FOREX PRO WEEKLY, January 09-13, 2017

[Sive Morten]

Fundamentals

(Reuters) - The dollar rose on Friday, boosted by a solid U.S. jobs report, after tumbling the day before on mixed U.S. economic data and apparent action by Chinese authorities to shore up the yuan.

The dollar gained broadly against major currencies after the U.S. non-farm payrolls report showed a slowing in hiring in December but an increase in wages, setting the economy up for further interest rate increases from the Federal Reserve this year.

October and November figures were revised to show 19,000 more jobs added than previously reported. The U.S. economy created 2.16 million jobs in 2016 with the year-on-year increase in average hourly earnings rising to 2.9 percent.

"Obviously the focus (of the market) was more on the revision from last month because if you just look at the headline number it was weaker than expected," said Sireen Harajli, currency strategist at Mizuho. "But if you look at it overall it essentially is a flat reading, so it’s pretty much in line with data we’re seeing in the U.S. Growth continues to be moderate."

The dollar rose 1.5 percent against the yen, hitting a session high of 117.18 yen, headed for a weekly gain against the Japanese currency. The euro fell to a low of $1.0525, but was still headed for its third straight weekly rise against the greenback.

Sterling slipped after two days of gains and ahead of a decision in the next week or two on parliament's role in Brexit negotiations, while Mexico's peso was boosted by a second straight day of currency intervention from its central bank.

A Reuters poll on Friday showed that the dollar is expected to keep strengthening against the euro in the months ahead with investors putting even chances on reaching parity this year.

The dollar index, which measures the greenback against six major currencies, was up 0.7 percent at 101.92 It fell for two straight days after touching a 14-year high of 103.820 Tuesday.

The dollar suffered its worst daily percentage drop since July on Thursday after unimpressive U.S. employment data and a surge in the Chinese yuan as Beijing made moves to shake out large bets against its currency.

Friday's strong rebound put the dollar on pace to end the week little moved from its open this week.

"The data helped, clearly," said Vassili Serebriakov, FX strategist at Credit Agricole. "But the market consensus view has not changed, investors are still bullish on the dollar."

Here, guys, brief view on Fathom Consulting work in 2016 and predictions that they have made. Since our forum members are interested in diffirent subjects and currencies - here I post variable information as on our favorite GBP, EUR, USD, as on JPY and CNY. We also have used Fathom view as our fundamental background for many events, when we were agree with them. And results look really not bad, thus we continue to look at their analysis in 2017 as well.

News in Charts: What a year. How did we do?
by Fathom Consulting

2016 was a momentous year. Many famous and much-loved individuals died — making it feel like the end of an era. Rank outsiders recorded historic sporting victories — making it feel like we were experiencing some generalised ‘tail-event’ in the sporting world. Major political upsets occurred with alarming regularity — making it feel as though perhaps the tide has turned decisively away from the settlement of the last fifty years or so, at least in the developed world. It feels as though anything is possible.

Looking ahead, the outlook for the global economy hinges to a great extent on the turning of the political tide. Indeed, if that process continues unabated through 2017, we will be in a very different world, politically and economically, by the end of the year. If other countries swell the rising tide of isolationism and protectionism, it will be profoundly damaging for global growth, through a reduction in global trade via tariffs and other barriers (as the chart illustrates), and a corresponding reduction in the gains from comparative advantage. But if that tide has already reached its flood, and starts to ebb in coming months, then it will be closer to business as usual, with some important nuances and wrinkles around that, including a decisive ‘decoupling’ between the US and other developed economies.

All of our calls in the coming year will be coloured and informed by our assessment of this underlying issue, along with the other consistent strands of analysis that run through the Fathom view. We do not make individual calls ‘out of the blue’ – instead, they all flow from a coherent analytical position which we convey to clients in our quarterly presentations and regular newsletters. Good calls reinforce our underlying view; bad calls challenge it.

Looking back on 2016, we made a number of good calls, based on our analysis, ahead of the market and the consensus, and a few less-good calls too. Here is a brief summary of Fathom’s performance in retrospect in 2016.

