FOREX PRO WEEKLY, July 25 - 29, 2016

Sive Morten

Special Consultant to the FPA
Messages
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Fundamentals

(Reuters) The euro fell further on Friday after news of shooting inside a shopping center in Munich where police said there were multiple deaths and casualties stoked investor jitters and spurred selling in the single currency.

Guys, here is my call to Europeans. The Globe equilibrium is changing. Europe right now stands in focus of turmoil (as battle for Middle East is almost done), It's tried to be frightened by former world governors, that gradually are loosing power. That's why Germans, French, Italians and others - do not visit huge stores, mass public events (as in Nice Bastilia celebration), concerts, different shows, mass public gathering places, try to avoid rush hours in public places, aeroports, say, all places where a lot of people. Speaking on Munich event, this is not an occasion - it has been done in anniversary of Breivik massacre in 2011 of Palestinian supporters that were in labour camp. This also stands in association to Munich Olympic games when Israel sportsmen deligation were killed in 1972. Finally - precisely 70 years ago, 22th of July 1946, europeans were killed in "King David" hotel explode.

You probably know that in Autumn will be a voting in UN on Palestinian subject to stop illegal Israel building process on Eastern shore of Iordan river and return this territory as Eastern Jerusalem to Palestina. Currently Europe and Germany mostly supports this act. So, Munich massive killing is act of intimidation to Europe and Germany in particular. Just consider the date and agreement with former events...
Another puzzle in this picture - Cyprus has cancelled former agreement on Israel gas transit to Turkey by its territory. Gas is on Gollan tops that belongs to Syria, this is just a question of time when this territory will be returned to its original and single owner... As I've said - buttle for Middle East is almost done, global force balance is changing... Now is a Europe time...


Now, let's go furhter with FOREX...


The dollar index rose to a more than four-month high on Friday as positive U.S. data and weak readings from overseas prompted investors to re-evaluate the likelihood of central bank policy divergence between the United States and other developed countries.

The flash Markit survey of purchasing managers, executives who make spending decisions at major firms in the United States, rose to its highest level in a year, surpassing economists' expectations.

While in Britain, the same metric fell by the most in its 20-year history, prompting UK officials to say more easing could be imminent. In the euro zone, the purchasing managers' index showed its lowest reading since January 2015.

"In the United States, fundamentally, economically speaking, indicators have shown consistency and steadiness," said Juan Perez, currency strategist at Tempus Inc in Washington. "And what we’re seeing post-Brexit is that the fundamentals of manufacturing and services in the euro zone and the UK are at peril. That’s why finally you’re seeing this type of reaction."

The dollar .DXY rose 0.5 percent against its currency basket .DXY touching a high of 97.487, its highest since March 10.

The euro fell to its lowest level against the dollar since Britain's surprise vote to exit the European Union. It was last down 0.45 percent to $1.0975.

Sterling was the biggest mover among major currencies. It fell 1.15 percent against the dollar to $1.3080.

Marc Chandler, chief global currency strategist at Brown Brothers Harriman & Co, also pointed out that readings on U.S. inflation, industrial production, retail sales and employment since the Brexit vote have all beaten expectations. He said that was a leading cause for investors to price back in chances of a rate hike by the Federal Reserve.

Fed funds futures rates on Friday show investors see nearly a 50-percent chance the Federal Reserve raises U.S. overnight interest rates by the end of the year, according to CME Group's FedWatch tool. The chances of the central bank raising overnight rates were below 20 percent just weeks ago.

