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FOREX PRO WEEKLY, January 08-12, 2018

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Jan 6, 2018.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    (Reuters) - The dollar gained on Friday after a brief dip as investors reckoned a weaker-than-expected U.S. December non-farm payrolls report would not deter the Federal Reserve from raising interest rates multiple times this year.

    U.S. nonfarm payrolls increased by 148,000 jobs last month. Economists were forecasting job gains of 190,000. Employment data for October and November data were revised to show 9,000 fewer jobs created than previously reported.

    The dollar briefly slipped after the softer-than-forecast number, but has since regained momentum.

    Fed funds futures have priced in a more than 60 percent chance the U.S. central bank will hike interest rates in March, according to CME’s Fedwatch.

    “We do not see anything in the current report that will dissuade the consensus view that a hike is forthcoming in March,” said Marvin Loh, senior global market strategist, at BNY Mellon in Boston.

    He added that while the report was disappointing given the significant headline miss, it was mostly consistent with the late stages of the U.S. economy’s current expansion.

    “We have had eight years of steady employment gains, representing one of the longest expansionary periods that has pushed unemployment to near its lowest levels in 50 years,” Loh said.

    Another bright spot in the U.S. December employment report was the rise in wage growth, analysts said.

    Average hourly earnings rose 9 cents, or 0.3 percent, in December after gaining 0.1 percent in the prior month. That lifted the annual increase in wages to 2.5 percent from 2.4 percent in November.

    In late trading, the dollar gained 0.3 percent against the yen to 113.14, while the euro fell 0.2 percent versus the dollar to $1.2042.

    That put the dollar index, a measure of the greenback’s value against six major currencies, up 0.1 percent on the day.

    Some analysts still expect dollar weakness to be the prevailing theme this year because other central banks such as the European Central Bank and Bank of Canada are on a tightening path as well, enhancing the allure of their currencies.

    “The Fed is no longer the only game in town,” said Jane Foley, senior FX strategist at Rabobank in London. “There has been a shift in market focus away from the tightening cycle of the Fed to that of other central banks in the G10.”

    Meanwhile, other data on Friday showed the U.S. services sector also cooled slightly in December. That non-manufacturing index data had little currency impact, however.

    Chart of the Week: US Economic Sentiment Improves on the Back of Tax Progress
    by Fathom Consulting

    Our US Economic Sentiment Indicator (ESI) climbed from 6.0% to 6.2% in November, a nine-month high. Although gasoline prices rose during the month, consumer confidence remained strong as the labour market continued to improve. Meanwhile, business sentiment was buoyed by progress on tax reform. Since those surveys were conducted, tax reform has been signed into law. Since the reform includes large cuts to corporate and personal income tax, business and consumer confidence are likely to remain elevated in the coming months. Accordingly, we expect our ESI for December (scheduled for publication next week) to remain high.

    Looking ahead, we expect real GDP growth to exceed 3% this year, which is not as fast as the rate of economic expansion currently implied by our ESI, but a lot higher than potential and higher than the recent past. The US will become a more attractive investment destination with its corporate tax rate now in line with that of most other OECD nations, although it remains to be seen just how much real economic activity moves to the US — some firms may exploit tax loopholes and simply book their profits there, without shifting the location of their production.

    Wages and inflation will be boosted by the tax cuts, especially with the economy close to full employment, as the Phillips curve is not dead. However, the plan falls well short of the sort of stimulus that we think is required to generate a return to more normal rates of interest, and in so doing propel the US to a significantly higher growth path. Moreover, by overwhelmingly favouring the wealthiest, who have a lower-than-average marginal propensity to consume, the plan achieves less bang for its buck than it might have, and will increase income inequality, which is already being driven higher by technological change.


    COT Report

    If we will take a look at a bit longer picture - EUR shows impressive positive dynamic. Net position has turned positive for the first time since 2014. Since January 2017 EUR shows gradual upside action when new longs week by week were coming on market.

    As a result, last week EUR has reached all time high level of net long position. It means that EUR is overbought a bit and chances on pullback are significant. No doubts, we have strong bullish sentiment, as open interest also has increased, but too much money on one side will make difficult further upside action.

    Taking this in consideration we could say that EUR may be could reach some nearest targets, but hardly we will see 1.2175 monthly Fib level breakout prior retracement will be over:


    As we said last time - situation on markets is changing rather fast. Not just on EUR but across the board - other currencies, commodities etc.

