with a 0.5 percent rise.
Against the yen, the greenback fell 0.6 percent to 108.72 yen JPY=, its biggest daily loss since April 7. The dollar so far this year is down nearly 10 percent versus the yen, on track for its worst year since 2010.
Danske Bank in a research note said it believes that given soft Japanese data and wage negotiations pointing to slowing growth, the Bank of Japan may have to take action at its April meeting. It is looking for the BoJ to cut interest rates deeper into negative territory, by 20 basis points to -0.3 percent.
"This is more than the market is pricing in and we believe this would stabilize dollar/yen and expect it to recover gradually," Danske Bank said.
FX Market Voice | Brexit: What are the Markets Telling Us?
by Ron Leven
A 23 June referendum on British exit from the European Union (BREXIT) was set by Prime Minister Cameron on 20 February. As seen in the chart below, the trade-weighted GBP was in decline before the 20th as the market was already pricing for a potential BREXIT. The downtrend continues and the index is now at its weakest point since 2013 and showing no signs of basing. Volatility also began to firm late last year with a sharp acceleration in January. Although 1-month volatility appears to be capping out at around 9%, by historic standards, this is very high.
While the debate continues on what the implications of BREXIT are for the UK economy and GBP (more on this later), our data appears to show that the market is pricing for some combination of negative consequences and a significant risk that the referendum will pass.
Source: Thomson Reuters Eikon
Could there be a yes vote on Brexit?
The chart below shows the results of polling the UK public on the question of whether to leave the European Union (EU). The polls suggest that the market’s apparent pricing for a potential yes vote is not misplaced. While the no BREXIT side has generally been preferred by poll respondents, the difference is thin and the percentage of respondents opting for the yes BREXIT side has drifted higher in recent weeks. In the most recent (24 March) poll, 45% of participants indicated a preference to remain, with 43% preferring departure and 12% undecided.
Polling Results on the UK Leaving the European Union
Source: Thomson Reuters Eikon
Is there an “out” door – and then what?
Greece’s experience in recent years highlights the one-way nature of entry into the euro-currency area. The EU, by contrast, has an established protocol for exiting – although Greenland is the only region that has ever actually bolted. Cameron has announced that if there is a positive vote for BREXIT he will immediately apply to the EU for a UK departure. This would start a mandatory two-year waiting period of negotiations before the UK exit would become effective. The negotiation period can be extended with the agreement of both parties, but conventional wisdom is that EU officials would refuse. The chart below of GBP 3M risk reversal shows the skew for GBP puts vs. calls (or EUR calls vs. puts) is at its most extreme levels since 2010. The market is clearly biased that, even with the recent GBP declines, a yes vote on BREXIT is likely to send the GBP still lower.
There is a possible risk that barriers to trade between the UK and EU will emerge in the event of an exit. But even if no significant official blocks to trade emerge, UK trade with the EU could face increased paperwork, raising the cost of the movement of goods. In addition, there are other countries where the UK trade ties are defined by its EU membership – especially tax-free oil exports to Korea – that would also likely have to be renegotiated. Again, there is no guarantee that the results will not impede UK trade.
3M 25-Delta Risk Reversal Skew
Source: Thomson Reuters Eikon
There is much speculation in the press that London’s status as a global center could quickly erode in the wake of BREXIT. That speculation will run right up until 23 June. What is highly likely, though, is that trading of EUR- denominated financial products would be one sector at high risk of rapid migration to the continent. The European Central Bank (ECB) has expressed concerns in the past that the bulk of EUR related trading occurs outside the Euro-area and hence outside their jurisdiction. One of the chief motivations put forward in favor of BREXIT is separation from European political oversight – so it has been widely reported that the ECB would feel even less comfortable with London-centric trading of Euro-denominated instruments. And the ECB’s regulatory powers give it strong levers to compel banks to shift EUR related trading to Europe. This is a multi-trillion dollar business and the perceived potential loss would have a significant negative impact on London’s financial sector.
Some economic factors that could be contributing to support for BREXIT include predictions that it may end negative net transfers to Brussels and its potential to avoid adverse regulation. The primary motivations for BREXIT, however, appear to be political, including broad impatience with continental governance and the desire to establish local control over immigration.
