Sive Morten
Special Consultant to the FPA
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Fundamentals
(Reuters) - The dollar fell against a basket of currencies on Friday, after data showed U.S. consumer prices rose less than expected in July, pointing to benign inflation that could make the Federal Reserve cautious about raising interest rates again this year.
The U.S. consumer price index edged up 0.1 percent last month after being unchanged in June. Economists polled by Reuters had expected the CPI to rise 0.2 percent in July.
"Taken in combination with yesterday's weaker-than-forecast producer price report, it is clear there is no need for imminent policy tightening," Karl Schamotta, director of global product and market strategy at Cambridge Global Payments in Toronto, said in a note.
The dollar index, which tracks the greenback against six major currencies, was down 0.37 percent at 93.052, after earlier falling to a one-week low of 92.934.
"If the data continues to come in on the softer side, the market might start to price the Fed staying on hold this year," said Sireen Harajli, foreign exchange strategist at Mizuho in New York.
"We are still not there yet, but we might be getting there pretty quickly if the data do not pick up," she said in a telephone interview.
The dollar fell to a 16-week low against the Japanese yen, but pared some losses after Russian Foreign Minster Sergei Lavrov said there was a Russian-Chinese plan to defuse tensions between the United States and North Korea.
"The last thing the markets want here is the tension between (the) U.S. and North Korea. It's a situation with no good resolution even though most people are sceptical that Russia and China have a plan to defuse the situation," Stan Shipley, a strategist at Evercore ISI in New York, said in a telephone interview.
The dollar was 0.11 percent lower against the Swiss franc.
The Swiss franc and the yen are often sought in times of geopolitical tension. Both have logged big gains against the dollar this week amid escalating tensions between North Korea and the United States.
The euro was up 0.45 percent at $1.1823 after Morgan Stanley raised its forecasts for the currency, predicting it would hit $1.25 early next year.
The British pound, which touched a three-week low against the greenback earlier in the session, recovered ground to trade 0.32 percent higher. Investors remain wary about the outlook for the British economy after a mixed bag of data this week.
The weaker greenback bolstered the Canadian dollar, helping it pull back from a four-week low.
Last week, guys, we provide two fundamental views on GBP and on EUR as we've replaced Gold analysis. Thus, today we will view just on COT report as fundamental part of analysis.
Right now guys, we have three interesting major currencies where we could get setups for trading - GBP, EUR and CHF. And it is difficult to choose just one, as setups that they have are similar at some degree. Today, probably it makes sense to take a look at EUR. Because GBP setup we've discussed last week and mostly it is the same - cable has reached our predefined daily support and now start to show some signs of possible bounce up. Next week a lot of important data will be released as EU GDP, UK Inflation etc. thus, I hope that we will get neccesary volatility for trading.
As we've agreed to talk on EUR, here I repeat Fathom consulting chart that brings very important insight on EU inflation perpsectives:
Chart of the Week: Divergence Between Unemployment and Wages in The Euro Area
by Fathom Consulting
Steadily falling unemployment in the euro area has not translated into any significant increases in wages; increases in quarterly compensation per employee have averaged only 1.3% since 2014. This has been a key reason for why core inflation has flatlined since then. We suspect that labour market slack might be significantly higher than that suggested by the headline unemployment data. Despite the unemployment rate falling to pre-euro-crisis lows, a more detailed look into the composition of unemployment paints a bleak picture for wage growth going forward. As people are unable to secure a full-time job, they may instead take a part-time job, work on a temporary contract or become self-employed. Therefore, labour market slack might be better reflected by broader unemployment figures, rather than just the headline unemployment figure.
Broader measures of joblessness point to a softer market for jobseekers. There are still around seven million underemployed part-time workers in the euro area, up from just over 5.5 million in 2008. By definition, those are “people employed part-time who want to work more hours and are available to do so”. This suggests a significant number of people would rather work more, and that takes away some of their bargaining power when it comes to wage demands. Rather than pushing for wage increases, underemployed part-time workers are likely to push for full-time employment, which could undermine wage growth. As a result, despite an uptick in June, from 1.1% to 1.2%, core inflation is unlikely to see a “self-sustaining” pick-up anytime soon.
