FOREX PRO WEEKLY, January 25-29, 2016

Sive Morten

Special Consultant to the FPA
Messages
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Fundamentals
(Reuters) - The Canadian dollar rallied against its U.S. counterpart on Friday, extending gains following the Bank of Canada's steady rate decision mid-week, as crude oil prices rose and retail sales data suggested the economy was stronger than expected.

Oil rose as a cold snap boosted demand for heating oil across the United States and Europe.

Global equity and commodity markets had been hit hard so far in 2016 on heightened fears about slower global growth, but have recovered on rising expectations of monetary easing by central banks in Europe and Japan.

"The market is beginning to get a better handle on the risk," said Adam Button, currency analyst at ForexLive in Montreal. "The first three weeks of the year, everyone was panicking about everything."

"It got a little bit overdone and the snapback rally has been tremendous."

The Canadian dollar ending the session trading at C$1.4150 to the greenback, or 70.67 U.S. cents, much stronger than the Bank of Canada's official close of C$1.4279, or 70.03 U.S. cents.

The currency touched its strongest level since Jan. 11 at C$1.4139, while its weakest level of the session was C$1.4300.

It touched C$1.4689, or 68.08 U.S. cents at one point on Wednesday, its weakest since 2003.

The market has reduced expectations for Bank of Canada rate cuts after the central bank decided on Wednesday to leave its policy rate at 0.50 percent, putting the onus on federal authorities to raise spending.

"The Bank of Canada has signaled they have a higher threshold for acting soon and they have punted the ball to the federal government," said Derek Holt, an economist at Scotiabank.

Canadian retail sales jumped 1.7 percent in November, far more than expected, due to higher sales at new car dealers and Black Friday purchases, data from Statistics Canada showed.

On the other hand, Canada's annual inflation rate edged up less than expected to 1.6 percent from 1.4 percent in November, Statistics Canada said. The core inflation rate continued to edge downward, falling to 1.9 percent from 2.0 percent the previous month.

Canadian government bond prices were mostly lower across the maturity curve, although the two-year price was up half a Canadian cent to yield 0.454 percent. The benchmark 10-year fell 45 Canadian cents to yield 1.318 percent.

The Canada-U.S. two-year bond spread was 4.4 basis points more negative at -41.9 basis points as Treasuries underperformed at the front of the curve.

CFTC data shows typical bearish sentiment - strong growth of net short position and open interest. Here, we mostly are interested in "where is the end of this journey". By taking a look at historical chart we see that CAD has limited potential of increasing net long position since it stands very close to historical maximum. Hence, following this logic market still could continue move slightly higher (by chart shape), but final point should be somewhere around already. Short position takes ~75% by far of total speculative position, so it could rise for 8-10% to reach 82-85%. This is particularly last top around 72-75K of net shorts...
upload_2016-1-23_11-55-28.png


Technical
Monthly


Why we like CAD right now is because of clarity of long-term setup. Of course we do not know how perfect setup will work, but previous bet was nice and market indeed has hit our long-term target. When we haven't got reasonable retracement down from 1.3468 rock hard resistance (major Fib level and AB=CD target) - we understand that something else was standing on a background of this rally. At those moment extraordinary Crude oil drop just has started. And we need some time to get more signs from market to make conclusions.

As CAD stands in tight relation to Crude Oil, it doesn't make sense to look at it without Crude Oil analysis:
Windsail - Inverse of CANADIAN $ TO US $ (WMR) - EB (RH Scale).png


