Sive Morten
Special Consultant to the FPA
- Messages
- 18,679
Fundamentals
(Reuters) - The U.S. dollar edged lower on Friday, putting in on track for its worst week since early November against a basket of currencies as traders grew uneasy about the scarcity of new information regarding U.S. President-elect Donald Trump's economic policies.
The dollar index, which measures the greenback against a basket of six major currencies, was last down 0.16 percent at 101.190. The minor gains combined with losses on Wednesday and Thursday to lead to a roughly 1 percent drop for the week.
The index had gained earlier Friday, and the dollar had risen as much as 0.6 percent against the yen to a session high of 115.44 yen, after the Commerce Department said retail sales increased 0.6 percent in December and November's sales were revised up to show a 0.2 percent rise.
The gains wore off, however, and the dollar was last down 0.11 percent against the yen at 114.58 yen. The dollar was set to drop 2 percent against the yen for the week to mark its worst weekly showing since late July 2016.
"We're having a pretty profound risk-off sentiment percolating through the currency markets," said Karl Schamotta, director of FX strategy at Cambridge Global Payments in Toronto. "There is just a paucity of information around (Trump's)deregulation, tax reform, and fiscal stimulus plans."
The dollar tumbled on Wednesday and Thursday, and hit five-week lows against the euro, yen and Swiss franc on Thursday, on disappointment that Trump did not address pro-growth economic policies at his first news conference since his Nov. 8 election victory.
The dollar index, which also hit a five-week low Thursday, had rallied 4 percent between the election and Jan. 11 on expectations that Trump's policies would boost inflation and encourage the Federal Reserve to raise interest rates.
Analysts said the dollar would likely trade within a range until Trump's policies became clearer. Trump is set to be sworn in as president on Jan. 20.
"Right now, (traders) are probably waiting for the inauguration, to what type of speech President-elect Trump presents," said Joseph Trevisani, chief market strategist at WorldWideMarkets in Woodcliff Lake, New Jersey.
The euro was last up 0.3 percent at $1.0640 after touching a session low of $1.0597 after the U.S. retail sales data. The euro was set to post its best week against the dollar since early November with a roughly 1 percent gain.
Now - very interesting article on Yen perspectives:
BoJ – trusting to luck
by Fathom Consulting
In November, the BoJ got a lucky break as markets anticipated a more rapid tightening from the US Fed, and the yen fell back. But relying on lucky breaks is not a sustainable strategy – Abenomics must change radically or be abandoned. Japan’s economy is weighed down by debt and its policymakers must reduce that burden or accept another lost decade.
Despite appreciating sharply in the first three quarters of 2016, the Japanese yen ended the year just 3% higher against the US dollar. Expectations of policy divergence, as well as a more ‘risk-on’ environment, appear to be the driving force behind the coveted depreciation that took place in November and extended into mid-December.
To date, Mr Trump’s election victory has not been the disaster that many had feared. His promise to enact a ‘fiscal splurge’ has fostered expectations of higher US inflation and a faster pace of US interest rate tightening. Together with the Bank of Japan’s commitment to keep yields on ten year Japanese Government Bonds (JGBs) at zero, this has seen the spread between US treasuries and the Japanese benchmark widen considerably.
But there remains a significant risk that Mr Trump’s protectionist campaign rhetoric will become reality, upsetting the apple cart and sending the safe-haven yen soaring once again. The Bank of Japan cannot rely on the policy whims of its rate-setting counterparts to slay its deflationary behemoth and end decades of economic malaise. Depending on lucky breaks is not a sustainable strategy.
We stand by our view that helicopter money, meaning a money-financed fiscal expansion, will prove to be Japan’s only real option. When the nation’s problems began in the late 1980s, its government debt stood at a little under 70% of GDP. After more than two decades of failed public works, that ratio has reached just over 230%. With tepid growth, and muted inflation, this money will never be repaid.
The solution cannot be more debt — whether government, corporate or household. And in a desperate bid to stimulate demand, the Bank of Japan’s interest rate strategy has done more harm than good — progressively undermining the supply side of the economy by preventing the gales of creative destruction. Japan, and other economies following in its footsteps, need to move from a high-debt/low yield equilibrium to a normal debt/normal yield equilibrium.
COT Report
COT Report doesn't show big changes in sentiment on EUR. Net speculative position stands bearish, but not extremely. Last week some shorts were closed and replaced by longs as position dropped for 5 K contracts, while open interest has contracted just for 1 K contracts. But this change is not very significant and typical for retracement action. Thus, CFTC data does not bring something special or really new to our analysis.
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. The only pattern that we could watch here is possible bearish grabber is January will climb slightly higher and touch MACDP line.
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.