While it remains moot whether BREXIT is broadly good or bad for the UK as a nation, the neutral observation is that market participants are pricing it as negatively impacting at least the short-term economic outlook.
After the vote, the market is pricing Brexit as no big deal
As noted above, a yes vote on BREXIT would be followed by a 2-year period of negotiation between the UK and EU as well as with various other countries. It seems likely that this period would be one of great uncertainty and surprises – both good and bad – as agreements are hammered out. Given this, it would seem unlikely the market would price GBP trading to quickly return to normal in the wake of a vote in favor of BREXIT, but this is exactly what is priced in.
The chart below shows where the market priced GBPUSD and EURGBP 1M implied volatility at the beginning of the year and the beginning of this month for April, June, July and December. Consistent with what was indicated above, the chart shows a surge in expected volatility ahead of the June referendum. But the market is pricing a quick reversion of volatility after the vote. Implied volatility for the month of July is almost exactly the same as what was priced at the beginning of the year before the BREXIT referendum was set for June. And December forward implied 1M volatility also shows expectations that GBP trading will remain benign going forward.
Source: Thomson Reuters Eikon
The market expectations on EURUSD implied volatility also appear surprisingly benign. It would seem BREXIT is an important source of uncertainty for the EUR as well the UK. Not least because it might reawaken concerns about GREXIT– more on this below – and it could also influence ECB decisions on negative interest rates. As shown in the chart to the right, expectations for June volatility in EURUSD have firmed but remain far below the past year’s 15% peak. As with GBP volatility, the market is pricing for a quick reversion to the mean immediately following the referendum. Considering the uncertainties that could emerge with BREXIT, the implied volatility for July looks too cheap for GBP vs. USD and EUR. EURUSD July implied volatility also appears low and, indeed, the June market also seems to be underpricing volatility.
Source: Thomson Reuters Eikon
And whatever did happen to Grexit?
It was not long ago that GREXIT rather than BREXIT was the plat du jour, but now, Greece’s financial problems seem completely forgotten. The lack of concern would seem to be misplaced since there has been no improvement in Greece’s financial situation. Despite attempts at restructuring, the ratio of Greek government debt to GDP continues to creep higher and, according to Eurostat, was just below 180% at the end of last year. The lack of concern about Greece, in large part, reflects the ECB’s continued direct and indirect support to their bond market. The ECB will remain in a good position to provide support as long as they are engaged in quantitative easing. However, around the same time as the BREXIT referendum, it has been reported in the press that there is a bunching of maturing Greek Treasury Bills. Any indication that Greece is encountering difficulty rolling over this debt could be another potential source of EUR volatility in July.
________________________________________________________________________________
CFTC data on GBP shows moderate bearish activity. Net short position has increased as GBP dropped but open interest also has decreased slightly. It means that downward action is mostly supported by closing long position, or just partial replacement longs by shorts
Technical
Monthly
Recently market starts to show some signs of weakness, that could become a reason for downward continuation. Although we prefer to get more bearish CFTC data, but currently we see contraction of long positions and may be this tendency will continue slowly till June. At least, Ireland voting last year has triggered outstanding drop in open interest of GBP. Net short-position also stands not at a record lows, thus some more decrease is possible. That's why, although fundamental picture does not look totally cloudless, but it doesn't confront to technical picture of possible GBP decrease.
As market recent time coiling around YPS1 - this barely made any impact on monthly chart. Some upward bounce but its scale insignificant for this time frame. Besides we do not have visible reasons and technical supports in area where this upside bounce has started – no AB-CD extensions, Fib levels, pivots etc. That’s why we treat this move as retracement yet and stand with our previous analysis on downward continuation in long-term perspective. Currently sterling is flirting around YPS1 and 1.40 lows.
Long Term Forecast on GBP rate
Our long term analysis suggests first appearing of new high on 4th wave at ~1.76 level and then starting of last 5th wave down. First condition was accomplished and we’ve got new high, but it was a bit lower – not 1.76 but 1.72. This was and is all time support/resistance area. Now we stand in final part of our journey. According to our 2013 analysis market should reach lows at 1.35 area. Let’s see what additional information we have right now."
Trend is bearish here, but GBP is not at oversold. So, GBP picture right now looks simple. Market has broken all meaningful supports on a way down. IT has started from Yearly Pivot, then major 5/8, Yearly PS1 and former low (marked by arrow). Now the only destination is previous lows, and then our first long-term target around 1.30. Here we have to make some notes.
