Forex FOREX PRO WEEKLY, July 31 - 04, 2023

[Sive Morten]

Fundamentals

This week we've got drastic shifts in market sentiment as on USD as on EUR, but not because of ECB and the Fed meetings. The major driving factors has become a statistics, as in EU as in the US. Our task now is to make an analysis and recognize how reliable these recent changes and what stands on a background. We will show you very interesting picture, that you never see on Bloomberg or CNBC TV. Numbers that we will show you are not of a primary importance, but it shows slow changes that are starting in the US economy.

On a background of record growth of IIQ GDP we see real estate lending rates are approaching 8%. And wages have not gone up. There will be no soft landing. Banks hold toxic loans to their very gills. The value of real estate is falling like a brick. There are no buyers under 8%. The market no longer takes Powell seriously. And many other things we consider today.

FED AND ECB CHANGE EUR/USD BALANCE

I would say that this time C. Lagarde speech has made stronger impact, because it almost breaks all expectations on another rate hike in September. EU manufacturing and service sectors are at the edge of collapse, demand of loans dropping fast, while tighter banks' capital conditions will make more pressure on financial sector, starting spiral of contraction of loans, making them more expensive and reducing of production more.

The President of the European Central Bank gave a pessimistic assessment of the economic prospects - the word "deterioration" was heard. This is the ninth consecutive rate hike, and the Board of Governors is not prejudiced about another similar move in September. The euro tumbled as Lagarde spoke and briefly dipped under $1.10 , having risen 0.5% to touch $1.1149 beforehand. Markets had fully priced in another rate hike just a few weeks ago, but few now see a move in September and markets only are pricing 17 basis points of hikes over the rest of the year.

The ECB reiterated that future decisions will ensure that the key ECB interest rates "will be set at sufficiently restrictive levels" for as long as necessary to achieve a timely return of inflation to the 2% medium-term target.

Indeed, Latest Monetary Developments in the Eurozone Point To A Gloomy Outlook. The eurozone’s composite flash PMI decreased by 1.0pt to 48.9, below consensus expectations, on the back of a broad-based decline across sectors., with weakening demand triggered the steepest decline in manufacturing orders since 2009, while the services sector suffered its first drop in orders for seven months.

In its quarterly survey of 158 big banks, the European Central Bank (ECB) said that demand for loans from businesses over the last three months fell at the fastest pace on record (the time series began in 2003) and banks tightened their credit standard to consumers over the last three months. It’s not just supply that is contracting. Demand for borrowing from businesses looks to be collapsing, dropping to the lowest since the survey started in 2003 – yes, that includes the 2007-2008 credit crunch. The factors that lead to this weakness are rising rates, a drop in fixed investment plans, lower financing needs for inventories and increased internal financing.

Via The ECB:

The decline was again substantially stronger than expected by banks in the previous quarter. The net decrease in loan demand was the strongest since the start of the survey in 2003 for SMEs (net percentage of -40%, see Chart 7), while the net decrease in demand for loans to large firms (net percentage of -34%) remained slightly more limited than during the global financial crisis. In addition, the net decrease in demand was the strongest over the history of the survey for long-term loans (-46%), while demand for short-term loans decreased to a lesser extent (-22%) but still close to the historical low of the global financial crisis.

And Germany's IFO data did nothing to help, confirming yesterday's ugly PMIs. The expectations component gives a reliable lead on German growth, and points to re-weakening of the economy after the technical recession in 4Q22 and 1Q23. So the odds of a September ECB hike falling dramatically this week (following PMIs, IFO and now the lending survey)...

As credit growth has been slowing and excess liquidity declining, the liability side of the European banking sector naturally shows a further fall in growth of broad liquidity. The M3 growth rate fell to 0.6% y/y in June 2023 from 1.0% in May. The more liquid M1 measure, which comprises currency in circulation and overnight deposits, fell to -8.0% y/y. In real terms, it is a 12.8% fall. This is the sharpest contraction in M1 since, at least, the 1960s and historically consistent with recession. It reflects a shift out of the most liquid components as a result of relatively low rates on current accounts, but also means that more money is being locked up in term deposits or securities instead of being available to support spending.