COT Report
EUR sentiment analysis definitely stands positive and shows real bullish direction as speculators have re-established partially closed positions 2 weeks ago. Last week we see that as open interest as net long position have increased, which means that new longs have been taken.
At the same time - overall net position stands at record high and it makes EUR upside potential limited, makes it more sensitive to any bearish driving factors and gravitating to moderate retracement. Even cloudless future will lead to just gradual upside action.
Taking in consideration that EUR now fluctuates in long-term 1.18-1.20 resistance area, it makes us to be cautious and focus mostly on nearest upside targets.
View attachment 33272
Techical
Monthly
Long term chart has not changed significantly, EUR now is entering long term 1.18-1.20 resistance area. As price has not dropped back in consolidation immediately, it seems that it was not a fake breakout and potentially EUR could rise significantly higher, to 1.30 area in longer-term perspective.
So, technically monthly chart looks bullish for EUR. Upside action has started from tweezers at the bottom of consolidation, that was also W&R of previous lows and fake breakout. Trend now stands bullish here and we have strong bullish divergence with MACD.
Now EUR is breaking Yearly Pivot Resistance 1 around 1.13 area. At the same time, market already has no real resistance levels ahead. All of them have been broken. The first barrier that market has stands at 1.1735 - this is 3/8 major Fib resistance and upper border of consolidation.
Previos three month we also see tail closing, i.e. price has closed near the top of candles. This is also bullish sign here:
Weekly
Trend here stands bullish as well, and EUR shows real strength. Take a look - once OB has been hit, EUR has shown just minor pullback to re-test broken top and Fib level. Now it is turning up again.
In general within this rally EUR shows very small retracements. We have to keep in mind saturation of long positions by CFTC and coming GDP stats on next week, they could change situation, but right now EUR shows no signs of weakness.
Next target will be 1.20 level. This is weekly OB, MPR1 and 1.27 extension of most recent swing down. In general, the fact that EUR has not dropped back down under August 2015 top (in red circle), tells, that upside action should continue. Otherwise, overall combination was very comfortable for retracement, but it has not happened.
Daily
Well, actually guys, we're not as interested with daily chart as with intraday ones. Here we do not have any additional information. Actually you just can see how our previous setup has worked.
Indeed, as EUR was at daily OS, previous top and minor FIb level - upside bounce has happened. Nothing more we could extract from daily picture by far. The floor for coming week stands approximately the same - around 1.17 as OS level barely has changed since then.
In fact, action of last week has passed inside NFP drop candle.
Intraday
But inside the day charts we have something valuable. Thus, on 4-hour chart EUR has re-tested broken channel and it stands at resistance right now:
On hourly chart on Friday EUR has continued upward action with our reverse H&S pattern. We've traded AB=CD target, but EUR was able to reach next 1.618 objective point and it has created Agreement resistance with the same Fib level.
In result we've got upside reversal swing. This moment open way for multiple trading setup and give us some important issues. First is - we should be ready for deep retracement and most probable it should be 2-leg, a kind of AB=CD action, as I've drawn here. This idea also is confirmed by Fib levels structure. Take a look that first, EUR should reach 1.1785 K-support and WPP, while next level will be 5/8 Fib support.
Indeed, if we will get this action then we easily can recognize here reverse H&S pattern with left shoulder around 1.1730 lows. Upside potential of this construction will be around 1.19. Not bad for intraday setup...
As usual, do not follow this scenario as "it has to happen". Keep your eyes open, do not take trades blindly. For example, if drop down will be too fast and EUR will drop all Fib support - H&S probably will fail. Other words, follow our typical warnings that we do every time when we offer some scenario. But right now overall picture looks interesting...
Conclusion:
EUR right now looks bullish as technically as fundamentally. Next long-term target stands around 1.20 area. But right now intraday setups look more attractive compares to big picture as we have clear patterns on intraday charts...