Our 2016 top six best calls (in the sense that they were different from the consensus at the time, and later proved to be correct) were as follows (in no particular order):

1. China would reverse the downwards trajectory of its growth by throwing in the towel on rebalancing towards consumption and, instead, ‘doubling down’ on financing further accumulation of manufacturing, infrastructure and real estate investment. The ramifications of that would include:
   1. Continued falls in the value of RMB against the dollar
   2. Stabilisation and then modest increases in oil and other commodity prices
   3. Increasing debt and banking / shadow banking risk in China
2. The US economy would continue to grow strongly even with a Trump victory, implying:
   1. The dollar would strengthen whatever the outcome of the Election
   2. The Fed would raise rates
   3. A related good call was to identify, ahead of the consensus, the relationship between Mr Trump’s popularity (and subsequent victory) and the value of the Mexican peso
3. The global focus of macroeconomic policy would shift from monetary to fiscal stimulus, led by China. Relatedly:
   1. NIRP would prove damaging for the banks
   2. Low rates are doing more harm than good
4. The threat of global isolationism would grow, thanks to declining real wages across the developed world, partly thanks to globalisation.
5. The impact of a Trump victory would probably be positive for US growth and equity markets.
6. The EA banking sector is structurally flawed, especially in Italy, thanks to the unresolved accumulation of peripheral sovereign debt.
   1. Germany would outperform the periphery thanks to its relatively low debt and strong competitive position

Our two least-good calls were as follows:

1. We were unduly pessimistic about the short-term impact of the Brexit vote on growth in the UK (albeit not as pessimistic as the Bank of England, the Treasury or the consensus).
2. At the start of the year, we called for Chinese policy rates to fall sharply and to end 2016 below the US policy rate (which we expected to rise more rapidly than it did). This has not happened, as the focus shifted to fiscal rather than monetary stimulus in China, as we subsequently predicted.

Those calls in detail

China and the Renminbi. Last year we detected a change of course in Beijing, as officials threw in the towel on rebalancing and began to ‘double down’. A weaker RMB, we argued, would be part and parcel of this. We were right, on both fronts. Our own measure of China’s economic activity (our CMI) rose to 2.9% in October — the highest reading since August 2015, and the fifth consecutive month that the CMI has risen. This pick-up has been primarily driven by those indicators most closely related to China’s old growth model. In April, we forecast a 4.0% effective depreciation, and a move in CNYUSD to 6.75, by the end of 2016. China’s currency has tracked our forecast closely, though if anything it has fallen a little faster, particularly against the US dollar.

In both our central and risk scenarios for 2017 the policy of growth through investment and net trade continues. However, in the latter scenario, as globalisation is thrown into reverse and China’s dependence on exports is laid bare, its policymakers have little option but to quicken the pace at which they allow the renminbi to depreciate.

In our Global Economic and Markets Outlook for 2016 Q2 we said “if the CMI (Fathom’s proprietary China Momentum Indicator) is set to turn, expect to see stronger commodities prices, particularly metals and therefore… a resurgent China is good for commodities exporters, and will provide a much-needed boost to non-core inflation around the world.” The price of Brent crude oil rose by around 50% last year alongside a pick-up in the CMI.

Also, as a consequence of doubling down, we said that China would succeed in kicking the can down the road. It has done so, but only at the cost of aggravating existing problems of excessive debt, excessive bank and shadow-bank leverage, and excess capacity in infrastructure, real estate and manufacturing – issues that we illustrated in our estimate of NPLs in the Chinese banking and shadow banking system.

Bullish on US growth after the Election. We were ahead of the market and the consensus in arguing that a Trump victory would probably be good for US growth, at least in the short term (and for as long as the rest of the world did not contribute to the tide of protectionism, a scenario we called “Donald Dark”) – a view that has subsequently become part of the consensus. We also put the chances of a Trump victory at 50% ahead of the Election – substantially higher than the pollsters or the bookies’ odds had it at the time.