The same conclusion we could make on other relative events. Political risks are growing, investors become more careful:

Shrugging Off Record Highs, Mutual Fund Investors Remain Wary of Equity Funds
by Tom Roseen

Despite the broad indices reaching record highs during the Thomson Reuters Lipper’s fund-flows week ended July 20, 2016, mutual fund investors collectively kept their foot off the pedal, redeeming $7.1 billion from conventional equity funds (ex-exchange-traded funds [ETFs]). Shrugging off the third consecutive week of plus-side returns for equity funds (+0.86% this past week), mutual fund investors appeared to focus on the Bank of England’s decision to leave its monetary policy unchanged, a horrific terrorist attack in Nice, and the failed coup attempt in Turkey, preferring to sit on the sidelines and take a skeptical reading of upbeat economic news out of China and the U.S. For the year-to-date period equity mutual fund investors redeemed a net $82.0 billion from the conventional funds business, while being net purchasers of taxable bond funds (+$16.7 billion) and municipal bond funds (+$32.7 billion).
Estimated-Net-Flows-Equity-Mutual-Funds-20160720.jpg

Perhaps more telling, authorized participants (APs) have continued to pad the coffers of equity ETFs, injecting some $4.3 billion into the group for the flows week. With much of the recent uncertainty put to rest, the “Brexit” vote completed, and the Federal Reserve Board not raising its benchmark interest rate, it appears many APs are finding some buying opportunities and are willing to put on more risk in search of higher yields and returns. Year to date APs have injected a net $18.8 billion into equity ETFs. And much like their retail counterparts, they have taken a keen interest in the fixed income universe, being net purchasers of taxable bond ETFs (+$54.9 billion) and municipal bond ETFs (+$3.4 billion) year to date.
Estimated-Net-Flows-Equity-ETFs-20160720.jpg



Political Risk
by Amareos

Specifically, our composite measure of political risk is the equal-weighted sum of five sentiment metrics: debt default, financial sector instability, government anger, social inequality and social unrest. This choice reflects the fact that not all political risks, or in extremis crises, are created equal. They can have multiple sources or catalysts. To illustrate this consider a few examples, beginning with the UK Political Risk Indicator (PRI) in the run-up, and subsequent to, the Brexit vote.

At the time PM Cameron announced the date of the EU referendum vote, the UK’s PRI stood at zero – its long-run average – but it rose notably over the following three week period as the public were subjected to the scare tactics of Project Fear, heightening concern about financial instability. While a brief lull was observed after the initial wave of warnings, concerns about financial sector instability quickly resurfaced when official campaigning began in mid-April, rising further in mid-May when the BoE issued its report warning of recession in the event of a No vote.

By the time of the vote the UK PRI had increased to its highest level since the widespread and violent street protests of summer 2011 when social unrest surged. That the index remains at such elevated levels is a clear signal that despite the UK being a stable and open economy – and hence likely to be considered a low political risk on some metrics – the environment contains substantial political risk. Certainly, it will be interesting to monitor how the UK PRI evolves in light of the unexpectedly early victory of Teresa May in the Tory leadership race leading to her replacing Cameron as British prime minister this week.
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Finally, and more forward looking, what about the situation in the US in the run-up to November’s presidential election? The US PRI has been fairly low over the last year or two. However, it jumped very sharply over the last few days reflecting rising social unrest and government anger – obviously events in Dallas have had a strong bearing.

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Given the vitriol seen already between the two presidential candidates, and Trump’s sometimes less than diplomatic language, we strongly expect the US PRI to rise as we head in to the final months of campaigning. By how much US political risk rises over the election campaign is another question? We will have to see. What ever happens what is clear is that heightened uncertainty arising from increased political risk is both a challenge and an opportunity for investors. And, anything that can give an edge, like being able to monitor political risk in almost real time, is a valuable addition to any investment process.

COT Report
EUR chart shows mostly bearish supportive dynamic. Take a look that since June speculative short position is growing as well as open interest. It means that traders increase and open new short positions. The same has happened last week.
At the same time, EUR rate has not shown yet corresponding reaction on this process, and it seems that major drop still stands ahead:
upload_2016-7-23_13-55-3.png


Technical
Monthly

Monthly chart was mostly untouched by last week events. Currently July candle is still inside one in relation to June high wave. At the same time market slowly but stubborny continues move down...

Reversal candle that we've discussed last time has become even greater and has increased its reversal quality. As we have said previously - EUR right now shows many bearish signs, as mentioned reversal candle, inability to reach YPR1 etc.

