Sive Morten
Special Consultant to the FPA
- Messages
- 18,676
Fundamentals
(Reuters) - The dollar held steady on Friday in a tight trading range, as traders moved to the sidelines ahead of the Christmas holiday weekend, leaving the greenback about half a percent below a 14-year peak set earlier this week.
The dollar will likely resume its recent rally when the new year begins. It has gained 5 percent against a basket of currencies since Donald Trump's U.S. presidential victory on Nov. 8.
"No one wants to take additional risk between now and the end of the year. They don't want to jeopardize those gains," said Stan Shipley, strategist at Evercore ISI in New York.
Traders brushed off upbeat data on U.S. new home sales and consumer sentiment, which reinforced views that the world's biggest economy is expanding at a steady clip.
Bets that Trump's economic policies would promote faster U.S. growth and inflation have fed appetite for the dollar, stocks and corporate bonds, while stoking selling in traditional safe havens the yen, gold and U.S. Treasuries.
The Federal Reserve's hint that it might raise U.S. interest rates at a faster pace in 2017, along with the European Central Bank and Bank of Japan's maintaining their ultra-loose policy stance, has also bolstered the dollar in recent days.
The dollar index was marginally softer at 103.04 after trading in a 0.34 point range, and not far from the 14-year peak of 103.65 reached on Tuesday.
The euro was steady after the Italian government approved a rescue package for Monte dei Paschi di Siena after the world's oldest bank failed to raise needed capital from investors.
Worries about the European bank sector also diminished after Credit Suisse and Deutsche Bank DBNKGn.DE agreed to settle with the U.S. Department of Justice over claims they misled investors when selling mortgage-backed securities.
The euro was up 0.1 percent at $1.0446 holding above a nearly 14-year low of $1.0350 set earlier in the week.
With Japan markets closed for a holiday, the yen edged up 0.1 percent against the euro EURJPY= at 122.45 yen and up 0.2 percent versus the dollar at 117.26 yen.
"For the yen, there's a bit of consolidation after its recent weakening," said Paul Christopher, head global market strategist at Wells Fargo Investment Institute in St. Louis, Missouri.
The yen recovered somewhat after hitting a 10-1/2-month low against the dollar this week, helped by lower U.S. yields and safe-haven bids stemming from the attacks in Ankara and Berlin, analysts said.
The benchmark U.S. 10-year Treasury yield US10YT=RR was down 1 basis point from Thursday, at 2.543 percent.
US interest rates will rise but do not be fooled by the ‘dot plot’
by Fathom Consulting
The FOMC raised the fed funds rate for just the second time in ten years last Wednesday, but it was the revisions to the ‘dot plot’ that grabbed the headlines and pushed yields on US Treasuries higher. We think investors are right to expect a faster pace of tightening than we have seen over the last year. But there was little in Janet Yellen’s press conference or the summary of economic projections to suggest that such a move is imminent.
According to the Fed Chair, the revisions to the dots were “really very tiny” and FOMC participants left their outlook for inflation, unemployment and economic growth virtually unchanged as they await more clarity on Donald Trump’s economic plans. But Fed policy is not entirely dependent on Mr Trump’s plans: the labour market is tight, wages are rising and the Phillips curve is not dead! The bigger picture is that while we expect a further six quarter-point increases in the fed funds rate by end-2018, real short-term rates will remain negative for some time.
Donald Trump’s victory in last month’s US presidential election has prompted investors to recalibrate their expectations for US monetary policy. A significantly quicker pace of tightening is now implied by fed funds futures than on 8 November, as investors bet that Mr Trump’s fiscal stimulus will push US inflation higher. We think investors are right to assume a faster pace of tightening than we have seen in the past year. However, it remains to be seen how much of Mr Trump’s planned stimulus will get approved by Congress and when it will take effect. In our view, the impact of this stimulus is unlikely to be seen before the second half of next year, at a time when the US labour market will be running above its potential.