Here we would like to share with you our long-term look at Crude oil. First of all we should understand that Crude oil is not just necessary commodity for global economy but also a political tool. Taking into consideration current geopolitical tensions spiral, we will take a look at Crude right from this perspective. You probably will look to our conclusions with suspicions and may be you will be right, but we just can't not recognize some common moments. Definitely that current Crude oil drop has not economical nature, it is driven not by pure economical factors. Last time scenario with almost the same and last time when Crude oil shows the drop of similar degree was in 2001 and 2003 - right no the eve of US invasion in Iraq.
Crude market is not at oversold right now and current minor retracement right now mostly is due completion of small AB-CD pattern and oversold on lower time frames. Our major target stands at 17.83$. So we see relation between low price on 2003 and now. We think that after market will hit our target - some big shifts in global geopolitics could start, may be new escalation spiral, higher degree tensions on Middle East or even war. It is difficult to say definitely, but something has chance to happen that will shake markets to the bottom.
Also remind our DRPO "Sell" on S&P 500 monthly chart. They are part of the same puzzle.
Now, what relation it has to CAD. Very simple. On monthly CAD we have untouched target that now will be the major one and probably it will be reach at the same moment, when Crude will hit 18$ point.
cad_m_25_01_16.png

At the same time, market right now stands in retracement and upside action will not be straight. Take a look CAD right now at monthly overbought and turns to retracement. Right now technically most suitable level as retracement target is 1.30-1.32 It includes former top, untouched YPP and monthly K-support area. Although to be honest, guys, in current circumstances, I'm not sure that retracement will be so deep. Actually, on a way up market has no strong barriers any more, since last major Fib resistance has been broken. That's why next target is 1.56-1.58 major 1.618 AB-CD extension and YPR1. As we've seen above - neither CFTC nor Crude oil does not erase chances on reaching this level.

Weekly

Here we also have lovely picture. CAD has hit overbought and formed perfect bearish engulfing pattern right at top of AB=CD pattern. Following engulfing pattern's logic retracement should be equal to the length of the bars and approximately it coincides with 1.35-1.36 level. This is simultaneously K-support, oversold and MPP. This probably will be our first target on a way down.
Still, we know that as soon as market forms engulfing, next step is minor retracement back inside its body. So, initially we will be able to trade this upside retracement and after that - turn position down.
cad_w_25_01_16.png


Daily
This picture we mostly have discussed on Friday and it shows definite way how we will trade first step in our trading plan - minor upside retracement back inside weekly engulfing pattern.
As we've estimated on Friday we've got B&B "Buy" pattern that should trigger upside retracement that we're waiting for. The one problem that we see here is thrust up. No, it is normal, it is good, but I'm not sure what part of it we should take for B&B recognition. Either as we show on chart or 2 times longer - from 1.3330 lows.
The reason for that is retracement in rectangle. It has not reached 3/8 Fib level, so theoretically we have whole thrust right from 1.3330 Anyway, market right now stands as at major Fib level from minor thrust as at major level from the whole thrust, because we 're at K-area :).
That's being said, if B&B will work at all - upside action should start somewhere here. CAD right now at K-support and oversold.
cad_d_25_01_16.png


Hourly

So, guys we were right on reaching deeper targets on hourly chart, which are 1.618 of AB-CD pattern and butterfly, but market even has overcome them slightly. And this is not very good sign. It means that we will need to wait for some more bullish confidence and prove that upside action really has started. Probably we will wait for upside reversal and then will try to take position on minor retracement. B&B has solid upside potential, so we do not need to hurry.
cad_1h_25_01_16.png

Or, may be we will wait something on 4-hour chart. If you will take a look at it - you'll see that there we have perfect thrust down. So, we could get, say, DRPO "Buy" there or something else...

Conclusion:
Although we see long-term bullish context for USD/CAD and think that CAD will become weaker, in short term perspective market is ready for retracement down.
Thus, our short-term trading plan suggests upside bounce approx. to 1.4450 level as first step, second - downward continuation to 1.35-1.36 level.


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 dollar inched down slightly on Tuesday, though major currencies did not stray far from recent ranges as investors were cautious ahead of the outcome of the Federal Reserve's two-day policy meeting beginning later in the session.

Investors will be parsing the U.S central bank's message to determine what, if any, effect volatile global markets, plummeting oil prices and heightened fears of a Chinese slowdown will have on the Fed's previously stated intentions to continue raising rates this year.

