FOREX PRO WEEKLY, January 18-22, 2016

Sive Morten

Special Consultant to the FPA
Messages
18,531
Fundamentals

Here I would like to offer your attention new research from "Phantom Consulting" on Alpha now research, that is dedicated mismatching between current situation in US economy and public opinion on its perspective. Shortly speaking, current fears that widely are announced in mass media are not as scaring as they look like. And screaming on too high USD rate, too low inflation, dropping of ISM index is just the half of the story:

As our regular readers will be aware, we have argued since last summer that the US economy was robust enough for higher interest rates. That view has been vociferously contested by the likes of Larry Summers and Martin Wolf, who — among others — believe that the Fed has made a huge policy mistake by raising the federal funds rate. They point to a strengthening US dollar and embattled manufacturing sector as evidence. This Newsletter dismisses that notion.


Citing the Institute for Supply Management’s Manufacturing Index, which has fallen to a post-crisis low, some commentators are even warning of an impending US recession. Heeding their concerns, we have conducted our own analysis and find that a flailing manufacturing sector need not spell disaster for the overall performance of the US economy.

Indeed, manufacturing accounts for a relatively small proportion of the country’s gross domestic product and although often considered a bellwether for the wider economy, an ISM reading below 50 (indicative of diminishing activity) is rarely accompanied by outright economic recession.



While our analysis reveals that a negative shock to the manufacturing sector’s ISM can presage a reduction in the non-manufacturing index, that is not always the case — with the source of the manufacturing sector’s hardship decisive.

Indeed, as the following chart illustrates, when the shock is a real appreciation of the US dollar, the manufacturing sector takes a hit but the non-manufacturing ISM benefits. This is because a stronger dollar reduces the relative cost of imports, boosting households’ disposable income and supporting the service sector. With this in mind, the 15% real appreciation of the US dollar since the summer of 2014 need not herald wider economic malaise.


Another critique launched at the Federal Reserve is that inflation is too weak to justify raising rates. However, as our chart reveals, measures of inflation that strip out the most volatile components are close to pre-crisis norms.


While policy tightening with headline inflation below 1% was previously unprecedented in the US, other central banks have raised rates when inflation has been far lower. For example, in late 1999, the Reserve Bank of New Zealand tightened when inflation was below zero. And in 2004, the Bank of England raised rates even though CPI inflation was below its 2% target.

Minutes of the FOMC’s December meeting confirmed that it expects to raise rates by around 100 basis points per annum. Even so, the market-implied path remains around one half of that pace. In our forthcoming Global Economic and Markets Outlook, due to be presented to our clients later this month, we address how that gap is likely to close.



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(Reuters) - The dollar tumbled to a near five-month low against the yen and a 2-1/2-week trough versus the euro on Friday, hammered by a combination of poor risk appetite arising from a renewed drop in oil prices and weak U.S. economic data.

The downbeat economic numbers along with the meltdown in oil and stocks could further slow the pace of the Federal Reserve's already gradual tightening policy, a negative scenario for the dollar.

The dollar index, which measures the greenback against a basket of six other major currencies, was down 0.2 percent at 98.933 .

"I think the Fed is going to be reluctant to raise interest rates any time soon," said Joe O'Leary, senior FX trader at Silicon Valley Bank in Santa Clara, California.

"There's just too much uncertainty going on. We also have weak U.S. data, and equity markets getting clobbered. This will all affect U.S. growth."

Data showed on Friday that U.S. retail sales fell in December as unseasonably warm weather curbed purchases of winter apparel and cheaper gasoline weighed on receipts at service stations. U.S. producer prices were also lower last month due to weak energy costs, while the country's industrial output declined for a third straight month.

Following the poor U.S. economic data, the interest rate futures market has now priced in just one additional rate move by the Federal Reserve this year, compared with expectations of three hikes.

Commodity-based currencies such as the Australian, New Zealand and Canadian dollars also took a nosedive on the back of another slide in Chinese stock markets following an almost 5 percent tumble in oil prices to less than $30 per barrel.

In late trading, the dollar fell to 116.51 yen , the lowest since Aug. 24. It was last at 117.02 yen, down 0.9 percent.

The euro rose to $1.0984 , its highest since Dec. 29, and was last at $1.0913, up 0.5 percent.