First, is - lows will not survive, despite how long they will hold price. Mostly because AB-CD target stands right below it. If even market will not drop further - it will wash out lows. There is really high probability for this.
That's being said monthly chart still suggests further downward action to previous lows around 1.35 first. Current upside action has shy relation to monthly chart and we should search reasons and probable destination of this move on lower time frames. What we do know here - this bounce could give us excellent chance to take short position until overall bearish setup holds here.
Weekly
On previous week we've made following comments:
"So, here we see the reason for bounce up. It's butterfly completion point and weekly oversold. Trend has turned bullish. Last time we've foreseen this possibility but come to conclusion that retracement up should be mild, because, as you can see - major AB=CD target around 1.33 has not been met yet.
Upside action has started with nicely looking engulfing or piercing in the cloud pattern whatever you like more. Overbought resistance stands at 1.4830 right now. Also market has touched MPR1.
On coming week we probably will see - whether this retracement will over or it turn to larger scale retracement. Since CFTC data shows that current action mostly is supported by short covering, so it should exhaust fast. This also will be answer - what we have a deal with."
Right now CFTC data mostly suggests that upside retracement is over. GBP was not able to break through MPR1 and turned down. It means that odds stand in favor of downward continuation. Major reason for that still is uncompleted AB-CD target.
Last week we see another bearish signs. First is bearish dynamic pressure, as trend has turned bullish but sterling dropped and mostly stands flat now. Second one is inability to break through MPP and finally start upward action. Take a look that GBP has challenged MPP 3 weeks in a row but failed every time. Since these 3 challenges is right shoulder of H&S pattern on daily chart - this behavior is not typical for market that tends to move higher and even more irrational for price behavior on right shoulder. It shows weakness and price inability to start upside reversal action, which in turn, confirms it's heaviness and increase chances on further drop:
Daily
Our analysis here mostly is based on H&S shape. We see some flaws on a way of appearing of this pattern. And these flaws could become a corner stone for short-term perspective. Particularly speaking, H&S was forming not as it should to. It has begun right at the moment of our first look at it. Recall that our first attention was attracted to upside AB-CD right from the bottom of the head. It would be normal if this AB-CD would be completed and market would reach neckline. But price has failed to do this and dropped. This was first warning sign for perspectives of this pattern.
Second has happened when market has dropped below "C" point of this AB-CD and actually has erased it. Finally, right now have had to adjust neckline and we've got new bearish grabber that suggests appearing of another low. Theoretically market still holds around the bottom of shoulders and keeps harmony, but situation when price couldn't get started upside action from the bottom of the right shoulder looks irrational, even from H&S logic point of view. That's why we suggest that currently drop down has more chances to happen rather than upside reversal. As a result we even could accept an idea of transforming H&S pattern into butterfly "Buy".
4-hour
Currently it's a bit difficult to foresee definite scenario, who precisely market will turn down, but one of the is butterfly with nearest target around 1.39 level. After dropping out of diamond pattern that we've talked about last week, GBP has re-tested its border and stay out.
Also we could find here a lot of different AB-CD patterns with other targets. The most important issue here is GBP standing below downward trend line and final breaking of right shoulder support. As soon as this will happen - this will open road to significantly lower levels, even till 1.33.
Conclusion:
Recent action barely impacts long-term perspectives for GBP. Mostly it stands in relation to daily and intraday picture and is tactical. So, we still keep bearish our long-term view.
In short-term perspective we already see some flaws and cracks in bullish patterns which should lead 'em to failure sooner or later.
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.
(Reuters) The dollar fell broadly on Friday as a slide in oil prices ahead of weekend talks among producers in Doha and a soft U.S. consumer sentiment report capped risk appetite and spurred investors to buy safe-haven currencies such as the yen.
The dollar index, tracking the greenback's value against six currencies, posted losses after two straight days of gains. The U.S. currency's fall versus the yen was the largest daily loss in more than a week.
"There's probably some anxiety about the Doha talks," said Shaun Osborne, chief currency strategist at Scotiabank in Toronto.
Oil producers led by top exporters Saudi Arabia and Russia will meet in Doha, Qatar on Sunday to discuss freezing output at current levels to contain an oil glut. It would be the first coordinated action by major OPEC and non-OPEC producers in 15 years.
