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FOREX PRO WEEKLY, August 21 - 25, 2017

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Aug 20, 2017.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals

    (Reuters) - The dollar fell to a four-month low against the Japanese yen on Friday as investors sought out the safe-haven currency in light of uncertainty about the White House's ability to push through its economic agenda.

    The yen was the major mover among developed world currencies. It rose nearly 1 percent against the dollar as nervousness over stock market valuations and the future of an eight-year global rally seeped into other assets.

    Concerns about whether U.S. President Donald Trump can get Congress to pass the pro-growth measures that financial investors had expected at the start of this year turned U.S. stocks lower for the fourth straight day. On Thursday, the benchmark S&P 500 stock index had its biggest one-day loss in three months.

    That drove investors into the traditional security of the yen, with worries about another attack claimed by Islamic State in Barcelona feeding into the rising uncertainty.

    Trump's response to a white supremacist march in Charlottesville, Virginia, that left one woman dead has drawn widespread condemnation, even from within his Republican party. It is the latest news that investors say distracts from his campaign pledges to cut taxes and reinvest in U.S. infrastructure.

    The dollar recovered somewhat after a stronger-than-expected reading on U.S. consumer sentiment from the University of Michigan but remained lower on the day.

    The dollar was last down 0.75 percent against the yen at 108.72 yen. It fell 0.1 percent against the Swiss franc to 0.9618 after touching a one-week low.

    "With President Trump’s support from both within and outside of the White House waning, the uncertain U.S. political environment is likely to keep the dollar pinned down at these low levels," said strategist Viraj Patel of ING in London.

    "It is difficult to find any other domestic catalyst to more than offset this negative factor."

    The yen's lurch higher, from nearly 111 per dollar on Wednesday to below 109 on Friday, has largely stemmed from technical trading and an increase in volatility, said Tim Alt, fund manager for rates and currencies at Aviva Investors in Chicago.

    The headlines have forced traders with bets on a weaker Japanese currency and stronger dollar to reverse their positions, he added.

    "In (times of) low volatility ..., selling or being short the yen is considered to be attractive," Alt said. "And as we’re seeing a little bit more jitters, volatility pick up a little bit, I think there’s been some questioning of that."

    As Today we will take a look at NZD - let's find out what situation we have in China, since this is important for whole Asia region and NZ in particular:

    Expanded China Momentum Indicator Shows Growth Rebounding – For Now
    by Fathom Consulting

    Along with the majority of economic forecasters, Fathom Consulting has long been skeptical of official Chinese GDP statistics. To gain a better insight into economic activity we developed our China Momentum Indicator (CMI), first published in 2014. Our upgraded version – CMI 2.0 – includes ten series rather than the previous three, and tracks a broader range of credit instruments. CMI 2.0 shows Chinese growth to have rebounded rapidly over 2016 and 2017, as the government ‘doubles down’ on its strategy of investment- and export-led growth. We believe this growth path to be unsustainable over the medium term.

    [​IMG]
    There is strong reason to believe that Chinese GDP statistics are less than fully reliable. This view is lent weight by the statements of China’s own authorities. In 2007, according to a State Department memo released by WikiLeaks, Li Keqiang, now the Premier of the State Council of the People’s Republic of Chinatold a US ambassador that rather than trusting official Chinese GDP figures he relied on three alternative indicators of economic activity: railway freight; electricity consumption; and the issuance of bank loans.

    In our construction of CMI 1.0, first published in October 2014, we took Premier Li at his word, creating an aggregate index based on the growth rates of these three indicators. Our measure had the additional advantage of being available at a monthly frequency. The indicator diverged from the official quarterly GDP figures around 2013, which is when we believe headline GDP figures started to be particularly egregiously ‘fudged’ by the Chinese government. Contrary to the official annual growth figure, which never fell below 6.9%, CMI 1.0 fell to a trough of 2.2% in January 2016 before picking up gradually over the past year.

    CMI 1.0 had the advantage of a clear and unbiased motivation behind the choice of indicators; the selection was not our own but that of Premier Li. However, the point has been made that a broader basket would better capture economic activity in China.

    This is especially true going forward, as China-watchers look for evidence that policy makers are encouraging a rebalancing of the economy to a more sustainable growth path reoriented to the consumer, rather than ‘doubling down’ on the past model of export- and investment-led growth. Our own view is that those in power have opted for the latter path, and that although this choice delivered an upswing in growth in 2016, it will ultimately threaten China’s long-term growth prospects.

