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FOREX PRO WEEKLY, February 05-09, 2018

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Feb 3, 2018.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals

    In recent few weeks we've got a lot of positive US data, including most important GDP report, NFP and Fed statement. All of them were dollar supportive. Recent payrolls were rather positive with 200K jobs have been created. Wages show growth for 0.3% MoM basis and this is stronger than in previous report.
    Many investors put down recent GDP as it has shown just 2.6% which was slightly below market expectation. But here we need to take a look deeper, in GDP components. In fact, private domestic economy have increased for 4,7% YoY basis, strongest pace since 2014. Also consumption and investments have shown very strong growth. Most negative impact has come from trade deficit. Probably it could widen even more, but coming US dollar weakness, tax cut should reduce negative impact. Besides, the same factors, especially tax cut should support consumption at high levels.
    According to Fathom consulting research - they expect GDP at 3.1% in 2018.

    So, what is phenomenon of US dollar weakness? Everything looks potentially positive - data, Fed comments, rate policy... why it is dropping down?

    Mostly it relates to perspective of EU economy. It is attractive for investors that they could take part in EU rally on early stage, when rates are still low and assets are cheap. So they could get all advantage from starting point of ECB policy changing. They attract strong EU economy data. Also EU now has heavy industry of projects huge scale, such as North Stream with Russia, transit of Russian liquid gas through Belgium port. But potentially for EU gate is opening to markets of huge value - Russia, Middle East, Iran, Turkey, Syria etc. This is changing of economical policy direction. Currently it is difficult to forecast the degree of advantages for EU economy. At least, this will be large consumption market that should provide necessary production capacity to EU industry. In fact we are watching the forming of unprecedented economy space by its power - EU high technologies in combination with Russia and Middle East resource base and consumption space including Russia, Middle East and further right to the China.
    Yes, it is long going process, and may be we will not see results of this in short-term perspective. But this perspective makes investors to re-balance portfolios as global balance of different market domination also changes. For example, US doesn't have such consumption base for their goods. Russia stands under sanctions, relations with Middle East countries are not good, China produces all goods of US national brands...
    So, it seems that major driving factor here is not a policy of central bank per se, but relative perspectives of economies.
    Here is Reuters gives opinions:
    "The data contributed to the sentiment that inflation is picking up and higher interest rates are on the horizon, said Jeff Kravetz, regional investment director at U.S. Bank Wealth Management in Scottsdale, Arizona.
    “Under these circumstances, the U.S. dollar is really the safe bet,” he said. “But as things adjust and people get used to notion of higher rates, we might see a return back to modest U.S. dollar weakness, and that’s really due to an improving economic profile overseas.”
    “The euro has a lot more room to the upside,” said Richard Scalone, co-head of FX at TJM Brokerage in Boca Raton, Florida.

    The euro zone’s economic revival and expectations of monetary tightening have made the euro more attractive for investors, while strong global growth around the world has encouraged investors to move cash out of the U.S. dollar.


    That mostly confirms our yesterday's suggestion that we've made in daily video. Markets are "skewed" in favor of EUR. That' why reaction on USD positive factors will be limited while on USD negative ones - overextended. This has happened yesterday. Indeed NFP data was strong, but EUR, in fact after reaction was traded through, has returned back on pre-NFP levels.

    Last time we've warned about rising of VIX index, while it was on all-time lows. This is negative signs for US stocks and long-term rally could get dead hit from rising bond yields and Fed interest rates as it makes financing more expensive for companies. It seems that this really could be an end for US equities bubble, as we see that US is loosing global leadership and turns to domestic economy restructuring. Accompanied by weakness in US dollar and rising yields will make bond market more attractive and presses on equities.
    upload_2018-2-3_12-37-27.

    Here is 10 year US bonds yields. Our short-term expectation is based on minor reverse H&S pattern and AB-CD target @3.3%. While in longer perspective it smells like Double Bottom with 4.7% perspective:
    upload_2018-2-3_12-45-43.

    That's being said, without taking too far look, right now we see only one major reason, why investors mostly rely on EUR although US economy shows good performance of rates and data. This reason is mostly tactical and has relation to large circle of fund managers, who even may be do not think about factors that we've talked above.
    Within 1-2 years US economy was looking better than EU, but low rates in US gave good opportunity to make money with low financing costs. Now perspectives of EU economy look better, or at least not worse compares to US, rates are still low and financing costs are cheaper. Besides, EU investors capital repatriation out from US gives chances to invest in domestic currency with the same performance and avoid currency and carry trade risks. Right now it seems the major driving factor. Besides, even US investors could rebalance portfolios in favor of EU. They could give double advantage - positive rate difference (as they will lend in EUR) and good EU assets performance. This fact by the way explains why CFTC futures long positions have reached new highs - EUR share in global turnover is rising.

    COT Report
    Recent CFTC data doesn't show any surprises. Sentiment still stands bullish for EUR. Net long position has risen a bit more, while open interest has shown shy drop. It seems some shorts were closed in the beginning of the week:
    Source: Oanda.com
    upload_2018-2-3_13-0-15.