Currently EUR stands at rather strong support area. This is lower border of downward channel and all-time 5/8 Fib support. Here EUR has formed Butterfly "buy" and it has reached first 1.27 extension here.

EUR is forming typical reversal candle in May. Price has moved above April top and tends to close below April's lows. It could not get extended continuation, but usually market shows downward continuation within next 1-3 candles. But we're on monthly chart guys...
Sometimes reversal candles lead to collapse, as it was on EUR around 1.40 area. Thrust down has started particularly by reversal candle in March 2014.

EUR was not able to reach YPR1 and returned right back down to YPP, and now even stands slightly below it. This is bearish sign. Following this logic next destination could be YPS1 right around parity and 1.618 butterfly target. This is just another destination point that we have here.

That's being said, appearing of reversal candle brings nothing good to bulls. Currently we can't precisely forecast the consequences of its appearing, but even minor results will bring 1-2 months of downward action inside current 1.04 -1.15 consolidation... Although potential bearish impact could be even stronger.

Finally we have another bearish sign that looks like bearish dynamic pressure. Take a look that although trend holds bullish - market shows inablitity to move up, even from strong support area. Next strong support stands precisely at parity and will become a culmination of downward action, since this level includes support line, YPS1 and butterfly 1.618 target. Brexit results hardly will bring prosperity to EU and probably will become another bearish driving factor for EUR.

That's being said, we treat long-term perspective for EUR as moderately bearish. Any hint on rate hike from the Fed will accelearte dropping here.

eur_m_25_07_16.png


Weekly
Here we first recall what we've said last time.
Trend has turned bearish on weekly chart. Current move down could get further continuation. Despite multiple fluctuations in wide range - market keeps valid the shape of butterfly. It is especially interesting that during last upside action EUR has stopped slightly below the top of major butterfly swing. As well as 1.05 low was slightly higher that low of March 2015. This lets EUR to keep chances on this large butterfly that has the same targets around parity as monthly one by the way....

But let's get closer to shorter-term perspective. Careful analysis of the swings shows that EUR keeps almost equal all downward harmonic swings inside this consolidation. Sometimes they are slightly greater, sometimes slightly smaller, but this difference is mild and mostly they are equal. So, we've estimated that that EUR should move slightly lower to major 50% support around 1.1060 area.Now this has happened. EUR is trying now to break the harmonic swing. Usually as soon as harmonic swing is broken - it doubles in direction of breakout, i.e. to the downside.

Here again we mostly support our previous view that EUR will move down further. This stubborn standing around 1.1050-1.11could be explained combination of daily levels and YPP. But on Brexit turmoil EUR has pierced it strongly and right now this level becomes weaker and we have reversal candle on monthly chart.

Take a look carefully at weekly chart - we have drop out from the top. Last time when this has happened EUR has doubled harmonic swing on a way down and reached 1.05 lows. As we have similar situation here - harmonic swing again could be doubled. In this case we again will appear around 1.05 lows.
But this is not the end guys. Right now we see relatively rare candlestick pattern that calls "3 black crows". This is bearish reversal pattern and very often becomes a sign for significant downward action. Thus, in perspective of 1-2 months we really could get downward continuation here, on EUR.

And finally in last 3-4 weeks we clearly see inability of market to turn up again. This behavior amazingly correpsonds to the same action when EUR has dropped down from 1.16 top. After first wave of drop - it also has tried to turn up by some retracement but later failed and dropped to 1.05. Here we see very similar behavior.

