FOREX PRO WEEKLY, July 31 - 04, 2017

Sive Morten

Special Consultant to the FPA
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Fundamentals

(Reuters) - The U.S. dollar was broadly lower on Friday as a combination of uninspiring U.S. economic data and political uncertainty kept traders biased toward the euro and other world currencies.

The euro and other major currencies rose against the dollar after the release of U.S. second-quarter gross domestic product estimates that largely met economists' expectations.

Some analysts pointed to a smaller-than-expected increase in U.S. labor costs, but others suggested the data was just an excuse for traders to continue the weak dollar trade that has sent the U.S. currency lower for much of this year.

U.S. GDP growth picked up to 2.6 percent in the second quarter, matching expectations of economists polled by Reuters, while growth in the first quarter was revised down to 1.2 percent.

"It doesn’t do much to add to the debate about the outlook for (monetary) policy going forward," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange.

"So what we’re left with is an environment where momentum is clearly working against the U.S. dollar and clearly working for the euro."

The euro has risen nearly 3 percent against the dollar so far this month and more than 11.5 percent this year. It is on track for its third straight weekly gain and the fourth in five weeks.

On Friday, the euro moved higher against the dollar, and was last up 0.65 percent at $1.1751. The euro rose to its highest against the greenback in 2-1/2 years on Thursday before retreating in later trading.

The weakness of the dollar has been most evident against the euro this year, but it has fallen against most other currencies as expectations for U.S. fiscal stimulus and an increased pace of interest rate increases from the Federal Reserve have dissipated.

The lack of surprising economic data allowed traders "to focus on the failed healthcare bill overnight, which further undermines expectations for implementation of the administration’s economic policies," Esiner said. "And that’s ultimately a dollar-negative story."


The dollar fell 0.9 percent to C$1.2440 against the Canadian dollar after Canada's GDP growth in May was triple what economists expected, rising 0.6 percent for the month and 4.6 percent year over year.

The Swiss franc fell for a fourth straight day and was set for its largest monthly drop in six years against the euro.


IMF says dollar overvalued; euro, yen, yuan broadly in line with fundamentals

The International Monetary Fund on Friday said that the U.S. dollar was overvalued by 10 percent to 20 percent, based on U.S. near-term economic fundamentals, while it viewed valuations of the euro, Japan's yen, and China's yuan as broadly in line with fundamentals.

The IMF's External Sector Report - an annual assessment of currencies and external surpluses and deficits of major economies - showed that external current account deficits were becoming more concentrated in certain advanced economies such as the United States and Britain, while surpluses remained persistent in China and Germany.

While the report assessed the euro's valuation as appropriate for the eurozone as a whole, it said the euro's real effective exchange rate was 10-20 percent too low for Germany's fundamentals, given its high current account surplus.

Britain's pound, meanwhile, was assessed as up to 15 percent overvalued compared to fundamentals, which include a high level of uncertainty over Britain's post-Brexit trading relationship with the European Union.

The Fund said the dollar's appreciation in recent years was based on its relatively stronger growth outlook, interest rate hikes versus looser monetary policy in the eurozone and Japan, as well as expectations for fiscal stimulus from President Donald Trump's administration.

The IMF recommended that U.S. authorities take steps to shrink a current account deficit that remains too large, by reducing its federal budget deficit and passing structural reforms to increase the savings rate and improve the economy's productivity.

"It's important to address imbalances, because if they're not dealt with appropriately and through the right policies, we could have a backlash in the form of protectionism," IMF Research Division Chief Luis Cubeddu told a news conference.

News in Charts: Odds of a UK Recession Are Now Greater Than Even
by Fathom Consulting

Defying widespread expectation of a recession, the UK economy weathered the Brexit storm better than the majority of forecasters, ourselves included, anticipated. That was thanks, in large part, to the strength of consumer spending. But that tide has since turned: the brief period of real wage growth is over; household finances are stretched; and June’s inconclusive general election has reignited concerns about the nation’s economic prospects.

contributions-to-GDP-growth-annual-expenditure-approach-2.jpg


In our view, the most plausible explanation for consumption surprising on the upside since last year’s vote is that households were surprisingly rational, bringing forward expenditure in anticipation of sterling weakness ahead. But as we highlighted last quarter, that explanation carries ominous connotations for an economy dependent on the consumer for growth.

Indeed, buying in advance of sterling-induced price increases merely shifts consumption from one quarter to another. Thereafter, unless wages keep pace, consumers’ real purchasing power is reduced. That is bad news for an economy that relies on consumer spending to drive growth. We believe that there is now a greater-than-evens chance of a technical recession in the UK over the next year.

