Sive Morten
Special Consultant to the FPA
- Messages
- 18,673
Fundamentals
(Reuters) - The U.S. dollar fell to a more than two-week low against the Japanese yen on Friday as investors doubted the likelihood of swift tax reform and a quick spending boost from U.S. President Donald Trump's administration.
On Thursday, U.S. Treasury Secretary Steven Mnuchin suggested that much work was still needed on key elements of a tax reform plan, one of the policies investors had anticipated would spur inflation and drive up U.S. interest rates.
Analysts noted that Federal Reserve meeting minutes released on Wednesday reinforced doubts about a rate hike next month since voting members showed much less urgency to tighten credit.
The dollar fell as much as 0.6 percent against the safe-haven yen to 111.95 yen. Its first dip below 112 yen since Feb. 9 put the greenback on track for its second straight weekly loss against the Japanese currency, of about 0.8 percent.
"Markets are sort of growing a lot more cautious on prospects for U.S. fiscal stimulus, and consequently I think they are now sceptical of the Fed hiking substantially over the next two years," Vassili Serebriakov, FX strategist at Credit Agricole in New York said.
The euro slipped 0.2 percent against the dollar in afternoon trading to a session low of $1.0558. That put it on course for a 0.5 percent decline since Friday, for the third straight weekly slide.
The euro's modest drop helped put the dollar index , which measures the greenback against a basket of six major currencies, on course for its third straight weekly gain. The gain was small at just 0.2 percent, with the index last up only slightly at 101.110 after recovering from a one-week low of 100.660 earlier.
The index hit a 14-year high of 103.820 at the start of the year, largely on the hopes surrounding Trump's avowed pro-growth policies.
"Ultimately, outside of the U.S. there is reflation happening and data is looking strong, so perhaps it's time to just take some dollar longs off the table," said UBS Wealth Management currency strategist Geoffrey Yu in London.
Here guys, some off-topic, but rather interesting. Fathom consulting view on Bitcoin My personal position - I stand aside from Bitcoin popularity and belong to those who does not treat it as currency. Still, as it is very popular, here is article on bitcoin, where Fathom makes a suggestion on time for profit taking:
Chart of the Week: Bitcoin – time to cash out?
by Fathom Consulting
Interest in virtual currencies, of which Bitcoin remains the most prominent, is unabated. Bitcoin transactions are recorded using blockchain technology, making them cheap, opaque and secure. That makes the crypto-currency attractive to those who would prefer to keep the eyes of government, and especially tax officials off their financial affairs. It is also appealing to certain libertarians who like the fact that its existence owes nothing to any sovereign or central bank. For such people, Bitcoin is an attractive substitute for cash – an increasingly large number can be found in China.
One of money’s key attributes is that it is a store of value. On that metric, Bitcoin is highly unreliable, with extremely volatile daily movements in price. Some Chinese residents appear unperturbed. Despite wild gyrations in the value of Bitcoin, Chinese investors have dumped renminbi and increased their exposure to the crypto-currency dramatically. This is part of a general trend, in which wealthy Chinese have sought assets that are not denominated in renminbi, resulting in substantial capital outflows.
As of several weeks ago, renminbi transactions accounted for over 95% of total Bitcoin exchanges. Increasing Chinese demand helped deliver Bitcoin investors a handsome reward last year. The currency ended 2016 up 126%. But as Bitcoin rises to near all-time highs, there is reason to question its ascent. China’s policymakers are already acting to lean against the wind, and it is working. The renminbi share of Bitcoin transactions has fallen by more than half in the last two weeks. So far, the price of Bitcoin has nonetheless remained remarkably stable. But on past trends, a sudden turn, up, or more likely, down, should surprise no one.
COT Report
(Reuters) - Speculators increased bullish bets on the U.S. dollar for the first time in seven weeks, according to Commodity Futures Trading Commission data released on Friday and calculations by Reuters.
The value of the dollar's net long position totaled $15.02 billion in the week ended Feb. 21, up from $14.99 billion the previous week. Despite the rise in the dollar's net long positioning, the greenback remains an underperformer so far this year, down about 1.1 percent, after gains of 3.6 percent in full-year 2016.
Analysts said investors may have gotten ahead of themselves, buying the dollar in the aftermath of the election as U.S. president of Donald Trump, who promised tax reform and infrastructure spending to boost the economy. Roughly two months after Trump's election, the market remained in the dark on the new government's fiscal measures and tax plan.
