Sive Morten
Special Consultant to the FPA
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- 18,695
Today guys, we dedicate our analysis to JPY. It has interesting fundamental background, but also technical picture looks thrilling. Our former analysis of EUR, CAD and GBP needs no update, as we've specified long-term targets and markets are going to them. On GBP we've got perfect entry recently and upside action has started. Our expectations here is 1.3250 level initially. on CAD we have big bearish monthly AB-CD in progress.
But on JPY situation needs some clarity. If you remember for few weeks we were monitoring bearish signs and patterns and were waiting for entry point but we haven't got anything as US data has improved, some dollar bullish reports were released and it was seemed that all bearish scenarios are vanished. Current analysis shows that it is not quite so, especially in a light of recent poor CPI and Sales data. CPI and Sales numbers are changing slowly and rather durable compares to volatility of month-to-moth employment data. And they could indicate structural problems of US economy. Recent Yellen's speech also gives a hint on this subject. Reaction on US bond and equity markets has followed, dollar also has dropped. And it seems that our suggestion that no more rate hike will happen in 2017 has chances to become a reality.
JPY right now shows such combination of sentiment and technical patterns that looks really attractive, and promise big journey....
Fundamentals
(Reuters) - The dollar fell against a basket of major currencies on Friday, after weaker-than-forecast data on consumer prices and retail sales in June raised doubts about U.S. economic growth and whether the Federal Reserve would raise interest rates again in 2017.
U.S. consumer prices were unchanged in June and retail sales fell for a second straight month, pointing to tame inflation and soft domestic demand.
Economists had forecast the CPI edging up 0.1 percent last month. Its drop of 0.1 percent in May and the lack of a rebound in June could trouble Fed officials who have largely viewed the recent moderation in price pressures as transitory.
"The CPI data begs the question, at what point does transitory becomes something that is more sustained, in terms of the softness," said Richard Franulovich, senior currency strategist at Westpac Banking Corp in New York.
The dollar index, which tracks the greenback against six major rivals, was down 0.6 percent to 95.152 after earlier falling to 95.132, its lowest since September 2016.
U.S. interest rates futures rose as traders pared their view the Federal Reserve would increase rates again in 2017.
"Moderating price pressures suggest the Fed may be less willing to lift U.S. borrowing costs for a third time this year," Omer Esiner, chief market analyst at Commonwealth FX in Washington, said in a note.
The U.S. dollar remained broadly on the back foot against major currencies.
Against the Japanese yen, the greenback was down 0.65 percent to 112.53 yen, after hitting a near two-week low of 112.28 yen.
"Dollar-yen has got a lot more downside and it could easily go to 110 yen before the summer is out, in fact the next few weeks, especially with U.S. yields heading lower," Franulovich said.
The higher yielding Aussie and New Zealand dollars jumped, with the Australian dollar hitting a near 15-month high as risk appetite was robust with global stock markets hitting record highs and after dovish comments from global policymakers.
The Aussie was 1.23 percent higher against the greenback at $0.7821.
The euro was up 0.62 percent against the greenback to $1.1466 and sterling was 1.18 percent higher at $1.3088, after hitting $1.3093, its highest since September, 2016.
Chart of the Week: UK real earnings lower now than in 2009
by Fathom Consulting
UK real wages have fallen behind productivity since the recession. The performance of productivity has been very poor, but at least it has been positive, while real wages are lower now than they were at the start of 2009. The gains from higher output have been returned to the owners of capital rather than to labour. That shortfall creates potential scope for real wages to recover – to run faster than productivity growth – for a period, without necessarily resulting in higher domestically generated inflation. Shareholders would suffer in that world, as the share of profits in GDP would fall. And firms might seek to pass on those higher labour costs to consumers in the form of higher prices as a result. But higher prices can only be sustained if the market will bear them, and the global economy that we now inhabit makes that harder than ever...
COT Report
CFTC data brings important information on yen. Now it stands extremely bearish (axis are reversed on the chart) and net speculative shorts stands near all time extremes. Historically reversal on JPY happens, when net position touches 111-117K contracts on short side. Now JPY stands at 112K and absolute value was 135K in 2014.
Last three weeks trades agressively open shorts and open interest inreases trhee weeks in a row as well as net speculative position value. This is understandable as technically major bearish USD/JPY patterns were destroyed and important trend line was broken. Fundamentally a lot of dollar supportive information and statistics were released, especially NFP data.
But last week poor data and Fed dovish comments could change situation. We already see it on the charts. This combination of sentiment oversold and technical patterns creates unique situation that we could try to use...