Thus, it is only the 17-20 bps priced in for the September and October ECB meetings is beginning to look on the high side. For the ECB, the die has been cast, with leading data pointing to a much weaker outlook over the next 3-6 months. But sentiment alone cannot right a listing ship, and the underlying hard data in Europe continued to weaken. Real money growth is one of the most reliable leading indicators for Europe’s economy, and its collapse points to the trend in weaker growth intensifying.

Lending demand and growth are deteriorating in Europe, and the two biggest economies, Germany and France, are showing increasing signs of weakness.
On top of that, inflation should continue to decelerate at a rising pace. Fixing swaps see European HICP at 4% in September, and 2.8% in October. This corroborates the message from the steep fall in inflation surprises seen in the euro-zone.

The fall in inflation will tighten real rates even if the ECB takes its foot off the brake. This comes at the same time as a considerable drop in the size of the ECB’s balance sheet. It is 19% off its highs, versus only about 8% for the Fed. The ECB’s QT has been turbocharged by the early repayment by banks of hundreds of billions of euros of TLTROs. As conditions in the Europe tighten considerably more in the coming months, while growth keeps weakening and spot inflation is set to be much lower, the ECB is likely to have several off-ramps to skip hiking at the September meeting, and the meetings after that. All these moments you could see on charts below:

"Because we expect a significant decline in inflation and a recession in the second half of the year, we continue to not forecast a rate hike in September. On the other hand, we doubt the market's view that the ECB will cut rates as early as 2024," said Joerg Kraemer, chief economist at Commerzbank.

But EU problems are not over with fast deteriorating in Manufacturing and Service sector. Banking sector alarms problems on bad loans, while EU companies start cut jobs. The latest flurry of bank earnings in Europe highlighted broader trends in global banking, where investment banks are under pressure due to a deal drought, while higher interest rates are helping profitability in retail banking.

Germany's financial regulator BaFin has been calling on banks to raise the amount of money they set aside for bad loans. Deutsche Bank on Wednesday said provisions for bad loans nearly doubled in the second quarter from a year earlier to 401 million euros. Chief Financial Officer James von Moltke told reporters Germany's largest bank saw a "softening in some sectors". The bank now expects provisions for souring loans to be at the "upper end" of its previous guidance.

On an evident signs that situation is becoming worsen, European Central Bank policymakers debated doubling banks' mandatory - and now unremunerated - reserves on Thursday as part of their fight against high inflation, two sources close to the matter told Reuters. Raising banks' obligatory reserves - to 2% from 1% of deposits and some other sources of funding - would mop up more cash from the banking system and therefore contribute to the ECB's efforts to raise borrowing costs and cool inflation. But it would also be expensive for banks, which will no longer receive interest on that cash, and reduce their pool of available liquidity.

Meantime, three banks from the European Union failed to meet binding capital requirements in a stress test that saw a theoretical 496 billion euros ($546 billion) wiped from their buffers, the bloc's banking watchdog said on Friday. The European Banking Authority (EBA) said the test covered 70 banks, 20 more than in 2021 with 57 from the euro zone whose test was overseen by the European Central Bank, representing about 75% of banking assets in the EU.

The outcome shone a spotlight on several German lenders in particular, who ended the test with modest capital cushions. Of the 14 German banks tested, 8 were below the EU average for CET1 and leverage ratio, while 6 were above. Those that were above were primarily subsidiaries of U.S. banking giants, like Goldman and JPMorgan, or financing arms of companies like Volkswagen Bank.

Deutsche Kreditwirtschaft, an umbrella association representing the German financial industry, said the results proved that German banks were "resilient" but it criticized the ECB's approach.

"The results of many European banks were worsened by markups applied by the ECB in later steps of the process and the stress-related capital losses were significantly increased," it said. "This approach jeopardizes the confidence of market participants."