    To this end we have expanded CMI 2.0 to include a total of ten rather than the previous three series. Two of the inputs remain unchanged whereas the credit indicator identified by Premier Li has been expanded to include off- as well as on-balance sheet lending. This was an important addition because recent credit expansion in China has been increasingly directed to off-balance-sheet vehicles, to help comply with capital adequacy requirements, as the chart below shows.
    [​IMG]
    The credit expansion is central to our view that the current growth model is unsustainable. China’s ratio of private non-financial debt-to-GDP has now breached 200%, which is already 50% higher than that of the US the year before Lehman Brothers filed for bankruptcy. The expansion has been necessary to fund its investment-led growth, but such a strategy leads to funds flowing to projects and assets that generate little or no return.

    [​IMG]
    In our choice of the seven new indicators we have, wherever possible, avoided measures used in the construction of the usual expenditure components of GDP, focusing instead on shadow measures of economic activity. We believe these to be less prone to manipulation than the headline GDP figures.

    CMI 2.0 expands the range of freight variables from just railways to include highways and goods exported through ports, in addition to two commodity variables which correlate with domestic demand and activity. Financing, retail sales and air passenger volumes are included as representations of the services sector. The inclusion of real imports also captures the growing consumption of Chinese workers with increasing incomes, and the import of intermediate goods for use in industry. The complete basket of indicators is shown on the chart below:
    [​IMG]

    The first chart shows our final CMI 2.0 series. The new indicator better tracks official GDP figures during the slowdown and recovery from the global financial crisis in 2008, but diverges significantly from official GDP at the same point as CMI 1.0 and follows the same subsequent downward trajectory. The trough of GDP growth is slightly higher and earlier, at 2.5% in October 2015. Since that point our new indicator has rebounded far more strongly than CMI 1.0; in fact the latest reading of 7.7% growth for June is higher than the official GDP figure for 2017 Q2 of 6.9%. The rebound is due to five of the ten indicators displaying strong growth over the past year: all three freight indicators, especially railway freight, in addition to real imports and the commodity price index, have expanded at significantly higher rates than in the slump of late 2015. CMI 1.0, which picked up only railway freight out of these indicators, showed growth to be increasing, but did not capture the full extent of the rebound. This supports our belief that Chinese decision-makers have doubled down: unable to tolerate the slowdown associated with a rebalancing, which could threaten their own position and control, they have chosen to recommit to the model of export- and investment-led growth rather than a reorientation toward the consumer.

    We do not have confidence in the sustainability of this growth path for China. In our central scenario for this quarter we expect GDP growth as measured by CMI 2.0 to fall back to 6.4% by 2018. Our central forecast for the long term, relating to 2020-25, is for growth of around 4.5%, as maintaining the tactic of low consumption and continued investment in unproductive assets results in a falling return on capital which undermines growth. Of course, the authorities will likely continue to report faster growth.

    Indeed when we look at the component breakdown of CMI 2.0 we can see some early signals of the unsustainability of the current rebound. All five of the indicators discussed above which have been driving the expansion have turned down over the past two or three months. This will take time to feed through to our headline CMI, due to the smoothing method, but we believe the slowdown will persist.

    The doubling down path has been funded by a huge expansion of credit, and, despite introducing some tentative measures to improve lending standards earlier this year, we believe policymakers will be too fearful of a slowdown to take away the punch bowl. In our downside scenario, China suffers a banking crisis and enters recession. Unwilling to take the painful but necessary steps to restructure their financial system, they instead take piecemeal steps to recapitalisation, as Japan did in 1991, trapping them in the same low-growth environment faced by many developed economies.

    Much of our long-term China view hinges on the sources of growth, in terms of the necessary transition away from manufacturing and towards greater reliance on the tertiary sector. In addition, the realisation of our forecast’s downside scenario depends on the outlook for the financial system, where it is essential to consider off-balance-sheet lending in addition to traditional bank loans. In this vein we consider CMI 2.0 to be a more useful and comprehensive snapshot of economic activity in China.

