Sive Morten
Special Consultant to the FPA
- Messages
- 18,673
Fundamentals
In short-term perspective guys, events that could make an impact on market next week are US government shutdown, BoJ meeting on Monday and ECB rate decision as usual, on Thursday.
Speaking on US government - this is more loud sounding name" Government shutdown" rather than valuable event. Shutdown will not make any impact on absolute necessary spheres, such as Defense, air transport, healthcare and even on financial sphere. Usually, if even shutdown happens - employees will get wage either from entity own funds such as financial oversight (SEC and others), as they get fees from financial industry, or - will get retroactive pay. Thus, on some entities workers continue to work. Mostly shutdown has bare impact on financial markets.
Recall, that last time shutdown has happened in 2013. This brought no big problems. Most negative moments were like - parks were closed. Reuters brings wide report on different entities and what impact of shutdown they had last time. For instance, "national parks closed in 2013 and it resulted in a loss of 750,000 daily visitors, said the nonprofit National Parks Conservation Association. The National Park Service (NPS) estimated the shutdown cost $500 million in lost visitor spending in areas around the parks and the Smithsonian museums." Taxi service also was hurt, but no damage was to indispensable entities.
Besides, this is mostly political rather than economical factor that doesn't change balance of value among currencies. Finally, last shutdown stand just 2 weeks, and there is very great odds that the same story will be this time. That's being said, our suggestion - shutdown will have limited effect on FX market.
More important will be as BoJ and ECB meetings. BoJ will take place in Monday. As you know as Japan as China has announced reducing of US Bonds purchasing. And currently market very sensitive and exciting about possible changes of BoJ policy. Of course, there is no talks on rate change, but even minor hawkish changes (or better to say less dovish) in BoJ statement could bring significant impact on USD/JPY. Now markets are traded on anticipating of possible events and probability balance change rather than facts. In modern markets proverb about "Buy on rumors - sell on fact" is confirming as never before.
The same is true for EUR/USD. At first glance it seems that USD should stay on strong rally against EUR, because EU keeps rates flat on lower levels, but Fed stands in a rising cycle. According to CME Fedwatch tool, we see that rates should kept the same on January meeting but in Spring there is 72% probability that rate will be increased. Even now investors expect two more rate increase with different odds - 50% in Summer and 37% in December. But as we've said - markets trade rumors, changing of balance between events that yet to happen.
Thus, although ECB has not changed it's policy yet and has given just shy hint that it is thinking about it - market has shown strong reaction. Additionally we were getting good statistics from EU. On coming meeting the major thing that investors will keep an eye on is changing rhetoric on ECB QE programme. It will be treated as hawkish sign, if Draghi will say or give clear hint that QE will be closed prior year end. May be ECB even will reduce the monthly ceil of bond purchasing value.
Finally, IMF has made a statement that they see reducing of demand for USD assets across the world. More and more financial institutions turn to diversification. And just central banks in Japan, China, France, but wealth funds across the globe. This makes long lasting pressure on USD.
Now about naughty factors for EU. In recent report Fathom consulting confirms that, indeed, EU sentiment stands on a good mood, even without Germany. Major risks that they see are March Italy elections - "Election polls suggest that the populist party Five Star Movement will gain the highest share of the vote, but will fall well short of a majority. Going forward, we continue to see Italy’s fundamentals as concerning for it its long-term growth prospects." and some political problems in Germany. Although coalition was made formally, but they need still to be officially confirmed by voting of SPD party on January 21.
That's being said - let's watch for SPD voting result tomorrow, on Sunday, BoJ meeting on Monday and, as usual ECB on Thursday. Pay attention to issues that we've discussed here.
COT Report
Oanda gives nice tool to monitor CFTC data. Here we will take a look at two charts. First one is most recent changes. It seems that EUR indeed starts to loose upside momentum and our suggestion that it seems overbought by CFTC data starts to work. Indeed last week, net position has dropped slightly, but open interest has increased. This tells on appearing new shorts on market, but not on closing of long positions. People starts to take shorts on EUR.
Source: Oanda.com
Second chart is a whole history of EUR CFTC data. Many investors starts to talk about possible big reversal on market as net long position has reached all time high and market stands at 1.23 - somewhere in the middle of 1-1.4 long-term range. While nobody knows whether this will happen definitely, so do we - we can't exclude this totally.
Still, by our suggestion, we should try to get divergences as it was at two major reversals previously. Not just second peak should be lower but it should be accompanied by greater open interest. It is difficult to miss this moment. Also don't forget that downside reversals are faster than upside ones, just because they are driven by fear, and it is stronger than greed.
Technicals
Monthly
As we said last time - situation on markets is changing rather fast. Not just on EUR but across the board - other currencies, commodities etc.
Although we correctly have suggested that upside action should continue, because reversal month candle, we thought that it will be a bit smaller. As EUR speculative positions were highly overbought last 3 weeks and price was standing at 1.2170 monthly Fib resistance, we thought that some pullback should happen. But a lot of EUR bullish factors have coincided in short-term period and it has jumped up above this level.