U.S. interest rates futures implied traders placed a mere 13 percent chance the Fed will hike rates this week.

"There's a lack of fresh catalysts," said Sue Trinh, senior currency strategist at RBC Capital Markets in Hong Kong.

While the perceived safe-haven yen edged higher as regional equities and crude oil slipped, Trinh noted that highly volatile crude oil futures remain above more than 12-year lows plumbed last week.

In addition to the Fed, investors are also focused on the Bank of Japan's two-day meeting that will end on Friday.

Sources familiar with the Japanese central bank's thinking say it is likely to cut its core consumer inflation forecast for the coming fiscal year to possibly below 1 percent.

Most strategists and market participants expect the BOJ to hold pat despite the increasingly worrying economic data and stressed markets, though speculation that policymakers might muster additional stimulus steps have underpinned the greenback.

"The market was caught long JPY amid the rapid build-up in expectation for easing. There should be further scope for a reversal to weigh on JPY ahead of the event," wrote Todd Elmer, Citi's Asian head of G10 FX strategy.

"Citi attaches up to a 40 percent probability for a move from the BOJ," he added.

When asked on Tuesday about the chance of additional BOJ easing this week, Japanese Economy Minister Akira Amari said the country's central bank does not signal in advance whether it will ease monetary policy the way the European Central Bank does.

The ECB's style is quite bold, but I don't think the BOJ would adopt this approach," Amari said.

The euro was steady at $1.0847 , above last week's two-week low of $1.0776 but still undermined by growing expectations that the ECB is gearing up to take more easing steps of its own.

ECB President Mario Draghi promised on Monday to increase inflation, rejecting criticism of the central bank's loose monetary policy and arguing that sluggish growth in prices was damaging the euro zone economy.

Markets now price in a 10-basis-point cut in the ECB's -0.3 percent deposit rate in March, and many investors also expect the central bank to increase its monthly asset purchases.

The Ifo German business confidence deteriorated to an 11-month low in January, with manufacturers particularly concerned that Europe's largest economy will suffer from a slowdown in emerging markets.


Today guys, again, on CAD. As we've started this trade, let's continue with it further... Besides, on EUR - we still can't get final direction. EUR stands above 1.07 and it means that it still holds chances on upside butterfly and upside action. May be Fed meeting will bring some clarity...

On CAD... I will not repeat whole analysis that we've made in weekly research and just tell that our 1st step has started well. Market indeed shows nice upward action from our suggested level. As a result, by the end of the Mon, market has formed nicely looking bullish engulfing pattern on daily chart, so B&B has started and has all chances to be completed:
cad_d_26_01_16.png


On 4-hour chart we see 2 major moments. First one is B&B target @ major 5/8 Fib reistance. Second - right now market is approaching to 3/8 resistance and WPP. It means that those of you who would like to join but have missed initial entry could get second chances. Others - move stops to breakeven and just watch the movie.
Besides, retracement is logical due engulfing pattern. It is very typical action after pattern has been formed:
cad_4h_26_01_16.png


Also you can see that market has completed hourly AB-CD , so we have Agreement as well. Retracement should not be too deep, since CAD is not at overbought on daily chart. It seems that most logical level to watch is 1.4220-1.4240:
cad_1h_26_01_16.png


So let's keep it up and hope that Fed will not hurt our setup too much...
 
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Good morning,

(Reuters) - The dollar struggled to gain traction on Wednesday as markets awaited clues on interest rate policy from the Federal Reserve, while the Australian dollar rose after one measure of domestic inflation was slightly higher than expected.

Wednesday's main focus will be on the statement released by the Fed after its Jan. 26-27 policy review. While the central bank is almost certain to keep interest rates unchanged, investors are keen to see its latest economic outlook given the turbulent start to global financial markets this year.