If this time we will get the same continuation as last time, i.e. double of harmonic siwng - then, we again should appear around 1.05 area... But second appearing of the price there could become a fatal and EUR easily will follow to butterfly target and parity destination. Currently price still stands inside the Brexit candle range, but gradually moves to its bottom.

eur_w_25_07_16.png


Daily


So, on daily chart we see important information. Yesterday market has erased both bullish grabbers that were formed previously and confirmed bearish sentiment. As a result we clearly could recognize existed swings here. as Brexit CD leg has happened (drop was right to 100% target of our AB=CD) - minor retracemen up has followed then. EUR has made an attempt to make it 2-leg retracement, but it had no power to complete this upside AB-CD and we've got butterfly pattern on 4-hour chart.
Now, as upside bounce has been done, we probably stand in extension leg to next target - 1.618 @ 1.06. As EUR is not at oversold, no other significant upside bounces should happen. Also we have some closer targets, such as 1.09 lows due bearish grabber and some other that are based on intraday patterns:
eur_d_25_07_16.png


Intraday

So, looks like our careful suggestion on inability of EUR to move higher was correct and market has dropped and mostly erase perspective for "222" Buy pattern. Besides, overall action that EUR shows in last 2 sessions was not typical for reversal and mostly reminds retracement.
At the same time, as you can see - EUR has hit first 1.27 target of small hourly butterfy. It means that some minor retracement still could happen.
eur_4h_25_07_16.png


Trend is bearish now on all time frames. Upside retracement hardly will be strong. Most probable destination is an area between WPP and K-resistance on hourly chart:
eur_1h_25_07_16.png


Conclusion:
Support where market stands on monthly chart is very long-term and wide. Standing there could last for months or even years, and may be sometime upward action will happen there. But right now, EUR shows bearish signs for perspective of 1-2 months. It's really high probability exists that move down will continue at least to 1.05 area or even deeper.

In shorter -term perspective EUR has erased bulish patterns and by market mechanics currency stands in extension mode to next target around 1.06 area. On intraday charts we have more shorter-term targets. On Monday some minor retracement is possible in 1.10 area before downward action will continue. That's being said, currently we do not see any signs that break our bearish view on EUR as in long-term as in short-term perspective.


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 slipped ahead of the U.S. Federal Reserve's two-day policy meeting that begins later on Tuesday, while the yen gained despite expectations that the Bank of Japan will ease later this week as investors grow increasingly skeptical about the impact of further stimulus.

The dollar shed 0.9 percent against the yen to 104.84, while the euro skidded 1 percent to 115.19 yen.

Tokyo is compiling a spending package worth about 20 trillion yen ($189 billion), government sources told Reuters last week, though actual public spending will be far less than the headline number suggests.

"The Japanese government's fiscal stimulus appears to be 'buy the rumour, sell the fact,'" said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

"It might not be enough to boost Japanese growth, at least compared to the strong expectations at first," he said.

A Nikkei report on Tuesday said Japan was likely to inject 6 trillion yen in direct fiscal outlays into the economy over the next few years.

"For the yen, what matters most in our opinion is the 'mamizu' or real water content of the fiscal package - more so than the headline total which is easily inflated," said Ray Attrill, global co-head of FX strategy at National Australia Bank. "The bigger this is, the more stock market supportive it will be and negative for the yen."

Japanese government projections on Tuesday underscored the pressure on policymakers to revive the economy. Japan will not meet its goal of reaching nominal gross domestic product of 600 trillion yen ($5.7 trillion) in fiscal 2020, and may not achieve it even by fiscal 2024 if growth stays sluggish, the government's projections showed on Tuesday.

Later this week, most economists surveyed by Reuters expect the BOJ to take some form of easing steps at its two-day meeting that ends on Friday.

But some fear the central bank risks triggering a market backlash if it fails to meet investors' easing expectations.

Sentiment was also subdued by news that 19 people were killed and dozens injured in a knife attack allegedly by a former employee at a facility for the disabled outside of Tokyo. Such mass killings are extremely rare in Japan.

"The initial headlines put pressure on the dollar/yen, because there was no way to know at first that it was not a terrorist attack, similar to those that have taken place in the U.S. and Europe recently," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

Meanwhile, the U.S. central bank is widely expected to stand pat on policy at its meeting that ends on Wednesday, but investors were bracing for any possible signals from the Fed about a tightening later this year.

Fed fund futures on Monday indicated that the market sees nearly no chance of a rate hike this week, but the chances of a December hike rose to 56 percent, up from 48 percent on Friday.