    First week after long holiday was mixed. Range January month is rather small yet, but price was able to return back to previous 1.21 top inside flag consolidation. Although we had pretty nice EU statistics - EUR was not able to break it through. One of the explanation could be bullish position saturation, so market just can't get necessary upside momentum to break the level yet. Taking this in consideration most probable scenario is some W&R of 1.21 area by reaching daily targets and then moderate retracement. Challenging of 1.2175 Fib level will happen after retracement will be over.

    All other stuff mostly stands the same. Here we have new 2018 pivots. One of the long-term setups stands in relation to YPR1 @ 1.2617 area. It seems that right now we could talk on real upside breakout of wide rectangle consolidation that has started in 2014. In October market has tried to drop below 1.15 area but failed and EUR now is forming tight flag just above rectangle. This usually means that market is building an energy. As bullish positions are overloaded right now - this standing looks absolutely normal.

    In general it means that we could apply classical target for rectangle breakout - it's height. If we count it up, then we will get approximately 1.27 area, which mostly agrees with YPR1 and 50% all-time Fib resistance!
    So, this is relatively long-term setup.

    But right now we're mostly interested with action inside this small flag. Actually we've missed one important detail last time, which is very important. In fact, November action was upside reversal month - it's low stands under October and close price is above October high. Usually reversal candles leads for 2-3 periods of action. So, we have December and it seems that 1-2 months more should follow. That's why upside breakout of previous tops looks very probable.

    Besides, reversal candle confirms real rectangle breakout by the fact of upside reversal right from its upper border and price inability to return back below 1.15 area.


    Here situation has not changed significantly.

    So, on monthly we've discovered relatively long-term target - 1.2617. Now let's see what closer targets do we have. On weekly chart all targets stand in relation to last action. In fact, we should get extension of some degree.

    Large AB-CD extension of monthly rectangle points on 1.2375 target. Butterfly also has 1.618 target at the same area - 1.2425.

    Another extension stands around 1.2240 and this one is more interesting for us, because others stand above weekly OB area. Thus, in situation of upside breakout above recent tops - most probable target will be 1.2240

    At the same time - this target suggests breaking of major monthly Fib level. Hardly it will happen at current level of COT bullish positions. Odds suggest that it could be reached after moderate retracement on daily chart...


    Last week EUR has shown mixed results. Although on Tue upward action has happened but in rest 3 days EUR was under impact of different data. First it was positive statistics from EU, but later US employment has shown good numbers. As a result we see a kind of flag consolidation right below major 1.2130 target.

    It means that on coming week we continue to work with our upside AB=CD pattern. Market is forming flag as above COP target as above 1.27 butterfly target. Price is not at OB and we have no real barriers above except WPR1 that was reached on Friday.

    It means that upside action is just a question of time. Despite too much bulls on market - EUR has chance to pass 130 pips above. In fact, all that it needs to do is trigger stops above 1.21 and they will push price right to the target or even higher.

    Next target mostly stands the same - our OP, MPR1 and butterfly 1.618 extension stand in the same area.


    Some patterns that we show you here are not the only one possible scenario. Some different action could be shown. But whatever will be formed on coming week - we should be careful to any bullish setups, as our major expectation is reaching of 1.2130 target.

    Here market could form '222' Buy pattern. We plot here the scenario if price will drop still below "X" point and reach 1.618 AB-CD target. In this case minor spike of daily flag pattern could happen. But "222" Could be formed right from current level as well, because AB-CD action down has been completed.

    Two different "222"'s could be finalized also by different patterns, but both of them are based on "X-A" swing. In first scenario this probably will be butterfly "Buy", as XA 1.618 extension coinsides with AB-CD XOP target.

    If "222" will start around "X" point then X-A swing could become a background for smaller "222' Buy. So, whatever scenario we will get, just keep eyes open and try to catch good bullish setup here.



    EUR starts to show signs of changing in long-term market's sentiment. Mostly these changes shift advantage in favor of EUR as EU economy shows very good recovery pace while Fed shows not as hawkish assessment of US economy as investors suggest. Now investors suggest that Fed is not the only rate player among national Central banks of G-10 any more.

    Tricky situation with strong bullish sentiment from one side and overloaded bullish positions from the other makes us think that upside potential will be limited in short-term perspective. Thus, we're just watching for reaching of 1.2130 target. After that we expect moderate retracement to come.

    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.
  2. shahsavari

    shahsavari Private, 1st Class

    Feb 9, 2012
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    Thanks a lot
    Sive Morten likes this.
  3. FreddyFX

    FreddyFX Sergeant

    Oct 3, 2007
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    Oefff, looks that retracement you mentioned happened now.
  4. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Good morning,

    (Reuters) - The yen jumped on Tuesday after the Bank of Japan trimmed its buying of long-dated Japanese government bonds in market operations, helping to stoke speculation about a future exit from its massive stimulus policy.