"If the statement refers to falls in oil prices and turmoil in financial markets or points to their impact on the outlook for inflation and growth, that could be seen as being dovish and lead to selling pressure against the dollar," Masafumi Yamamoto, chief FX strategist at Mizuho Securities in Tokyo, said in a research note.

The downside for the dollar against the yen could be limited even in such a case, however, if such a dovish-sounding Fed statement helps alleviate risk aversion and gives a lift to U.S. equities, Yamamoto added.

Yet, with Fed fund futures <0#FF:> implying just one rate hike this year, the risk is that anything the Fed says may be interpreted as hawkish. That could see the greenback bounce back, some traders said.

More central bank policy decisions are coming up this week, with the Reserve Bank of New Zealand (RBNZ) announcing its decision on Thursday and the Bank of Japan's (BOJ) policy statement due on Friday.

The Australian dollar edged higher after one measure of inflation came in slightly above forecasts, even as restrained price pressures overall suggested there was room for further cuts in interest rates.

While measures of underlying inflation slowed to the floor of the Australian central bank's target range, speculators had been positioned for a weaker number.

"Underlying inflation this low is usually a recipe for an RBA cash rate cut. But not this time: or at least not yet," Paul Bloxham, chief economist for Australia and New Zealand at HSBC, said in a research note.

"While the labour market and activity surveys are still holding up, the RBA is unlikely to cut rates. This pretty much rules out a cut next week," he said.

If there is some pullback from the strong pace of jobs growth or the high level of business conditions along with a continued cooling of the Sydney and Melbourne housing markets, that may be enough to convince the RBA that another rate cut may be needed, Bloxham added.


Today, guys, we will take a look at AUD. On CAD - B&B setup has failed, or better to say, it has not reached target. This situation another time confirms the wealth of our major approach - take position only on strong support levels - K-support + Oversold, as it was. Desptite that CAD has failed move higher - it has shown nice upward jump on Monday. Now we undertand that this was technical respect of strong support. But particularly this reaction has let us to move stop to breakeven and leave this trade with no loss.
Our second entry had no chances to happen - CAD dropped like a stone trhough all levels right after data release in US.

Now on AUD. It forms interesting setup that could give us direction on short-term charts. If you remember at the end of December - we have traded bearish dynamic pressure that has led to solid drop and renew lows on weekly:
aud_w_27_01_16.png

At the same time, as you can see butterfly has not quite reached target yet. On daily chart is the same - another butterfly has not been totally completed. Market mostly is turning up due reaching 1.618 AB-CD target:
aud_d_27_01_16.png

In big circle you could easily recognize reverse H&S pattern. But tricky moment stands with it's neckline. It coincides with former low. So, if it will break up - then upside action could be significant. Otherwise, failure here will lead to solid drop below head and new lows, completion of both butterflies probably:
aud_4h_27_01_16.png

Today we will get Fed comments that probably will push market in one or other direction. So, if you have bearish view - you could wait for breakout below shoulder's bottom and then start to search chance for short entry. If you're bullish - then, probably you could possess your trade based on this pattern. In fact, it already has been formed. Now the question is - whether we will get real upside breakout or not...
 
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Good morning,

(Reuters) - The U.S. dollar turned mixed on Thursday after the Federal Reserve offered little in the way of surprises, in contrast to New Zealand's central bank which flung open the doors to a cut in rates and clipped the kiwi in the process.

The dollar index at 98.988, coming back to where it was 24 hours ago after a brief fall the previous day after the Fed said it was "closely monitoring" global economic and financial developments.

The Fed kept interest rates unchanged as expected and said the U.S. economy was still on track for moderate growth and a stronger labour market even with "gradual" rate increases.

"Overall, the statement reflects the caution that one would expect a central bank to use in the current volatile environment. But the Fed hasn't deviated from its previous message, with future moves in rates remaining in the hands of the incoming data," analysts at ANZ wrote in a note to clients.