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 said earlier:
Weekly
Trend is bearish on weekly chart, but market is not at oversold. In short-term perspective we've got important pattern last week - bearish stop grabber. This pattern suggests taking out of 1.0350 lows, if it will not fail, i.e. if market will not continue upside action. Thus, in short-term perspective we will watch for two moments - continue tracking of upside bounce on daily chart, but also will take a look at it through the prism of our weekly grabber. If we will see some hints on reversal, it could mean that grabber will trigger downward action...
With big picture on weekly chart we have 2 major patterns - butterfly and inner AB-CD pattern. Now market shows reaction on 1.0 extension 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 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.
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
On daily chart price action looks heavy. EUR has changed market mechanics in favor of 2-leg upside retracement, but it looks rather weak to show this 2-leg retracement. Although price stands above MPP, but is stuck below 1.0670 Fib level. Now we know that this top is important since this is weekly bearish grabber pattern. Despite new top, price still has closed inside of previous retracement swing...
Daily nearest target stands around 1.02 - 1.0220 area - butterfly extension and 1.618 AB-CD objective point. Overall upside action looks heavy and not impressive. Existence of untouched important targets makes chances on solid upside bounce phantom. Now it is interesting whether market will be able to move at least to YPP and 1.0850 area. Currently it is difficult to bet on this event.
Intraday
We mostly are not interested in bullish trades on EUR and mostly searching chances for short entry. Although upside action looks very fragile and not reliable, EUR still somehow keeps valid as butterfly pattern, as theoretical chances to form reverse H&S pattern.
At the same time, as you can see - EUR has failed to break minor Fib level and WPR1. As WPR1 has held upside action, it confirms retracement quality of current upside action. Besides, the shape of this action itself looks like retracement.
Thus, on coming week we will look for upside breakout. If this will happen - EUR will keep chances on upside continuation to 1.0850 area. Theoretically chances still stand here - EUR has formed multiple bullish grabbers, that suggest upside continuation. But...
Take a look, what we have on hourly chart. I have strong doubts that EUR will turn back to upside action. Long shadows right before closing of sessions suggest solid sell-off. Right after that high wave doji has been formed and then it was broken down. May be I'm overvalue its meaning, but I suspect that this could be important detail for price action on next week. It is possible that precisely this action will become the first nail in the coffin of upside retracement.
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, It seems EUR stands in last effort on it's exhausting uspide power to hold on a road to 1.0850 destination point. We will not be surprised if EUR will fail to pass through 1.0670 resistance, since even right now some signs of weakness have appeared around.
As we do not want to trade EUR up, we continue to monitor chances to go short, especially if EUR will fail to move higher and weekly grabber will start to work...
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 edged lower on Friday, putting in on track for its worst week since early November against a basket of currencies as traders grew uneasy about the scarcity of new information regarding U.S. President-elect Donald Trump's economic policies.
The dollar index, which measures the greenback against a basket of six major currencies, was last down 0.16 percent at 101.190. The minor gains combined with losses on Wednesday and Thursday to lead to a roughly 1 percent drop for the week.
The index had gained earlier Friday, and the dollar had risen as much as 0.6 percent against the yen to a session high of 115.44 yen, after the Commerce Department said retail sales increased 0.6 percent in December and November's sales were revised up to show a 0.2 percent rise.
The gains wore off, however, and the dollar was last down 0.11 percent against the yen at 114.58 yen. The dollar was set to drop 2 percent against the yen for the week to mark its worst weekly showing since late July 2016.
"We're having a pretty profound risk-off sentiment percolating through the currency markets," said Karl Schamotta, director of FX strategy at Cambridge Global Payments in Toronto. "There is just a paucity of information around (Trump's)deregulation, tax reform, and fiscal stimulus plans."
The dollar tumbled on Wednesday and Thursday, and hit five-week lows against the euro, yen and Swiss franc on Thursday, on disappointment that Trump did not address pro-growth economic policies at his first news conference since his Nov. 8 election victory.
The dollar index, which also hit a five-week low Thursday, had rallied 4 percent between the election and Jan. 11 on expectations that Trump's policies would boost inflation and encourage the Federal Reserve to raise interest rates.
Analysts said the dollar would likely trade within a range until Trump's policies became clearer. Trump is set to be sworn in as president on Jan. 20.
"Right now, (traders) are probably waiting for the inauguration, to what type of speech President-elect Trump presents," said Joseph Trevisani, chief market strategist at WorldWideMarkets in Woodcliff Lake, New Jersey.
The euro was last up 0.3 percent at $1.0640 after touching a session low of $1.0597 after the U.S. retail sales data. The euro was set to post its best week against the dollar since early November with a roughly 1 percent gain.
Now - very interesting article on Yen perspectives:
BoJ – trusting to luck
by Fathom Consulting
In November, the BoJ got a lucky break as markets anticipated a more rapid tightening from the US Fed, and the yen fell back. But relying on lucky breaks is not a sustainable strategy – Abenomics must change radically or be abandoned. Japan’s economy is weighed down by debt and its policymakers must reduce that burden or accept another lost decade.