    The yen rose about 0.4 percent to 112.62 yen to the dollar, bouncing back further from its two-week low of 113.40 per dollar touched on Monday.

    “The BOJ’s operation was a trigger for the yen’s gains, although I suspect there were a lot of New Year flows given today was the first business day for quite a lot of people,” said Shusuke Yamada, chief Japan FX/equity strategist at Bank of America Merrill Lynch.

    “I think it is still too early for the BOJ to clarify its stance towards an exit from the current policy,” he said.

    The BOJ trimmed the amount it bought in Japanese government bonds of 10 to 25 years left to maturity and those of 25 to 40 years to maturity by 10 billion yen ($88.39 million) each from its previous operations.

    Since it adopted the yield curve control policy in 2016, the BOJ has occasionally tweaked its bond operations, with officials saying any changes are meant to keep bond yields in line with its policy goal and not to telegraph hints on its future policy.

    While Tuesday’s move was considered largely technical, it surprised some market players.

    The euro languished on Tuesday after slipping from last week’s high as investors were cautious after a months-long rally, while the dollar firmed against the yen though a lack of catalysts tempered its momentum.

    The euro traded at $1.1971, little changed in Asia after having slipped 0.5 percent on Monday, its largest daily drop since late October.

    Analysts said a correction was inevitable for the common currency after its rally over the past couple months to near its 2017 peak of $1.2092, thanks to signs of acceleration in the euro zone economy.

    Speculators’ net long position in euro/dollar futures in Chicago reached a record high last week, data from the Commodity Futures Trading Commission showed on Friday, pointing to potential for profit-taking.

    “The euro is going through a consolidation after it had reached high levels above $1.2. Friday’s euro zone inflation data was somewhat weaker than expected,” said Shinichiro Kadota, senior FX and rates strategist at Barclays.

    “Going forward, the market’s outlook depends more on U.S. factors, such as whether the Fed raises interest rates three times or more, and also the impact of the tax reform,” he said.

    While many Federal Reserve officials have said they expect three rate hikes this year, markets are not fully convinced as inflation remains tame despite very tight labour market conditions.

    Indeed, Atlanta Fed President Raphael Bostic, a voter on interest rate policy this year, said on Monday that the Fed may only need to raise interest rates two times in 2018 given weak price pressures.

    Such doubts have held the dollar index down near its lowest levels since 2015 during the past few months.

    The index stood at 92.239, after having fallen to 91.751 last week, not far from its 2-3/4-year low of 91.011 touched last September and way below its 2017 high of 102.26.

    An immediate market focus included the talks planned later in the day between North and South Korea, their first formal contact in two years, for signs of any reduction in tensions on the Korean peninsula.

    I know that you a bit surprised of recent drop on EUR. Indeed this action disagrees a bit with our weekly analysis. Because we expect major retracement from a higher level - 1.2130 as soon as major targets will be hit.

    Right now it is difficult to talk about reasons of recent drop. Personally I think that COT report could impact on some short-term traders to take profit a bit earlier as bullish positions are highly saturated right now.

    Still, this retracement doesn't break our daily analysis yet. In fact, we have just 3/8 drop and it could become a part of some bearish reversal pattern. 1.27 extension of recent drop coincides with our major 1.2130 target. It means that could get either butterfly "sell" or H&S pattern in perspective of 1 week here.

    Second pattern that we will be watching here is bullish grabber. If it will be confirmed today - it will support our idea of final leg up before major retracement will start:

    Thus, technical picture mostly suggests upside reversal somewhere around 1.1935-1.1950 area. 4-hour chart shows that we have two downside extensions. One is 1.618 while another one is X2 - and could be treated as Double Top classical target. Both of them stands around major K-support area.

    Currently it is difficult to say which one will trigger upside action, because on hourly chart no signs of reversal just yet.
    That's being said, current 3/8 retracement doesn't break our daily analysis and could become a part of some bearish reversal pattern. Only if market will show another significant drop - this will break natural price behavior and will mean that something indeed is changing.