With the Fed out of the way, the focus is falling on the Bank of Japan, which started its two-day policy meeting on Thursday.

The choppiness in markets in recent weeks and falling inflation expectations due to cheaper oil are increasing expectations that the BOJ will once again step up its easing.

Traders say markets may be factoring in around a 50 percent chance of easing.

"It is a tricky situation. If they don't ease, the yen will strengthen and stocks will fall. But even if it does something, the impact may (only) last a week or so," said Masatoshi Omata, senior client manager at Resona Bank.

"But after that, markets could start to worry whether its monetary stimulus is really working," he added,

Mirroring concerns about slowdown in the global economy, the Reserve Bank of New Zealand (RBNZ) said uncertainty about the strength of the global economy has increased, noting weaker growth in the developing world, particularly China.

While the RBNZ also kept rates steady, at 2.5 percent, it said further easing may now be required, an abrupt turnaround from December when it flagged that it might be done cutting.

The RBNZ also said a recent rise in the kiwi-dollar was unhelpful and that "further depreciation would be appropriate in order to support sustainable growth".

Understandably, the kiwi came under immediate pressure, falling half a U.S. cent to within a whisker of 64 cents . It has since steadied around $0.6425.

"We expect more near-term downside as other trading zones digest this fresh easing bias," said Annette Beacher, chief Asia-Pac macro strategist at TDSecurites.

There is little in the way of market-moving economic data out of Asia. In Europe, Britain's fourth-quarter growth data looms large and could decide the fate of the embattled sterling.

Annual economic growth is expected to have slowed to 1.9 percent, from 2.1 percent, an outcome that could push expectations for a hike in interest rates even further out. Markets are currently pricing in a rate hike in 2017.


Today guys, we will take a look at JPY at the eve of BoJ meeting also we should keep an eye on NZD. It looks like our retracement up is over. Since we have long-term bearish targets, we probably should start searching proper moment for short entry.

In general long term charts show bearish patterns that suggest further JPY strength and move down on USD/JPY. THey are monthly DRPO "Sell" and weekly H&S pattern. Last time we have expected upside bounce as reaction on strong weekly support and trade it as DRPO "Buy" on daily chart.
But right now Yen stands at the moment where "really bearish market" should turn down again. Current move up is enough for just technical respect on strong support. Bears should take control again.
if this will not happen - this will become worrying sign for bears:
jpy_w_28_01_16.png

On daily our DRPO "Buy" works very well. After confirmation market has jumped up. So you should be not dissapointed with this trade... Still, DRPO has not quite reached its target - 50% Fib level @ 119.76. Also, take a look, this will be overbought and WPR1. So, here we have level where Yen should turn down, if it is really bearish.
jpy_d_28_01_16.png

Hence, first conclusion that we could make here - ending point of retracement is close, but Yen could move a bit more up. On 4-hour chart you see initial reversal butterfly - as part of DRPO "BuY' that has let us to take long position and right now - flag consolidation that hints on another leg up:
jpy_4h_28_01_16.png

Finally, the key of the puzzle is butterfly "Sell" that is forming on hourly chart with target @119.66 and bearish divergence. This butterfly should finalize as DRPO "Buy" as upside retracement and turn Yen down.
If this will not happen then overall bearish context stands under question:
jpy_1h_28_01_16.png
 
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Good morning,

(Reuters) - The yen was weaker on Friday after the Bank of Japan's stunning announcement it was adopting a negative interest rate policy, though some of the currency's initial sharp losses were pared.

The Japanese central bank's action comes as investors around the world have been swept up by turmoil in markets amid fears of slackening global growth, a collapse in oil prices and wobbles in China's economy. That has increased headwinds against the BOJ's 2 percent inflation goal.

The BOJ said it was adopting a negative interest rate of minus 0.1 percent to current accounts that financial institutions hold with it.

Also, the BOJ said it will cut interest rates further into negative territory if judged necessary.

