Sive Morten
Special Consultant to the FPA
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Fundamentals
Reuters reports The euro gained against the U.S. dollar on Friday after euro zone ministers agreed to extend Greece's financial rescue package by four months.
The agreement removed the immediate threat that Greece could run out of money next month and be forced out of the single currency area. The new leftist-led Athens government now can try to negotiate longer-term debt relief with official creditors.
“It certainly looks like we’re moving away from disaster,” said Sebastien Galy, senior foreign exchange analyst at Societe Generale in New York. “It should help a stress that has been building up in the market to be released.”
The euro rallied to a session high of $1.1428 and last traded at $1.1402. Before the meeting of finance ministers began, the single currency had fallen to $1.1287.
European Union paymaster Germany, Greece's biggest creditor, had demanded "significant improvements" in reform commitments by Athens before it would accept an extension of euro zone funding.
Some investors have worried that a large renegotiation of Greece’s bailout could affect other countries that need bailouts.
“That could have some serious implications with other countries that have had to go through austerity measures, it opens the euro zone to an endless number of possibilities that would definitely result in instability and volatility,” said Sireen Harajli, a foreign exchange strategist at Mizuho Corporate Bank in New York.
Traders next week will watch Federal Reserve Chair Janet Yellen’s testimony before the U.S. Senate Banking Committee on Tuesday for any hints about when the U.S. central bank may begin raising rates.
Minutes from the Fed’s January meeting, which were released on Wednesday, were seen as more dovish than expected as some officials expressed concerns about raising interest rates too quickly.
Speaking on NZD it is not a secret that New Zealand is strongly depended on milk export. Here is a chart that shows relation of dry milk futures and NZD:
Right now we see significant drop in milk prices and corresponding decreasing of value of NZD. In general analysts expect stagnation milk prices on first half of 2015 or even it slow decreasing, mostly because Russia’s ban on milk import and decreasing of milk consumption in China. At the same time pace of price decreasing becomes slower. Since there was a solid production growth in recent 9 month – it overcomes domestic consumption and significantly increased supply on international market and led to price decreasing in 2014. This has led to increasing of trade volume in diary market for 15%. At the same time it is too early to speak about price growth, but better to speak on some consolidation on current levels. Improving situation in US could trigger additional demand and may be major producers will reduce output because of low prices, but this mostly could lead just to stabilization on current levels but hardly to any significant growth, at least till summer.
CFTC data shows solid growth of open interest and mostly due increasing of short positions. As we can see from data – shorts takes slightly more than 50% of total speculative positions and from this point of view market still has room to fall further.
Open interest:
Speculative Shorts:
Speculative Longs:
Technicals
Monthly
From technical point of view market has a reason for short-term bounce up, since as we can see on monthly chart – NZD stands at major Fib support and oversold. This is also Yearly Pivot support1. Trend stands bearish here. Here guys, we also have huge AB=CD pattern that has not been confirmed yet. And it means that sooner or later market should show upside action and finally hit its target around 0.9220 area. Meantime fundamental data suggests that we should get sideways consolidation at best scenario or even downward continuation as more probable setup. May be it will be as fast as it was in 2014 but still recent data does not suggest reversal yet. Hence – current upside action is nothing more but reaction on support.
In general we could suggest here existence of DiNapoli “Stretch” pattern. As a result – retracement could continue right up to 0.80 area, but we do not know yet – how particularly this could happen. We need to get some pattern that will point on this scenario and right now we do not have any of them. So, on coming week we will focus on clear patterns but in future we will continue to monitor whether price action will form any larger pattern that could let us trade on larger scale.
Weekly
Here on weekly chart we have the core of potential trading setup for coming week. As we’ve said – we do not know yet whether NZD will form some “larger reversal pattern” and start higher retracement up to 0.8. It is possible. For example if it will form, say, double bottom pattern here – this could bring price potentially to 0.80 target. But right now we’re mostly interested in current bearish grabber. This is the type of grabber that I like to deal with, because it stands with direction of previous thrust and momentum works on its side.