An ad-hoc analysis of banks' holdings of bonds against a backdrop of rapidly rising interest rates showed that unrealised losses totalled 73 billion euros in February, but this could more than triple if the bloc's economy suffered severe stress. Finally, just to close the topic with next ECB decision, two European Central Bank policymakers on Friday raised the prospect of an end to the ECB's steepest and longest string of interest rate rises, as the outlook for the euro zone economy worsened despite stubbornly high inflation.

"It looks like we are very close to the end of interest rate rises," Stournaras, the Greek central bank governor and a policy dove who favours lower rates, told capital.gr.
In any case, if there is one further (rise)- I see it difficult - in September, I believe we will stop there."

Kazimir and Stournaras both said the ECB was unlikely to cut rates for several months after its last increase, a view echoed by their Lithuanian peer Gediminas Simkus.

"We are looking for the right place to stay for a large part of next year," said Kazimir. "And you will recognise that it has to be a place where we all must like it a little."

ECB policymakers have been dealt a difficult hand. Core inflation in the euro zone was seen coming down more slowly than previously thought, with wage growth expected to pick up in a tight labour market. But growth forecasts were revised down for the next two years as well as in the longer term and companies were recording stagnating activity, with no improvement in sight. Sentiment in the industrial sector kept worsening too.

So, information above clearly shows that the question about another rate hike in September is closed. It drastically changes the balance of EUR/USD pair, that could be materialized in nearest 1-2 months on a visibility of strong US data and rising concern on another rate hike from the Fed. Next week we get preliminary estimate of July euro zone inflation and second quarter GDP.Economists polled by Reuters forecast the euro zone economy grew 0.2% in Q2. GDP was flat in Q1 versus the previous quarter.

Now to the Fed...

The Fed has disappointed, really. Nothing new, total absence of strategic plan. If we wouldn't get strong data later on, situation might be much worse. Based on the press conference that J. Powell have made, we come to following thoughts - total indecision. Just take a look at this "if" and "maybe"

• If necessary, we can go for further tightening of monetary policy;.
• in September, everything will depend on macro data;
• the full effects of the tightening have yet to be felt;
• no decisions have yet been made on the Fed's future rate;
• ready for further tightening of policy, if required;
• I don't think the policy has been restrictive for a sufficient amount of time;
• inflation turned out to be more stable than previously expected;
• it is inappropriate to give any forecasts now;
• we can afford to be patient a little;
• after today's decision, I would say that the Policy is restrictive;
• normalization of supply conditions plays an important role in reducing inflation;
• I don't think we will lower the rate this year;
• I don't think that inflation will reach the level of 2% until 2025!
• if we see convincing evidence of a decrease in inflation, then we will be able to lower the rate to a neutral level, and then below this level.
• slowing down the pace of rate hikes could mean a rise in 2 out of 3 meetings.

What? You're the head of the Fed, who should know this and make reasonable forecasts? But this is only the fist bulk of questions. The second is - I would ask you, why on the background of CPI drop, jump of GDP, fast drop in production and PPI deflation Fed makes another rate hike? We translate into English from the bird language:

In reality, inflation is not as good as we explain to everyone. At the same time, we cannot understand exactly what is happening (yet), so we will monitor the situation and react as we receive information. That is, there is complete helplessness, especially taking into account the various positives that have accumulated over the past week.

Here is what to recall:

GDP (QoQ) (Q2):
FACT: 2.4%
FORECAST: 1.8%
PREV.: 2.0%

GDP Deflator (QoQ) (Q2)
FACT: 2.2%
FORECAST: 3.0%
PREV.: 4,1%

Number of initial applications for unemployment benefits
FACT: 221K
FORECAST: 235K
PREV.: 228K

Basic orders for durable goods (m/m) (June)
FACT: 0.6%
FORECAST: 0.0%
PREV.: 0.6%

Volume of orders for durable goods (m/m) (June)
FACT: 4.7%
FORECAST: 1.0%
PREV.: 2.0%

Question: why is this positive not being considered and taken into account? Most likely, the fact is that statistical distortions can lead to significant changes in indicators and Fed officials understand that this positive only works over more or less long distances. If these data persist for three months, it will be possible to consider them, if not, they say little about anything. Well, let's take into account that, unlike us, the heads of monetary authorities have access to the results of previous "unadjusted" statistical methods, so they more or less understand the value of these positive data.