    Techincal

    Monthly

    Long-term picture has not changed much on EUR. Despite strong rally, EUR is not overbought yet on monthly chart but it comes in rather sticky resistance area. Actually, guys we're at monthly K-resistance 1.2516-1.26, accompanied by YPR1 @ 1.2617 area. So, it seems that retracement is ripping and it is just a question of time.

    Besides, many other markets across the board forms reversal formations on daily chart, also after extended rallies. For example, on NZD we have DRPO "Sell".

    Add here sentiment situation with highly saturated long positions and you will get perfect area for retracement. At least this is definitely not an area for long entry, if you're a long-term trader. For short-term traders it is possible to take long positions but with profit objectives around previous top and not count on upside breakout.

    Dollar Index, in turn stands at oversold and monthly 5/8 Fib support. So, most conservative retracement target is 1.20-1.21 area. This correction will be painless for overall bullish picture.
    eur_m_05_02_18.


    Weekly

    Still, the fact that EUR has hit resistance doesn't mean that drop should start immediately. As you can see, monthly level is rather wide and EUR could spend some time inside of it, challenge highs and fading existing upside momentum.
    Here we can't give any new comments as this week was inside one. You just can see how Overbought (blue line) holds price from further appreciation. Now reaction yet on butterfly completion has happened.

    Weekly charts in fact shows two possible scenarios of retracement. First is light scenario - just minor response to butterfly by 3/8 retracement to 1.21 Fib support. Second is heavy scenario, if butterfly will become a part of H&S pattern. Between this scenarios could be the chance for H&S failure. In this case EUR could re-test long-term 1.16 support but then will turn to new highs.

    As you understand right now we're mostly interested in 1.21 scenario.
    eur_w_05_02_18.

    Daily

    Daily time frame perfectly confirms our suggestion that we've made in Friday video. Despite strong NFP data, EUR reaction was muted as market has closed on pre-NFP levels. As a result our multiple grabbers have not been destroyed and we even have got another one.

    Although we have bearish setups on other currencies as well, all of them do not exclude some upside action on Monday-Tuesday. For example, on AUD we have B&B "Buy" pattern, which suggests upward action, while DRPO "Sell" on NZD also lets price to show minor upside bounce.

    That's why, here we can't totally exclude scenario that grabbers will work and wash out previous top. Here we talk mostly on just short-term spike, a kind of W&R, but not on upside continuation. Anyway, daily chart doesn't let us yet to go short - as trend as directional patterns are still bullish here, and last top challenge is still possible.

    eur_d_05_02_18.

    Intraday

    First, let's start from target. Taking in consideration all this stuff that we've said - it seems that it would be better to focus on nearest AB=CD target around 1.2540-1.2545 and use it as LPO (Logic Profit Objective).
    Targets that we've specified on Friday around 1.2590 were based on potential poor NFP data. As data was not bad, we expect just technical action aiming to complete major targets. After that major retracement could start:
    eur_4h_05_02_18.

    Here is how we could play it. In fact we will have to make a decision right on Monday.

    Our first point is upside channel. It is logical to suggest that EUR could reach predefined upside target only if it will proceed action inside the channel right? On Friday EUR already has tested lower border and following to common sense it should tend to higher border. If you put projection you'll see that our AB=CD LPO precisely coincides with upper border of the channel. WPR1 also stands in the same area - 1.2540. This is the target of this trade if we will get there.

    Second moment is how to take position. This is good example of entry technique which calls "Minesweeper A" and invented by Joe DiNapoli. Take a look that EUR due NFP release has shown deep 5/8 retracement. Trend on 30-min chart was bearish and it was not time yet to go long. Now - trend has turned bullish as EUR has jumped out from a deep. Now price is forming 50% retracement of upside jump. MACD shows very strong angle of lines' crossing which is a good sign. This is a moment to pull the trigger. Initial stop should be below 1.2406 lows.

    The only option that you have is to wait a bit deeper retracement, say to pivot or 5/8 Fib support, may be bullish grabber will be formed here, some reversal patterns on 5-15 min charts etc... But the core stands as I've described.
    eur_1h_05_02_18.


    Conclusion:

    Long term technical picture shows that as EUR as DXY stands around strong monthly levels. This fact significantly increases odds of pullback in 1-2 months perspective. Most conservative target of retracement is 1.21, ultimate target is 1.11

    It seems that on coming week EUR will make final upside challenge to 1.2540 target. As soon as this scenario will be completed (or fail, who knows), major downside retracement could start.




    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.
     
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  2. ward133

    ward133 Private, 1st Class

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    Nice work

    Thank you

    -may I ask about gbp as well if it has same view ? I guess that past 2 days had negative news as seen on gbp ? Will that make his upside limited more than euro ?
     
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  3. FreddyFX

    FreddyFX Sergeant

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    Master Sive.

    You amaze me each week with your visions on the EURUSD.

    Keep up the good work, it is important to many of us !!!
     