"We think the dollar should be trading higher, but there's no question that investors need more convincing," said Kathy Lien, managing director of FX strategy at BK Asset Management in New York. She also added that investors were just not convinced that a U.S. interest rate hike will happen next month.
Trump is expected to give a major speech next week before a joint session of Congress. Lien said any policy announcement could dictate how dollar/yen moves next week. "The currency pair came under heavy selling pressure in previous days and looks vulnerable to a deeper correction," she added.
Despite all talks, we have to rely on facts only. Just take a look at this picture:
Chart shows stable growth on net short speculative position during last 3 weeks and it's accompanied by growth in open interest. It means that traders take new shorts and this shows supportive sentiment for bearish trend on EUR/USD. That's why on Friday we've said - don't be decieved by recent upside action, this is just a retracement and this action is not supported by real investors' action. Based on CFTC data we come to conlcusion that daily H&S pattern stands under hazard of distruction as investors are taken more shorts. That's being said, sentiment analysis doesn't support any upside trend right now. It means that upside reversal hardly possible anytime soon.
Technical
Monthly
January and February action still stands mostly inside December candle and makes no impact on overall long-term picture.
We know that fundamental background mostly looks bearish for EUR - potentially more hawkish Fed policy, ECB QE prolongation, coming elections in many EU countries, bringing more uncertainty. After GB, separatistic sentiment start to appear in other countries of EU, as Italy, France, Netherlands, Spain that are not satisfied with Brussels domination in governing EU.
Speaking on big picture, On a way down, guys, EUR has passed through all major Fib levels. Last one was at 1.12 area and now we do not have any other below current market. Also price has dropped below 1.27 extension of this big butterfly. Thus, on monthly chart the only logical destination point stands at parity - 1.618 butterfly extension, chanell trend line support and YPS1.
Besides, right now EUR is testing YPP, but unsuccessfully yet.
Concerning bullish perspectives... they look really blur by far. The only issue that we could drag in here is a hint on possible stop grabber in February, if price will close above MACDP, but right now it is below MACDP so it seems that hardly we will get bullish grabber here.
But anyway this is definitely insufficient for real new bullish tendency. Especially if we will take in consideration previous strong drop in 2014, CFTC data. Previously we said that we could get some deeper upside action at best, but right now even this perspective looks phantom.
Also take a look at different behavior near low border of channel. Previously when market has touched it - it shows immediate upside pullback, it was V-shape reversal. Right now behavior is absolutely different, price just hangs on the border and shows no upside action. Any tight consolidation near trendline could become a sign of coming breakout.
Thus, based on monthly chart we could make two major conclusions. First is - real bullish trend could be re-established only if EUR will erase reversal candle and overcome its top above 1.16. Our next target on Monthly chart is parity - 1.618 Butterfly extension, YPS1 and trendline support.
In general guys, we think that steps that already have been announced by ECB and Fed should be enough to push EUR right to parity during "price-in" process, when market will "anticipate" them. But further dynamic will depend on real action from Fed, Trump administration and ECB. How they will fulfill their promises and obligations. Any surprising hawkish measures could push EUR even below parity, while step out from pormises could lead to appearing of reverse H&S pattern on monthly/weekly charts.
In shorter-term perspectives, we will keep watching over grabber, whether market will form it or not. On coming week we mostly will deal with shorter-term time frames.
Weekly
As weekly as monthly chart mostly are not impacted by last week action.
Since we have here two major patterns - butterfly and inner AB-CD, current upside action mostly reminds reaction on reaching of 1.0 extension AB-CD target. On a way up EUR has reached 1.0830 - 3/8 major resistance, and now we're watching whether price will form AB-CD upside action or retracement will be limited by just single leg up. Honestly speaking, here, even reaching of 5/8 resistance is acceptable. It means that if our daily H&S pattern will work and EUR will reach 1.10-1.11 area - this will not erase yet long-term bearish picture.
Returning back to long-term perspective, on a way down final destination 1.618 point coincides with 1.618 butterfly target. Although we have multiple targets inside 1.0-1.05 area, ther are all minor ones. Recall, that we have daily 1.0230 extension. Also, if you will take a careful look, you could recognize another smaller butterfly inside right wing here. It also has target at 1.02 and 1.013.
But, guys, if EUR will be on a road to parity, all these intermediate targets will be hit very fast one by one.
Also, it is not very probable that market will stuck around 1.27 butterfly and will not go to parity. By two reasons - first is, pshychological pressure, second - when price will hit 1.27, it will be between 1.0 and 1.618 extensions of AB-CD pattern and this position is very unstable, market gravitates to some target... That's why parity probably should be hit.