Minimum target of this pattern is previous lows around 0.7175, invalidation point of this pattern is its high at 0.7450. So, risk/reward ratio looks very attractive. NZD is not at oversold right now and has chances to turn down. We can’t exclude that expected move down later could become the part of larger pattern.
Daily
Daily trend stands bullish. NZD shows nice upside action but it mostly has retracement nature. We do not see fast acceleration and long candles, but a lot of overlapping candles, long shadows, candles are not large size. The nature of this upside action increases chances on leg down due weekly bearish grabber. Right now market has reached daily overbought almost at major 5/8 Fib resistance level. Let’s see on intraday charts could we somehow take short position, and do we have any bearish patterns there. The trickiness of situation stands around current top. It would be better if current high will not be overcome since this is the top of bearish grabber on weekly chart.
4-Hour
And here is where major trick and major menace stands. At first glance we have nice “222” Sell pattern. But the problem is that upside AB=CD has not been finished yet, at least if we will take this A, B and C points. Recent price action also could be a sign of bullish dynamic pressure, since trend has turned bearish, but price continues to form higher lows and coiling around. This could lead to final spike up to complete AB-CD action. But the problem is this spike could erase our bearish grabber on weekly chart. It does not mean that in this case NZD couldn’t move down – it could, but probably based only on “222” pattern alone without any background from bearish grabber.
Hourly
Alternatively, we can use another initial AB-CD pattern and following to this one – market already has completed it. Both patterns are correct but we suspect that this one AB-CD is more reliable. Despite what will happen and what AB-CD will prevail – if even market will show another spike up, this should not hurt overall bearish setup here. Anyway CD leg of any pattern significantly slower than AB and it points on possible reversal at completion area. Thus, if you still will decide to trade this setup – place stop above “bigger” AB-CD. Of cause we want to have valid weekly grabber on our back, but if we will not get it, it does not mean that this scenario is not valid.
Conclusion:
That’s being said we can’t count on bearish sentiment on NZD in medium-term perspective as from fundamental as from technical point of view. Current upward action we should treat as retracement. At the same time we can’t exclude that market will form some pattern that will lead market to higher retracement, may be even to 0.80 area. But on coming week we will be watch for downward reversal due patterns that have been formed recently.
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 reports The euro gained against the U.S. dollar on Friday after euro zone ministers agreed to extend Greece's financial rescue package by four months.
The agreement removed the immediate threat that Greece could run out of money next month and be forced out of the single currency area. The new leftist-led Athens government now can try to negotiate longer-term debt relief with official creditors.
“It certainly looks like we’re moving away from disaster,” said Sebastien Galy, senior foreign exchange analyst at Societe Generale in New York. “It should help a stress that has been building up in the market to be released.”
The euro rallied to a session high of $1.1428 and last traded at $1.1402. Before the meeting of finance ministers began, the single currency had fallen to $1.1287.
European Union paymaster Germany, Greece's biggest creditor, had demanded "significant improvements" in reform commitments by Athens before it would accept an extension of euro zone funding.
Some investors have worried that a large renegotiation of Greece’s bailout could affect other countries that need bailouts.
“That could have some serious implications with other countries that have had to go through austerity measures, it opens the euro zone to an endless number of possibilities that would definitely result in instability and volatility,” said Sireen Harajli, a foreign exchange strategist at Mizuho Corporate Bank in New York.
Traders next week will watch Federal Reserve Chair Janet Yellen’s testimony before the U.S. Senate Banking Committee on Tuesday for any hints about when the U.S. central bank may begin raising rates.
Minutes from the Fed’s January meeting, which were released on Wednesday, were seen as more dovish than expected as some officials expressed concerns about raising interest rates too quickly.