The Aussie sank to US$0.6824 versus the greenback, the lowest since April 2009, while the New Zealand dollar fell to a 3-1/2-month trough of US$0.6382 .

The Canadian dollar, meanwhile, dropped to a fresh 12-year low against the U.S. dollar. The greenback was last up 1.2 percent at C$1.4534

Richard Benson, co-head of portfolio management at currency fund Millennium Global, said the Canadian dollar, down by a third in value against its U.S. counterpart since 2012, was suffering from bets on more easing of monetary policy next week.

CFTC data shows contraction of short position while open interest stands almost the same. It means that some shorts have been replaced by long positions... But to be honest, difference is not significant to last week.
upload_2016-1-16_13-11-45.png

Technicals
Monthly

As we have mentioned previously appearing of YPP around 1.11 area has negative sign for bears. Last week many patterns were pointed on further drop. Today situation is changing or, at least, chances on upward action have increased. And well-known feature that markets gravitates to pivots, especially to yearly ones, could take a special meaning in nearest future. This brings some contradictions and additional worryings in analysis.

Most bad thing is that we do not know when market will test YPP. It could do it in January, or it could first drop to YPS1 and then, on a back wave up will test YPP...
Still, right now we will follow direct technical analysis, but will keep in mind 1.1150 level as YPP.

Actually monthly chart of EUR is not very informative and it would be better to look at EUR through the prism of Dollar Index (DXY) futures. It shows brighter and more transparent picture.

Fed program suggests 0.25% rate hike in every quarter of 2016. It means that by the end of 2016 Fed rate will be 1.25-1.375 as it is suggested by analysts and Fed Fund futures rate. Of cause this hiking procedure will be data depended, I mean NFP, GDP etc. but anyway, Fed has announced not just isolated rate hike but tendency. This is major point. Analysis that we put above relatively confirms the same thing.

This lets us to make major conclusion that such sort of statement on background of EU QE program, will probably slowly but stubbornly press EUR/USD pair. And this lets us to confirm our expectation of parity and even 0.8 targets.

Now, if you remember our most important riddle was on possible upward retracement. Other words speaking this is not a question on "what trend we have" but mostly "when this trend will continue - right now, or will be slightly postponed".

Last month we have tried to understand will we get any upside retracement on EUR due forming 2-bottom consolidation. And major riddle is what could happen inside this circle on monthly chart.

Our first scenario was - market just could continue move down. Especially if recent rally was mostly technical. As you can see our bearish grabber and dynamic pressure pattern have not quite reached target - former 1.0460 low was not reached. Butterfly pattern is still valid and market was falling like a stone to its 1.27 target, though only oversold was able to stop it for some time. Thus, moving to 1.618 target which is a parity is still possible.

Second scenario mostly relies on potential DRPO "Buy" pattern and 2-candle bullish grabber.
eur_m_18_01_16.png


Last week we've made a parallel analysis with Dollar Index and come to conclusion that hardly EUR will be able to stay with long-term upside retracement to 1.21 area. Dollar index has DRPO "Failure" pattern in progress and untouched 1.618 target. Taking in consideration Fed financial policy, EUR drop is just a question of time. That's why we still keep our long term target.
Still, on shorter term charts we see signs of possible minor scale upside retracement.

Weekly
First sign comes on weekly chart. This time frame is the one where we have to dig market mechanics if we want to get the answer. Because here we do not have clear patterns and "easy-to-read" combinations. So, what does mechanics tell us?
Initially we've got bearish grabber that was very welcome at that moment and EUR has given us the signal of downward continuation. But 2-3 weeks later balance was broken. Take a look that after bearish grabber market has formed overlapping candles and each next candle has become inside one for previous candle. So EUR was not hurry to start action down. Finally 2 week ago EUR has dropped significantly below MPP but take a look - returned right back up and even formed bullish grabber at this time.

This action put under question perspectives of soon drop by two reasons. First is, and most simple - we have bullish grabber in place with invalidation point around 1.07. That's why following strict rules of grabber's trading we should not take any shorts until market will not erase this grabber by dropping below it's lows...