Higher oil prices and base effects are set to push headline inflation above 2% early next year. However, significant upward pressure on core inflation is more likely to occur in the second half of 2017 and throughout 2018. With the FOMC likely to favour keeping the economy running ‘hot’ than pre-emptively raising rates, we expect just two quarter-point increases in the federal funds rate in 2017, but four in 2018. Significantly, in our view, this trajectory is consistent with a negative real fed funds rate over the forecast horizon.
The FOMC raised rates but what happened next?
The FOMC’s decision to raise the federal funds rate by 25 basis points had been entirely priced into federal funds futures before last Wednesday’s announcement. The subsequent increase in Treasury yields and rise in the probabilities that investors assign to future hikes was apparently due to the revision to the FOMC’s ‘dot plot’. The number of 25 basis point increases in 2017, implied by the median dot rose from two to three last Wednesday, although Janet Yellen downplayed the revisions in her press conference, stressing that they were “really very tiny”.
In fact, the fed funds rate for end-2017 implied by the mean of the FOMC participants’ dots was revised up by just 6 basis points to 1.38%. More significantly, their projections for inflation, unemployment and economic growth in 2017 and 2018 were virtually unchanged compared with September and apparently did not take into account the possible changes to economic policy by the incoming administration. The bottom line is that the dots could be revised higher once Mr Trump’s plans become clear, but it would be a mistake to read too much into last Wednesday’s shift.
All change at the FOMC?
Contrary to some reports, we see little evidence that the FOMC will take a more hawkish bias next year. Janet Yellen confirmed last Wednesday that she intends to see out her term as FOMC Chair until February 2018. And although Mr Trump will be responsible for filling two vacant seats on the FOMC’s Board of Governors in 2017, he has little incentive to fill them with hawks. We very much doubt that Mr Trump wishes to see a sharp tightening in monetary policy, which would increase the costs of his fiscal stimulus and also hinder his efforts to narrow the current account deficit by putting further upward pressure on the dollar.
It is also doubtful whether the annual rotation of FOMC members will result in a more hawkish bias among voting members next year. Three of the four outgoing alternate members voted for a rate increase at the FOMC’s meeting in September. The incoming members, which include Charles Evans of Chicago, a well-known dove, do not appear to be much more hawkish.
Outlook for the labour market
Last year we estimated that the breakeven rate of payroll growth was 60,000 per month, a level that appears to be a lot lower than generally perceived. We also observed that most of the decline in the labour market participation rate in recent years is structural, not cyclical.
Indeed, with the US economy still adding jobs well in excess of 60,000 per month and the participation rate now close to trend, there appears to be little slack left in the labour market. Admittedly, wage growth is lower now than at the same stage of previous economic cycles, but average hourly earnings hit a post-recession high of 2.8% in October and consumer and business surveys both point to diminishing slack in the labour market. Last but not least, our labour market model suggests that the Phillips Curve is alive and kicking!
Overall then, we think investors have been right to revise the probabilities they assign to US interest rate increases next year higher. But if the labour market continues to evolve as we expect, we still think that investors are underestimating the pace of tightening in 2018 when the effects of Mr Trump’s stimulus are most likely to feed through to the economy. Although we forecast a combined total of six quarter-point increases in the fed funds rate between now and the end of 2018, this would still be consistent with negative short term rates over the forecast horizon.
Rabobank Global Dairy Quarterly Q4 2016: Supply ‘Crunch’ Bites
Milk supply from dairy export regions has fallen sharply, by 2.6m tonnes in 2H 2016, with milk volumes from Oceania and Europe severely challenged. In addition, domestic demand in the US and Europe continued to strengthen, negating the need for further stock growth and reducing volumes available for export by 4.5m tonnes in LME terms. As a result, global dairy prices have rocketed upwards, increasing by over 45% in 2H 2016.
Most of the domestic demand growth is for cheese and butter. Therefore, the spread in prices across the dairy complex stocks will remain wide, with demand for butterfat driving the market and surplus protein, including European stocks, weighing on the market, according to the Rabobank Global Dairy Quarterly Q4 2016.