Despite appreciating sharply in the first three quarters of 2016, the Japanese yen ended the year just 3% higher against the US dollar. Expectations of policy divergence, as well as a more ‘risk-on’ environment, appear to be the driving force behind the coveted depreciation that took place in November and extended into mid-December.
To date, Mr Trump’s election victory has not been the disaster that many had feared. His promise to enact a ‘fiscal splurge’ has fostered expectations of higher US inflation and a faster pace of US interest rate tightening. Together with the Bank of Japan’s commitment to keep yields on ten year Japanese Government Bonds (JGBs) at zero, this has seen the spread between US treasuries and the Japanese benchmark widen considerably.
But there remains a significant risk that Mr Trump’s protectionist campaign rhetoric will become reality, upsetting the apple cart and sending the safe-haven yen soaring once again. The Bank of Japan cannot rely on the policy whims of its rate-setting counterparts to slay its deflationary behemoth and end decades of economic malaise. Depending on lucky breaks is not a sustainable strategy.
We stand by our view that helicopter money, meaning a money-financed fiscal expansion, will prove to be Japan’s only real option. When the nation’s problems began in the late 1980s, its government debt stood at a little under 70% of GDP. After more than two decades of failed public works, that ratio has reached just over 230%. With tepid growth, and muted inflation, this money will never be repaid.
The solution cannot be more debt — whether government, corporate or household. And in a desperate bid to stimulate demand, the Bank of Japan’s interest rate strategy has done more harm than good — progressively undermining the supply side of the economy by preventing the gales of creative destruction. Japan, and other economies following in its footsteps, need to move from a high-debt/low yield equilibrium to a normal debt/normal yield equilibrium.
COT Report
COT Report doesn't show big changes in sentiment on EUR. Net speculative position stands bearish, but not extremely. Last week some shorts were closed and replaced by longs as position dropped for 5 K contracts, while open interest has contracted just for 1 K contracts. But this change is not very significant and typical for retracement action. Thus, CFTC data does not bring something special or really new to our analysis.
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. The only pattern that we could watch here is possible bearish grabber is January will climb slightly higher and touch MACDP line.
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.
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 said earlier:
Weekly
Trend is bearish on weekly chart, but market is not at oversold. In short-term perspective we've got important pattern last week - bearish stop grabber. This pattern suggests taking out of 1.0350 lows, if it will not fail, i.e. if market will not continue upside action. Thus, in short-term perspective we will watch for two moments - continue tracking of upside bounce on daily chart, but also will take a look at it through the prism of our weekly grabber. If we will see some hints on reversal, it could mean that grabber will trigger downward action...
With big picture on weekly chart we have 2 major patterns - butterfly and inner AB-CD pattern. Now market shows reaction on 1.0 extension 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 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.
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
On daily chart price action looks heavy. EUR has changed market mechanics in favor of 2-leg upside retracement, but it looks rather weak to show this 2-leg retracement. Although price stands above MPP, but is stuck below 1.0670 Fib level. Now we know that this top is important since this is weekly bearish grabber pattern. Despite new top, price still has closed inside of previous retracement swing...
Daily nearest target stands around 1.02 - 1.0220 area - butterfly extension and 1.618 AB-CD objective point. Overall upside action looks heavy and not impressive. Existence of untouched important targets makes chances on solid upside bounce phantom. Now it is interesting whether market will be able to move at least to YPP and 1.0850 area. Currently it is difficult to bet on this event.
Intraday
We mostly are not interested in bullish trades on EUR and mostly searching chances for short entry. Although upside action looks very fragile and not reliable, EUR still somehow keeps valid as butterfly pattern, as theoretical chances to form reverse H&S pattern.
At the same time, as you can see - EUR has failed to break minor Fib level and WPR1. As WPR1 has held upside action, it confirms retracement quality of current upside action. Besides, the shape of this action itself looks like retracement.
Thus, on coming week we will look for upside breakout. If this will happen - EUR will keep chances on upside continuation to 1.0850 area. Theoretically chances still stand here - EUR has formed multiple bullish grabbers, that suggest upside continuation. But...
Take a look, what we have on hourly chart. I have strong doubts that EUR will turn back to upside action. Long shadows right before closing of sessions suggest solid sell-off. Right after that high wave doji has been formed and then it was broken down. May be I'm overvalue its meaning, but I suspect that this could be important detail for price action on next week. It is possible that precisely this action will become the first nail in the coffin of upside retracement.
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, It seems EUR stands in last effort on it's exhausting uspide power to hold on a road to 1.0850 destination point. We will not be surprised if EUR will fail to pass through 1.0670 resistance, since even right now some signs of weakness have appeared around.
As we do not want to trade EUR up, we continue to monitor chances to go short, especially if EUR will fail to move higher and weekly grabber will start to work...
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.