Second and most important is overall price behavior, this flat "stagnation" after bearish grabber indicates unwillingness of EUR to move down. And fast return after MPP challenge just proves it. That's why currently we can't follow initial bearish context.

At the same time, monthly chart tells that too strong upside action is also hardly possible. It means that EUR could move down, but this action will be limited.
eur_w_18_01_16.png


Daily
So, at first glance, by following to simple logic, EUR should have to calm down after multiple bearish grabbers were formed and just continue move down. But this has not happened. EUR again and again is challenged 1.10 area and put under question the same grabbers.

As a result, as you can see trend has turned bullish here and EUR has vanished bearish grabbers, although we do not see obvious upward breakout yet. Market right now is not at OB/OS level so it has quite sufficient room to move in any direction. But this stubborn in upside direction despite any bearish patterns increases chances on some upside continuation.

On next week we will be watching for first our target here. This is minor 0.618 extension based on daily upside rally and it stands at 1.1060 level.

Speaking on invalidation of bullish setup - here is all quite simple and stands the same on all time frames. This is 1.07 level. This is a crossing of invalidation point of different patterns - weekly bullish grabber, daily AB-CD, butterfly on 4-hour chart and others. Breaking below it will mean that market returns to bearish context and this will mean re-establishing of bearish trend that we've discussed on monthly chart.

Meantime, market stands in "minor" upside retracement with 1.1060 as first destination point.
eur_d_18_01_16.png


4-hour

In short-term perspective situation looks as follows. Upside breakout has happened and market now stands in technical downward retracement. EUR here has the same target as on daily chart - 1.1060 top. But here it is based on butterfly 1.27 extension and inner AB=CD pattern. As you can see - 1.07 lows is the same invalidation point.

Right now market turns to re-test broken trend line and this will be most important moment. EUR needs to hold above it and do not return right back in channel to keep chances on further upward continuation:
eur_4h_18_01_16.png


Hourly

This chart better shows the range where EUR should stop its downward retracement. As you can see it has completed minor AB=CD and trend line that market will re-test, is coincide with WPP and K-support area. That's being said, EUR will keep chances on upside continuation if it will hold above 1.0870.
eur_1h_18_01_16.png


Conclusion
Fed statement mostly was supportive for long term bear trend on EUR/USD. Right now our trading plan suggests move down to 1.05 area. Long term analysis currently excludes too far upside retracement, say to 1.21-1.25 area. But it does not exclude minor bounce to 1.12-1.13 area.
In short-term charts we also see some signs that this bounce still could happen.



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.
 
Good morning,

(Reuters) - The safe haven yen sagged on Tuesday as China's fourth-quarter economic growth matched expectations, but its losses were likely to be limited amid persisting worries about the global economic outlook.

The dollar rose 0.4 percent against the yen to 117.77 yen , having recovered from a five-month low of 116.51 set on Friday for now. But market players say concerns about global prospects are likely to underpin the yen.

While China's fourth-quarter gross domestic product grew 6.8 percent from a year earlier, matching expectations, growth of industrial output and retail sales in December slightly missed forecasts.

With investor risk appetites weakened by concerns about global growth, the yen is likely to be supported in the near term, market participants said.

"The outlook will probably stay pretty bleak for a while," said Bart Wakabayashi, head of foreign exchange for State Street Global Markets in Tokyo. "There aren't many factors for going risk-on."

The yen has been the best performer this year among major currencies with a gain of about 2.2 percent against the dollar. Falls in the Chinese yuan earlier this year sparked fears over the Chinese economy, prompting investors to buy back safe-haven assets including the yen.

"At the heart of the yen's strength are falls in the yuan, which were perceived to be negative on the global economy," said Shunsuke Yamada, chief Japan currency strategist at Bank of America Merrill Lynch.

"The yuan's fall also makes it less likely for the Fed to raise rates and nullify the existing reasons to bet against the yen," he said.

Indeed, currency speculators in Chicago currency futures became net yen buyers this month for the first time since Prime Minister Shinzo Abe took office in late 2012.

Although Beijing has managed to stabilise the yuan through massive intervention, signs of massive capital outflows from China highlighted worries over its economy

The Australian dollar , seen as a proxy for China trades, rose 0.6 percent to $0.6908.