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 against a basket of currencies on Friday, after data showed U.S. consumer prices rose less than expected in July, pointing to benign inflation that could make the Federal Reserve cautious about raising interest rates again this year.
The U.S. consumer price index edged up 0.1 percent last month after being unchanged in June. Economists polled by Reuters had expected the CPI to rise 0.2 percent in July.
"Taken in combination with yesterday's weaker-than-forecast producer price report, it is clear there is no need for imminent policy tightening," Karl Schamotta, director of global product and market strategy at Cambridge Global Payments in Toronto, said in a note.
The dollar index, which tracks the greenback against six major currencies, was down 0.37 percent at 93.052, after earlier falling to a one-week low of 92.934.
"If the data continues to come in on the softer side, the market might start to price the Fed staying on hold this year," said Sireen Harajli, foreign exchange strategist at Mizuho in New York.
"We are still not there yet, but we might be getting there pretty quickly if the data do not pick up," she said in a telephone interview.
The dollar fell to a 16-week low against the Japanese yen, but pared some losses after Russian Foreign Minster Sergei Lavrov said there was a Russian-Chinese plan to defuse tensions between the United States and North Korea.
"The last thing the markets want here is the tension between (the) U.S. and North Korea. It's a situation with no good resolution even though most people are sceptical that Russia and China have a plan to defuse the situation," Stan Shipley, a strategist at Evercore ISI in New York, said in a telephone interview.
The dollar was 0.11 percent lower against the Swiss franc.
The Swiss franc and the yen are often sought in times of geopolitical tension. Both have logged big gains against the dollar this week amid escalating tensions between North Korea and the United States.
The euro was up 0.45 percent at $1.1823 after Morgan Stanley raised its forecasts for the currency, predicting it would hit $1.25 early next year.
The British pound, which touched a three-week low against the greenback earlier in the session, recovered ground to trade 0.32 percent higher. Investors remain wary about the outlook for the British economy after a mixed bag of data this week.
The weaker greenback bolstered the Canadian dollar, helping it pull back from a four-week low.
Last week, guys, we provide two fundamental views on GBP and on EUR as we've replaced Gold analysis. Thus, today we will view just on COT report as fundamental part of analysis.
Right now guys, we have three interesting major currencies where we could get setups for trading - GBP, EUR and CHF. And it is difficult to choose just one, as setups that they have are similar at some degree. Today, probably it makes sense to take a look at EUR. Because GBP setup we've discussed last week and mostly it is the same - cable has reached our predefined daily support and now start to show some signs of possible bounce up. Next week a lot of important data will be released as EU GDP, UK Inflation etc. thus, I hope that we will get neccesary volatility for trading.
As we've agreed to talk on EUR, here I repeat Fathom consulting chart that brings very important insight on EU inflation perpsectives:
Chart of the Week: Divergence Between Unemployment and Wages in The Euro Area
by Fathom Consulting
Steadily falling unemployment in the euro area has not translated into any significant increases in wages; increases in quarterly compensation per employee have averaged only 1.3% since 2014. This has been a key reason for why core inflation has flatlined since then. We suspect that labour market slack might be significantly higher than that suggested by the headline unemployment data. Despite the unemployment rate falling to pre-euro-crisis lows, a more detailed look into the composition of unemployment paints a bleak picture for wage growth going forward. As people are unable to secure a full-time job, they may instead take a part-time job, work on a temporary contract or become self-employed. Therefore, labour market slack might be better reflected by broader unemployment figures, rather than just the headline unemployment figure.
Broader measures of joblessness point to a softer market for jobseekers. There are still around seven million underemployed part-time workers in the euro area, up from just over 5.5 million in 2008. By definition, those are “people employed part-time who want to work more hours and are available to do so”. This suggests a significant number of people would rather work more, and that takes away some of their bargaining power when it comes to wage demands. Rather than pushing for wage increases, underemployed part-time workers are likely to push for full-time employment, which could undermine wage growth. As a result, despite an uptick in June, from 1.1% to 1.2%, core inflation is unlikely to see a “self-sustaining” pick-up anytime soon.