Kevin Bellamy, Rabobank Global Dairy Strategist, says: “Milk production around the world in 2H 2016 is in poor shape. Europe’s production has tightened—not only due to low prices, but also in response to the efforts of the European subsidies, which—if farmers deliver on their commitments—should remove a million tonnes of milk from the market. Meanwhile, we’ve seen poor production in Oceania, with New Zealand missing last year’s peak production levels by 6%.”
Other key highlights of the Rabobank Global Dairy Quarterly Q4 2016 include:
Take a look how Dry Milk Futures chart relates to NZD. If you will take a look at Butter - it stands at new high, while cheese starts already to turn down.
COT Report
Today guys, as you probably understand from Diary market review, we will talk on NZD. Markets were rather quiet before Xmas, so all setups that we have in progress - EUR, AUD are still valid but nothing to add right now.
Thus, since we do not discuss kiwi for a long time, let's update our view. CFTC data shows massive long covering on last week, as speculative net short position has increased significantly while open interest has dropped. It seems that Diary products price rally supports NZD in 2H of 2016, currently perspectives of this rally are mixed, on a background of USD strength and NZ problems. That's why this long covering mostly shows bearish sentiment and stands in favor of further downward continuation rather upside reversal.
Besides, after long covering, new shorts could follow, especially as Xmas holidays will be over...
Technicals
In huge time scale perspective (this is probably not even monthly chart), we have big AB=CD pattern. NZD has turned to downward action in summer 2014 and has not reached it's target. It means that sometime it will turn to upside action again and could hit estimated 0.92 area.
Our discussion of this setup has started as soon as market has reached major 5/8 monthly Fib support @ monthly Oversold (not shown). Situation on NZD long-term picture was very contradictive. From one side we have thurst down and upside retracement from major Fib support, that takes the shape of bearish flag.
But, from the other one - NZD has moved above YPP, it has broken very strong weekly K-resistance and Agreement that happens very rare. It means that something probably was standing beyond this action. Now we understand that there were two major factors - rally on diary products, second - some uncertainy around Fed policy and coming elections in the middle of 2016 when Fed was in uncomfortable situation with their promise to hike rates 4 times, and every time they postponed this procedure. While RBNZ has done some unexpected hawkish steps in the same period and didn't cut rate when market has expected it.
Right now we have more clarity as on Fed policy perspectives as on technical picture. Although mothly chart stands bullish here, NZD is not at OB/OS levels, but flag pattern is still here. NZD in turn was not able to break through major 3/8 Resistance level and out of the flag pattern, also once price has moved above YPP - it wasn't able to reach YPR1, dropped and not NZD stands even below YPP again. This dynamic looks bearish. It is also confirmed by closing of long positions.
Since there is just one week till the end of the year and it is difficult to expect reaching of YPS1, but we could use as nearest target major support level again - 5/8 Fib level @ 0.64
Weekly
Weekly chart is most important for NZD right now. Overall upward action looks a bit choppy and it seems like some external factor indicrectly supported NZ currency. This indeed could be diary market, in the same manner as crude oil makes impact on CAD...
So, here price has not pased yet the "point of no return", but stands at the edge. Price stands right now at major support area - MPS1, Fib level and major trend line. Breaking this trend line will mean bearish breakout of monthly flag pattern. Besides, NZD has no other strong supports till next 0.66 level. But if breakout will happen - this will trigger chain reaction and 0.66 hardly will hold NZD from collapse.
Last two months NZD mostly shows bearish signs. Trend is bearish here. Price has completed 1.618 AB-CD target and turned down. Right now NZD has formed bearish reversal swing as recent drop is greater than last upside swing. Also take a look that kiwi has exceeded harmonic retracement swing slightly. Price was not able to pass through MPP and dropped to MPS1. Now it stands at support.
In general upside action was slower and more choppy. I suppose that current downward reversal could mean two things - traders not sure with diary rally continuation and decided to fix profit before Xmas. Second - growing USD power brings additional bearish pressure on NZD.
That's being said, major point to watch here is price action around support - whether we will get breakout or not. Currently it seems that we should get it, but lets not run ahead of train.