After the latest Chinese data, the Aussie had slipped to as low as $0.6839, nearing a seven-year low of $0.6827 touched on Friday.

Pressures on commodity-linked currencies such as the Aussie remain strong, with oil prices having hit 12-year lows this week and many other commodities also flirting with multi-year lows.

Concerns are also growing that the U.S. economy, which had been considered as one of the brightest spots in the world, may not escape the headwind, following surprisingly weak U.S. retail sales data published on Friday.

"One major support for risk assets has been that the U.S. economy seems robust. If the U.S. economy is losing steam, that would be really bad for global investor sentiment," said Shinichiro Kadota, chief Japan currency strategist at Barclays.

Sterling, a big loser since the start of December on softening economic outlook and worries over a UK referendum on its membership of the European Union, was within sight of its 2010 trough.

The pound stood at $1.4278 , not too far from $1.4228 hit in May 2010.

UK inflation data due at 0930 GMT is a key focus with a weak reading having the potential to push back expectations of a rate hike by the Bank of England even further, hurting the pound.


Today, guys we again will take a look at JPY, since it almost has completed our setup for upside bounce. Just to remind you - our long-term view is bearish (bullish for JPY directly), but in shorter-term perspecive market stands at rather strong support and upside bounce is possible.
On weekly chart Yen has reached neckline, Fib level and oversold. Last week we call you to close shorts that we were keeping:
jpy_w_19_01_16.png


Also we've suggested that most probable pattern that will trigger this retracement up will be DRPO "Buy" and it seems that our suggestion was correct. Take a look, market just needs to close above 3x3 DMA today to confirm it. Also Yen stands above WPP and trend is bullish (although trend is not needed right now).
Minimal target of DRPO is 50% level of whole thurst down, which is 120 area. So, we have trade with 300+ pips potential:
jpy_d_19_01_16.png


Our second suggestion also has appeared to be correct - DRPO has taken a shape of butterfly "Buy" on 4-hour chart. So, if you've taken long in a row with our trading plan - now you could move stops to breakeven:
jpy_4h_19_01_16.png


For others - you could trade DRPO "Buy" as it is sugested by DiNapoli book, or say, wait for more confirmation - upside reversal swing and then try to take position on some retracement on hourly chart.
 
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Good morning,

(Reuters) - The dollar retreated on Wednesday as crude oil prices descended to near 13-year lows, hitting risk asset markets and putting safe-haven currencies such as the Japanese yen back in favour.

The dollar also slipped against the Swiss franc, another safe haven.

With the ebb and flow in risk appetite having dictated movements in major currencies so far this year, the focus remained on the fortunes of the commodity and equity markets.

"The performance of equities, particularly Wall Street, dictates the direction of dollar/yen. Equities have developed a relatively strong correlation with crude, and if the fall by the commodity should continue, we could see dollar/yen slip below 116.00 soon," said Junichi Ishikawa, market analyst at IG Securities in Tokyo.

U.S. crude slid to its lowest level since September 2003 after the International Energy Agency said the global oil glut was set to last. The oversupplied market faced additional pressure this week after international sanctions against major oil producer Iran were lifted.

The greenback will look for potential relief in the U.S. housing, construction and consumer price data due later in the session. Upbeat numbers could help shore up prospects of the Federal Reserve hiking interest rates again and support the dollar.


DOLLAR BLOC CURRENCIES STRUGGLE

The Australian dollar, often used as a proxy for China-related trades, was down 0.4 percent at $0.6884 . The Aussie had risen 0.6 percent on Tuesday as beleaguered Shanghai shares rallied but lost support as Chinese equities buckled again on Wednesday.

The Canadian dollar was headed for its 13th straight trading day of losses against its U.S. counterpart as oil resumed its fall. The loonie was at C$1.4612 per dollar, within sight of a 13-year low of C$1.4650 struck on Monday.

The Bank of Canada (BOC) will make a decision later on Wednesday whether to cut interest rates to counter the negative economic impact from the continued slide in oil prices.

"Investors have rapidly moved to price in greater risk of a cut from the BOC this week, partly driven by lower oil prices in the wake of the shift in sanctions on Iran," wrote currency strategists at CitiFX.

"With longer-term investors having lagged the leveraged sector in selling the Canadian dollar, there should be scope for catch-up and further downside on spot."