Technicals
Monthly
This chart has too large scale and doesn't clarify yet long-term perspective. In general, it seems that yen is forming huge H&S pattern here. Rally on second part of H&S confirms this idea, retracement to the bottom of the shoulder already has happened, but right now it is unclear, whether yen will rally right now, or will show some kind of AB-CD down.
Trend stands bullish, but price action forms flag consolidation. This pattern is rather wide and price could fluctuate there for months. Thus, we could get a lot of bearish setups to be completed inside it on lower time frames.
Conversely, flag is bullish continuation pattern and in far going perspective, yen could formed upward AB-CD, or even butterfly. To be honest, guys, I think that this sooner or later will happen. Because, if you will take a look at the chart of US T-notes - they shows long-term bearish reversal pattern. It means that yield is going to rise and this will make negative impact on yen price:
Thus, monthly chart doesn't bring a lot of clarity for short-term perspective, but in longer-term, despite what fluctuations will happen around, Yen has more chances to drop (USD/JPY to rise) in perspective of few years...
Weekly
Weekly time frame is a major one for our setup and actually shows the major backround of our analysis. To be honest, guys, I was a bit frustrated when market has started to show real bullish signs, breaking all bearish reversal patterns on intraday charts within two recent weeks. It has become clear that major weekly patterns will be vanished and this is just a question of time. Overall picture with weekly bearish grabber and daily butterfly was looking pretty nice and, in some degree, it was pitty to withdraw it from accounts.
But the most tricky moment has come right in time when grabber and butterfly were erased - new bearish pattern has been formed. I was near to miss it...Now, it looks really interesting, because it has real fundamental background. But let's go step by step...
Although trend still stands bullish here, we have some interesting moments. The major one is large "222" Sell pattern and some kind of "Dark cloud cover" or even "Engulfing" right at reversal point. Second - this reversal happens, right at MPR1 which suggests that bearish trend is still intact.
Invalidation point stands above 115.50 and it is rather close in relation to overall scale of the whole picture.
If this is indeed so, here we have major support around 106.50 Fib level and weekly oversold. Next target stands in relation to our former AB-CD pattern. As 100% AB=CD leg has been completed - price turned to upside retracement where it stands right now, but next, 1.618 target stands @ 104.30 area. It is rather far, so it's not very interesting right now.
Thus, as you can see, combination of this pattern with fundamental issues and sentiment oversold creates healthy background for JPY appreciation...
Daily
Now let's go futher. Daily chart is even more interesting...Well, may be 300-400 pips on weekly chart is not big distance, but still it is too big for us to dive in this trade right now. So, we need to find some decision that could help us to take position at more acceptable level and relatively safe...
So, daily chart provides this issue. As you can see we have perfect B&B "Buy" pattern right at daily K-support area. It has great chances to reach target. What does it mean? It means that we should get at least 5/8 backmove, approx. to 113.60-113.70 area.
At the same time, here we have another concern. Take a look that large AB-CD pattern has not been totally completed as it has completion point around 115.05 area. That's why, here we need to watch for upside continuation, as JPY could try to complete AB-CD target. May be some butterfly will be formed or some other bearish reversal pattern. But this is also advantage for us as we will get clear pattern for entry in weekly "222" setup...
That's being said, we will start our next week with B&B "Buy" trading. Our second step will be - watching how situation will develop, whether JPY will gravitate to AB-CD target completion. Theoretically it is very probable as upside momentum stands strong and a lot of traders do not understand yet, that yen probably stands in reversal point.
And last thing... take a look at huge triangle. Now market shows that upside breakout was a fake. Now just imagine what will happen, if price in result of B&B "Buy" will return back above trendline.. Right, a lot of traders will go long and they will be trapped around 115.05 AB=CD completion point. It means that collapse that could start from 115.05 area will be very strong.
Hourly
Hourly chart shows perfect H&S pattern that has become a background of reversal. Here will be very difficult estimate precise upside reversal point for daily B&B "Buy". Why? From the one side - daily K-support is very strong level that could stop current plunge and, in fact, we could get situation that DiNapoli calls as "Ooops!" - failure of classic pattern, if you have strong support just below neckline. This is our situation.
But from another side - we has strong nasty candle down, market already has passed through minor 0.618 AB-CD target and stands rather close to AB=CD point. 50-60 pips is not really big distance for daily chart and this will not lead to breakout of daily K-area. That's why, market could complete AB=CD before upside reversal. This will be even better for us, since we will get completed patterns.
This completion could take shape of butterfly, for example. May be some other pattern will be formed. So, just keep your eyes open here. And - do not hurry. Daily B&B will take few sessions to be completed, especially when market has strong bearish impulse. Wait for clear patterns here....