Daily
Daily patterns has no own reasons to stop market at current point. Here we could recognize some H&S shape. We've mentioned it once, but action around neckline was rather tricky that's why we were not able to trade it properly.
Right now situation has become more clear. If we still treat this configuration as H&S and calculate its targets, then we will see that AB=CD, based on the head and right shoulder (not shown) leads price to 0.66 FIb support, while ultimate 1.618 classical target right to 0.64 - monthly major level.
As you can see NZD repeats the same "222" Sell pattern. If you remember we even have traded the first one. Later it was repeated and right now market almost has completed the swing when AB-CD retracement could appear again. Also pay attention that downward swings are becoming faster and faster.
But right now price is supported by major trend line and natural area (yellow rectangle).
4-hour
So, our tactical DRPO "Buy" setup has not been formed, as we've estimated price NZD has shown long covering, instead of shorts, thus, neccesary background for this trade has not been formed. But this is not important any more...
Here is a key to undertanding of short-term situation on NZD. As we've talked above - market forms side-by-side "222" patterns. And every time it doesn't complete downward AB=CD. Previous upward reversal has happened by small butterfly pattern.
Right now we see very similar action - butterfly was starting to form prior reaching of AB=CD target. Retracements usually takes AB=CD upside shape (222 pattern...) and usually deep - 50%, or even 5/8. Thus, all this stuff makes overall situation clear. We need either the same upside retracement that will continue existed harmonic pattern, or failure of this pattern and downward breakout of monthly trend line.
If we will get upside AB=CD action - our primary level to watch for is 0.71 Fib resistance, while downward breakout will mean that we need to search for minor retracement to go short. This is our short-term plan for coming week:
Conclusion:
Unclear perspectives of Diarly market, flat NZD fiscal policy and growing strength of US dollar put recent upside action on NZD under question. Right now market stands at crucial point and depending on what will happen around will clear further perspectives of NZD.
We have short-term plan to follow, depending what will happen.
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 held steady on Friday in a tight trading range, as traders moved to the sidelines ahead of the Christmas holiday weekend, leaving the greenback about half a percent below a 14-year peak set earlier this week.
The dollar will likely resume its recent rally when the new year begins. It has gained 5 percent against a basket of currencies since Donald Trump's U.S. presidential victory on Nov. 8.
"No one wants to take additional risk between now and the end of the year. They don't want to jeopardize those gains," said Stan Shipley, strategist at Evercore ISI in New York.
Traders brushed off upbeat data on U.S. new home sales and consumer sentiment, which reinforced views that the world's biggest economy is expanding at a steady clip.
Bets that Trump's economic policies would promote faster U.S. growth and inflation have fed appetite for the dollar, stocks and corporate bonds, while stoking selling in traditional safe havens the yen, gold and U.S. Treasuries.
The Federal Reserve's hint that it might raise U.S. interest rates at a faster pace in 2017, along with the European Central Bank and Bank of Japan's maintaining their ultra-loose policy stance, has also bolstered the dollar in recent days.
The dollar index was marginally softer at 103.04 after trading in a 0.34 point range, and not far from the 14-year peak of 103.65 reached on Tuesday.
The euro was steady after the Italian government approved a rescue package for Monte dei Paschi di Siena after the world's oldest bank failed to raise needed capital from investors.
Worries about the European bank sector also diminished after Credit Suisse and Deutsche Bank DBNKGn.DE agreed to settle with the U.S. Department of Justice over claims they misled investors when selling mortgage-backed securities.
The euro was up 0.1 percent at $1.0446 holding above a nearly 14-year low of $1.0350 set earlier in the week.
With Japan markets closed for a holiday, the yen edged up 0.1 percent against the euro EURJPY= at 122.45 yen and up 0.2 percent versus the dollar at 117.26 yen.
"For the yen, there's a bit of consolidation after its recent weakening," said Paul Christopher, head global market strategist at Wells Fargo Investment Institute in St. Louis, Missouri.
The yen recovered somewhat after hitting a 10-1/2-month low against the dollar this week, helped by lower U.S. yields and safe-haven bids stemming from the attacks in Ankara and Berlin, analysts said.