Bullish on the dollar. Our main conviction call before the US election was that the US dollar would rise no matter what the outcome in the medium term. Part of that was because we continued to be bullish on the Fed funds rate. Fathom has been calling for a Fed rate hike during 2016 for many years. For the first half of 2016, that was a consensus call. But we reiterated it during June (right after the Brexit vote) at a time when it was strongly non-consensus, and the market-implied probability was zero. This is what we said the day after the UK voted to leave:

“Federal funds futures prices seem to be implying that the US economy is heading into a recession. We disagree. In fact, we still believe that the domestic economy is relatively strong and that the labour market is close to full employment. We anticipate a pick-up in wage growth, pushing both core and headline inflation higher this year and next. On that basis we still believe that there is a realistic prospect of one US rate rise this year, probably in December, with several more to come next year.”

Trump and the peso.
Fathom was among the first to identify the relationship between Mr Trump’s popularity and the value of the Mexican peso (intuitively, the peso responding to the threat of tariffs under a Trump administration). We wrote about this in August and discussed it with clients before that.

Shift from monetary to fiscal policy.
Last year, we speculated that it was the “end of the road for monetary policy” in advanced economies. Recognising that prolonged use of emergency monetary policy had held back growth in productive potential, we suggested that fiscal policy would be better suited to the task in hand. With a growing public awareness that the emphasis on monetary policy to restore economic growth was wrong-headed, we predicted that as the year progressed we would see a migration towards the top left of our chart. Since then, the policy mix has begun to shift with China leading the way, followed by Japan and the US, as we predicted.

Damaging effects of NIRP. Back in March, we highlighted the pitfalls of Negative Interest Rate Policy (NIRP), suggesting that the BoJ should reverse course, saying:

“Worse still, central banks are now lowering interest rates into negative territory even though evidence suggests that negative interest rate policy could be damaging to growth. Indeed, financial institutions have demonstrated a reluctance to impose negative rates on retail deposits, meaning that the policy either hurts banks’ profitability or leads to higher lending rates. Both are perverse outcomes.”

Since then, Japan’s economic performance has continued to disappoint, and investors have punished Japanese banks (until recently – the reversal is thanks to the falling value of the yen against the dollar after Mr Trump’s victory).

Low rates damaging productivity.
We have been arguing since the end of 2015 that the global low interest rate environment is damaging to productivity growth, since they suppress the forces of creative destruction that are central to innovation in the long run, resulting in creeping ‘zombification’ of the corporate and banking sectors, and encourage ever more saving into assets that provide ever-decreasing returns. Since then, many other respected economists have been coming round to our view.

Rising threat of global isolationism.
Fathom was early in drawing attention to the underlying economic drivers of the disaffection with globalisation in developed economies – citing the famous chart of global income growth by income percentile initiated by Branco Milanovic: the chart of 2016.

Structural flaws in the EA.
We have been long-term bears in relation to euro area banks. Some equities are cheap for a reason, and EA bank equities are among those. We reiterated that call just before the Brexit referendum, arguing that weak EA banks will be some of the first casualities of the uncertainty about the future of the European project engendered by Brexit – and specifically about the future of the ‘ECB put’ option implicitly enjoyed by holders of peripheral sovereign debt in the euro area. Since then, a sequence of events have contributed further to that uncertainty: the Brexit vote, Trump’s election victory, the ‘no’ vote in Italy’s referendum. And there could be more to come during 2017.

German outperformance.
Fathom has argued for many years that the dominant factor driving long-term trends in global growth and divergences across countries is debt. Thirty years ago and more, the biggest problem in the developed world was inflation and how to control it. For the next thirty years, it will be debt and how to control that. One manifestation of that view was that we expected that Germany would continue to outperform the euro area as a whole, and particularly the periphery, as it has not built up nearly as much debt as have its peripheral counterparts – at least for as long as the bad assets in the periphery are not counted on the German government balance sheet – watch this space…

Too pessimistic about Brexit.
We did not foresee the Brexit vote, though we judged the likelihood of Brexit to be higher than the pre-referendum odds had it, being among the first to attribute that to a global tide of populism and anti-globalisation. But our central case was Remain. In that central case, we expected UK growth to slow between 2016 and 2017 – our consistent position since the start of 2016 and earlier.