Two weeks ago, the CPI was about 3% in annual terms (June 2023 to June 2022) — much lower than the previous indicator of 4% (May to May) and 4.9% (April to April). The exact figure of the CPI index for June is 0.2%. And, it would seem, in such an optimistic situation — why raise the rate?

In addition, it can be recalled that the annual PPI rate for the entire volume of goods was -9.1%, that is, there is a significant deflation (see the review of two weeks ago), and the annual industrial production went into negative territory (see the previous review). That is, an increase in the rate is a clear risk factor against the background of a generally rather optimistic picture of the world. Why does Powell and the Fed go for it?

Of course, we cannot give an exact answer, but we will still express one hypothesis. The fact is that the level of 0.25 percentage points was the general consensus. And in this case, the Fed's leadership simply went along with the public. And it seems to us that this seemed to Powell and his colleagues a simpler solution than going to very, very complicated explanations of why he decided to go "against the market."

Recall that Powell admitted not so long ago that he does not understand the economic processes taking place today. And this means that in case of rejection of the general consensus, he would inevitably have to answer a lot of questions about the essence of the matter. Including how much the statistics on the US economy correspond to reality. The answer to this question is known, but the head of the Fed (as well as other US officials) cannot categorically state it publicly.

There is no reason to think that such a discussion is easier for Powell than trying to dodge it. That is, entering the path of a tough discussion with representatives of the financial community, he will inevitably face very serious problems, which, among other things, will reveal his insufficient qualifications. But what is allowed to us cannot be allowed to the "guru" and "demiurge" of the global dollar system, even taking into account the fact that the authority of the post of head of the Fed has fallen dramatically since the days of Volcker and Greenspan.

Otherwise, this situation can be explained in such a way that the leadership of the US monetary authorities has become a hostage of public opinion, which it is simply unable to lead due to the loss of appropriate qualifications. And this, from our point of view, is a much more dangerous situation for the United States and the entire Bretton Woods system than the specific value of interest or loan volume.

But maybe Powell sees next pictures an numbers behind positive picture of GDP, decreasing inflation and rising employment. Let's take a look at few "specific" numbers that also hardly will show on TV but which shed some light on gentle Fed comments.

If you just briefly take a look at charts above - you'll see that it is very similar to EU. It is a year has passed since Fed has applied unprecedented rate tightening and first problems are coming on surface. First is, the real wage is lagging behind inflation (on 1st chart). On a YoY basis, income and spending growth have almost converged... Savings are melting down and eroding by inflation.

Employment is slowing down right after the Fed has started the raising rate. At the same time people increasing consumption. If wage is dropping, what the source of consumption? Savings and loans. Households become over-credited, with leads to delinquencies rising and rejection of credit applications. Real retail sales starts dropping. Chart that is showing rising of small business absolutely doesn't mean the positive effect. It means that people are leaving their hired jobs and start opening shops, selling something through Amazon or taking small contracts for construction not because of a happy life. If this were happening against the backdrop of economic growth, it would be a positive. But the "pie" of the economy is only getting smaller.