The dollar jumped by more than 2 percent against the yen at one point to 121.495 yen, the greenback's highest level in more than a month.

It later came off such highs, however, and was last trading at 120.30 yen , up 1.2 percent on the day.

However, a sticking point is that the BOJ's new policy, which effectively charges financial institutions for parking excess reserves is not very compatible with quantitative easing, as can be seen from the fact the BOJ kept its monetary base target unchanged, Kureda said.

"I don't think this (move) is necessarily being viewed in a positive manner," he said, referring to the reaction among market participants.

The BOJ said it would conduct money market operations so that the monetary base will increase at an annual pace of 80 trillion yen ($675 billion).

"Yes, the BOJ has surprised with the introduction of negative interest rates. However, we note that it is made on a marginal majority vote of 5 vs 4," said Heng Koon How, senior FX strategist for Credit Suisse private banking and wealth management in Singapore.

"We now eagerly await (Governor Haruhiko) Kuroda's press conference for more details. At this stage, our JPY view stays positive," Heng said.

"Irrespective of this surprise easing from the BOJ, the yen remains rather undervalued, especially after this knee-jerk fall past 120. It remains to be seen if this yen move is sustainable," he added.


Today, guys, we a bit unexpectedly but will take a look at EUR. As recent swing has been formed - more clarity has come. Besides, although we were correct on some moves - on AUD, JPY, but the degree of these moves were greater than we expected and we have to postpone decision making on position taking moment for later time, when we will get patterns. For example, on JPY - expected upside leg has happened but was overextended due stun BoJ decision on rate cutting in negative zone...
That's why, today, on EUR...
Our major concern is denying by EUR downward action ignoring bearish patterns. It means that upside action has not bad chances to happen. But later EUR just has stuck in the range and does not move in any direction.
But right now we've got the pattern that gives us better understanding of situation. This is reverse H&S on daily chart. So, now we have weekly bullish flag, multiple potential upside butterflies and H&S. This lets us to take a look on situation on different angle.
View attachment 23495

It is interesting that EUR right now already stands at neckline. If it will fail to show breakout - it will become big challenge on failure of whole bullish setup. Here we need to watch for the bottom of right shoulder. Drop below it will lead to move below head. This in turn, will destroy all bullish patterns and open the road for big bearish butterfly on daily chart:View attachment 23496
Meantime, upside targets mostly stand around 1.1050. Still we think that market could jump a bit higher, since stops around the top probably will be triggered and it is more probable that market will reach 1.1100-1.1150 area.
Right now EUR stands in creation of right wing of minor butterfly. Retracement to 5/8 Fib level will be normal. So, if you're bullish and would like to take long position - try to do this as closer to bottom of right shoulder as possible. If you're bearish - wait for H&S failure and drop below the shoulder:
View attachment 23497
 
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Commander pls is it correct to estimate OB/OS level on monthly chart using only 2 highs or low's because most time on monthly 3rd level can't be obtained from DOSC. Pls correct me I notice my OB has no been reached on monthly and weekly chart on DOSC for usd/cad, though daily OS was reached. Thanks for prompt response Commander.
 
is it correct to estimate OB/OS level on monthly chart using only 2 highs or low's
Yes, it is correct, you even could use 1 low/high. Also you could use not close but "high" or "low" price, this also will give you more extreme points. DiNapoli has mentioned it when he talks on stop placement using OB/OS levels.
 
Yes, it is correct, you even could use 1 low/high. Also you could use not close but "high" or "low" price, this also will give you more extreme points. DiNapoli has mentioned it when he talks on stop placement using OB/OS levels.



thanks for your prompt answer as usual.
 
Possible Butterfly "SELL" on EUR/USD? 127.2% target coincides with Upward AB-CD 61.8% extension on Daily TF.

Market been refusing to drop below MPP and with appearance of what looks like a Bullish Flag on Weekly TF, could the Daily TF be giving us some hints about possible upward continuation?

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