But the UK’s surprise vote to leave the EU in June caused us to revise down our forecasts for growth in both years. Since then, data has surprised on the upside – business surveys rebounded after their initial collapse and even early business investment data were surprisingly buoyant. This led us to shift our growth forecast back up, at least part of the way. Our current view is that the negative impact of Brexit, specifically via investment, is still to come – we will explain why in our forthcoming Global Economic and Markets Outlook.

Policy rate convergence.
Our policy rate forecasts made in our Global Economic and Markets Outlook for 2016 Q1 called for the Chinese policy rate to fall sharply, converging on the Bank of England policy rate and the Fed funds rate (and dipping below both by the end of 2018). This pattern has not materialised. There are two key reasons why: first, at the start of 2016, we did not predict the victory of Brexit and of Mr Trump, both of which pushed back UK and US rate hike timelines. Second, at the beginning of the year we thought China would attempt to boost its growth at least in part via monetary loosening, i.e. by cutting its lending rate and letting the RMB depreciate sharply. However, instead there has been a trend towards much looser fiscal policy in China – which we were early in identifying (see above), and the monetary loosening has not been as pronounced as we had expected as a result.

COT Report
Although EUR right now stands in upside bounce, but recent CFTC data shows that it could be just temporal action. Although changes are not significant yet, but this is first bearish changes since retracement up has started. Take a look at on 3rd of January data shows increase in open interest and increase in net specualtive short positions. It means that not just some longs have been closed but new shorts were taken. Of course it doesn't mean that retracement should stop immediately, but this issue indicates that bearish spring is becoming stronger and if we will get 1-2 weeks of the same action, market could return back to downward tendency:

To be continued...

 

[Sive Morten]

Technical
Monthly

Right now 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.

So as New year is going to start, we will take a look at big picture and also bring new yearly pivots numbers.
Yearly Pivot (YPP) stands at 1.0828 area, YPR1 = 1.1305, YPS1 = 1.0040. Last one has major importancy for us. It is interesting that 2017 YPS1 coincides with parity.

January stands as inside month by far and mostly has no impact on monthly chart yet.
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 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.

Last 2016 trading session has clarified question about possible bullish grabber on monthly chart - we do not have it.

Among other patterns that we have, we could mention bearish dynamic pressure. But mostly it has completed it's target as 1.05 lows has been taken out.

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 will be re-established only when 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, as we've come to conlcusion that EUR could show deeper upside retracement, our attention is attracted by YPP, that stands at 1.0830 area. This is , in turn, logical destination for short-term upside retracement, as we will see later.

Weekly

Trend is bearish on weekly chart, but market is not at oversold. Here, I would like to continue discussion of "big picture" that we've started above. Last week EUR has increased amplitude of fluctuations, but close price appears in the same area as last 4 weeks.

On weekly chart we have 2 major patterns - butterfly and inner AB-CD pattern. Here we can see how accurate market reacts on each AB-CD target. First reaction was on 0.618 extension, now is on 1.0 target...

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. 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.

And after that most interesting thing will come. Take a look that 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
Last week we've got mixed results. On Mon-Tue our suggestion on drop to 1.0350 was correct, but later massive closing of CNY stops has led to sell-off in USD that involved other major currencies as well. As a result EUR has broken normal market mechanics and we have to adjust our view correspondingly. As a result, EUR could show deeper upside bounce, at least until it stands above 1.0350.
Most probable target of this upside retracement is 1.0830-1.0870. This is YPP and next Fib resistance. At the same time, EUR stands very close to OB area around 1.0650 that coincides with Fib level as well. It means that if even EUR will try to go up further, this action will be gradual.
Speaking on downward continuation - our major level to watch for is 1.0350. Drop below it will mean that long-term trend continues. While market will fluctuate inside 1.0350-1.0650, or even 1.0870, harldy any valuable trading setup will be formed. Whatever action will be inside this range - we will treat it just as retracement, since market has important untouched targets around 1.02-1.0220 area.

4-hour

As you can see our suggestion on NFP data was correct. Data was slightly worse than expected, but two upside revisions for Oct and Nov, in addition to healthy wage growth were treated as positive report. As a result, EUR has failed to break 1.0670 area and also has stuck below MPP, although it has challenge it twice.

