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FOREX PRO WEEKLY, January 29 - 02, 2018

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Jan 27, 2018.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals

    So, guys, it was rather interesting but at the same time dramatic week. Right now central banks stand in difficult situation. They can't disguise clear signs of economy improvement, especially in EU, but at the same time they need to do something to protect growth and do not limit it by preliminary currency growth.
    In a period of global upside economy cycle developed countries want to get as big piece of this pie as possible. So they would like to sell goods. Especially this is crucial for Japan. It is much simpler to do with cheap currency. But it is too tough rival situation and now central banks try to smooth any trends, make them gradual and keep currency value balanced to each other.
    Most difficult situation stands in US. From one point of view, they want stimulate export, long-term Trump plan with taxation and returning back major production power from abroad needs weak currency. Tax has been dropped, production cost with weak currency is lower.
    At the same time US is a hostage of awful national debt burden. For weak currency investors will demands more yield and it will start to rise. Dropping of currency in relation to commodities and other currencies is a sign of hidden inflation growth, that is not shown yet by official statistics as CPI and PPI. Here is, take a look at 10 year US Treasuries yields - they stand at peak and has potential to rise to 3.3%. In fact, here huge reverse H&S pattern is forming. As CPI and PPI are lagging indicators - we will see result of this somewhere in summer as inflation could jump:
    UST_10_29_01_18.
    Rising yields make debt serving more expensive. Also US needs to keep strong dollar to keep leadership in world's currency turnover where US dollar is treated as "Globe" currency #1. US needs to keep attractiveness to US Treasuries.
    On loosing their political force and dropping of US dollar makes other countries think about diversification. Thus, France, Japan and China already have given hint on contraction of their operations with US bonds.
    Taking in consideration big restructuring plan by D. Trump and situation with US domestic yields makes me think that inflation could be significantly stronger, but we will see it in late summer probably. This could lead to revision of Fed policy in favor of more hawkish steps closer to an end of 2018 year. My opinion is D. Trump wants to make US in a kind of Canada - leave sphere of global dominating, be focused in domestic inner processes, make America works for Americans. This is long-term process, I think it could take 6-10 years. D. Trump will be a president for 2 terms, I suppose. First stage of this plan will be most difficult and painful for US, because they still have too large external expenses (Defense, on keeping of all infrastructure across the globe, different political funds, financing of opposition across the world etc). In fact, this huge debt has appeared as result of speculation by exceptional US and USD role in the world and uncontrolled political ambitions and their financing.
    As soon as Trump will start to contract expenses - he will reduce debt. America will be strong financial center in the world, reach, attractive and stable, with happy citizens, but it will be aside from major political process that could change the face of a planet. As I said - something like Canada, or, say, Switzerland.
    That's why, dollar weakness degree within 1-2 years could be outstanding. It is difficult to forecast this.
    According to Reuters news, USB has changed their forecast on EUR:
    UBS Wealth Management upgraded its six-month forecasts for the euro on Friday to $1.28, from $1.22.

    ECB also doesn't want to suffocate green upside momentum by early rate hike. They need to give economy to warm up a bit. The same is about Japan. But they have lack of tools to do it, mostly verbal interventions is major tool in arsenal right now.
    Besides, Europe take political steps to abandon long-term "protection hand" of big overseas brother. Although it would be more correct to call it as "occupation" with creation of Brussels controlling mechanism over whole Europe. As a result, EU citizen were lost their voice, their ability to decide something in the country where they live. Most recent example is refugees wave across the Europe, where their rights were put even higher than rights of Germans who live in Germany and other domestic citizens in other countries of old Europe - France, Italy, etc.All these stuff were put as obligatory legal act from Brussels and nobody asked Germans whether they want this or not. The same stands for different US military operations across the world in 90s-00s.
    Now EU starts to make first steps to its real independence. Thus, they launch EMF (Europe Monetary Fund).
    In his first New Year’s address, Emmanuel Macron vowed to “reinvigorate European ambitions” while appealing to the French public not to be swayed by “nationalists” or “sceptics”. Since his election, President Macron has placed considerable focus on greater European integration. A key part of Mr Macron’s vision focuses on the capacity of the European Stability Mechanism (ESM), or a new alternative body acting as a European Monetary Fund (EMF) to enhance the euro area’s resilience to future shocks. Fathom expects the ESM’s responsibilities to be expanded to help manage cases of sovereign insolvency and to complete some of the missing elements of banking union. Achievement of these reforms would be likely to increase confidence in the long-term viability of the euro area’s framework.

    That's being said, in nearest 1-2 years we could see more aggressive Fed policy than it is anticipated right now. This also makes us be careful with technical picture that we have. Fundamentals overrule technical, and it could happen that we will not get support/resistance there where it should be by technical picture.