• The application rate for any kind of credit over the past twelve months declined to 40.3 percent from 40.9 percent in February, its lowest reading since October 2020. Application rates declined to 11.9 percent for auto loans and 12.5 percent for credit card limit requests, but increased to 24.8 percent for credit cards, 6.5 percent for mortgages, and 5.3 percent for mortgage refinances.
• The overall rejection rate for credit applicants increased to 21.8 percent, the highest level since June 2018. The increase was broad-based across age groups and highest among those with credit scores below 680.
• The rejection rate for auto loans increased to 14.2 percent from 9.1 percent in February, a new series high. It increased for credit cards, credit card limit increase requests, mortgages, and mortgage refinance applications to 21.5 percent, 30.7 percent, 13.2 percent, and 20.8 percent, respectively.
• The proportion of respondents reporting that they are likely to apply for one or more types of credit over the next twelve months rose to 26.4 percent from 26.1 percent in February.
• The average reported probability that a loan application will be rejected increased sharply for all loan types. It rose to 30.7 percent for auto loans, 32.8 percent for credit cards, 42.4 percent for credit limit increase requests, 46.1 percent for mortgages, and 29.6 percent for mortgage refinance applications. The readings for auto loans, mortgages, and credit card limit increase requests are all new series highs.

 

[Sive Morten]

...In the first quarter, 17 healthcare companies with more than $10 million in liabilities, including a hospital, senior living centers and a pharmaceutical developer, filed for Chapter 11 bankruptcy, according to Gibbins Advisors, a healthcare restructuring consulting firm. Seven companies filed for Chapter 11 in the same period in 2020. Inflation and rising interest rates are also contributing to challenges in the healthcare sector. Medicare and Medicaid reimbursement generally comprise a large portion of a healthcare providers' revenue, but federal payments typically lag behind inflation, Clare Moylan, co-founder of Gibbins Advisors, told Bloomberg.
Commenting on the US flash PMI data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:

“July is seeing an unwelcome combination of slower economic growth, weaker job creation, gloomier business confidence and sticky inflation. The overall rate of output growth, measured across manufacturing and services, is consistent with GDP expanding at an annualized quarterly rate of approximately 1.5% at the start of the third quarter. That's down from a 2% pace signalled by the survey in the second quarter. However, growth is being entirely driven by the service sector, and in particular rising spend from international clients, which is helping offset a becalmed manufacturing sector and increasingly subdued demand from US households and businesses."

“Furthermore, business optimism about the year-ahead outlook has deteriorated sharply to the lowest seen so far this year. The darkening picture adds downside risks to output growth in the coming months which, alongside the slowing in the pace of expansion in July, will keep alive fear that the US economy may yet succumb to another downturn before the year is out.

The stickiness of price pressures meanwhile remains a major concern. As the survey index of selling prices has acted as a reliable leading indicator of consumer price inflation, anticipating the easing to 3% in June, it sends a worrying signal that further falls in the rate of inflation below 3% may prove elusive in the near term.”

Investors have been given false hope with softening in key indicators such as CPI, PPI and ISM prices paid indexes. That’s good news, but shouldn’t be over-interpreted. Details in multiple Federal Reserve surveys and PMI reports are telegraphing inflation will become an issue in the months ahead.

There are other signs inflation will make a comeback. The Baltic Dry Index, a measure of commodity shipping costs, rose more than 10% this week and gasoline touched the highest since October. Purchasing managers will quickly translate that into transportation surcharges — another cost that will be forced on to customers. Meanwhile, the near 20% gains in US stocks this year also create an inflationary wealth effect that is exaggerated by loosening in financial conditions — more inflationary signs. Investors are preparing. They bought 10-year inflation-protected securities at a record pace last week.

Besides, deeper look at inflation tells that only a-cyclical component is decreasing. As The SF Fed's data shows, the cyclical portion of inflation remains uncomfortably high, even as the a-cyclical portion has reverted lower...

So, inflation has slowed. But the problem is that it has slowed despite the Fed’s hikes. The San Francisco Fed decomposes core PCE inflation into a cyclical and an acyclical component. The first is made up of the PCE sub-components most sensitive to Fed interest rates, and the latter is compiled from what’s left over, i.e. inflation that’s more influenced by non-Fed factors.