But this "failure" stands also due Overbought condition on daily chart.

Here, guys, we do not see anything special by far. Potential pattern that could be formed here is reverse H&S, at least by its shape. Although we think that there are solid odds that we will get H&S failure in result. But anyway, H&S could push price right to neckline - that is the same area of YPP and Fib resistance.

Hourly
Although perspectives of short-term price action looks a bit blur, since we do not have really clear patterns and action is too choppy, on hourly chart we could follow some beacons that could give us early signal of retracement ending.
Thus, on hourly chart we have AB-CD pattern is progress. CD leg shows acceleration to 1.06 area. Since EUR has hit just minor 0.618 extension, it should not show too deep retracement down, and especially important - it should not drop below 1.0475 lows, since this is "C" point. Dropping below this level will cancel AB-CD pattern. Besides, now EUR shows minor downward AB-CD that creates an Agreement with 1.05 area and WPP and this should be sufficient support to hold market, if it is really bullish.

Still, our major level is 1.0350, because whatever fluctuations will happen inside 1.0350-1.06 range - EUR will keep chance to show higher retracement. For example - to form butterfly "Sell" pattern. Only 1.0350 breakout will be the dead line that will acknowledge ending of retracement stage

Conclusion:

In a big picture, we think that announced measures by ECB, Fed and D. Trump administration will be gradually priced-in and this should be enough to push EUR to parity. Further action will depend on fulfillment of their promises and new factors that will appear.

In short-term perspective, our major level is 1.0350. While EUR stands above it - it keeps chances on higher retracement up. YPP around 1.0830 will attract price, since it stands very close to it. Thus, if upside action will continue - the YPP is most probable short-term target.


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.

 

[Sive Morten]

Good morning,

(Reuters) - Sterling steadied somewhat in Asian trade on Tuesday after weekend comments from British Prime Minister Theresa May sent it skidding to 2-1/2-month lows, while the dollar wallowed well below recent highs as the perceived safe-haven yen gained.

The pound edged up 0.1 percent to $1.2162 after sinking as low as $1.2125 on Monday, its weakest since Oct. 28, following May's statement that she was not interested in keeping "bits of membership" of the European Union.

Her comments heightened fears about the impact of the UK's exit from the European Union, as she said border controls would be prioritised over market access.

"Fears of a 'hard Brexit' have increased, and this has made investors more risk-averse," said Kumiko Ishikawa, FX market analyst at Sony Financial Holdings.

That risk averse mood prompted market participants to lock in profits on the dollar's gains and use it as an excuse to pare some of their long positions in the U.S. currency. It also benefited the perceived safe-haven yen.

The dollar was 0.3 percent lower against a basket of six major peers, at 101.60 .DXY, pulling further away from last week's high of 103.82, which was its highest level since 2002.

It skidded 0.6 percent to 115.365 yen well below its overnight high of 117.53, though off an earlier session low of 115.20 yen as Tokyo traders returned to their desks after markets here were closed for a public holiday on Monday.

U.S. President-elect Donald Trump, who takes office on Jan. 20, is scheduled to hold his first news conference on Wednesday since winning the November election.

"Some Japanese customers are buying on dips with the dollar at the 115 level, but with Trump's speech ahead, some people are taking profits and adjusting their positions," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

"Overall, everyone will just jump on the bandwagon today, after the long weekend," he said.

The euro gained 0.4 percent to $1.0617 moving away from last week's 14-year low of $1.0340.


Expectations of higher U.S. interest rates underpinned the greenback. Boston Federal Reserve President Eric Rosengren on Monday called on the U.S. central bank to step up its pace of interest-rate increases from the once-a-year pattern it has pursued since 2015, warning of inflation risks if it does not.

At a separate event, Atlanta Fed President Dennis Lockhart said it was too early to judge how the incoming Trump administration, which has spoken of implementing fiscal stimulus, may change the path of the economy.

At its last meeting the Fed raised rates and indicated the tempo of increases may accelerate after Trump's election promised a major spending plan and tax reform. Several policymakers have since said rates may have to rise faster during the Trump administration in order to check inflation.