The dollar index, which tracks the greenback against a basket of six major rivals, edged down 0.1 percent to 97.173 .DXY, below the previous session's high of 97.569, its loftiest peak since March.

The Australian dollar rose 0.2 percent to $0.7482 as investors awaited inflation data on Wednesday which many believe will send a signal on whether interest rates will be cut as early as next month.

Underlying inflation is expected to fall to a record low of 1.4 percent, a Reuters poll showed, which is seen prompting the Reserve Bank of Australia to trim its cash rate.

The pound slipped 0.2 percent to $1.3118, pressured after a survey painted a subdued picture of Britain's manufacturing sector on Monday.

Adding to that pressure was a report in the Financial Times that Bank of England policymaker Martin Weale had dropped his opposition to an easing and now favored immediate stimulus.


Today we will take at EUR, because CAD setup is almost done and loonie stands very close to our target, GBP is still trying to form H&S pattern, but as longer it is forming as greater chances that it will fail. Thus, let's keep an eye on EUR.

Currently we do not see any bad things that could break our bearish view on EUR. Today Fed meeting will start. Thus, on daily chart we mostly will be watch for possible bearish grabber that could be formed today. If we will indeed get it - then it could finally lead market to 1.09 area - our first short-term target:
eur_d_26_07_16.png


As recent US statistics mostly possitive, Fed assessement of US economy also should be positive rather than negative. This will be supportive to US and could become a catalyst of downward action.

Right now market stands in upward retracement as a result of completion 1.27 extension of minor butterfly on 4-hour chart. Upward action is rather choppy and has no signs of thrust, thus, it could happen that upward retracement is almost done, if we take a look at hourly chart as well.
eur_4h_26_07_16.png


On hourly chart EUR has reach our predefined level - K-resistance and WPP area. Also take a look how careful EUR holds harmonic siwngs - as downside as upside.
eur_1h_26_07_16.png


Trend is bullish here still. So, if you think about short entry, you could apply DiNapoli Minesweeper entry technique. Wait, when houlry trend will break down (by MACD) at our resistance area, then you can try to enter short at some minor upward retracement.
That's been said, our downward trading here continues.
 
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Good morning,

(Reuters) Reports of a larger than previously expected fiscal stimulus plan for Japan had the yen back on the defensive on Wednesday, as investors bet the Bank of Japan (BOJ) would match that with a new bout of money-printing aimed at weakening its currency.

The yen has been buffeted by speculation, repeatedly denied by officials, that the BOJ will take the next step in eight years of emergency policymaking globally by handing money directly to the government with no strings attached.

The latest volley in that debate was a report by the Wall Street Journal, again denied by the Ministry of Finance, that Japan was considering issuing 40- and 50-year bonds. If the central bank was to buy and hold such debt, it would be another step towards outright financing of spending.

Allied to Prime Minister Shinzo Abe's promise on Wednesday to compile a stimulus package of more than $265 billion to reflate the flagging economy, that was enough to send the yen 1 percent lower.

"We have had a lot of volatility driven by the different reports this morning," said Thu Lan Nguyen, a currency strategist with Commerzbank in Frankfurt.

"The moves show that the bigger issue for the market is how this program is going to be financed. So far it looks like the Bank of Japan is not ready to do something new and that leaves the potential for more downside for the dollar before the meeting on Friday."

After falling more than 1 percent in Asian trading, the Ministry of Finance's denial on the bond issue helped the yen recover some ground in early trade in London. By 0748 GMT, it was down 0.8 percent at 105.465 per dollar.

The day's big set piece is the U.S. Federal Reserve's statement on policy, due after European markets close and widely expected to sound a more positive note on the economy that may bolster expectations for a rise in U.S. interest rates this year.

In that light, the dollar has quietly assembled five weeks of gains against the basket of currencies that defines its broader strength .DXY, since currency markets were shocked by Britain's vote to leave the European Union in late June.

It rose 0.1 percent on Wednesday to stand within sight of a four-month high hit at the end of last week.