COT Report
EUR sentiment analysis definitely stands positive and shows real bullish direction as speculators have re-established partially closed positions 2 weeks ago. Last week we see that as open interest as net long position have increased, which means that new longs have been taken.
At the same time - overall net position stands at record high and it makes EUR upside potential limited, makes it more sensitive to any bearish driving factors and gravitating to moderate retracement. Even cloudless future will lead to just gradual upside action.
Taking in consideration that EUR now fluctuates in long-term 1.18-1.20 resistance area, it makes us to be cautious and focus mostly on nearest upside targets.
View attachment 33272
Techical
Monthly
Long term chart has not changed significantly, EUR now is entering long term 1.18-1.20 resistance area. As price has not dropped back in consolidation immediately, it seems that it was not a fake breakout and potentially EUR could rise significantly higher, to 1.30 area in longer-term perspective.
So, technically monthly chart looks bullish for EUR. Upside action has started from tweezers at the bottom of consolidation, that was also W&R of previous lows and fake breakout. Trend now stands bullish here and we have strong bullish divergence with MACD.
Now EUR is breaking Yearly Pivot Resistance 1 around 1.13 area. At the same time, market already has no real resistance levels ahead. All of them have been broken. The first barrier that market has stands at 1.1735 - this is 3/8 major Fib resistance and upper border of consolidation.
Previos three month we also see tail closing, i.e. price has closed near the top of candles. This is also bullish sign here:
Weekly
Trend here stands bullish as well, and EUR shows real strength. Take a look - once OB has been hit, EUR has shown just minor pullback to re-test broken top and Fib level. Now it is turning up again.
In general within this rally EUR shows very small retracements. We have to keep in mind saturation of long positions by CFTC and coming GDP stats on next week, they could change situation, but right now EUR shows no signs of weakness.
Next target will be 1.20 level. This is weekly OB, MPR1 and 1.27 extension of most recent swing down. In general, the fact that EUR has not dropped back down under August 2015 top (in red circle), tells, that upside action should continue. Otherwise, overall combination was very comfortable for retracement, but it has not happened.
Daily
Well, actually guys, we're not as interested with daily chart as with intraday ones. Here we do not have any additional information. Actually you just can see how our previous setup has worked.
Indeed, as EUR was at daily OS, previous top and minor FIb level - upside bounce has happened. Nothing more we could extract from daily picture by far. The floor for coming week stands approximately the same - around 1.17 as OS level barely has changed since then.
In fact, action of last week has passed inside NFP drop candle.
Intraday
But inside the day charts we have something valuable. Thus, on 4-hour chart EUR has re-tested broken channel and it stands at resistance right now:
On hourly chart on Friday EUR has continued upward action with our reverse H&S pattern. We've traded AB=CD target, but EUR was able to reach next 1.618 objective point and it has created Agreement resistance with the same Fib level.
In result we've got upside reversal swing. This moment open way for multiple trading setup and give us some important issues. First is - we should be ready for deep retracement and most probable it should be 2-leg, a kind of AB=CD action, as I've drawn here. This idea also is confirmed by Fib levels structure. Take a look that first, EUR should reach 1.1785 K-support and WPP, while next level will be 5/8 Fib support.
Indeed, if we will get this action then we easily can recognize here reverse H&S pattern with left shoulder around 1.1730 lows. Upside potential of this construction will be around 1.19. Not bad for intraday setup...
As usual, do not follow this scenario as "it has to happen". Keep your eyes open, do not take trades blindly. For example, if drop down will be too fast and EUR will drop all Fib support - H&S probably will fail. Other words, follow our typical warnings that we do every time when we offer some scenario. But right now overall picture looks interesting...
Conclusion:
EUR right now looks bullish as technically as fundamentally. Next long-term target stands around 1.20 area. But right now intraday setups look more attractive compares to big picture as we have clear patterns on intraday charts...
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.