Finally, butterfly could become part of large reverse H&S pattern. But whether it will be formed or not will depend on fundamental factors, D. Trump ficsal policy, US economy data and Fed reaction. Thus, we have more or less single road to parity, but later, around it we will get a crossroads...If there will be something bearish that wasn't priced in yet - EUR could drop even further. If not - H&S will start to form...
Daily
So, we will not talk a lot about daily chart, since we've discussed it day by day and you, probably should be familiar with all important issues here.
Trend is bearish, but MPS1 holds downward action right around right shoulder's bottom. This keeps overall H&S pattern valid by far. Friday action matches to our expectations - EUR has dropped right from 1.0613 target on hourly chart and this drop was rather strong. But for bulls this is a poor relief, because on Friday EUR almost has formed reversal candle. It's not quite reversal just because close price stands above previous lows, but still it is below the open price of previous session. This reaction of the market and overall fundamental background confirms our suggestion that upside bounce to 1.0613 area was just retracement and reaction on reaching some intraday targets.
If you've entered short on Friday as we've discussed, now is good time to move stop to breakeven...
Conclusion on daily chart - we do not have legal confirmation of H&S failure yet. Tecnically it is still valid, as market has not passed yet through invalidaiton point. But overall price behavior makes relation to this pattern tricky...Thus, bulls probably still wait for butterfly "buy" pattern completion, since it is able to provide at least some protection to long positions, while bears should wait for breakout of MPS1 area...
Intraday
As last week, our primary charts are 4-hour and hourly. On 4-hour picture we're watching for downward AB-
CD. Right now we see absolutely normal action - reaching of minor 0.618 target and 5/8 upside reaction on it:
On hourly chart trend has turned bearish, and now it's bearish on all time frames. Take a look how long EUR was climbing to the top and how fast it has dropped. Market perfectly has completed our trading plan on Friday. It has turned down precisely at specified point.
On a way down price also has broken inner trend line, that separates H&S consolidation from upside action. EUR will open around WPP, but it seems that on Monday we should get downward continuation:
Conclusion:
So as you can see, this research doesn't bring someting revolutionary due simple reason - EUR stands in tight range and we have to work with intraday charts while daily pattern is still forming.
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 U.S. dollar fell to a more than two-week low against the Japanese yen on Friday as investors doubted the likelihood of swift tax reform and a quick spending boost from U.S. President Donald Trump's administration.
On Thursday, U.S. Treasury Secretary Steven Mnuchin suggested that much work was still needed on key elements of a tax reform plan, one of the policies investors had anticipated would spur inflation and drive up U.S. interest rates.
Analysts noted that Federal Reserve meeting minutes released on Wednesday reinforced doubts about a rate hike next month since voting members showed much less urgency to tighten credit.
The dollar fell as much as 0.6 percent against the safe-haven yen to 111.95 yen. Its first dip below 112 yen since Feb. 9 put the greenback on track for its second straight weekly loss against the Japanese currency, of about 0.8 percent.
"Markets are sort of growing a lot more cautious on prospects for U.S. fiscal stimulus, and consequently I think they are now sceptical of the Fed hiking substantially over the next two years," Vassili Serebriakov, FX strategist at Credit Agricole in New York said.
The euro slipped 0.2 percent against the dollar in afternoon trading to a session low of $1.0558. That put it on course for a 0.5 percent decline since Friday, for the third straight weekly slide.
The euro's modest drop helped put the dollar index , which measures the greenback against a basket of six major currencies, on course for its third straight weekly gain. The gain was small at just 0.2 percent, with the index last up only slightly at 101.110 after recovering from a one-week low of 100.660 earlier.
The index hit a 14-year high of 103.820 at the start of the year, largely on the hopes surrounding Trump's avowed pro-growth policies.
"Ultimately, outside of the U.S. there is reflation happening and data is looking strong, so perhaps it's time to just take some dollar longs off the table," said UBS Wealth Management currency strategist Geoffrey Yu in London.
Here guys, some off-topic, but rather interesting. Fathom consulting view on Bitcoin My personal position - I stand aside from Bitcoin popularity and belong to those who does not treat it as currency. Still, as it is very popular, here is article on bitcoin, where Fathom makes a suggestion on time for profit taking:
Chart of the Week: Bitcoin – time to cash out?
by Fathom Consulting
Interest in virtual currencies, of which Bitcoin remains the most prominent, is unabated. Bitcoin transactions are recorded using blockchain technology, making them cheap, opaque and secure. That makes the crypto-currency attractive to those who would prefer to keep the eyes of government, and especially tax officials off their financial affairs. It is also appealing to certain libertarians who like the fact that its existence owes nothing to any sovereign or central bank. For such people, Bitcoin is an attractive substitute for cash – an increasingly large number can be found in China.