    Fathom research is great, but I think they miss just 1 thing that could make strong boost to China economy - Middle East. China already is taking steps to make huge investment programmes in Syria to re-build country and rise it up from ash. Next is Lybia. ISIL game is over. If China already signs contracts on investing it means, that indeed, situation is coming to pie destribution and most fat political pieces will get Iran, Russia and Turkey, while as China is reachest country among the others - I think that it will get a lot of benefits from economical side of rebuilding process. That's why IMHO China will add some points to it's GDP mostly due export contracts in Middle East.

    COT Report

    Today, guys, we will take a look at kiwi dollar as it has most clear setup among other major currencies. Actually trading setup already stands in place and we need just watch for suitable entry point. At the same time, there are some nuances exist that could become extremely important on coming week.

    NZD shows outstanding bullish sentiment as net long positions have reached all time highs few weeks ago. As you know, this is one of our major indicators that suggest retracement down to off-load too big speculative longs. And this now is happening. CFTC data shows typical tendency for this kind of action - open interest is dropping as trades fix profits and close their longs. As you can see, overall position shows ~30% correction right now. This is indeed a retracement probably as price dropps very slow and stubborn and market could re-establish upside action at any time, because major target has not been reached yet:

    upload_2017-8-20_12-14-2.

    Technicals
    Monthly

    On monthly chart overall picture looks bullish in short-term perspective. Trend stands bullish, price is not at OB. Overall price action looks positive as NZD has tested YPP and jumped up. Market is forming clear AB-CD pattern. Now we will not take in consideration far standing AB=CD target, but will focus just on nearest target.

    This is strong resistance cluster as you can see - 0.618 AB-CD that creates Agreement with major 5/8 resistance and coincides with YPR1, which is next logical long-term destination as price already has tested YPP.

    CD leg looks strong, at least is faster than AB and market shows tail closing mostly. Another important moment - kiwi has broken up long - term resistance area in yellow rectangle and now stands above it. When market uses as support previous barrier - this is bullish sign. Besides, price has exceeded "C' point already and it means that downside butterfly scenario is eliminated.

    Taking in consideration CFTC data and ongoing process in Asia region, mostly they are look positive for long term NZ perspectives. Thus, in few months market indeed could reach our next target - 0.7680-0.78 area.
    nzd_m_21_08_17.

    Weekly

    On weekly chart trend also is bullish and here just two major moments to talk about. First is a target - we have here initial AB-CD and it's 1.618 extension stands at 0.76 area. As this target stands closer and it is at shorter time frame - it is more valuable for us. So, I think that we should focus on it.

    Second - here we have first pattern that will lay down in foundation of our trading setup. This is bullish stop grabber that has been formed on long-term trend line support, Fib support and MPS1.

    As you know this pattern suggests moving above previous tops @0.7550 which automatically means action to 0.76 target, I suppose.

    Thus, with this grabber we get clear invalidation point - 0.7220 area.
    nzd_w_21_08_17.

    Daily

    On daily chart we're coming to more practical quitestions. At first glance we could get H&S pattern potentially, within few weeks may be. But, overall setup that we have on higher time frames mostly suggests the opposite action and gives hints that here H&S either will fail or will not be formed. At least this chance exists also.

    Now is a question how upside action could start. Now we have multiple patterns that we need to discuss. First is bullish engulfing pattern that has been formed at our support area. Mostly we've discussed this in our daily video already. Minimal target of engulfing pattern is length of it's bars, and it means that on intraday charts price could show upside AB-CD pattern.

    Second - we have tweezers top here. This is bearish moment. I've marked on the chart some tweezers, they are reversal patterns, but the depth of action after they have been formed could be different - from just 1 candle to big trend. In our situation tweezers tell that retracement down in the body of engulfing pattern could be deeper, i.e. upside action will start not on Monday probably.

    Finally recent slope has 8 bars of downside thrust, price has not reached 3/8 Fib resistance (as it could be seen on hourly chart). As we suggest upside reversal around - we could watch for DRPO "Buy" pattern and this pattern suggests approximately equal bottoms. This, in turn, again points on deeper downside action on intraday chart:
    nzd_d_21_08_17.

    Hourly

    On hourly chart we have the same reverse H&S pattern that should become a triggering pattern for upside action. All moments that we've just discussed makes me think that we sould get some "222" Buy pattern on hourly chart and our entry point will be formed somewhere in 0.7230-0.7270 area - between 1.0 and 1.618 AB-CD downside targets. Take a look that 1.618 target also coincides with WPS1. This entry point will be perfect in terms of relation to invalidation 0.7220 area, provides good risk/reward ratio and reasonable risk in general.
    nzd_1h_21_08_17.