Today, guys, I think it is interesting to take a look at GBP. After hard T. May comments on Brexit procedure, GBP has collapsed. On daily chart we have nice butterfly "buy" pattern in progress with 1.18 destination point. Also we have AB-CD pattern with minor target at 1.19 area.

As you can see both targets stand below recent lows, which means that they are probably doomed. GBP right now is very specific and technically "weak" currency, since it has broken all major Fib supports. The only support that it could get comes from either OS, Pivots or extensions. That's all. On daily chart OS and extensions stand in 1.18-1.19 area:

On hourly chart price is stuck between MPS1 and WPS1. Also we have unfilled gap around 1.23 area. Currently GBP is forming something, that looks like DRPO "Buy" pattern, may be it will become butterfly "buy" later.
Anyway, as all markets right now stand in upside retracement, I mean FX, Gold and others - GBP also could show upside bounce. Besides, it is very rare happens, when FX market leaves unfilled gaps on intraday charts. That's why, if you're interested with all this stuff - wait for some bounce up, may be later price will form some bearish reversal pattern as well, somewhere around 1.23 that will let you to go short and take position for daily butterfly to 1.18-1.19 area...

 

[Sive Morten]

Good morning,

(Reuters) - The dollar edged higher against a basket of major currencies on Wednesday ahead of a news conference by U.S. President-elect Donald Trump in which he is expected to spell out more about his plans for the economy.

The dollar index rose 0.2 percent to 102.18.

The dollar rally sparked by Trump's surprise victory in the November election has shown signs of fading, as the index has gone from a 14-year peak of 103.82 scaled on Jan. 3 to a low of 101.30 over the past week.

The euro was down 0.1 percent at $1.0545 after brushing a 10-day high of $1.0628 overnight.

The dollar firmed 0.3 percent to 116.100 yen. It had suffered two days of losses against the safe-haven Japanese currency.

Currency pairs settled into a narrow range ahead of Trump's news conference - his first since the election - which is due to start at around 11:00 EST (1600 GMT) neared.

"I did not expect the Tokyo session to be this quiet," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo. "It reflects the level of caution prevailing in the market before Trump's appearance."

Over the past two months, expectations that the Trump administration would enact economic stimulus measures backed by massive fiscal spending have taken Wall Street to record highs, U.S. debt yields to levels unseen since 2014 and the dollar index to the 14-year high.

Against that backdrop, financial markets are keen to see how Trump will follow through on campaign pledges.

"The dollar is set to resume the Trump rally if he provides specifics of stimulus measures, notably those related to tax cuts, which appear achievable," said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

"On the other hand, the market is also focused on potential risk factors, like Trump taking a tough stance against China. That could prompt the dollar to fall against the yen."

Elsewhere in the markets, sterling dipped 0.1 percent to $1.2168 to inch back towards a two-month low of $1.2107 set overnight. Worries about the terms of Britain's departure from the European Union have kept the currency under heavy pressure this week.

The Australian dollar was flat at $0.7372 after popping up to $0.7385 overnight, its highest since mid-December. The U.S. dollar's stall this week and rise in iron ore and coal prices have shored up the Aussie this week.

The New Zealand dollar held steady at $0.6987, after touching a four-week high of $0.7048 on Tuesday.

So, market probably will be quiet today till D. Trump press conference. On EUR currency we continue to watch for upside retracement. Right now it seems that market is stuck at our first resistance - 1.0670 area, OB and WPR1. Our downside targets are the same - 1.02-1.0220, crucial area is 1.0350 lows.

Here guys we see interesting overlaping of market mechanics and sentiment analysis. Mechanics suggests upside continuation to 1.0850 resistance. But, as we see in recent CFTC report - investors are coming back to market and new shorts were opened against EUR. That has prevented upside continuation. That's why EUR is challenging 1.06 area but can't pass through it as new shorts arrive every day... Thus, it means that EUR could fail here to move higher, especially if Trump will shed some light on his financial policy, tax cut program and stimulus... Besides, as you can see EUR still can't move above MPP...