UK-retail-sales-volumes-and-prices.jpg


With headline inflation destined for letter-writing territory and wage growth unlikely to keep pace, the squeeze on households’ real incomes is likely to intensify in coming months. Already, they appear to be feeling the pinch. As the chart below highlights, less than a year ago retail goods were falling in price, down 3% or more. Now they are rising by more than 3% per annum. In response, the pace of annual retail sales growth (adjusted for inflation) has slowed sharply.

Our forecast points to peak annual consumer price growth of just over 3% later this year, while some survey-based measures, such as that shown below, point to 4% or more. Although June’s inflation print was considerably weaker than expected, with the headline measure softening to 2.6%, we believe that it has merely paused for breath, before rising again later this year.

price-expectations-redone.jpg


Indeed, the biggest discrepancy between our forecast and June’s outturn was due to food price inflation, which accounted for nearly a third of our 0.3 percentage point error. We suspect that the vast majority of forecasters underestimated this component, as food prices are notoriously hard to predict, with the widening wedge between producer and consumer food price inflation perhaps indicative of a renewed supermarket price war.

Summer discounting by clothing retailers and suppliers of recreational goods was also larger between May and June this year than over the same two months a year ago. While this may well reflect the challenging consumer environment, with retailers enticing shoppers through competitive prices and loyalty schemes, sales are — by definition — temporary in nature. As a consequence, we believe that inflation will quicken in the coming months.

Already, efforts by increasingly cash-strapped consumers to preserve consumption have seen them eat into their savings. Data from the Office for National Statistics (ONS) reveal that households are, on average, spending more than ever as a share of their post-tax income. Strip out net pension contributions, and households spent more than they took home in the first quarter of this year. That implies that the British consumer has taken on even more debt.

household-saving-ratios.jpg


This reliance on credit to shore up consumption is not only worryingly reminiscent of the pre-crisis years, but is unlikely to last. Following a period of rapid consumer credit growth, supported by cheap rates and extensions of interest-free offers, financial regulators have voiced their concern, and it appears that their warnings are being heeded.

The Bank of England’s latest Credit Conditions Survey, conducted between 22 May and 9 June, reports that lenders have already tightened their credit scoring criteria and reduced the availability of unsecured credit to households, with a further decrease expected in the third quarter. Rising default rates on unsecured lending, which were said to have increased significantly in the second quarter, are also likely to have motivated this decision.

With household finances already stretched, the risk is that a tightening of credit —although ultimately a good thing — could trigger a consumer-led downturn. Another source of potential instability is an abrupt shift in consumer sentiment. As the 2008-09 global financial crisis demonstrated, waning consumer confidence is associated with a sharp increase in the average saving rate.

With June’s unexpectedly inconclusive general election reigniting concerns over the UK’s political and economic outlook, it is not inconceivable that precautionary savings may rise. With economic growth subdued, we find that just a small increase in savings (as little as £10 a week per household) could cause the UK economy to contract.

impact-on-GDP-of-small-increases-in-saving.jpg


With this in mind, we remain considerably more pessimistic than most. Not only are finances stretched, meaning that households have limited savings into which they can dip, real incomes are falling and the crackdown on unsecured lending is likely to make the usual buffer of consumer credit both less enticing and less readily accessible. For this reason, with the UK consumer under assault, we believe that there is now a greater-than-evens chance of a technical recession in the UK over the next year.

COT Report

Guys, today we probably will not prepare bright research as major currencies show tricky price action without any clear patterns for trading. Some of them have reached strong levels, such as AUD, CAD and EUR, but no clear scenario has been formed yet.
As we have GBP fundmental analysis - let' try to find out what we have on technical picture as well. CFTC data right now shows moderate bearish picture. Within 6 previous weeks it was seemed that net short position contracted, but Open interest has not increased and mostly stands flat. It means that some shorts were replaced by longs or turned to flat position. But last week open interest has increased as well as net short position which suggests that new shorts were opened.
This partially could explain why GBP shows deeper retracement that we've suggested before GDP release. Also COT report puts the shadow on bullish perspectives of GDP. Mostly in corresponds to our idea of long-term weakness of GDP and treating current upward action to 1.3250 as retracement.

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Technicals
Monthly

Although almost whole month has passed since our last talk on monthly GBP - chart barely has changed.

Just to remind you, although Fathom has long-term bearish view on GBP, they suggest that some short-term tightening could happen, starting in August . At the same time they talk that this will not be full cycle, but 1-2 hikes, mostly tactical, to resolve short-term fiscal problems in economy, because overall situation in UK economy is not very positive.

At the same time possible upside action not harm overall bearish technical picture on monthly chart. In fact Cable could show very high retracements there and they still will be just retracement. Action to YPR1 around 1.4240 will be just minor retracement up. To break overall bearish picture here price should exceed 1.72 C point. Hardly this happen very soon.