The benchmark U.S. 10-year Treasury yield US10YT=RR was down 1 basis point from Thursday, at 2.543 percent.
US interest rates will rise but do not be fooled by the ‘dot plot’
by Fathom Consulting
The FOMC raised the fed funds rate for just the second time in ten years last Wednesday, but it was the revisions to the ‘dot plot’ that grabbed the headlines and pushed yields on US Treasuries higher. We think investors are right to expect a faster pace of tightening than we have seen over the last year. But there was little in Janet Yellen’s press conference or the summary of economic projections to suggest that such a move is imminent.
According to the Fed Chair, the revisions to the dots were “really very tiny” and FOMC participants left their outlook for inflation, unemployment and economic growth virtually unchanged as they await more clarity on Donald Trump’s economic plans. But Fed policy is not entirely dependent on Mr Trump’s plans: the labour market is tight, wages are rising and the Phillips curve is not dead! The bigger picture is that while we expect a further six quarter-point increases in the fed funds rate by end-2018, real short-term rates will remain negative for some time.
Donald Trump’s victory in last month’s US presidential election has prompted investors to recalibrate their expectations for US monetary policy. A significantly quicker pace of tightening is now implied by fed funds futures than on 8 November, as investors bet that Mr Trump’s fiscal stimulus will push US inflation higher. We think investors are right to assume a faster pace of tightening than we have seen in the past year. However, it remains to be seen how much of Mr Trump’s planned stimulus will get approved by Congress and when it will take effect. In our view, the impact of this stimulus is unlikely to be seen before the second half of next year, at a time when the US labour market will be running above its potential.
Higher oil prices and base effects are set to push headline inflation above 2% early next year. However, significant upward pressure on core inflation is more likely to occur in the second half of 2017 and throughout 2018. With the FOMC likely to favour keeping the economy running ‘hot’ than pre-emptively raising rates, we expect just two quarter-point increases in the federal funds rate in 2017, but four in 2018. Significantly, in our view, this trajectory is consistent with a negative real fed funds rate over the forecast horizon.
The FOMC raised rates but what happened next?
The FOMC’s decision to raise the federal funds rate by 25 basis points had been entirely priced into federal funds futures before last Wednesday’s announcement. The subsequent increase in Treasury yields and rise in the probabilities that investors assign to future hikes was apparently due to the revision to the FOMC’s ‘dot plot’. The number of 25 basis point increases in 2017, implied by the median dot rose from two to three last Wednesday, although Janet Yellen downplayed the revisions in her press conference, stressing that they were “really very tiny”.
In fact, the fed funds rate for end-2017 implied by the mean of the FOMC participants’ dots was revised up by just 6 basis points to 1.38%. More significantly, their projections for inflation, unemployment and economic growth in 2017 and 2018 were virtually unchanged compared with September and apparently did not take into account the possible changes to economic policy by the incoming administration. The bottom line is that the dots could be revised higher once Mr Trump’s plans become clear, but it would be a mistake to read too much into last Wednesday’s shift.
All change at the FOMC?
Contrary to some reports, we see little evidence that the FOMC will take a more hawkish bias next year. Janet Yellen confirmed last Wednesday that she intends to see out her term as FOMC Chair until February 2018. And although Mr Trump will be responsible for filling two vacant seats on the FOMC’s Board of Governors in 2017, he has little incentive to fill them with hawks. We very much doubt that Mr Trump wishes to see a sharp tightening in monetary policy, which would increase the costs of his fiscal stimulus and also hinder his efforts to narrow the current account deficit by putting further upward pressure on the dollar.
It is also doubtful whether the annual rotation of FOMC members will result in a more hawkish bias among voting members next year. Three of the four outgoing alternate members voted for a rate increase at the FOMC’s meeting in September. The incoming members, which include Charles Evans of Chicago, a well-known dove, do not appear to be much more hawkish.
Outlook for the labour market
Last year we estimated that the breakeven rate of payroll growth was 60,000 per month, a level that appears to be a lot lower than generally perceived. We also observed that most of the decline in the labour market participation rate in recent years is structural, not cyclical.