Conclusion:
Right now we definitely see B&B "Buy" setup on daily chart and will start with it. Then we have more than just single scenario and will adjust our trading plan as soon as we will get more information.
In long-term perspective, it could happen so, that JPY stands in reversal point. This should become clear within few weeks probably...
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.
But on JPY situation needs some clarity. If you remember for few weeks we were monitoring bearish signs and patterns and were waiting for entry point but we haven't got anything as US data has improved, some dollar bullish reports were released and it was seemed that all bearish scenarios are vanished. Current analysis shows that it is not quite so, especially in a light of recent poor CPI and Sales data. CPI and Sales numbers are changing slowly and rather durable compares to volatility of month-to-moth employment data. And they could indicate structural problems of US economy. Recent Yellen's speech also gives a hint on this subject. Reaction on US bond and equity markets has followed, dollar also has dropped. And it seems that our suggestion that no more rate hike will happen in 2017 has chances to become a reality.
JPY right now shows such combination of sentiment and technical patterns that looks really attractive, and promise big journey....
Fundamentals
(Reuters) - The dollar fell against a basket of major currencies on Friday, after weaker-than-forecast data on consumer prices and retail sales in June raised doubts about U.S. economic growth and whether the Federal Reserve would raise interest rates again in 2017.
U.S. consumer prices were unchanged in June and retail sales fell for a second straight month, pointing to tame inflation and soft domestic demand.
Economists had forecast the CPI edging up 0.1 percent last month. Its drop of 0.1 percent in May and the lack of a rebound in June could trouble Fed officials who have largely viewed the recent moderation in price pressures as transitory.
"The CPI data begs the question, at what point does transitory becomes something that is more sustained, in terms of the softness," said Richard Franulovich, senior currency strategist at Westpac Banking Corp in New York.
The dollar index, which tracks the greenback against six major rivals, was down 0.6 percent to 95.152 after earlier falling to 95.132, its lowest since September 2016.
U.S. interest rates futures rose as traders pared their view the Federal Reserve would increase rates again in 2017.
"Moderating price pressures suggest the Fed may be less willing to lift U.S. borrowing costs for a third time this year," Omer Esiner, chief market analyst at Commonwealth FX in Washington, said in a note.
The U.S. dollar remained broadly on the back foot against major currencies.
Against the Japanese yen, the greenback was down 0.65 percent to 112.53 yen, after hitting a near two-week low of 112.28 yen.
"Dollar-yen has got a lot more downside and it could easily go to 110 yen before the summer is out, in fact the next few weeks, especially with U.S. yields heading lower," Franulovich said.
The higher yielding Aussie and New Zealand dollars jumped, with the Australian dollar hitting a near 15-month high as risk appetite was robust with global stock markets hitting record highs and after dovish comments from global policymakers.
The Aussie was 1.23 percent higher against the greenback at $0.7821.
The euro was up 0.62 percent against the greenback to $1.1466 and sterling was 1.18 percent higher at $1.3088, after hitting $1.3093, its highest since September, 2016.
Chart of the Week: UK real earnings lower now than in 2009
by Fathom Consulting
UK real wages have fallen behind productivity since the recession. The performance of productivity has been very poor, but at least it has been positive, while real wages are lower now than they were at the start of 2009. The gains from higher output have been returned to the owners of capital rather than to labour. That shortfall creates potential scope for real wages to recover – to run faster than productivity growth – for a period, without necessarily resulting in higher domestically generated inflation. Shareholders would suffer in that world, as the share of profits in GDP would fall. And firms might seek to pass on those higher labour costs to consumers in the form of higher prices as a result. But higher prices can only be sustained if the market will bear them, and the global economy that we now inhabit makes that harder than ever...
COT Report
CFTC data brings important information on yen. Now it stands extremely bearish (axis are reversed on the chart) and net speculative shorts stands near all time extremes. Historically reversal on JPY happens, when net position touches 111-117K contracts on short side. Now JPY stands at 112K and absolute value was 135K in 2014.
Last three weeks trades agressively open shorts and open interest inreases trhee weeks in a row as well as net speculative position value. This is understandable as technically major bearish USD/JPY patterns were destroyed and important trend line was broken. Fundamentally a lot of dollar supportive information and statistics were released, especially NFP data.
But last week poor data and Fed dovish comments could change situation. We already see it on the charts. This combination of sentiment oversold and technical patterns creates unique situation that we could try to use...
Technicals
Monthly
This chart has too large scale and doesn't clarify yet long-term perspective. In general, it seems that yen is forming huge H&S pattern here. Rally on second part of H&S confirms this idea, retracement to the bottom of the shoulder already has happened, but right now it is unclear, whether yen will rally right now, or will show some kind of AB-CD down.