Upside target that we can estimate right now here is double of harmonic retracement, which mostly coincides with 1.42 Yearly Pivor Resistance 1 area. Right now price is still coiling around YPP and can't still break it up...

That's being said price could take a pause in long-term downside action for few months, may be even till the end of 2017 .

Still longer term perspective situation also stands unclear. GB has bought Brexit ticket, but currently it is difficult to suggest where it will lead it. Fathom consulting has negative fundamental view on perspective of UK economy. We place their articles here regularly. In two words speaking they think that UK has "deffered" effect of Brexit. It will come, but later, despite that many economists were fast to aknowledge that no negative effect will happen as we do not see it right now. Finally, taking in consideration possible 150 points US rate hike in 2 years also will be headwind to GBP. That's why we have doubts on perspective of GBP rising in long-term.

Besides, if you will take a look at all-time GBP chart, you'll see that market already has broken major 5/8 Fib support and on a way down, drop is really fast since first leg was on 2008 crisis. Overall fundamental situation is mostly supportive to this scenario, besides, 20 points is not really big distance to GBP that is more volatile than many other major currencies.

Thus we will keep for some case here our next downside target, which is 1.1240 area. This is 1.618 butterfly extension and Yearly Pivot Support 1 area.
gbp_m_31_07_17.png


Weekly

Weekly picture still stands around butterfly pattern. When we saw it for the first time and planned the first trade down we said that price could fluctuate freely till 1.26-1.2650 strong support area. 1.26 is a fulcrum. Breaking it down will mean long-term bearish trend continuation while standing above it will keep chances on action to next 1.618 extension of weekly butterfly. By this reason our target on first trade down was 1.26 support area.

So, it seems that as technical as fundamental situation mostly gravitates to scenario of upside continuation right now. At least at my view, weekly chart has more bullish signs than bearish ones. Trend holds bullish, retracement after 1.27 extension been hit - was small, just 3/8. Finally, now market is coiling around trendline resistance for 4 weeks in a row. Yes, it is a question, could we treat this picture as reverse H&S or not - everybody should decide personally, but signs that just have been named, mostly create bullish background.

Next nearest target on weekly chart stands at 1.3255 area. This is 1.618 butterfly extension. Next one is 1.3520 - if we will get AB-CD pattern and weekly overbought.

gbp_w_31_07_17.png


Daily

Situation on daily chart looks tight. Definitely some bullish power exists as market presses up and challenges 1.3150 resistance and doesn't show deep pullback. At the same time, 1.3150 is strong enough to resist as it includes MPR1, major Fib level and some intraday targets. Now it seems that this level is becoming some kind of "churning" - area of tight range but with large trading volume. Keep an eye on CME Futures. Every time when price steps up to this level - trading volume increases significantly.
upload_2017-7-29_13-34-25.png


Still, market climbs slowly but stubborny - 1.27 weekly butterfly level has been passed, as well as0.618 AB-CD target.

It seems that turning point will be on 2nd-3rd of August, as we will get BoE meeting. Last meeting story was about rate increase and August is most probable month to get it. Because, usually, market exists "churning" with fast action - either drop or rally. It some kind of breakout happens. Investors will not hurry to make decision at the eve of BoE meeting. Thus, we also should be patient, keep an eye on possible patterns. Technical picture stands in favor of upside breakout, at least right now. We will see how situation will change. This story reminds me trading setups around Scotland voting, Brexit and last Parlament voting. It has solid risk but reward also will be significant.
gbp_d_31_07_17.png


4-hour

Here is the chart that makes overall picture even more sophisticated. Take a look that 30 pips higher we have big cluster of targets - this is big butterfly 1.27 extension and two extensions of 3-Drive Sell pattern. MACD shows bearish divergence. Also do not forget about daily resistance - MPR1 and Fib level.

As price was coming closer to 1.3150 - its action has become slower, deeper retracements start to appear. Since we have almost whole week till BoE results, this significantly increases chances on moderate retracement from 1.3160 area to 1.3040 - at least 3/8 bounce could happen. This will not vanish upside scenario, but if you intend to go long immediately - it could make your idea too dangerous.

As we usually follow to rule "Better to lost chance rather than lost capital" - we should wait for retracement and be patient until BoE moment. I suspect that it would be better to make a decision in last moment, right before BoE as we could get some new inputs in technical picture, or may be bounce to 1.3040 area will be completed...
gbp_4h_31_07_17.png


Also it could happen so that in the beginning of the week bears will get better chances on intraday chart, if downside retracement indeed will start around 1.3165 area...