    Conclusion:

    In general as it is seemed from fundamental data, NZD has not bad long-term perspectives, at least for nearest 3-6 months. On daily and lower time frames we have clear setup with definite target and invalidation point.


    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.
     
    Sugit, IrwanI, Major_Tom and 3 others like this.
  2. Lolly Tripathy

    Lolly Tripathy Master Sergeant

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    Many thanks and tons of good wishes dear sive sir
    Keep it up..
    Last week I made a very good profit on pound :)
    Gbpusd n Eurgbp
    Thanks again...
     
  3. DevTrader

    DevTrader Private, 1st Class

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    Last week was inside one and don't offer spectacular trading opportunity except FOMC minutes.
    On other side GOLD was one way up and finally achieved 1300 level. I am on short side now and meaningful retracement on the way. next level i am watching is 1275-1277 area. Looking forward your thoughts sive.
     
  4. Major_Tom

    Major_Tom Private, 1st Class

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    Great weekly report!! Tks Sive!
     
  5. IrwanI

    IrwanI Master Sergeant

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  6. Eric Emeya

    Eric Emeya Recruit

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    Thank you Sive, you have been wonderful.
     
  7. DevTrader

    DevTrader Private, 1st Class

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    No clear pattern on EURO ,GBP for attractive set up.
    Still sticking to GOLD
     
  8. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Good morning,

    (Reuters) - The dollar inched higher against a basket of currencies on Tuesday, with traders focusing on the annual central banking conference in Jackson Hole this week for insights into the outlook for monetary policy.

    The dollar index, which measures the greenback's value against a basket of six major currencies, edged up 0.1 percent to 93.169

    The near-term focus is on a speech by U.S. Federal Reserve Chair Janet Yellen on Friday at the Fed's annual central banking conference in Jackson Hole, Wyoming.

    If Yellen's speech increases market expectations that the Fed will raise interest rates in December, that could prompt investors to unwind bearish bets against the dollar, and lend the greenback some support, said Stephen Innes, head of trading in Asia-Pacific for OANDA in Singapore.

    "This could be a platform for the U.S. dollar," Innes said, referring to the Jackson Hole conference.

    The dollar rose 0.3 percent to 109.26 yen, pulling away from last week's low near 108.60 yen, which was the greenback's weakest level in about four months.

    The greenback has been hampered in recent days by renewed investor concerns about the Trump administration's ability to implement its economic policy agenda.

    Persistent doubts about the prospects for another Fed interest rate hike this year, at a time of subdued U.S. inflation, have also weighed on the dollar.

    The euro slipped 0.1 percent to $1.1808

    The common currency has lost some steam after hitting a 2-1/2 year high near $1.1910 in early August. It has, however, managed to pull up from a three-week low of $1.1662 set last Thursday.

    Mitul Kotecha, head of Asia macro strategy for Barclays in Singapore, said the euro's upside may be limited in the near term even though it has shown some resilience because of the market's caution toward the dollar.

    "It's hard to see where the additional source of strength for the euro is going to come from," he said.


    The euro seems to have already priced in several positive factors, such as an improvement in the euro zone's economic outlook, Kotecha added.

    Investors are awaiting remarks from European Central Bank President Mario Draghi due on Friday at Jackson Hole, although whether his comments will provide any fresh impetus for euro buying is uncertain.

    Draghi will not deliver a new policy message at the symposium, two sources familiar with the situation have said, tempering expectations for the ECB to start charting the course out of its monetary stimulus.


    So, our setup on NZD that we've discussed in weekly research has not changed yet, as price challenges tweezer's resistance but unsuccessful yet. It means that retracement is still possible here. Today we do not have some clear trading setup on majors, thus, we could take a look at overall situation on EUR.

    Mostly it looks bullish. On daily chart, although we've suggested possible AB-CD minor retracement, but price wasn't able to break even minor 3/8 support and price met solid purchases below it, as you can see - long shadows on candle. Another positive sign is - this level coincides with broken weekly top and price was held above it. Now daily picture starts to remind bullish dynamic pressure as trend has turned bearish but price action is not:
    eur_d_22_08_17.

    On 4-hour chart another bullish sign is upside triangle breakout. First market has made failure attempt to break it down, showed W&R and turned up. Most probable upside target stands at 1.1975-1.2020 area. IT includes 1.27 extension of previous retracement and MPR1:
    eur_4h_22_08_17.