Now, as we can see our all time resistance of 1.22 area has been broken up. Next target stands in a tight cancellation of different levels. All time 3/8 Fib level @ 1.2516, YPR1 @ 1.2616, and also this will be 50% Fib level.
Weekly
Here situation has not changed significantly.
So, on monthly we've discovered relatively long-term target - 1.2617. On weekly chart all targets stand in relation to last action. In fact, we should get extension of some degree.
Large 1.618 AB-CD extension of monthly rectangle points on 1.2375 target. Butterfly also has 1.618 target at the same area - 1.2425.
Last week butterfly has hit 1.27 target and weekly overbought. As a result, we see hint on MACD divergence. It is not confirmed yet, but it could be. On top we have shooting star pattern. Taking in consideration last CFTC report on new shorts were taken, this indeed could be a sign of retracement.
Weekly picture tells that this is not good moment for taking long position on EUR right now. Most probable retracement destination is 1.21 area of previous top.
Daily
On daily chart, despite a bit choppy and chaotic action on intraday charts, our setup still stands valid. Once as we've identified bearish reversal candle we've recommended to wait a retracement down. And this trading plan still on the table.
It could a bit difficult to trade EUR short right now and we do not call for that, as our major idea here is to use retracement for taking long position at better price.
Daily chart mostly confirms what we've got from monthly/weekly analysis. Indeed, 1.2050-1.21 area looks rather strong as it includes previous top, consolidation, daily K-support area and daily Oversold.
At the same time as AB-CD pattern here as weekly butterfly action shows signs of strong acceleration. It means as retracement will be over - there is not bad chance on upside continuation.
Intraday
Here, guys, action let's us recognize only one pattern. This is a kind of Double Top, or you could treat it as rectangle as well. Classical targets of these patterns are the same - height, counted down, in direction of breakout. It points on 1.2045 area.
Also, inner AB-CD XOP target stands in the same area. This is mostly agrees with our daily support area that is rather wide.
Conclusion:
Technical picture tells that our retracement setup is still valid. Mostly analysis points on 1.21 area. Anyway it is uncomfortable to go long at current circumstances. At the same time, we do not call you to trade EUR short right now. Major driving factors for EUR are still strong and this bounce is mostly technical.
In relation to EUR, we will watch for US government shutdown reaction, which should be really mild, by our thought, and mostly - ECB meeting on Thursday. Lack of hints on reducing of QE volumes or terms will work in favor of our retracement.
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.
In short-term perspective guys, events that could make an impact on market next week are US government shutdown, BoJ meeting on Monday and ECB rate decision as usual, on Thursday.
Speaking on US government - this is more loud sounding name" Government shutdown" rather than valuable event. Shutdown will not make any impact on absolute necessary spheres, such as Defense, air transport, healthcare and even on financial sphere. Usually, if even shutdown happens - employees will get wage either from entity own funds such as financial oversight (SEC and others), as they get fees from financial industry, or - will get retroactive pay. Thus, on some entities workers continue to work. Mostly shutdown has bare impact on financial markets.
Recall, that last time shutdown has happened in 2013. This brought no big problems. Most negative moments were like - parks were closed. Reuters brings wide report on different entities and what impact of shutdown they had last time. For instance, "national parks closed in 2013 and it resulted in a loss of 750,000 daily visitors, said the nonprofit National Parks Conservation Association. The National Park Service (NPS) estimated the shutdown cost $500 million in lost visitor spending in areas around the parks and the Smithsonian museums." Taxi service also was hurt, but no damage was to indispensable entities.
Besides, this is mostly political rather than economical factor that doesn't change balance of value among currencies. Finally, last shutdown stand just 2 weeks, and there is very great odds that the same story will be this time. That's being said, our suggestion - shutdown will have limited effect on FX market.
More important will be as BoJ and ECB meetings. BoJ will take place in Monday. As you know as Japan as China has announced reducing of US Bonds purchasing. And currently market very sensitive and exciting about possible changes of BoJ policy. Of course, there is no talks on rate change, but even minor hawkish changes (or better to say less dovish) in BoJ statement could bring significant impact on USD/JPY. Now markets are traded on anticipating of possible events and probability balance change rather than facts. In modern markets proverb about "Buy on rumors - sell on fact" is confirming as never before.
The same is true for EUR/USD. At first glance it seems that USD should stay on strong rally against EUR, because EU keeps rates flat on lower levels, but Fed stands in a rising cycle. According to CME Fedwatch tool, we see that rates should kept the same on January meeting but in Spring there is 72% probability that rate will be increased. Even now investors expect two more rate increase with different odds - 50% in Summer and 37% in December. But as we've said - markets trade rumors, changing of balance between events that yet to happen.
Thus, although ECB has not changed it's policy yet and has given just shy hint that it is thinking about it - market has shown strong reaction. Additionally we were getting good statistics from EU. On coming meeting the major thing that investors will keep an eye on is changing rhetoric on ECB QE programme. It will be treated as hawkish sign, if Draghi will say or give clear hint that QE will be closed prior year end. May be ECB even will reduce the monthly ceil of bond purchasing value.