Conclusion:

Currently guys, it's really tough and thrilling moment on GBP. As long-term picture has not changed significantly and mostly looks bearish - on short-term charts price action could be extremely volatile on coming week.

We expect that till 2-3 August market will be calm and bears have more chances to succeed on intraday trading as 1.3165 area is strong resistance and some bearish patterns are forming there. But, as chances on rate hike by BoE is rather solid, situation could turn from top to bottom on Thursday, and area around 1.3040 could be not bad for long entry. If, of course, you're ready to pass through painful BoE decision. Daily technical picture looks more bullish rather than bearish by far....


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.
 
Looking at Quaterly chart; We do have disrespected COP together with Q F3 resistance.
This zone will be key for coming months

eurusd_quaterly.png


On the monthly market is testing first F3 resistance. Very likely it will try to close the gap higher..
EURUSDMonthly.png


Market pushing through all resistance levels on weekly .

EURUSDWeekly.png

Looking at our resistance levels on daily; We have cluster of expansions just above the market around 1.18-1.1850.

daily_resisitance.png

So if we get a pullback before reaching daily and weekly resistance zone. First level to watch for buying at 1.1595 daily confluence if we break we have 1.1525 conf. supp. below.


DAILY_SUPPORT.png


Take note of xop+ f5 agreement for stop placement on 4hr

4_HR_SUPPORT.png

Note : W
 
Good morning,

no news from Monday session yet...

(Reuters) - The U.S. dollar was broadly lower on Friday as a combination of uninspiring U.S. economic data and political uncertainty kept traders biased toward the euro and other world currencies.

The euro and other major currencies rose against the dollar after the release of U.S. second-quarter gross domestic product estimates that largely met economists' expectations.

Some analysts pointed to a smaller-than-expected increase in U.S. labor costs, but others suggested the data was just an excuse for traders to continue the weak dollar trade that has sent the U.S. currency lower for much of this year.

U.S. GDP growth picked up to 2.6 percent in the second quarter, matching expectations of economists polled by Reuters, while growth in the first quarter was revised down to 1.2 percent.

"It doesn’t do much to add to the debate about the outlook for (monetary) policy going forward," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange.

"So what we’re left with is an environment where momentum is clearly working against the U.S. dollar and clearly working for the euro."

The euro has risen nearly 3 percent against the dollar so far this month and more than 11.5 percent this year. It is on track for its third straight weekly gain and the fourth in five weeks.

On Friday, the euro moved higher against the dollar, and was last up 0.65 percent at $1.1751. The euro rose to its highest against the greenback in 2-1/2 years on Thursday before retreating in later trading.

The weakness of the dollar has been most evident against the euro this year, but it has fallen against most other currencies as expectations for U.S. fiscal stimulus and an increased pace of interest rate increases from the Federal Reserve have dissipated.

The lack of surprising economic data allowed traders "to focus on the failed healthcare bill overnight, which further undermines expectations for implementation of the administration’s economic policies," Esiner said. "And that’s ultimately a dollar-negative story."

The dollar fell 0.9 percent to C$1.2440 against the Canadian dollar after Canada's GDP growth in May was triple what economists expected, rising 0.6 percent for the month and 4.6 percent year over year.


Today we mostly will take a look at AUD, as, finally, we've got some clear patterns there. But - first is few words on GBP. It seems that market decides to not postpone 1.3250 target reaching to after-BoE moment, but complete it before meeting. It means that we will come to BoE meeting with potentially bearish technical setup as major reversal patterns will be completed.
This moment is very tricky with high degree of psychological pressure, as last meeting, BoE has given strong hint on rate increase and August treates as most probable month for that. At the same time situation in UK economy is too far to be called positive and taht will press on BoE. It means, whatever decision they will take - price action will be superb. Technical situation hints on strong plunge from 1.3250 area, but we will see...

Now to AUD...
AUD has passed trough weekly butterfly 1.27 area and major 0.7950 resistance. On daily chart, despite on OB we also do not see any signs of deeper retracement. Even vice versa - AUD has formed bullish grabber and it suggests further upward action:
aud_d_01_08_17.png


Pattern, that could be formed here, and that could finalize reaching of our major 0.8150 target if butterfly "Sell" on 4-hour chart:
aud_4h_01_08_17.png


Also, here we have minor Gartley pattern - "222" Sell on hourly chart. It has started well, but it is better to use just 0.618 AB-CD target around 0.7965 area, because it better corresponds to overall situation. This "222" pattern is just a part of larger butterfly on 4-hour chart by far:
aud_1h_01_08_17.png


If, somehow, AB=CD will be formed, and 4-hour butterfly will be erased, then we will have to start watching for larger bearish patterns. But right now we do not see signs for that yet.
 
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