U.S. crude futures were down 2.8 percent at $40.34 per barrel CLc1.
"I think the fact that oil producers are talking suggests the psychology of the market has changed a little bit and probably the worst of the oil price declines is behind us. This would be good for risk sentiment going forward," Osborne said.
An underwhelming U.S. consumer sentiment report on Friday also weighed on the dollar and dampened tolerance for risk. The University of Michigan survey of consumer sentiment showed a preliminary reading of 89.7 for April, compared with a forecast of 92.
In late trading, the dollar index .DXY slid 0.2 percent to 94.683. For the week though, it ended on a positive note with a 0.5 percent rise.
Against the yen, the greenback fell 0.6 percent to 108.72 yen JPY=, its biggest daily loss since April 7. The dollar so far this year is down nearly 10 percent versus the yen, on track for its worst year since 2010.
Danske Bank in a research note said it believes that given soft Japanese data and wage negotiations pointing to slowing growth, the Bank of Japan may have to take action at its April meeting. It is looking for the BoJ to cut interest rates deeper into negative territory, by 20 basis points to -0.3 percent.
"This is more than the market is pricing in and we believe this would stabilize dollar/yen and expect it to recover gradually," Danske Bank said.
FX Market Voice | Brexit: What are the Markets Telling Us?
by Ron Leven
A 23 June referendum on British exit from the European Union (BREXIT) was set by Prime Minister Cameron on 20 February. As seen in the chart below, the trade-weighted GBP was in decline before the 20th as the market was already pricing for a potential BREXIT. The downtrend continues and the index is now at its weakest point since 2013 and showing no signs of basing. Volatility also began to firm late last year with a sharp acceleration in January. Although 1-month volatility appears to be capping out at around 9%, by historic standards, this is very high.
While the debate continues on what the implications of BREXIT are for the UK economy and GBP (more on this later), our data appears to show that the market is pricing for some combination of negative consequences and a significant risk that the referendum will pass.
Source: Thomson Reuters Eikon
Could there be a yes vote on Brexit?
The chart below shows the results of polling the UK public on the question of whether to leave the European Union (EU). The polls suggest that the market’s apparent pricing for a potential yes vote is not misplaced. While the no BREXIT side has generally been preferred by poll respondents, the difference is thin and the percentage of respondents opting for the yes BREXIT side has drifted higher in recent weeks. In the most recent (24 March) poll, 45% of participants indicated a preference to remain, with 43% preferring departure and 12% undecided.
Polling Results on the UK Leaving the European Union
Source: Thomson Reuters Eikon
Is there an “out” door – and then what?
Greece’s experience in recent years highlights the one-way nature of entry into the euro-currency area. The EU, by contrast, has an established protocol for exiting – although Greenland is the only region that has ever actually bolted. Cameron has announced that if there is a positive vote for BREXIT he will immediately apply to the EU for a UK departure. This would start a mandatory two-year waiting period of negotiations before the UK exit would become effective. The negotiation period can be extended with the agreement of both parties, but conventional wisdom is that EU officials would refuse. The chart below of GBP 3M risk reversal shows the skew for GBP puts vs. calls (or EUR calls vs. puts) is at its most extreme levels since 2010. The market is clearly biased that, even with the recent GBP declines, a yes vote on BREXIT is likely to send the GBP still lower.
There is a possible risk that barriers to trade between the UK and EU will emerge in the event of an exit. But even if no significant official blocks to trade emerge, UK trade with the EU could face increased paperwork, raising the cost of the movement of goods. In addition, there are other countries where the UK trade ties are defined by its EU membership – especially tax-free oil exports to Korea – that would also likely have to be renegotiated. Again, there is no guarantee that the results will not impede UK trade.
3M 25-Delta Risk Reversal Skew
Source: Thomson Reuters Eikon
There is much speculation in the press that London’s status as a global center could quickly erode in the wake of BREXIT. That speculation will run right up until 23 June. What is highly likely, though, is that trading of EUR- denominated financial products would be one sector at high risk of rapid migration to the continent. The European Central Bank (ECB) has expressed concerns in the past that the bulk of EUR related trading occurs outside the Euro-area and hence outside their jurisdiction. One of the chief motivations put forward in favor of BREXIT is separation from European political oversight – so it has been widely reported that the ECB would feel even less comfortable with London-centric trading of Euro-denominated instruments. And the ECB’s regulatory powers give it strong levers to compel banks to shift EUR related trading to Europe. This is a multi-trillion dollar business and the perceived potential loss would have a significant negative impact on London’s financial sector.