    It means that if market indeed is bullish - price could re-test broken triangle's side around 1.1770 area. On hourly chart this level mostly coincides with K-support and WPP. After that upside action should continue. If this will not happen - then it will be a bit irrational for bullish market mechanics and will suggest deeper drop on daily chart:
    eur_1h_22_08_17.
     
  9. Lolly Tripathy

    Lolly Tripathy Master Sergeant

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    Booked profit on nzdusd sell ;)
    Big thanks sive sir....
     
  10. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Good morning,

    (Reuters) - The dollar edged down against the yen on Wednesday after U.S. President Donald Trump raised the spectre of a government shutdown to fulfil a campaign pledge, but overall moves among major currencies were limited ahead of this week's Jackson Hole global central bankers' conference.

    At a rally with his supporters in Phoenix, Trump referred to his vow to build a wall at the U.S.-Mexican border and said, "If we have to close down the government, we are building that wall."

    In wide-ranging comments, he also signalled the possible termination of the NAFTA treaty with Mexico and Canada to jumpstart negotiations, and said the standoff with North Korea over its weapons programs might have taken a positive turn.

    The dollar was last off slightly on the day at 109.53 yen after touching a low of 109.37, down from around 109.67 before Trump's statement and below an earlier session high of 109.83 yen.

    But it remained well above a four-month low of 108.605 yen set late last week.

    "It was not a big move, and it has mostly retraced, but the market seems to have taken Trump's comments as negative for the dollar," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust.

    "Investors are focusing much more on the upcoming Jackson Hole conference than on anything Trump is saying today," she said, "particularly since there are many weeks remaining before the government shutdown issue would risk becoming critical."

    The U.S. government is bumping up against its debt ceiling, with the possibility that it will be unable to pay all its bills in October and face a shutdown unless Congress approves an increase in its borrowing capacity by the end of next month.

    The dollar index, which tracks the greenback against a basket of six major currencies, was flat on the day at 93.513, after it gained 0.5 percent in the previous session.

    The dollar rose on Tuesday as the euro was weighed down by a weaker-than-expected reading on German investor confidence. Position-squaring ahead of the gathering of central bankers in Jackson Hole, Wyoming on Thursday and Friday also supported the dollar, analysts said.

    "Ahead of Jackson Hole...investors have started to reduce their short dollar positions," said Heng Koon How, head of markets strategy for United Overseas Bank in Singapore. Investors are awaiting speeches from Fed Chair Janet Yellenand European Central Bank President Mario Draghi on Friday in Jackson Hole, though neither is expected to announce new policy messages.


    Draghi is also due to give a speech in Germany later on Wednesday.

    The euro eased slightly to $1.1760, staying on the defensive after shedding 0.5 percent on Tuesday.

    A survey out on Tuesday showed a steeper-than-expected drop in German investor morale in August, dragging on the euro.


    So, EUR has reached our predefined level and now is coiling around. As volatility will rise ahead of Wyoming meeting, it should be clear soon, whether it will turn up or not. Currently, guys, as long-term investors could partially unwind their USD shorts - additional pressure on other currencies could rise. That's why we could get deeper retracement in a moment where we do not expect it...
    For example - our observation of NZD tweezers was very useful - market just collapsed, and expectation of deep retracement let us to not been involved in poor trade...

    But today, we will take a look at AUD. Technical picture on AUD now is bullish, and if we would have Jackson Hole meeting ahead, I would say that aussie should re-establish upside action as we have uncompleted monthly 0.1850 target. And indeed AUD could. But taking in consideration all this mess around with this central banks' meeting, we could get AB=CD retracement on daily chart, as alternative scenario:
    aud_d_23_08_17.
    As you can see from picture above - daily AUD has formed bearish grabber. IT means that we will get at least minor downside continuation below 0.7870 lows.

    This could lead to potentially bullish "222" Buy on 4-hour chart, where AB-CD is forming. CD leg looks flatter, thus, around 5/8 Agreement area we could get chance to go long:
    aud_4h_23_08_17.

    If market will fail to hold above this support level and break it down - it will mean that "222" is shifting to butterfly. It is possible due fundamental reasons that I've mentioned above. In this case do not go long and wait for major lows breakout, appearing of butterfly and downside AB-CD pattern on daily chart.
     

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