One of money’s key attributes is that it is a store of value. On that metric, Bitcoin is highly unreliable, with extremely volatile daily movements in price. Some Chinese residents appear unperturbed. Despite wild gyrations in the value of Bitcoin, Chinese investors have dumped renminbi and increased their exposure to the crypto-currency dramatically. This is part of a general trend, in which wealthy Chinese have sought assets that are not denominated in renminbi, resulting in substantial capital outflows.
As of several weeks ago, renminbi transactions accounted for over 95% of total Bitcoin exchanges. Increasing Chinese demand helped deliver Bitcoin investors a handsome reward last year. The currency ended 2016 up 126%. But as Bitcoin rises to near all-time highs, there is reason to question its ascent. China’s policymakers are already acting to lean against the wind, and it is working. The renminbi share of Bitcoin transactions has fallen by more than half in the last two weeks. So far, the price of Bitcoin has nonetheless remained remarkably stable. But on past trends, a sudden turn, up, or more likely, down, should surprise no one.
COT Report
(Reuters) - Speculators increased bullish bets on the U.S. dollar for the first time in seven weeks, according to Commodity Futures Trading Commission data released on Friday and calculations by Reuters.
The value of the dollar's net long position totaled $15.02 billion in the week ended Feb. 21, up from $14.99 billion the previous week. Despite the rise in the dollar's net long positioning, the greenback remains an underperformer so far this year, down about 1.1 percent, after gains of 3.6 percent in full-year 2016.
Analysts said investors may have gotten ahead of themselves, buying the dollar in the aftermath of the election as U.S. president of Donald Trump, who promised tax reform and infrastructure spending to boost the economy. Roughly two months after Trump's election, the market remained in the dark on the new government's fiscal measures and tax plan.
"We think the dollar should be trading higher, but there's no question that investors need more convincing," said Kathy Lien, managing director of FX strategy at BK Asset Management in New York. She also added that investors were just not convinced that a U.S. interest rate hike will happen next month.
Trump is expected to give a major speech next week before a joint session of Congress. Lien said any policy announcement could dictate how dollar/yen moves next week. "The currency pair came under heavy selling pressure in previous days and looks vulnerable to a deeper correction," she added.
Despite all talks, we have to rely on facts only. Just take a look at this picture:
Chart shows stable growth on net short speculative position during last 3 weeks and it's accompanied by growth in open interest. It means that traders take new shorts and this shows supportive sentiment for bearish trend on EUR/USD. That's why on Friday we've said - don't be decieved by recent upside action, this is just a retracement and this action is not supported by real investors' action. Based on CFTC data we come to conlcusion that daily H&S pattern stands under hazard of distruction as investors are taken more shorts. That's being said, sentiment analysis doesn't support any upside trend right now. It means that upside reversal hardly possible anytime soon.
Technical
Monthly
January and February action still stands mostly inside December candle and makes no impact on overall long-term picture.
We know that fundamental background mostly looks bearish for EUR - potentially more hawkish Fed policy, ECB QE prolongation, coming elections in many EU countries, bringing more uncertainty. After GB, separatistic sentiment start to appear in other countries of EU, as Italy, France, Netherlands, Spain that are not satisfied with Brussels domination in governing EU.
Speaking on big picture, On a way down, guys, EUR has passed through all major Fib levels. Last one was at 1.12 area and now we do not have any other below current market. Also price has dropped below 1.27 extension of this big butterfly. Thus, on monthly chart the only logical destination point stands at parity - 1.618 butterfly extension, chanell trend line support and YPS1.
Besides, right now EUR is testing YPP, but unsuccessfully yet.
Concerning bullish perspectives... they look really blur by far. The only issue that we could drag in here is a hint on possible stop grabber in February, if price will close above MACDP, but right now it is below MACDP so it seems that hardly we will get bullish grabber here.
But anyway this is definitely insufficient for real new bullish tendency. Especially if we will take in consideration previous strong drop in 2014, CFTC data. Previously we said that we could get some deeper upside action at best, but right now even this perspective looks phantom.