Some economic factors that could be contributing to support for BREXIT include predictions that it may end negative net transfers to Brussels and its potential to avoid adverse regulation. The primary motivations for BREXIT, however, appear to be political, including broad impatience with continental governance and the desire to establish local control over immigration.
While it remains moot whether BREXIT is broadly good or bad for the UK as a nation, the neutral observation is that market participants are pricing it as negatively impacting at least the short-term economic outlook.
After the vote, the market is pricing Brexit as no big deal
As noted above, a yes vote on BREXIT would be followed by a 2-year period of negotiation between the UK and EU as well as with various other countries. It seems likely that this period would be one of great uncertainty and surprises – both good and bad – as agreements are hammered out. Given this, it would seem unlikely the market would price GBP trading to quickly return to normal in the wake of a vote in favor of BREXIT, but this is exactly what is priced in.
The chart below shows where the market priced GBPUSD and EURGBP 1M implied volatility at the beginning of the year and the beginning of this month for April, June, July and December. Consistent with what was indicated above, the chart shows a surge in expected volatility ahead of the June referendum. But the market is pricing a quick reversion of volatility after the vote. Implied volatility for the month of July is almost exactly the same as what was priced at the beginning of the year before the BREXIT referendum was set for June. And December forward implied 1M volatility also shows expectations that GBP trading will remain benign going forward.
Source: Thomson Reuters Eikon
The market expectations on EURUSD implied volatility also appear surprisingly benign. It would seem BREXIT is an important source of uncertainty for the EUR as well the UK. Not least because it might reawaken concerns about GREXIT– more on this below – and it could also influence ECB decisions on negative interest rates. As shown in the chart to the right, expectations for June volatility in EURUSD have firmed but remain far below the past year’s 15% peak. As with GBP volatility, the market is pricing for a quick reversion to the mean immediately following the referendum. Considering the uncertainties that could emerge with BREXIT, the implied volatility for July looks too cheap for GBP vs. USD and EUR. EURUSD July implied volatility also appears low and, indeed, the June market also seems to be underpricing volatility.
Source: Thomson Reuters Eikon
And whatever did happen to Grexit?
It was not long ago that GREXIT rather than BREXIT was the plat du jour, but now, Greece’s financial problems seem completely forgotten. The lack of concern would seem to be misplaced since there has been no improvement in Greece’s financial situation. Despite attempts at restructuring, the ratio of Greek government debt to GDP continues to creep higher and, according to Eurostat, was just below 180% at the end of last year. The lack of concern about Greece, in large part, reflects the ECB’s continued direct and indirect support to their bond market. The ECB will remain in a good position to provide support as long as they are engaged in quantitative easing. However, around the same time as the BREXIT referendum, it has been reported in the press that there is a bunching of maturing Greek Treasury Bills. Any indication that Greece is encountering difficulty rolling over this debt could be another potential source of EUR volatility in July.
________________________________________________________________________________
CFTC data on GBP shows moderate bearish activity. Net short position has increased as GBP dropped but open interest also has decreased slightly. It means that downward action is mostly supported by closing long position, or just partial replacement longs by shorts
Technical
Monthly
Recently market starts to show some signs of weakness, that could become a reason for downward continuation. Although we prefer to get more bearish CFTC data, but currently we see contraction of long positions and may be this tendency will continue slowly till June. At least, Ireland voting last year has triggered outstanding drop in open interest of GBP. Net short-position also stands not at a record lows, thus some more decrease is possible. That's why, although fundamental picture does not look totally cloudless, but it doesn't confront to technical picture of possible GBP decrease.
As market recent time coiling around YPS1 - this barely made any impact on monthly chart. Some upward bounce but its scale insignificant for this time frame. Besides we do not have visible reasons and technical supports in area where this upside bounce has started – no AB-CD extensions, Fib levels, pivots etc. That’s why we treat this move as retracement yet and stand with our previous analysis on downward continuation in long-term perspective. Currently sterling is flirting around YPS1 and 1.40 lows.