    COT Report

    Recent CFTC report shows that some amount of new longs has been opened last week. Now all data on EUR stands at all-time highs - as open interest as net long speculative position. Statistically, this stands in favor of correction, while outstanding situation also could happen, in a case if some historical breakout happens. In relation to our story, this could be, for example, due rebalancing of global portfolios if favor of EUR assets, adjusting of limits etc. This change could increase capacity of EUR futures market, and, as a result - ultimate levels of positions and open interest.
    This happens before as well.
    Anyway, sentiment analysis tells about strong bullish trend, but warns that EUR is overextended up.
    Source: upload_2018-1-27_12-39-7.
    Technicals
    Monthly


    So, last week a lot of bullish factors coincide in one time point and pushed EUR to new highs. Despite strong rally, EUR is not overbought yet on monthly chart but it comes in rather sticky resistance area. Actually, guys we're at monthly K-resistance 1.2516-1.26, accompanied by YPR1 @ 1.2617 area.

    Add here sentiment situation with highly saturated long positions and you will get perfect area for retracement. At least this is definitely not an area for long entry, if you're a long-term trader.

    Dollar Index, in turn stands at oversold and monthly 5/8 Fib support. So, most conservative retracement target is 1.20-1.21 area. This correction will be painless for overall bullish picture.
    eur_m_29_01_18.

    Weekly

    Still, the fact that EUR has hit resistance doesn't mean that drop should start immediately. As you can see, monthly level is rather wide and EUR could spend some time inside of it, challenge highs and fading existing upside momentum.
    On weekly chart EUR stands at Overbought but other patterns are the same as last week. On dovish Mnuchin speech, EUR has completed as AB-CD XOP extension as Butterfly 1.618 target. Another point in favor of bounce down. Trend stands bullish, but MACD shows hint on potential bearish divergence.
    eur_w_29_01_18.

    Daily

    Trend here is bullish as well, price is at overbought either. Here we do not have much new since our last discussion. In fact, Friday session was inside one. All that we have here is just candlestick shooting star pattern, which indicates inability of the market to hold above 1.25.

    There are two levels that potentially might be interesting - 3/8 1.23 and K-area @ 1.2150. We do not care about lower levels right now as they stand below Oversold area. In fact, or trading range for the week will be 1.2150-1.25.
    eur_d_29_01_18.

    Intraday

    So, on 4-hour chart market has formed pennant, that potentially is bullish pattern. At the same time we have MACD Divergence at strong resistance area:
    eur_4h_29_01_18.

    Still, Friday action shows that despite some reversal patterns were forming, EUR, DXY do not hurry to turn. It means that there are multiple patterns could be formed. Triangle or pennant consolidations keep door open, for, say, upside butterfly, some other patterns.

    Taking in consideration existence of OB as on daily as on weekly, personally I'll be watching for "222" Sell pattern. This is a kind of compromise between upside action and reversal. Although it suggests some upside continuation but at the same time this is bearish continuation pattern. Another advantage that entry point will be just in 2 pips difference with top. Currently "222" pattern is particular interesting - although it could fail and shift to butterfly as we saw many times, but in current situation this is less probable as market stands at overbought.
    eur_1h_29_01_18.

    Conclusion:

    Long term technical picture shows that as EUR as DXY stands around strong monthly levels. This fact significantly increases odds of pullback in 1-2 months perspective. Still, it doesn't mean that retracement should happen immediately as monthly areas are rather wide and long-term. Before drop will start - EUR not once and may be not twice will try to proceed higher.

    In short-term perspective situation is ready for retracement as well, but we do not have any clear reversal pattern yet, except shooting star candlestick on daily chart. Our view suggests that watching for "222" pattern is not bad idea...




    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.
     
  2. tun13

    tun13 Private, 1st Class

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    Hi, hi Sir, thanks for your analysis.

     
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  3. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning, guys,

    Today investors mostly will wait for D. Trump speech, where he could shed some light on perspective of US export and may be will tell something about strength of national currency. Rising of US Treasuries yields for another 10 b.p. to 2.73% brings some support to dollar.

    “There is a pause in the dollar’s weakness, at least for now,” said Teppei Ino, an analyst for Bank of Tokyo-Mitsubishi UFJ in Singapore.

    This will major driving moment for today's session.

    Technically situation mostly looks bullish, at least before Trump's speech. On daily chart market shows slow downside action and comes close to MACDP line. So it makes sense to keep an eye on possible bullish grabber:
    eur_d_30_01_18.

    4-hour chart shows that we have K-support around 1.23 area:
    eur_4h_30_01_18.

    hourly chart gives multiple patterns. First - take look at overall action, it is slow and choppy. This is a sign of retracement. Price shape reminds falling wedge, which, potentially, is bullish pattern. At the same time we have AB-CD with very flat CD leg. So, wedge could be a part of "222" Buy" pattern. OP target stands around 1.2320 - very close to 4-hour K-support. If, we also will get daily grabber - this could be very nice bullish setup...
    eur_1h_30_01_18.