Also take a look at different behavior near low border of channel. Previously when market has touched it - it shows immediate upside pullback, it was V-shape reversal. Right now behavior is absolutely different, price just hangs on the border and shows no upside action. Any tight consolidation near trendline could become a sign of coming breakout.
Thus, based on monthly chart we could make two major conclusions. First is - real bullish trend could be re-established only if EUR will erase reversal candle and overcome its top above 1.16. Our next target on Monthly chart is parity - 1.618 Butterfly extension, YPS1 and trendline support.
In general guys, we think that steps that already have been announced by ECB and Fed should be enough to push EUR right to parity during "price-in" process, when market will "anticipate" them. But further dynamic will depend on real action from Fed, Trump administration and ECB. How they will fulfill their promises and obligations. Any surprising hawkish measures could push EUR even below parity, while step out from pormises could lead to appearing of reverse H&S pattern on monthly/weekly charts.
In shorter-term perspectives, we will keep watching over grabber, whether market will form it or not. On coming week we mostly will deal with shorter-term time frames.
Weekly
As weekly as monthly chart mostly are not impacted by last week action.
Since we have here two major patterns - butterfly and inner AB-CD, current upside action mostly reminds reaction on reaching of 1.0 extension AB-CD target. On a way up EUR has reached 1.0830 - 3/8 major resistance, and now we're watching whether price will form AB-CD upside action or retracement will be limited by just single leg up. Honestly speaking, here, even reaching of 5/8 resistance is acceptable. It means that if our daily H&S pattern will work and EUR will reach 1.10-1.11 area - this will not erase yet long-term bearish picture.
Returning back to long-term perspective, on a way down final destination 1.618 point coincides with 1.618 butterfly target. Although we have multiple targets inside 1.0-1.05 area, ther are all minor ones. Recall, that we have daily 1.0230 extension. Also, if you will take a careful look, you could recognize another smaller butterfly inside right wing here. It also has target at 1.02 and 1.013.
But, guys, if EUR will be on a road to parity, all these intermediate targets will be hit very fast one by one.
Also, it is not very probable that market will stuck around 1.27 butterfly and will not go to parity. By two reasons - first is, pshychological pressure, second - when price will hit 1.27, it will be between 1.0 and 1.618 extensions of AB-CD pattern and this position is very unstable, market gravitates to some target... That's why parity probably should be hit.
Finally, butterfly could become part of large reverse H&S pattern. But whether it will be formed or not will depend on fundamental factors, D. Trump ficsal policy, US economy data and Fed reaction. Thus, we have more or less single road to parity, but later, around it we will get a crossroads...If there will be something bearish that wasn't priced in yet - EUR could drop even further. If not - H&S will start to form...
Daily
So, we will not talk a lot about daily chart, since we've discussed it day by day and you, probably should be familiar with all important issues here.
Trend is bearish, but MPS1 holds downward action right around right shoulder's bottom. This keeps overall H&S pattern valid by far. Friday action matches to our expectations - EUR has dropped right from 1.0613 target on hourly chart and this drop was rather strong. But for bulls this is a poor relief, because on Friday EUR almost has formed reversal candle. It's not quite reversal just because close price stands above previous lows, but still it is below the open price of previous session. This reaction of the market and overall fundamental background confirms our suggestion that upside bounce to 1.0613 area was just retracement and reaction on reaching some intraday targets.
If you've entered short on Friday as we've discussed, now is good time to move stop to breakeven...
Conclusion on daily chart - we do not have legal confirmation of H&S failure yet. Tecnically it is still valid, as market has not passed yet through invalidaiton point. But overall price behavior makes relation to this pattern tricky...Thus, bulls probably still wait for butterfly "buy" pattern completion, since it is able to provide at least some protection to long positions, while bears should wait for breakout of MPS1 area...
Intraday
As last week, our primary charts are 4-hour and hourly. On 4-hour picture we're watching for downward AB-
CD. Right now we see absolutely normal action - reaching of minor 0.618 target and 5/8 upside reaction on it:
On hourly chart trend has turned bearish, and now it's bearish on all time frames. Take a look how long EUR was climbing to the top and how fast it has dropped. Market perfectly has completed our trading plan on Friday. It has turned down precisely at specified point.
On a way down price also has broken inner trend line, that separates H&S consolidation from upside action. EUR will open around WPP, but it seems that on Monday we should get downward continuation:
Conclusion:
So as you can see, this research doesn't bring someting revolutionary due simple reason - EUR stands in tight range and we have to work with intraday charts while daily pattern is still forming.
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.