Indeed, with the US economy still adding jobs well in excess of 60,000 per month and the participation rate now close to trend, there appears to be little slack left in the labour market. Admittedly, wage growth is lower now than at the same stage of previous economic cycles, but average hourly earnings hit a post-recession high of 2.8% in October and consumer and business surveys both point to diminishing slack in the labour market. Last but not least, our labour market model suggests that the Phillips Curve is alive and kicking!
Overall then, we think investors have been right to revise the probabilities they assign to US interest rate increases next year higher. But if the labour market continues to evolve as we expect, we still think that investors are underestimating the pace of tightening in 2018 when the effects of Mr Trump’s stimulus are most likely to feed through to the economy. Although we forecast a combined total of six quarter-point increases in the fed funds rate between now and the end of 2018, this would still be consistent with negative short term rates over the forecast horizon.
Rabobank Global Dairy Quarterly Q4 2016: Supply ‘Crunch’ Bites
Milk supply from dairy export regions has fallen sharply, by 2.6m tonnes in 2H 2016, with milk volumes from Oceania and Europe severely challenged. In addition, domestic demand in the US and Europe continued to strengthen, negating the need for further stock growth and reducing volumes available for export by 4.5m tonnes in LME terms. As a result, global dairy prices have rocketed upwards, increasing by over 45% in 2H 2016.
Most of the domestic demand growth is for cheese and butter. Therefore, the spread in prices across the dairy complex stocks will remain wide, with demand for butterfat driving the market and surplus protein, including European stocks, weighing on the market, according to the Rabobank Global Dairy Quarterly Q4 2016.
Kevin Bellamy, Rabobank Global Dairy Strategist, says: “Milk production around the world in 2H 2016 is in poor shape. Europe’s production has tightened—not only due to low prices, but also in response to the efforts of the European subsidies, which—if farmers deliver on their commitments—should remove a million tonnes of milk from the market. Meanwhile, we’ve seen poor production in Oceania, with New Zealand missing last year’s peak production levels by 6%.”
Other key highlights of the Rabobank Global Dairy Quarterly Q4 2016 include:
- The current price rally has further upside to come, as milk supply growth across the export regions will take time, despite improving milk prices.
- Prices across the dairy product matrix will diverge, driven by higher butterfat demand and surplus of protein stocks.
- Significant recovery of production and volumes available for export will be delayed until 2H 2017, as the new Oceania season commences.
- China will return to the international market, and we forecast imports to rise by 20%.
Take a look how Dry Milk Futures chart relates to NZD. If you will take a look at Butter - it stands at new high, while cheese starts already to turn down.
COT Report
Today guys, as you probably understand from Diary market review, we will talk on NZD. Markets were rather quiet before Xmas, so all setups that we have in progress - EUR, AUD are still valid but nothing to add right now.
Thus, since we do not discuss kiwi for a long time, let's update our view. CFTC data shows massive long covering on last week, as speculative net short position has increased significantly while open interest has dropped. It seems that Diary products price rally supports NZD in 2H of 2016, currently perspectives of this rally are mixed, on a background of USD strength and NZ problems. That's why this long covering mostly shows bearish sentiment and stands in favor of further downward continuation rather upside reversal.
Besides, after long covering, new shorts could follow, especially as Xmas holidays will be over...
Technicals
In huge time scale perspective (this is probably not even monthly chart), we have big AB=CD pattern. NZD has turned to downward action in summer 2014 and has not reached it's target. It means that sometime it will turn to upside action again and could hit estimated 0.92 area.
Our discussion of this setup has started as soon as market has reached major 5/8 monthly Fib support @ monthly Oversold (not shown). Situation on NZD long-term picture was very contradictive. From one side we have thurst down and upside retracement from major Fib support, that takes the shape of bearish flag.
But, from the other one - NZD has moved above YPP, it has broken very strong weekly K-resistance and Agreement that happens very rare. It means that something probably was standing beyond this action. Now we understand that there were two major factors - rally on diary products, second - some uncertainy around Fed policy and coming elections in the middle of 2016 when Fed was in uncomfortable situation with their promise to hike rates 4 times, and every time they postponed this procedure. While RBNZ has done some unexpected hawkish steps in the same period and didn't cut rate when market has expected it.