The New Zealand dollar skidded to a four-month low of $0.6366 after soft domestic inflation data narrowed the odds on further interest rate cuts.

Elsewhere, sterling struggled near a seven-year low after being hit on Tuesday by dovish comments from Bank of England Governor Mark Carney. The BOE head said he had no set timetable for raising interest rates, warning of more damage to come from a slowing Chinese economy.


Today we mostly will take a look at EUR, but first two notes on JPY and GBP. JPY has changed picture drastically by the end of the session - DRPO "Buy" has not beend confirmed! So you should not have any long position by DRPO. Second - those who have taken long on butterfly should finish trade with no loss as we've called for stop moving to breakeven yesterday. Some upside action probably still will happen, since oversold on weekly chart does not dissappear. But it will happen by some other pattern probably.
GBP - has hit our target @ 1.41-1.4150 area.

On EUR... Daily picture almost does not change from the one that we've discussed in weekly research. Recall that our last conclusion tells that market stands flat "too stubborn" and has erased all bearish patterns that have been formed recently. This has led us to conclusion that some upside action is very probable and our nearet target is minor AB-CD extension on daily chart @ 1.1050:
eur_d_20_01_16.png

Bearish context will be re-established only if EUR will drop below 1.07, or when it will complete upside targets.

On 4-hour chart market has returned back above channel consolidation after retracement. Bullish grabber that has been formed recently on daily suggests that EUR should climb to new top and this significantly increases chances on reaching our target:
eur_4h_20_01_16.png


Hourly chart shows that our entry strategy has worked perfectly and market has stopped retracement right around K-support. So if you have entered long - now you should move stop to breakeven and just watch the movie....
eur_1h_20_01_16.png
 
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Good morning,

(Reuters) - The dollar came off a one-year low against the yen on Thursday as crude oil prices bounced, while the euro awaited a policy decision from the European Central Bank for near-term cues.

It descended to 115.97 overnight, its lowest since January 2015. But a report by Bloomberg quoting an unidentified Tokyo official that authorities were "closely watching the currency markets" lifted the greenback, traders said.

Reflationary stimulus policies under Japanese Prime Minister Shinzo Abe have helped to weaken the yen, and authorities are generally seen to be wary towards the currency appreciating excessively.

"That a Japanese official was reportedly prompted to speak on the yen was likely due to the excessive move seen on Wednesday, rather than the fact that dollar/yen fell into the 115 threshold," said Masafumi Yamamoto, chief FX strategist at Mizuho Securities in Tokyo.

Risk aversion related to global issues may result in periods of support for the euro," wrote currency analysts at Credit Suisse.

"Falling oil, however, raise risks that ECB may ease again," they added.

The ECB is widely seen keeping all interest rates on hold at Thursday's policy meeting. But the central bank is also expected to highlight increasing growth and inflation risks, raising the prospect of further policy easing later this year.


So, guys, today we do not have any big shifts across the board. On JPY we probably should get upward bounce sooner or later, but it still has not formed any patterns and we probably should wait a bit more.
On EUR - market definitely shows unwillingness to go down and stubbornly coiling around 1.0850-1.09 area. Today is ECB meeting, so may be it's speech will push market in one or other direction. Just to remind you - we watch for 1.07 level as crucial one for bullish scenario. If EUR will drop below it - we will turn to trading on bearish side. In this case we will get large daily Butterfly "Buy" pattern.

Right now market stands tight almost whole week and is forming multiple bullish grabbers on daily chart. Our major target here is 1.1050 top.
eur_d_21_01_16.png


On 4-hour chart EUR is coiling around upper channel border. Our large butterfly is still valid, while EUR has chance to form another, minor one. Still this small butterfly has 1.618 in the same area where 1.27 of big one stands:
eur_4h_21_01_16.png


On hourly chart picture suggests that market is waiting for something. Since upward and downward swings are changing each other and they are almost the same length. So you probably could recongnize triangle pattern here. As you can see EUR has touched our K-support area for second time. So if you still have long position with b/e stop - you could keep it.
eur_1h_21_01_16.png
 
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Good morning,

(Reuters) - The dollar firmed against a basket of currencies on Friday, as rising expectations of monetary easing by other major central banks offset fading chances of more rate hikes from the Federal Reserve.