Long Term Forecast on GBP rate
Our long term analysis suggests first appearing of new high on 4th wave at ~1.76 level and then starting of last 5th wave down. First condition was accomplished and we’ve got new high, but it was a bit lower – not 1.76 but 1.72. This was and is all time support/resistance area. Now we stand in final part of our journey. According to our 2013 analysis market should reach lows at 1.35 area. Let’s see what additional information we have right now."
Trend is bearish here, but GBP is not at oversold. So, GBP picture right now looks simple. Market has broken all meaningful supports on a way down. IT has started from Yearly Pivot, then major 5/8, Yearly PS1 and former low (marked by arrow). Now the only destination is previous lows, and then our first long-term target around 1.30. Here we have to make some notes.
First, is - lows will not survive, despite how long they will hold price. Mostly because AB-CD target stands right below it. If even market will not drop further - it will wash out lows. There is really high probability for this.
That's being said monthly chart still suggests further downward action to previous lows around 1.35 first. Current upside action has shy relation to monthly chart and we should search reasons and probable destination of this move on lower time frames. What we do know here - this bounce could give us excellent chance to take short position until overall bearish setup holds here.
Weekly
On previous week we've made following comments:
"So, here we see the reason for bounce up. It's butterfly completion point and weekly oversold. Trend has turned bullish. Last time we've foreseen this possibility but come to conclusion that retracement up should be mild, because, as you can see - major AB=CD target around 1.33 has not been met yet.
Upside action has started with nicely looking engulfing or piercing in the cloud pattern whatever you like more. Overbought resistance stands at 1.4830 right now. Also market has touched MPR1.
On coming week we probably will see - whether this retracement will over or it turn to larger scale retracement. Since CFTC data shows that current action mostly is supported by short covering, so it should exhaust fast. This also will be answer - what we have a deal with."
Right now CFTC data mostly suggests that upside retracement is over. GBP was not able to break through MPR1 and turned down. It means that odds stand in favor of downward continuation. Major reason for that still is uncompleted AB-CD target.
Last week we see another bearish signs. First is bearish dynamic pressure, as trend has turned bullish but sterling dropped and mostly stands flat now. Second one is inability to break through MPP and finally start upward action. Take a look that GBP has challenged MPP 3 weeks in a row but failed every time. Since these 3 challenges is right shoulder of H&S pattern on daily chart - this behavior is not typical for market that tends to move higher and even more irrational for price behavior on right shoulder. It shows weakness and price inability to start upside reversal action, which in turn, confirms it's heaviness and increase chances on further drop:
Daily
Our analysis here mostly is based on H&S shape. We see some flaws on a way of appearing of this pattern. And these flaws could become a corner stone for short-term perspective. Particularly speaking, H&S was forming not as it should to. It has begun right at the moment of our first look at it. Recall that our first attention was attracted to upside AB-CD right from the bottom of the head. It would be normal if this AB-CD would be completed and market would reach neckline. But price has failed to do this and dropped. This was first warning sign for perspectives of this pattern.
Second has happened when market has dropped below "C" point of this AB-CD and actually has erased it. Finally, right now have had to adjust neckline and we've got new bearish grabber that suggests appearing of another low. Theoretically market still holds around the bottom of shoulders and keeps harmony, but situation when price couldn't get started upside action from the bottom of the right shoulder looks irrational, even from H&S logic point of view. That's why we suggest that currently drop down has more chances to happen rather than upside reversal. As a result we even could accept an idea of transforming H&S pattern into butterfly "Buy".
4-hour
Currently it's a bit difficult to foresee definite scenario, who precisely market will turn down, but one of the is butterfly with nearest target around 1.39 level. After dropping out of diamond pattern that we've talked about last week, GBP has re-tested its border and stay out.
Also we could find here a lot of different AB-CD patterns with other targets. The most important issue here is GBP standing below downward trend line and final breaking of right shoulder support. As soon as this will happen - this will open road to significantly lower levels, even till 1.33.
Conclusion:
Recent action barely impacts long-term perspectives for GBP. Mostly it stands in relation to daily and intraday picture and is tactical. So, we still keep bearish our long-term view.
In short-term perspective we already see some flaws and cracks in bullish patterns which should lead 'em to failure sooner or later.
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.