"Some acknowledgement of the improved economic backdrop is likely in the statement and the market will go on slowly raising the odds of a 2016 rate hike," Societe Generale strategist Kit Juckes said in a morning note.

"The dollar will go on getting support as the whole treasury curve edges higher (and) the euro is getting stuck below $1.10."


Currently market stands quiet accross the board and wait for Fed speech. Guys, I've warned you about European situation and can repeat it again - try to avoid any mass people gathering and public entertainments etc... Europe now stands upder pressure to deny its independence challenge.

Now back to EUR... On daily chart we've got grabber that we've talked about yesterday and this is positive sign for us. Actually, it's a bit curious that after such events EUR behaves so silent. We suspect that some big action should happen, probably to the downside and probably today...
eur_d_27_07_16.png


On 4-hour chart situation is almost the same. If you will take carefully on the chart - you could recognize another butterfly that could be formed today and already is forming.
Also, take a look how action down is developing. After drop EUR shows 2-leg upside retracement that leads to appearing of butterflies. Now it is happening again.
eur_4h_27_07_16.png


Another harmony stands among upside and downside swings that we've talked yesterday. So, as you can see while EUR was forming bearish grabber it has stuck inside our resistance - K-area and WPP and turned down. As we've said, once trend wil turn bearish here - use minor retracement for short entry and this has happened. You can see this minor retracement has done just 1-2 hours ago, but EUR still stands around the same levels by far.
eur_1h_27_07_16.png


That's being said we still keep our short-term bearish view on EUR. To be honest guys, positive US statistics and massive terror in EUR is a deadly combination for EUR... I suspect that hidden bearish power could be released today, especially if EUR will drop below 1.09...
 
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Good morning,

(Reuters) The dollar took a step back on Thursday after the U.S. Federal Reserve stopped short of signalling a near-term rate rise, while the yen gained on growing expectations the Bank of Japan won't deliver the stimulus investors are looking for this week.

The Fed said on Wednesday after its two-day policy meeting that it was less worried about possible shocks to the U.S. economy, suggesting that a hike as early as September was not out of the question.

"Near-term risks to the economic outlook have diminished," Fed policymakers said.

But the central bank's improved mood wasn't enough to cement expectations that it was gearing up to raise interest rates anytime soon.

"If the U.S. economy continues to grow despite the increased headwinds, slack in the labour market will diminish, and we expect the Fed to squeeze in one rate hike before the end of the year, most likely in December," strategists at Rabobank wrote.

"However, a December call also means that we think that the risk of the FOMC not hiking at all in 2016 is substantial," they said.

The dollar index, which tracks the U.S. unit against a basket of six major rivals, stood at 96.591, below an overnight high of 97.530. Earlier this week, it had risen as high as 97.569, its highest level since March.

The euro edged 0.1 percent higher to $1.1070 while the safe-haven yen gained ahead of the BOJ's two-day policy meeting that begins on Thursday.

The dollar skidded 0.5 percent to 104.91 yen, while the euro was also 0.5 percent lower at 116.16 yen.

Japan's prime minister unveiled a surprisingly large $265 billion stimulus package on Wednesday, adding pressure on the central bank to match the measures with monetary stimulus steps.

Yen moves and political considerations could be decisive factors for the BOJ, which would prefer to conserve its policy resources in case the Japanese economy takes a turn for the worse.

The Australian dollar was up 0.4 percent at $0.7522 , taking back some lost ground after falling in the previous session as a subdued inflation report left the door open for an interest rate cut next week.