It remained well above Thursday's session low of 115.97, which was its deepest nadir since January 2015, a move that likely did not go unnoticed by policymakers at the Bank of Japan.

"Given the strength of the yen, there has been some speculation lately that the BOJ has been under more pressure, especially given reports that the BOJ might cut its CPI forecast," said Mitul Kotecha, currency strategist at Barclays in Singapore.

"That's part of the reason why dollar/yen is looking a bit more sticky," he said.

The BOJ is likely to cut its core consumer inflation forecast for the coming fiscal year to possibly below 1 percent at a policy review next week, according to three sources familiar with its thinking.

Japan's central bank is "taking a serious look" at expanding its monetary easing measures as sliding oil prices make it harder to reach its 2 percent inflation target, the Nikkei newspaper reported on Friday.

A stronger yen and falling stock prices will loom large at the central bank's Jan. 28-29 policy meeting, the report said.

The euro slumped about 0.2 percent against its Japanese counterpart to 127.72 after notching a low of 126.17 on Thursday, its lowest since April.

BOJ Governor Haruhiko Kuroda said on Thursday that he is not thinking of adopting a negative interest rate policy now, signalling that any further monetary easing will likely take the form of an expansion of its current massive asset-buying programme.

The euro skidded on Thursday after unexpectedly strong remarks from Draghi suggesting the bank could launch additional stimulus measures in the euro zone within months, against a backdrop of fading growth and inflation prospects.

"Downside risks have increased again amid heightened uncertainty about emerging market economies' growth prospects, volatility in financial and commodity markets, and geopolitical risks," Draghi told a news conference. "We are not surrendering in front of these global factors."

But the single currency rebounded from its Draghi-triggered lows, partly due to positioning and partly to flagging expectations that more Fed hikes are on the near-term horizon.

"This may be a function of the existing overhang of spec short EUR positions and of course doubts that the Fed will raise rates again any time soon," wrote Sean Callow, senior currency strategist at Westpac in Sydney, noting that only a 22 percent chance of a March hike is priced in.

U.S. data on Thursday reinforced doubts that the Fed would unveil more tightening anytime soon. Weekly jobless claims climbed to a six-month peak, raising questions about the strength of the labour market, and factory activity in the mid-Atlantic region contracted for a fifth straight month.


So, guys, today we will briefly take a look at CAD, since we intend to prepare weekly research on it, but daily pattern is almost in place and it looks nice. We're speaking on perfect B&B "Buy" on daily chart. Thrust up is nice, market has closed below 3x3 DMA and has reached 50% Fib level + WPS1 + OS. So, this trade is with 200+ pips upside potential:
cad_d_22_01_16.png


But not everything is simle. On hourly chart we see suspicous acceleration, closer to support area. This acceleration increases chances on another leg down to 1.4146 area and that B&B will start not now but from major 5/8 support. Also take a look - this will be 1.618 AB-CD target and butterfly.
cad_1h_22_01_16.png

At the same time we do not know it definitely, That's why whatever decision you will take - whether go long right now or to wait for 1.4146, initial stop should be below major 5/8 Fib level.
 
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Hey Sive,

Hope you have been doing well!

I have a question on two different timeframes.

First one is the Weekly chart for EUR/USD. Would you consider what we have here a "Bullish Flag"? Price action seems choppy but doesn't look like it has been very willing to go down...

Second one is the Daily chart for EUR/USD as well. Looks like trend has turned Bearish now. Would you consider what we had as Bearish Dynamic Pressure? Previously, trend was Bullish but hasn't shown any significant move up.

Looking forward to your reply.

Thanks a lot, Sive!
 
Would you consider what we have here a "Bullish Flag"?
Right. We also talked on this sub in recent research, that market does not hurry to drop

Would you consider what we had as Bearish Dynamic Pressure? Previously, trend was Bullish but hasn't shown any significant move up.
Hm. May be, although I prefer more clear presure pattern and probably I wouldn't trade this one. For example, there was perfect pressure on weekly AUD.
In general, speaking on EUR - it seems that market doesn't know what it wants by itself :)
It is too whipsawed in recent time and loosing attractivness for trading right now.
 
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