On 4-hour chart we're watching for 2 patterns. First is reverse H&S, neckline stands at the same 1.0850, and EUR is forming the head now. Second one is butterfly "Sell" that has target point right at neckline. Although we have two patterns but they do not give us a lot clarity, since butterfly has a lot of room to brief. It will be valid until price stands above 1.0350 lows. So, if even EUR will drop today - it will adjust starting point of right wing, but nothing more...

At the same time, on hourly chart we have wedge pattern, that potentially looks bearish, especially if we combine it with inability to pass through MPP. So, as D. Trump speech will start - we will watch for this wedge as well. Downward breakout will probably lead EUR below WPP, and this action although will not break butterfly totally, but still will be bearish sign. Upside action is fragile right now, mostly due opposite sentiment and even light push down could destroy this setup... Because this potential drop is not welcome on the slope of the head of potentially bullish pattern. I think that situation around this wedge and Trump speech should clarify overall picture:

 

[Sive Morten]

Good morning,

(Reuters) - The dollar skidded on Thursday, moving back toward one-month lows against the perceived safe-haven yen, after President-elect Donald Trump's highly-awaited news conference failed to offer details on his promises to boost fiscal spending and cut taxes.

Trump, who takes office on Jan. 20, did not elaborate on his planned growth policies, and instead took aim at targets that included pharmaceutical companies and U.S. intelligence agencies.

The greenback fell as low as 114.245 yen on Wednesday, its deepest nadir since Nov. 9, and last stood at 114.52, down 0.8 percent on the day.

"There's 'Good Trump' and 'Bad Trump' for the markets. Will 'Good Trump' return before the inauguration?" said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank in Tokyo.

"We need to see if the overnight dollar low holds in today's Tokyo session," she added.

The dollar index, which tracks the U.S. currency against a basket of six major counterparts, slipped 0.4 percent to 101.42 It had risen to a one-week high on Wednesday, ahead of Trump's news conference.

The dollar index had climbed to its highest levels since 2002 as investors bet Trump's promises of fiscal expansion and tax cuts would boost growth and inflation, prompting a faster pace of interest rate hikes from the Federal Reserve and boosting the yield on the greenback.

While some investors who missed out on the dollar's post-election rally were still looking to buy on dips, others were seeking to pare their long dollar positions in case the coming reality of Trump's administration fail to live up to expectations, Tokyo market participants said.

The euro added 0.2 percent to $1.0605, after skidding to a 14-year low of $1.0340 last week.

But against the yen, the euro slipped 0.6 percent to 121.41 yen closing in on its overnight low of 121.275, which was its lowest since Dec. 9.

Lower U.S. Treasury yields also undermined the dollar, as Trump's remarks increased the safe-haven appeal of U.S. government debt.

The benchmark yield fell to a one-month lows, as strong demand at an auction also pushed up prices.

In Asian trading, the yield on 10-year U.S. notes stood at 2.332 percent, down from Wednesday's U.S. close of 2.370 percent.

Bucking the weak dollar trend, the Mexican peso hit a fresh record low against the greenback of 22.0440 pesos on Wednesday, after Trump warned U.S. auto companies would face a high tax for products made in that country and exported to America.

"The fall is very natural after what Trump has been saying about the Mexican relationship, but I also think that maybe the selling is almost over as he is saying nothing new," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

So, today we need to update our view on JPY setup. On EUR guys, as Trump has said nothing important - this was treated negatively for USD and upside retracement continues. EUR butterfly now has better shape and till the end of the week we will focus on 1.0670 resistance breakout.

Now about JPY... We have DRPO "Sell" in progress that has 110 target. But it doesn't mean that yen has to drop straight to 110 area. It is very probable that it will take one week more and price could form some kind of AB-CD pattern. On daily chart we have OS area around 113.50 level. So, how is better to manage position?

