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FOREX PRO WEEKLY, January 22-26, 2018

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Jan 20, 2018.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    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
    cot-EUR_USD (3).
    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.
    Inkedcot-EUR_USD (2)_LI.

    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.
    eur_m_22_01_18.

    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.
    eur_w_22_01_18.

    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.

    eur_d_22_01_18.

    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.

    eur_1h_22_01_18.

    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.
     
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  2. ward133

    ward133 Private, 1st Class

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    Thank you so much
     
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  3. FreddyFX

    FreddyFX Sergeant

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    Master Sive, what I understand from above is to better stay on the sideline for a few days.
     
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  4. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Well, yes, because downside trading could be rather nervous, despite that it could bring dividends. I think that our way is watching for 1.21 area and bullish patterns around.
     
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  5. ward133

    ward133 Private, 1st Class

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    A lot of talks here and there about US shutdown. Some assume it will be gap down. Others up. Others nothing much will happen. Let's see the coming hours.
     
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  6. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning, everybody,
    so today we're watching for BoJ result and start preparation to ECB. According Reuters news -

    The ECB is unlikely to ditch a pledge to keep buying bonds as rate setters need more time to assess the outlook for the economy and the euro, three sources close to the matter have said.
    Investors also await a Bank of Japan policy announcement on Tuesday. Analysts do not expect Japan to signal any policy shift.

    It's not a secrect that major driving factor of dollar weakness in recent time is anticipation of chaning policy by ECB, BoJ and other central banks. If investors will not hear something hawkish - this could play in favor of USD. As we've mentioned in our updates - technically situation is ready for retracement. It needs just some driving factor to push it.

    Technically, it seems that we're coming to culmination. Today we will take a look at DXY but on EUR is the same situation. Here, we have clear AB-CD XOP target that coincides with 1.27 butterfly around 89.61 level. On EUR, XOP stands at ~ 1.2375. It means that somehow market should complete it. Taking in consideration rumors above - it means that price should creep to target within 2 days and then jump up on ECB statement, as Draghi could give some strength to USD. I also think that ECB statement will be dovish. Too fast EUR acceleration also worries ECB and this acceleration is driven just by expectation of policy shifts that even have not started yet. Thus, I think chances on moderate retracement from 89.60 level are good:
    dxy_d_23_01_18.

    On 4-hour chart price action also suggests drop. Here we have triangle that is accompanied by bearish dynamic pressure, which suggests appearing of new lows. Stops that stand now beneath the lows could accelerate price action and push it to 89.60 target.`
    dxy_4h_23_01_18.

    On hourly chart it could take a shape of butterfly and inner AB=CD pattern:
    dxy_1h_23_01_18.

    As we've said, for us major target of analysis is retracement, despite how it will start - before ECB or after it. Since we're watching for taking position when retracement will be over. Also we could trade retracement itself.

    Now you could either try to take scalp short position, this is not forbidden, although might be risky, or just wait when price will hit 89.60 target. It is not good point to go long yet.
     
  7. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,
    Just two words on fundamentals. JPY and EUR grow too fast. It seems that ECB most probable will follow to BoJ and will say nothing. Because it will be too much to trigger additional rally up from 1.23 area. Technical picture mostly suggest that big reversal on Dollar is a question of few weeks. At least, DXY tells that this is very probable.
    If we will be right on ECB - then this reversal could start even tomorrow.

    As our short-term setup on DXY has completed and market hit the target @ 89.65, now we will watch for bullish patterns there. But while we're waiting - let's take a look at JPY. Here is another interesting setup.

    In fact, on daily chart we have large "222" Buy pattern right at daily Agreement suport. But here we have nuance. XA swing of "222" is monthly grabber that is still valid and that suggests action above 115 area. This perfectly corresponds to our anticipation of possible deep upside action on DXY.
    jpy_d_24_01_18.

    Here we have just minor tactical quesiton where particular upward reversal will happen. On 4-hour chart we have minor butterfly "Buy", but drop is too fast and here is a great chance that price will move 40 pips lower, to 1.618 extension point:
    jpy_4h_24_01_18.

    That's why first it is better to spend time with hourly thrust down. For example, we could keep an eye on possible B&B "Sell" that could be very welcome in current situaiton.
    jpy_1h_24_01_18.

    That's being said, today we could try to catch B&B "Sell", but within week or so we sould get clarity with upside reversal pattern here.
     
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  8. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning, guys

    As we've said in our weekly research - it is better not to go short, although we're watching for retracement down. When market stands in impulse of this kind - it could be unpredictable in terms of retracement. Thus, even yesterday in the morning - retracement was possible, but later external factor has hit all markets accross the board - Mnuchin said in Davoc that he is welcome weak dollar. This is step out from classic view on "strong US dollar" policy that was kept since 90's.

    As we warned yesterday - now is a period of currency wars. Since potential of central banks are limited as rates are low already, there will be verbal intervensions. On Tuesday it was done by Kuroda, when he announced that BoJ has no intention to change policy yet.
    Today I will not be surprised if ECB will give no hint on possible policy change and even could give a concern on too fast EUR growth...

    Technically, guys, EUR stands at weekly and daily OB, butterfly has been completed. It is not good idea to go long right at this point, thus, all that we could do is to wait for pullback. 1.21 area seems like acceptable target for this bounce.
    eur_d_25_01_18.

    Whether to trade it or not? Well, it is not forbidden, but it would be better if you will get clear bearish reversal patterns on your back. Now I do not see any of this kind yet.

    While we're waiting for clarity and ECB, I think that we could try to trade this most recent thrust. For example, B&B trade could become nice setup:
    eur_4h_25_01_18.

    Another reason, why I do not go short right now is dollar index. As it didn't turn up from our 1.27 target, and now next strong monthly support stands at 88.15-88.40, i.e. it is still 40 pips. That's why I think EUR also could flirt around 1.25 for some time.
     
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  9. Dankanas

    Dankanas Recruit

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    Thank You, Sive, for Your great work.
    While trading forex and making technical and fundamental analysis it seems to me that technicals are much more easy to master. With fundamentals, personnaly I, still have much more problems to understand in the all media mess what precisely drives the market at particular time. Sive, it would be very appreciative and valuable to read as much fundamentals as You have time to post and write in the forum or explain in the video.
    Have a good day!
     
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  10. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning, guys,

    So, D. Trump has become a hero of all dollar bulls yesterday ;). 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.

    In fact, we see just simple verbal intervensions and attempt to keep FX market balanced, because central banks have not much tools to do it right now except rhetoric.

    So, today we will take a look at dollar index, as I think that picture here is exciting. Our suggestion about possible 1.25 level on EUR was correct, because at the same moment DXY has touched major 88.15 target on weekly chart. Now, DXY stands at very strong support area that includes - butterfly, major 5/8 Fib level and weekly OS. In fact, here we have two bullish patterns - butterfly and DiNapoli "Stretch". Also this is natural support/resistance long term zone:
    dxy_d_26_01_18.

    On 4-hour chart as target has been hit, we've got nice bullish engulfing pattern:
    dxy_4h_26_01_18.

    While on 30-min chart it is taking the shape of reverse H&S pattern. So, as right shoulder should be somewhere around 88.70 - this is first logical point where potentially market could turn up. The half of H&S pattern also now looks like "222" Buy...
    dxy_1h_26_01_18.

    Similar setups now stand on other currencies, so you could choose what you like more.
     
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