Speaking on NZD it is not a secret that New Zealand is strongly depended on milk export. Here is a chart that shows relation of dry milk futures and NZD:
CFTC data shows solid growth of open interest and mostly due increasing of short positions. As we can see from data – shorts takes slightly more than 50% of total speculative positions and from this point of view market still has room to fall further.
Open interest:
Technicals
Monthly
From technical point of view market has a reason for short-term bounce up, since as we can see on monthly chart – NZD stands at major Fib support and oversold. This is also Yearly Pivot support1. Trend stands bearish here. Here guys, we also have huge AB=CD pattern that has not been confirmed yet. And it means that sooner or later market should show upside action and finally hit its target around 0.9220 area. Meantime fundamental data suggests that we should get sideways consolidation at best scenario or even downward continuation as more probable setup. May be it will be as fast as it was in 2014 but still recent data does not suggest reversal yet. Hence – current upside action is nothing more but reaction on support.
In general we could suggest here existence of DiNapoli “Stretch” pattern. As a result – retracement could continue right up to 0.80 area, but we do not know yet – how particularly this could happen. We need to get some pattern that will point on this scenario and right now we do not have any of them. So, on coming week we will focus on clear patterns but in future we will continue to monitor whether price action will form any larger pattern that could let us trade on larger scale.
Weekly
Here on weekly chart we have the core of potential trading setup for coming week. As we’ve said – we do not know yet whether NZD will form some “larger reversal pattern” and start higher retracement up to 0.8. It is possible. For example if it will form, say, double bottom pattern here – this could bring price potentially to 0.80 target. But right now we’re mostly interested in current bearish grabber. This is the type of grabber that I like to deal with, because it stands with direction of previous thrust and momentum works on its side.
Minimum target of this pattern is previous lows around 0.7175, invalidation point of this pattern is its high at 0.7450. So, risk/reward ratio looks very attractive. NZD is not at oversold right now and has chances to turn down. We can’t exclude that expected move down later could become the part of larger pattern.
Daily
Daily trend stands bullish. NZD shows nice upside action but it mostly has retracement nature. We do not see fast acceleration and long candles, but a lot of overlapping candles, long shadows, candles are not large size. The nature of this upside action increases chances on leg down due weekly bearish grabber. Right now market has reached daily overbought almost at major 5/8 Fib resistance level. Let’s see on intraday charts could we somehow take short position, and do we have any bearish patterns there. The trickiness of situation stands around current top. It would be better if current high will not be overcome since this is the top of bearish grabber on weekly chart.
4-Hour
And here is where major trick and major menace stands. At first glance we have nice “222” Sell pattern. But the problem is that upside AB=CD has not been finished yet, at least if we will take this A, B and C points. Recent price action also could be a sign of bullish dynamic pressure, since trend has turned bearish, but price continues to form higher lows and coiling around. This could lead to final spike up to complete AB-CD action. But the problem is this spike could erase our bearish grabber on weekly chart. It does not mean that in this case NZD couldn’t move down – it could, but probably based only on “222” pattern alone without any background from bearish grabber.
Hourly
Alternatively, we can use another initial AB-CD pattern and following to this one – market already has completed it. Both patterns are correct but we suspect that this one AB-CD is more reliable. Despite what will happen and what AB-CD will prevail – if even market will show another spike up, this should not hurt overall bearish setup here. Anyway CD leg of any pattern significantly slower than AB and it points on possible reversal at completion area. Thus, if you still will decide to trade this setup – place stop above “bigger” AB-CD. Of cause we want to have valid weekly grabber on our back, but if we will not get it, it does not mean that this scenario is not valid.
Conclusion:
That’s being said we can’t count on bearish sentiment on NZD in medium-term perspective as from fundamental as from technical point of view. Current upward action we should treat as retracement. At the same time we can’t exclude that market will form some pattern that will lead market to higher retracement, may be even to 0.80 area. But on coming week we will be watch for downward reversal due patterns that have been formed recently.
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.