On 4-hour chart we see also multiple targets around 113.50 - Butterfly 1.618, AB=CD and MPS1. RIght now yen already has completed some targets - 1.27 of butterfly and 1.618 of initial AB-CD, that based on DRPO tops. Still, as drop was rather fast, it means that downward action has solid odds to continue right to next 113.50 destination point:

Since our major task as traders - extract profit, but not catch long action in our favor, professionals usually take part of the profit (say, 50%) before upside bounce and move stops to breakeven at the rest of position. This position adjusting will guarantees you some real profit in your pocket and keeps chances on getting more without any risk. Of course you could just move stops to breakeven, but, retracement could be relatively deep, say to 116 K-area or may be higher, since price at daily OS....

 

[Sive Morten]

Good morning,

(Reuters) - The dollar inched up from a five-week low against the yen and steadied against the broader basket of currencies on Friday, while the markets brushed off softer-than-expected Chinese exports figures.

The dollar last stood at 115.04 yen, up about 0.3 percent from late U.S. levels after having tumbled to a five-week low of 113.75 yen on Thursday in wake of disappointment at President-elect Donald Trump's failure to elaborate on fiscal stimulus plans during a news conference a day earlier.

On the week, the dollar has lost 1.6 percent so far - its fourth straight week in the red, which would mark its biggest weekly fall since late July if the losses are sustained.

The dollar index, which measures the greenback against a basket of six major peers, stood at 101.54 after having fallen to 100.72 on Thursday, its lowest level since Dec. 8.

Some analysts think the dollar could regain an upper hand as soon as more details of Trump's stimulus become clear.

"It is unlikely that the yen strengthens further against the dollar," Yukio Ishizuki, FX strategist at Daiwa Securities in Tokyo. "The U.S. Treasuries yield is expected to rise considering rising U.S. inflation expectations."

With U.S. markets closed for a holiday traders were unlikely to open fresh positions ahead of the long weekend, though U.S. data to be released later in the global day could give the dollar a final jolt for the week. Producer price data is also due for release.

"The dollar can be sold further if December retail sales are worse than expected," said Kumiko Ishikawa, FX market analyst at Sony Financial Holdings.

A Reuters poll forecast 0.7 percent growth in retail sales in December, following 0.1 percent growth in November.

Last week's U.S. jobs data showed wages rose at the fastest pace since June 2009, fuelling expectations that Trump's expected fiscal spending and tax cuts could boost U.S. inflation.

The euro traded at $1.0607, having hit a two-week high of $1.0684 on Thursday.

Currencies showed muted reaction to data showing China's December dollar-denominated exports were down 6.1 percent, while imports were up 3.1 percent.

The trade surplus of the world's second largest economy unexpectedly shrank to $40.818 billion in December from November's $44.61 billion.

Still, with Trump threatening to label China a currency manipulator, the country's trade surplus is likely to be closely watched in the future.

The yuan was little changed, with its offshore unit trading at 6.858 per dollar.

The Mexican peso, a major victim of Trump's protectionist rhetoric, licked wounds after hitting a record low on Wednesday, hit by worries of deep economic slowdown as Trump has said U.S. auto companies would face a high tax for products made south of the border.

The peso stood at 21.8080 peso to the dollar, having broken the 22 peso-per-dollar mark for the first time on Wednesday.

So, on EUR situation changes slowly. Market mostly shows inside action to last week. Today the only important event is Retail sales release that could could impact on market. On daily chart our target still stands the same - 1.02-1.0220 area and current action we treat as retracement. Also EUR has completed our expectation and failed to move above 1.07 area, since we've disccused possible ceil for current week around 1.0670 area - Fib level and daily overbought.

On 4-hour chart we continiue to watch for 2 patterns - larger one is reverse H&S and inner pattern is Butterfly "sell", that has 1.618 target right at neckline and daily major Fib level. Currently we can't say something bad on these patterns. Yes, action itself is rather choppy, but EUR keeps the shape of patterns rather well.
In a few hours price could form bullish grabber, and if statistics will be supportive, EUR could reach 1.07-1.0720 area today, as it is not at overbought right now.

Probably we could think about short entry either on 1.0350 breakout, or, if EUR will not complete butterfly, but drop below WPP and low of right wing. That could be a hint on downward continuation. And yes - around neckline, if butterfly will be completed. But right now it is not time yet for short entry:

That's being said, right now we are wathing over butterfly and wait when it will be either completed around 1.0850 or fail...