The Reserve Bank of Australia will holds its monthly policy review on Aug. 2

So, guys, this is the Fed... and that's why I do not trade Fed's and statistics. Major reason - you can't foresee it. As you can't foresee it, you can't control the situation and nothing depends on you. And I don't like it. That's why many years ago when I've passed through all these stuff I've made a decision - to not trade Feds and statistics. This is part of my trading strategy... But many traders trade them very successfully, so its rather personal...
Now... On daily EUR nothing drastical has happened. Trend has turned bullish, but our bearish patterns are still valid - as grabber as butterfly. But on butterfly we need to adjust the shape. I've drawn it on 4-hour chart.
So, today we probably will not trade EUR. Still we need to watch for 2 moments. First is - 1.1185 top. This is our invalidation point for short-term bearish scenario. If it will be taken out - our scenario will be destroyed and we will have to creat another one. It will demand time until new patterns will be formed and until we will get clarity of situation.
eur_d_28_07_16.png


Here is butterfly's new shape. Targets stand the same:
eur_4h_28_07_16.png


Second thing that we will be watch for is reversal patterns on the top of hourly upside thrust. Actually if we have a reaction on just minor unsatisfaction of investors with hawkishness of Fed, that they were insificiently hawkish, this reaction should be short term. Because, Fed hasn't said something really dovish, mostly their view was positive. If this will true, then we could get some revesal pattern on hourly chart. This, in turn, will confirm that our bearish setup is still valid as well as our bearish patterns on daily chart.
eur_1h_28_07_16.png


That's being said, as EUR stands close to invalidation point of our bearish scenario, we need to see whether it will be destroyed or not... Because it will lead to absolutely different consequences.
 
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Good morning,

(Reuters) The yen soared against the dollar on Friday after a round of modest monetary policy easing from the Bank of Japan disappointed investors who had been hoping for at least a hint of more radical stimulus.

In a month rife with speculation that Japanese authorities were readying to move towards "helicopter money" drops of cash to businesses and consumers, the yen has been more volatile than at any time since the 2008 financial crisis.

It surged by almost 3 percent, peak-to-trough in the 30 seconds following the Bank of Japan decision and as Governor Haruhiko Kuroda's news conference continued early in the European day, it was up almost 2 percent against both the euro and dollar.

That still left it short of levels seen as investors flooded into the traditional security of Japan after Britain's vote to leave the European Union last month but saw a number of banks again calling the yen higher.

"Kuroda ordered a review of the effectiveness of policy for the next meeting, which will keep easing expectations alive, but in our view not sufficiently to stop the trend of yen strength reasserting itself," said Adam Cole, head of G10 FX Strategy at RBC Capital Markets in London.

The dollar last traded at 103.31 yen, down 1.9 percent, having hit a 2-1/2 week low of 102.705 yen after the announcement of the BOJ's decision. The euro was also 1.7 percent weaker at 114.59 yen.

The BOJ announced a modest increase in purchases of ETFs, but maintained its base money target at 80 trillion yen ($775 billion) as well as the pace of purchases for other assets including Japanese government bonds.

The BOJ also kept negative interest rates unchanged at minus 0.1 percent. Many in markets had expected more cuts in rates as well as possibly more bond-buying and Japanese bond yields jumped by around 10 basis points in response.

"The BOJ clearly disappointed by merely expanding on its ETF purchases, leaving the annual pace of its monetary base increase and policy rate unchanged," said Heng Koon How, senior FX investment strategist for Credit Suisse.

"We can continue to expect elevated volatility and possible short-term risk of yen strength back towards possibly 100."

Trading conditions in the dollar versus the yen had been very illiquid going into the BOJ's announcement, with the bid to ask spread widening to 0.40 yen at one point, although they later narrowed back to around 0.02 yen or so as trading conditions normalized.

The market reaction to the BOJ's decision was exacerbated by a recent build up in expectations for the central bank to unveil significant monetary easing that effectively would fund the government's plans for increased fiscal spending.

"There had been pretty strong hopes for combined measures. There is strong appreciation pressure on the yen now that such hopes have dissipated," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

The Japanese government unveiled a surprisingly large 28 trillion yen ($267.58 billion) stimulus package on Wednesday but sources told Reuters on Thursday that the government package contains direct fiscal spending of only 7 trillion yen, also likely to disappoint investors.