Finally, IMF has made a statement that they see reducing of demand for USD assets across the world. More and more financial institutions turn to diversification. And just central banks in Japan, China, France, but wealth funds across the globe. This makes long lasting pressure on USD.
Now about naughty factors for EU. In recent report Fathom consulting confirms that, indeed, EU sentiment stands on a good mood, even without Germany. Major risks that they see are March Italy elections - "Election polls suggest that the populist party Five Star Movement will gain the highest share of the vote, but will fall well short of a majority. Going forward, we continue to see Italy’s fundamentals as concerning for it its long-term growth prospects." and some political problems in Germany. Although coalition was made formally, but they need still to be officially confirmed by voting of SPD party on January 21.
That's being said - let's watch for SPD voting result tomorrow, on Sunday, BoJ meeting on Monday and, as usual ECB on Thursday. Pay attention to issues that we've discussed here.
COT Report
Oanda gives nice tool to monitor CFTC data. Here we will take a look at two charts. First one is most recent changes. It seems that EUR indeed starts to loose upside momentum and our suggestion that it seems overbought by CFTC data starts to work. Indeed last week, net position has dropped slightly, but open interest has increased. This tells on appearing new shorts on market, but not on closing of long positions. People starts to take shorts on EUR.
Source: Oanda.com
Second chart is a whole history of EUR CFTC data. Many investors starts to talk about possible big reversal on market as net long position has reached all time high and market stands at 1.23 - somewhere in the middle of 1-1.4 long-term range. While nobody knows whether this will happen definitely, so do we - we can't exclude this totally.
Still, by our suggestion, we should try to get divergences as it was at two major reversals previously. Not just second peak should be lower but it should be accompanied by greater open interest. It is difficult to miss this moment. Also don't forget that downside reversals are faster than upside ones, just because they are driven by fear, and it is stronger than greed.
Technicals
Monthly
As we said last time - situation on markets is changing rather fast. Not just on EUR but across the board - other currencies, commodities etc.
Although we correctly have suggested that upside action should continue, because reversal month candle, we thought that it will be a bit smaller. As EUR speculative positions were highly overbought last 3 weeks and price was standing at 1.2170 monthly Fib resistance, we thought that some pullback should happen. But a lot of EUR bullish factors have coincided in short-term period and it has jumped up above this level.
Now, as we can see our all time resistance of 1.22 area has been broken up. Next target stands in a tight cancellation of different levels. All time 3/8 Fib level @ 1.2516, YPR1 @ 1.2616, and also this will be 50% Fib level.
Weekly
Here situation has not changed significantly.
So, on monthly we've discovered relatively long-term target - 1.2617. On weekly chart all targets stand in relation to last action. In fact, we should get extension of some degree.
Large 1.618 AB-CD extension of monthly rectangle points on 1.2375 target. Butterfly also has 1.618 target at the same area - 1.2425.
Last week butterfly has hit 1.27 target and weekly overbought. As a result, we see hint on MACD divergence. It is not confirmed yet, but it could be. On top we have shooting star pattern. Taking in consideration last CFTC report on new shorts were taken, this indeed could be a sign of retracement.
Weekly picture tells that this is not good moment for taking long position on EUR right now. Most probable retracement destination is 1.21 area of previous top.
Daily
On daily chart, despite a bit choppy and chaotic action on intraday charts, our setup still stands valid. Once as we've identified bearish reversal candle we've recommended to wait a retracement down. And this trading plan still on the table.
It could a bit difficult to trade EUR short right now and we do not call for that, as our major idea here is to use retracement for taking long position at better price.
Daily chart mostly confirms what we've got from monthly/weekly analysis. Indeed, 1.2050-1.21 area looks rather strong as it includes previous top, consolidation, daily K-support area and daily Oversold.
At the same time as AB-CD pattern here as weekly butterfly action shows signs of strong acceleration. It means as retracement will be over - there is not bad chance on upside continuation.
Intraday
Here, guys, action let's us recognize only one pattern. This is a kind of Double Top, or you could treat it as rectangle as well. Classical targets of these patterns are the same - height, counted down, in direction of breakout. It points on 1.2045 area.
Also, inner AB-CD XOP target stands in the same area. This is mostly agrees with our daily support area that is rather wide.
Conclusion:
Technical picture tells that our retracement setup is still valid. Mostly analysis points on 1.21 area. Anyway it is uncomfortable to go long at current circumstances. At the same time, we do not call you to trade EUR short right now. Major driving factors for EUR are still strong and this bounce is mostly technical.
In relation to EUR, we will watch for US government shutdown reaction, which should be really mild, by our thought, and mostly - ECB meeting on Thursday. Lack of hints on reducing of QE volumes or terms will work in favor of our retracement.
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.
. Just one phrase about strong dollar has put status quo. Actually it is still unclear what dollar America wants. They appy import tariffs on washing machines, solar panels, but at the same time they want stimulate export. With strong dollar it is more difficult to do.