    But do not treat this setup as starting point for action to new highs. Market stands at strong monthly resistance - it means that EUR could return back to tops, but do not count on something more. May be just 5/8 upside retracement will happen. So, this is tactical scenario...
     
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  4. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning, guys,

    Market has shown mostly no reaction on D. Trump speech. Now there are just two major events on horizon - today's Fed decision and NFP later, on Friday.

    Technically market mostly confirms our trading plan and tends to upside. Similar picture you could find on GBP and DXY as well. On daily we've got our major tool for trading plan - bullish grabber, that suggests action above the top:
    eur_d_31_01_18.

    On hourly chart our "wedge+222" combination has worked nice and upside action has started right from OP target, in few hours after our yesterday's video. As first leg up has been done, 50% retracement has followed. Now market stands in next extension leg. Here we have two targets. As we have grabber on daily, it is more probable that EUR will move to XOP, or, at least above tops.
    eur_1h_31_01_18.

    At the same time, guys, do not expect straight forward continuation of long-term bullish trend. Market stands at strong monthly resistance. That's why, as previous top will be taken out - it is big chances on some stuck and pullback.
     
  5. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Good morning,

    So, as Fed's comments were moderately hawkish - they confirmed that inflation should quicken and they will stay on course of rate hiking, EUR was not able to rise more than to 1.2460 area - 5/8 resistance. Now it stands in downside retracement.
    We've warned you - to not marry any long position now as market stands at strong monthly resistance level. It is possible buy from supports but close position at major Fib levels or around previous top, with moving stop to b/e asap.

    Although daily grabbers are still valid, market turns to retracement and EUR could re-establish status quo if NFP will be poor. Mostly further direction will depend on data, as it was yesterday.
    eur_d_01_02_18.

    Now EUR is forming triangle consolidation on 4-hour chart. It could lead to appearing of as AB-CD down and "222" Buy from 1.23 as upside butterfly. Background that we have now mostly tells in favor of action at least to 1.23.

    Also here we could see potential large H&S pattern with neckline around 1.2150...
    eur_4h_01_02_18.

    Hourly chart shows a kind of H&S pattern which also suggests target around 1.23.
    eur_1h_01_02_18.

    So, if you would like to go long - it is better to wait for 1.23 support area. But here we give the same call - do not hold position too long and move stop at b/e as soon as possible.

    If you would like to go short - well, may be this H&S shape will be useful.
     
  6. Robban68

    Robban68 Private, 1st Class

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    Although daily grabbers are still valid, market turns to retracement and EUR could re-establish status quo if NFP will be poor. Mostly further direction will depend on data, as it was yesterday.

    I would not count out the bulls yet . A possible butterfly sell could also be formed, targeting 1.266 if the 1.233 will be held.
     
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  7. Lolly Tripathy

    Lolly Tripathy Master Sergeant

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    You both are right
    sive sir we have to play with plan B
    Head&shoulder vs Butterfly
    H&S stop is 2475
     
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  8. Robban68

    Robban68 Private, 1st Class

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    Sive was mentioned this butterfly in the daily video as well, unfortunately I didn't have the opportunity to listen to the video before I posted the reply. :oops:
     
  9. Sive Morten

    Sive Morten Special Consultant to the FPA

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    We'll see, technically it looks like that top should be washed before reversal (if it will follow of course). One thing looks absolute - if we have longs - out around previous top. Butterfly could give nice chance for short trade as market stands in sticky strong monthly resistance.
     
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  10. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    Although US Treasuries has set new 2.79% yield top, market mostly muted this event and reacted on positive EU industrial data. It means that investors right now sentimentally skewed in favor of EU. And any puny weakness in NFP data will have stronger effect rather than significant better data.
    Investors expect 180 K jobs today.

    Technically, situation has become a bit simpler as EUR has chosen short-term direction. We've got 3rd grabber in a row as well. Despite what NFP data will be - EUR probably will wash 1.2535 top either just by some occasional spike or by solid breakout if numbers will be weaker:
    eur_d_02_02_18.

    Speaking in definite targets, if data will be worse than expected - EUR could reach 1.26 area and complete butterfly + inner AB-CD XOP target:
    eur_4h_02_02_18.

    On hourly chart market has completed a "half way" of this butterfly -"222" Sell pattern, that probably will trigger minor retracement till NFP will come. If you want to take bet on NFP numbers, or just go long - use some Fib support on hourly chart for this purpose. Most probably, it will be just 3/8 retracement as action stands very tight and slow:
    eur_1h_02_02_18.
     
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