Burdened by the yen fall, the dollar was half a percent lower against a basket of its peers at 96.289 .DXY having hit set a 2-week low at 96.216. The euro edged up 0.2 percent to $1.1097


So, it looks like market is tired from continues pressure - Fed, stats, Brexit etc... Now nothing is happening. It seems that our suggestion on limited reaction after Fed speech was correct. EUR indeed has stopped move up and just coiling around yesterday's close. May be it will return back to downward action on next week.

Today we will take a look at GBP. BTW, our CAD setup also feels well as Crude oil drops like a stone. On GBP we mostly would like to trade bearish AB-CD pattern that is based on Brexit drop (which is AB leg). Now we need to wait when market will reach some major Fib level on upside retracement.

Initially we thought that GBP could form H&S pattern. It is still trying to do this, but it seems that H&S is almost doomed. Few days ago we briefly has mentioned that it is too extended right shoulder that is not typical for H&S pattern.
gbp_d_29_07_16.png


On 4-hour chart we could see it better. Shoulder takes the shape of falling wedge that has been broken up on Fed, later cable has re-tested it's boarder, but that's all. Now it just can't continue move up. Also we see that multiple bullish grabbers have been formed, but still - no upside action. Market looks really heavy.
gbp_4h_29_07_16.png


It means that we will be watching for 2 moments. If GBP will drop back into wedge, this almost 100% will lead to drop below right shoulder and then drop below the head. Other words - if price will return inside the wedge - H&S is doomed. How it will hurt to our daily setup? Not strongly. It will mean that GBP could form another reversal pattern instead of H&S. Butterfly "Buy", for example with 1.26 reversal point. You know, it is difficult to judge on strength of bearish Brexit momentum right now and how much time GBP will need to fade it.
But upside retracement should happen, We just need to get the pattern.
Finally, we mostly wait for daily setup, but it is not forbidden to trade different failures and bearish combinations on intraday chart. Say, if market will start dropping, H&S failure also brings good trading potential....
 
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Hi Sive,

Hope you have been doing well.

I just have a question in regards to your personal strategy in not trading Feds and statistics.

I, personally would not like to trade them as well. It is too unpredictable as you said and pretty much like gambling and nothing is in our control.

However, what would you do if you have a position a week or even two weeks before the Fed decision or statistics? What is you are not able to put your position to BE? Do you close your position before the Feds (even at a loss)?

I do not like to trade the Feds but I have found that it is actually quite impossible to do so, since usually, I trade off the daily chart and hold onto my position sometimes a week or two weeks but then the Feds and statistics come up and I have no choice but to keep my position because my outlook is still valid.

I would really love to hear your input in regards to this.

Thank you, Sive!
 
Sorry, I just re-read what I posted and realized I made a typo and I don't seem to be able to edit my post...

"What IF you are not able to put your position to BE?"

Thanks!
 
However, what would you do if you have a position a week or even two weeks before the Fed decision or statistics? What is you are not able to put your position to BE? Do you close your position before the Feds (even at a loss)?

Hi buddy, haven't seen you around for long time ;)

First - it is difficult imagine the situation when you hold daily position for weeks and can't move stop to b/e. Usually rule of 3-sessions works well. If you do not get an action that should happen, it means that something is wrong.

Mostly I talk on short-term trading. For example if you have pattern on 4-hour or hourly chart but you know that Fed will come in few hours then I probably will not take the trade, or close position if even it will not hit target.

On daily chart and higher time frames its a bit more sophisticated process. In this case, you probably right that we can't avoid holding position through some important data or Fed. In this case I mostly take a look at where my position in relation to target. If it stands relatively close - I could take profit slightly earlier. But if I just have opened it (say couple days ago), then, I follow to my trading plan. Each position has stop loss that is placed on invalidation point. What's the difference why setup will be destroyed - by Fed price action or by technical action. Anyway it will be destruction of setup.

At the same time, usually Feds and stats are not as crucial for daily and higher time frames, due larger scale.
Finally, sometimes it is easier to predict as data as Fed results, sometimes more difficult. When it it relatively easy, I could keep position. But this is mostly exception rather than rule. Most time I try to avoid trading during NFP, Fed...
 
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