  4. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Hi Buddy, well, on GBP we also have multiple grabbers and potentially it also could move higher. But swings of these grabbers are greater than on EUR and this lets market to breath deeper. In general setup has some similar features to EUR, even on higher time frames. Same butterfly "Sell" on weekly at OB area.
    At the same time they are a bit different. For example, take a look at reaction on NFP. Cable shows more despair as it has closed right at the bottom, trend has turned bearish, while EUR rebounds back up and keeps bullish trend...
     
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  5. Lolly Tripathy

    Lolly Tripathy Master Sergeant

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    Sive sir thanks for the great analysis..
    A humble request to post gbpusd chart any time in coming days thanks
     
  6. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Greeting everybody,
    so, markets are turning to real mess across the board - stocks, bonds, Forex. Although we already see panic rethoric around, I think that it is not the time for it yet. We stand in upside business cycle when global economy is growing. This is quite different story to 2008 crisis. Drop on stock market is not a run for liquidity but impact of rising interest rates. So this is not crisis process, this is normal process. Yesterday some confusing has come due retracement in US Treasuries bonds as yield has dropped. That has pushed yen higher, but status quo will be re-established as yields will turn to growth again. So this strength in yen is temporal. Carry trade potential in USD/JPY pair is rising as US yields are moving higher. This will press on JPY rate. Investors will start to borrow more JPY, sell it and buy US assets, bonds etc, as they provide more higher return. When this process wil under way - yen will turn to weakness again.
    Drop in stock market also will not be streight down. It will be gradual initially as rate rising cycle is just has started, so, a lot of pullbacks will be, before strong bearish trend will be established. Just read our weekly researches to be in topic :D
    Just in weekend we warned about rising VIX index and bonds yield.
    So, current drop in currencies also should be treated as moderate retracement. This is also an issue that we've warned about. Our BTC target is completed - it has dropped below 7K$.:cool:

    Briefly on other currencies - on NZD and GBP we have DRPO "Sell" patterns that stand in progress. On AUD we have B&B "Buy" LAL, but it is too strong bearish pressure on AUD, so, it is risky to deal with this trade...

    Now on EUR... Yesterday EUR was holding well on EU session and it was seemed that our setup of "last spike" still could work. But, later as pressure was too strong, EUR has followed to major tendency although with weaker pace, compares to, say, GBP... As a result we've got clarity right in predefined point where our trading setup was destroyed by price behavior.

    Now we have strong Monthly K-resistance, butterfly "Sell" that confirms it, weekly OB. Daily trend has turned bearish as well. It means that our context has changed to bearish and now we do not have even theoretical reasons to go long on EUR. Our conservative target for retracement stands at 1.2150 K-support area.
    But it seems that 1.23 will be the floor for current week:
    eur_d_06_02_18.

    So, for position taking we could use hourly chart. As EUR is not at oversold now, there two most probable levels where downside action could be re-established - 1.24 and 1.2420 K-resistance:
    eur_1h_06_02_18.
     
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  7. Robban68

    Robban68 Private, 1st Class

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    A question regarding the Daily Stop grabber, is it still valid even if the trend has turn Bearish? Looking at the 4Hr it's looks as a range, 1.23x-1.253x. No break no shake. Buy low, sell high?
     
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  8. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Well, grabbers are valid until market stands above their lows, at least theoretically :rolleyes:
    Speaking about our situation for me is a major moment of "inability" to proceed higher within 3-4 sessions while almost all of them were stop grabbers.
    That's why I suspect that EUR stands on a road to retracement. Well, may be it will a range for some time. 1.23 is oversold level and that is probably a floor for this week. 1.2320 is AB=CD target based on daily tops.
     
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  9. Robban68

    Robban68 Private, 1st Class

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    So, it seems the stopgrabber issue was solved since the low was taken out. Let's see if bears have power to reach the monthly PP at 1.228 before the weekend
     
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  10. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Greetings, guys,

    So, as we've said - now is just a next stage in global business cycle which calls "inflationary growth". That's why there will not be streight down collapse on stock market but mostly forward&back action. Yesterday was a great example of this.

    Our yesterday trading plan has been perfectly completed as market has hit 1320 target. On daily chart our bearish setup is still valid, but market has formed indecision candle and previous bullish momentum is strong. Thus, I suspect that EUR could show deep retracement up, before next opportunity to go short will come.
    eur_d_07_02_18.

    Intraday charts also give hint on the same. On 4-hour chart EUR has completed major AB=CD target, and in general price is coiling near daily 1.23 support area and OS. Some reaction up should follow as respect of target. Besides, here we've got nice bearish engulfing pattern. But keep an eye on bearish grabber that could be formed here. If we will get it - don't be long, or wait when it will be erased by upside price action. This is risk factor here:
    eur_4h_07_02_18.

    If we suggest that grabber's problem on 4H will be eliminated somehow, here we could get nice upside setup, in a shape of "222' Buy as a part of larger reverse H&S pattern. Market should complete right shoulder first by downside AB-CD. Then upside action to major 5/8 resistance could happen. This mostly supports idea of deep retracement up:
    eur_1h_07_02_18.

    But if 4H grabber still will be formed, shape could turn to butterfly, or double bottom here... So, don't forget to keep an eye on grabber...
     

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