What’s surprising is that while acyclical inflation has fallen, cyclical inflation has barely budged and remains near its highs. Indeed, the decline in acyclical inflation has driven all of the fall in core inflation. In other words, the Fed has had little direct impact on the deceleration in core-price growth. Further, neither has the Fed had much influence on the decline in headline ex-core inflation as this been principally driven by the fall in energy prices. If the Fed was responsible for the fall in inflation we’d expect to see some increase in slack. Higher rates lead to lower demand, cost cutting, job losses and eventually, lower prices. But slack is still near its highs.

Some analysts explain this by tight link with China and massive consumption of its export. So, acyclical inflation is down due slowdown of Chinese economy, especially i Production and decreasing of price in export goods. Hence they become cheaper in the US as well:

Which brings us to the question of why Fed rate hikes have not so far led to more economic weakness and higher unemployment? That comes down to two main factors: the Fed’s warehousing of interest-rate risk, and the Treasury put.

Even though the Fed has raised rates over five percentage points, its balance sheet has shielded the wider economy from the full brunt of the effect. Despite an ongoing QT program, the central bank’s balance sheet is only 8% off its highs, while the Fed still holds more than $7.5 trillion of interest-bearing securities that would otherwise have to be held by the public.

It’s the Treasury put, though - the US government’s willingness to run large and persistent fiscal deficits, with the current deficit at a historically elevated 8.5% of GDP - that’s the real insulator of tighter Fed policy. The deficits have funded excess savings that have yet to be fully spent, supported demand that has kept corporate profits and margins elevated, and allowed firms to hoard labor, keeping the employment market tight.

This creates the perfect conditions for the Fed to make a policy mistake and pause prematurely, as not-too-weak growth and falling inflation give the impression its policy has been successful. Stimulus in China continues to build, while buoyant excess liquidity is helping to push oil prices higher. These are sources of inflation the Fed has little control over, and they will begin to reinforce still-elevated domestic sources of price growth. But by then, even if the Fed’s levers finally begin to gain some traction, it will likely be too late to prevent inflation’s second coming.

Tomorrow in Gold report we take a closer look on Oil price and why they unavoidably will trigger new inflation spiral in near term. I also want to show you few pics on Real Estate market, but it seems that it will be too much for today. The information that we've considered is quite enough to understand that EUR/USD upside tendency highly likely will be broken soon ( or already is broken).

Saving on toilet paper and toothpaste (plus, using Vaseline instead of more prestigious brands - Bloomberg also writes about this) are certainly signs of a strong and stable economy, as well as a real triumph of "Bidenomics", which even some journalists (we won't point fingers) like to praise and to set as an example.

A financial crisis is a crisis of trust in the system. When there is no trust, there is no liquidity. The eurodollar system is truly huge and, as in 2008, there will definitely be a SHORTAGE of DOLLARS (because the obligations are denominated in dollars), which means that demand for the dollar will grow. And no matter how the Fed puts its shoulder to central banks with currency swaps, which have already been open, almost since the beginning of this year, it will still not be possible to fully satisfy the deficit due to the heterogeneity of the financial system, which means the exchange rate will grow. By the way, everyone can see an example of such a situation, when the dollar index rose from 73 in August 2008 to almost 90 (by 23%) already in November 2008...

So, based on what we see - it is too early to bury the dollar and it seems it come closer to return. Not because situation in the US is better than in EU, but because it will be even worse and because ECB will stop raising rates. As we've explained above, this is well known paradox - as worse US feels itself as more demand for dollar comes, but this is how global system works.

Technicals
Monthly

So, all indicators on monthly chart remain the same - bullish MACD and no oversold, but upside action stumbles around strong resistance area. The major intrigue is whether this is final stop or just a reaction on resistance area. In general, it is nothing extraordinary with the downside pullback that we saw last week. Right from beginning we were considering upside action just as pullback, reaction on attractive technical circumstances. Of course we keep in mind our all time 0.9 downside target, but is it a proper time already to focus on them again?