Right now we have more clarity as on Fed policy perspectives as on technical picture. Although mothly chart stands bullish here, NZD is not at OB/OS levels, but flag pattern is still here. NZD in turn was not able to break through major 3/8 Resistance level and out of the flag pattern, also once price has moved above YPP - it wasn't able to reach YPR1, dropped and not NZD stands even below YPP again. This dynamic looks bearish. It is also confirmed by closing of long positions.
Since there is just one week till the end of the year and it is difficult to expect reaching of YPS1, but we could use as nearest target major support level again - 5/8 Fib level @ 0.64
Weekly
Weekly chart is most important for NZD right now. Overall upward action looks a bit choppy and it seems like some external factor indicrectly supported NZ currency. This indeed could be diary market, in the same manner as crude oil makes impact on CAD...
So, here price has not pased yet the "point of no return", but stands at the edge. Price stands right now at major support area - MPS1, Fib level and major trend line. Breaking this trend line will mean bearish breakout of monthly flag pattern. Besides, NZD has no other strong supports till next 0.66 level. But if breakout will happen - this will trigger chain reaction and 0.66 hardly will hold NZD from collapse.
Last two months NZD mostly shows bearish signs. Trend is bearish here. Price has completed 1.618 AB-CD target and turned down. Right now NZD has formed bearish reversal swing as recent drop is greater than last upside swing. Also take a look that kiwi has exceeded harmonic retracement swing slightly. Price was not able to pass through MPP and dropped to MPS1. Now it stands at support.
In general upside action was slower and more choppy. I suppose that current downward reversal could mean two things - traders not sure with diary rally continuation and decided to fix profit before Xmas. Second - growing USD power brings additional bearish pressure on NZD.
That's being said, major point to watch here is price action around support - whether we will get breakout or not. Currently it seems that we should get it, but lets not run ahead of train.
Daily
Daily patterns has no own reasons to stop market at current point. Here we could recognize some H&S shape. We've mentioned it once, but action around neckline was rather tricky that's why we were not able to trade it properly.
Right now situation has become more clear. If we still treat this configuration as H&S and calculate its targets, then we will see that AB=CD, based on the head and right shoulder (not shown) leads price to 0.66 FIb support, while ultimate 1.618 classical target right to 0.64 - monthly major level.
As you can see NZD repeats the same "222" Sell pattern. If you remember we even have traded the first one. Later it was repeated and right now market almost has completed the swing when AB-CD retracement could appear again. Also pay attention that downward swings are becoming faster and faster.
But right now price is supported by major trend line and natural area (yellow rectangle).
4-hour
So, our tactical DRPO "Buy" setup has not been formed, as we've estimated price NZD has shown long covering, instead of shorts, thus, neccesary background for this trade has not been formed. But this is not important any more...
Here is a key to undertanding of short-term situation on NZD. As we've talked above - market forms side-by-side "222" patterns. And every time it doesn't complete downward AB=CD. Previous upward reversal has happened by small butterfly pattern.
Right now we see very similar action - butterfly was starting to form prior reaching of AB=CD target. Retracements usually takes AB=CD upside shape (222 pattern...) and usually deep - 50%, or even 5/8. Thus, all this stuff makes overall situation clear. We need either the same upside retracement that will continue existed harmonic pattern, or failure of this pattern and downward breakout of monthly trend line.
If we will get upside AB=CD action - our primary level to watch for is 0.71 Fib resistance, while downward breakout will mean that we need to search for minor retracement to go short. This is our short-term plan for coming week:
Conclusion:
Unclear perspectives of Diarly market, flat NZD fiscal policy and growing strength of US dollar put recent upside action on NZD under question. Right now market stands at crucial point and depending on what will happen around will clear further perspectives of NZD.
We have short-term plan to follow, depending what will happen.
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.
), we could think about taking short position on minor upside bounce. At least this conclusion we could make on pure technical picture.