    If you search chances to go long - try to get clear bullish hourly pattern on your back. Because, as you can see overloaded bullish positions bring a lot of volatility here. Daily traders should watch for clear bearish reversal pattern with reaching 1.2130 area.
  5. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Hi Freddy,
    Well I hope that it is not our retracement yet. :)
    FreddyFX likes this.
  6. oficiuljuridic

    oficiuljuridic Recruit

    Aug 8, 2010
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    Hello Sive!
    It seem that retracement already started and it will be deeper than expected. Where do you think it is more probable to finish retracement at 1.1884 (38.2% retracement from the whole daily swing up) or it could be 1.1820 (50% retracement from the whole daily swing up)? Thank you in advance for your answer.

    Attached Files:

  7. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
    Likes Received:
    Good morning,

    (Reuters) - The dollar extended losses against the yen on Wednesday after the Bank of Japan’s move to trim Japanese government bond (JGB) purchases in the previous session triggered speculation that it could begin tapering its massive, ultra-easy monetary stimulus.

    Despite some support from higher U.S. yields, the dollar slipped 0.3 percent to 112.31 yen, struggling in the wake of a 0.5 percent drop on Tuesday when Japan’s central bank slightly reduced the amount of its JGB purchases in its regular buying operations.

    While the move was a technical tweak in line with the central bank’s policies to date, it unleashed a wave of speculation that the BOJ could be poised to begin winding down its stimulus.

    The dollar earlier slipped as low as 112.17 yen, its lowest since Jan. 2.

    “One would think that with U.S. yields at such high levels, the dollar would be stronger, but investors are adjusting positions, awaiting new factors,” said Kumiko Ishikawa, FX analyst at Sony Financial Holdings in Tokyo.

    Yields on the 10-year U.S. Treasury note reached a 10-month highs, partly lifted by the BOJ’s action.

    The 10-year note yield stood at 2.553 percent in Asian trading, up from its U.S. close of 2.546 percent on Tuesday. It earlier matched the overnight high of 2.555 percent, its highest since March.

    “The BOJ’s move reminded traders of the fact that major central banks are willing to normalize their monetary policy,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

    “I think this unwanted strengthening of the yen will make the BOJ more cautious in going forward, when they want to move toward normalization,” he said.

    The dollar index, which tracks the greenback against a basket of six major rival currencies, inched down 0.1 percent to 92.473.

    The euro was steady on the day at $1.1937, well below its nearly four-month high of $1.2089 set last Thursday.

    Sterling was slightly lower at $1.3534 , but remained supported by expectations that Brexit talks will have a positive outcome.

    Today guys, we will take parallel analysis on DXY and EUR. They are mostly the same but some issues are looking better at DXY, while on EUR we could specify particular patterns to watch for.

    I know that many people disagree, but we still think that this is not major retracement yet. In fact on DXY we have clear B&B "Sell" pattern (i.e. on EUR it is B&B "Buy") that is more than just welcome right now. Appearing of B&B is a very good sign, because it stands in agreement with previous action and suggests downside continuation on DXY. As our major target on DXY @91.40 has not been met yet - I suppose, that B&B will become not just isolated setup but starting point for final leg right to the target. The same story is on EUR, where target stands @1.2130:

    on DXY 4-hour chart market has completed 1.618 AB-CD target, which create and Agreement resistance with daily major Fib level. Thus, it is very probable that DXY could continue downward action right from here. Still we do not exlude shy upside continuation for 25-30 pips more to 92.50-92.60 area. That's being said - 92.20-92.60 is an area where B&B theoretically should start. Also this will be moment of truth for our daily AB-CD setup. Normal price behavior doesn't assume deep retracement here, and in fact, market stands at the edge point that is acceptable for current situation.

    On EUR - price has completed our predefined "X2" target of double top pattern right around K-support area. Here we will watch for DRPO "Buy" as bullish reversal pattern that could trigger daily B&B "Buy" action.

    On hourly chart you could also watch for butterfly or "222" Buy patterns at reversal point of DRPO.
    FreddyFX and Robban68 like this.
  8. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Hi, Here is today's update where I've shown my view on situation. I still think that it is too early to talk on major retracement yet.
  9. Joshnix

    Joshnix Corporal

    Dec 2, 2010
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    What are your thoughts on the DXY effects with regards to China stopping the purchase of US Bonds just as they are set to release more debt this week?

  10. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Hi Josh, well, it could push Treasury yields higher and support USD.
    China buys a lot of US bonds, but all new issues are distributed through FED dealers. They buy whole volume. Even if China will contract purchasing value, hardly this will be drastic contraction. Effect should be smooth, I suppose. I think this long-lasting process that has relation to tax reform and returning a lot of production power back in US. This, in turn, should change trading balance between US and China and this will make impact on US national debt. But this process will be very slow

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