Trend stands bullish, but price action forms flag consolidation. This pattern is rather wide and price could fluctuate there for months. Thus, we could get a lot of bearish setups to be completed inside it on lower time frames.
Conversely, flag is bullish continuation pattern and in far going perspective, yen could formed upward AB-CD, or even butterfly. To be honest, guys, I think that this sooner or later will happen. Because, if you will take a look at the chart of US T-notes - they shows long-term bearish reversal pattern. It means that yield is going to rise and this will make negative impact on yen price:
Thus, monthly chart doesn't bring a lot of clarity for short-term perspective, but in longer-term, despite what fluctuations will happen around, Yen has more chances to drop (USD/JPY to rise) in perspective of few years...
Weekly
Weekly time frame is a major one for our setup and actually shows the major backround of our analysis. To be honest, guys, I was a bit frustrated when market has started to show real bullish signs, breaking all bearish reversal patterns on intraday charts within two recent weeks. It has become clear that major weekly patterns will be vanished and this is just a question of time. Overall picture with weekly bearish grabber and daily butterfly was looking pretty nice and, in some degree, it was pitty to withdraw it from accounts.
But the most tricky moment has come right in time when grabber and butterfly were erased - new bearish pattern has been formed. I was near to miss it...Now, it looks really interesting, because it has real fundamental background. But let's go step by step...
Although trend still stands bullish here, we have some interesting moments. The major one is large "222" Sell pattern and some kind of "Dark cloud cover" or even "Engulfing" right at reversal point. Second - this reversal happens, right at MPR1 which suggests that bearish trend is still intact.
Invalidation point stands above 115.50 and it is rather close in relation to overall scale of the whole picture.
If this is indeed so, here we have major support around 106.50 Fib level and weekly oversold. Next target stands in relation to our former AB-CD pattern. As 100% AB=CD leg has been completed - price turned to upside retracement where it stands right now, but next, 1.618 target stands @ 104.30 area. It is rather far, so it's not very interesting right now.
Thus, as you can see, combination of this pattern with fundamental issues and sentiment oversold creates healthy background for JPY appreciation...
Daily
Now let's go futher. Daily chart is even more interesting...Well, may be 300-400 pips on weekly chart is not big distance, but still it is too big for us to dive in this trade right now. So, we need to find some decision that could help us to take position at more acceptable level and relatively safe...
So, daily chart provides this issue. As you can see we have perfect B&B "Buy" pattern right at daily K-support area. It has great chances to reach target. What does it mean? It means that we should get at least 5/8 backmove, approx. to 113.60-113.70 area.
At the same time, here we have another concern. Take a look that large AB-CD pattern has not been totally completed as it has completion point around 115.05 area. That's why, here we need to watch for upside continuation, as JPY could try to complete AB-CD target. May be some butterfly will be formed or some other bearish reversal pattern. But this is also advantage for us as we will get clear pattern for entry in weekly "222" setup...
That's being said, we will start our next week with B&B "Buy" trading. Our second step will be - watching how situation will develop, whether JPY will gravitate to AB-CD target completion. Theoretically it is very probable as upside momentum stands strong and a lot of traders do not understand yet, that yen probably stands in reversal point.
And last thing... take a look at huge triangle. Now market shows that upside breakout was a fake. Now just imagine what will happen, if price in result of B&B "Buy" will return back above trendline.. Right, a lot of traders will go long and they will be trapped around 115.05 AB=CD completion point. It means that collapse that could start from 115.05 area will be very strong.
Hourly
Hourly chart shows perfect H&S pattern that has become a background of reversal. Here will be very difficult estimate precise upside reversal point for daily B&B "Buy". Why? From the one side - daily K-support is very strong level that could stop current plunge and, in fact, we could get situation that DiNapoli calls as "Ooops!" - failure of classic pattern, if you have strong support just below neckline. This is our situation.
But from another side - we has strong nasty candle down, market already has passed through minor 0.618 AB-CD target and stands rather close to AB=CD point. 50-60 pips is not really big distance for daily chart and this will not lead to breakout of daily K-area. That's why, market could complete AB=CD before upside reversal. This will be even better for us, since we will get completed patterns.
This completion could take shape of butterfly, for example. May be some other pattern will be formed. So, just keep your eyes open here. And - do not hurry. Daily B&B will take few sessions to be completed, especially when market has strong bearish impulse. Wait for clear patterns here....
Conclusion:
Right now we definitely see B&B "Buy" setup on daily chart and will start with it. Then we have more than just single scenario and will adjust our trading plan as soon as we will get more information.
In long-term perspective, it could happen so, that JPY stands in reversal point. This should become clear within few weeks probably...
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.