Weekly

Here trend remains bullish, but market has shown fake upside wedge breakout. It means that space is available right up to the bottom of the pattern. In general weekly chart shows nothing new. Maybe next week, when price starts flirting with MACD something could happen:

Daily

Here once again market shows the pullback from daily Oversold (and 50% support, not shown). Upside reaction could last for another 1-2 sessions. Since the fundamental background drastically has changed, it stands not in favor of the EUR, and we should be careful to any bearish signs on intraday charts, especially near resistance levels. Besides, daily trend remains bearish as well:

Intraday

So, the pullback that we've discussed on Friday is underway. Currently too few tools to estimate precisely the possible target. On 4H chart, harmonic swing points at K-area as we've suggested initially:

While on 1H chart AB-CD pattern has OP around 1.1082, slightly above the 4H K-area.

Thus, we could say that it would be nice to reach 1.1070-1.1080 area and consider short entry there.

 

[Sive Morten]

Morning everybody,

So, EUR has dropped from our 1st resistance area of 1.1035, on a background of recent GDP numbers and stubborn 5% Core inflation. Still, the bounce is not too fast, and it seems that market still keeps chance to touch 1.1070 K-area that we've specified in weekend:

On 4H chart we have bearish grabber around 1.1035 that suggests downside breakout. Meantime EUR is flirting wit MACDP, suggesting that another one might be formed. If you already have position from 1.1035-1.1040 area - move stops to breakeven:

If we still get this upside AB-CD - OP makes perfect Agreement with 1.1070 resistance area and also could give nice chance for short entry:

Appearing of bullish grabber brings us no risk, because we do not intend to go long. Existed positions are already with b/e stops. Thus, if action to 1.1070 area will happen - we consider new short entry. If not - we already have bearish position. So, let's just watching.

 

[Sive Morten]

Morning guys,

Events are changing so rapidly so, I'm even not in time to put it in Telegram. If it goes in the same way - market could turn to jeopardy very soon....

On EUR price keeps our bearish scenario valid. On daily chart we see signs of weakens - market has dropped under K-area and stands there without any attempt to climb out. This is not typical for bullish market:

On 4H chart market is forming pennant consolidation where we could sign the bearish dynamic pressure. So we could suggest downside butterfly here. Besides, its 1.618 extension perfectly fits to OP and agrees with daily 5/8 support level and oversold:

The only question is whether EUR will show minor upside bounce to equal the tops of the wings or it drops right from here. By current situation I'm tending to the latter scenario, especially if grabber will be erased. This is tactical question, but it is important for position taking. As always most simple way is to split entry in parts. But of course, it is not forbidden to catch precise reversal point, waiting for upside AB-CD pattern (I mean blue one). In general it doesn't contradict to pennant shape on 4H chart as well.

 

[Sive Morten]

Morning everybody,

Despite big events in financial world, EUR accurately follows with our scenario. So, on daily chart we're watching for 1.0860-1.0880 area, where supposedly, at least minor pullback should happen. It means bears should keep arm on pulse to close position in time, while scalp bulls could start watching for bullish patterns on 1H and lower time frames:

Our butterfly scenario suggestion works well. Once again we could see that position split and gradual entry was the best decision, because market has not reached 1.1070 and not shown any higher retracement, that we've discussed yesterday.

Here, on 4H chart, butterfly pattern per se is the reversal one. So, you could either use this butterfly directly or try to find something else on lower time frames, which should minimize potential loss even more:

 

[Sive Morten]

Morning everybody,

Market stands quiet at the eve of NFP, so just few moments to discuss. Mostly we're just watching for our target and support cluster around 1.0880-1.0890 area, where we have daily 5/8 major Fib support, oversold has moved slightly lower today:

4H OP and local butterfly extension targets. Maybe some spikes on NFP repot will happen and targets will be done:

And 2nd moment - possible short-term tactical reaction on strong support area with some bounce. That's for scalp bulls. Here I just put one possible scenario, so it is very common in similar situations. It might be minor reverse H&S pattern.

It might be also minor butterfly, some other patterns - but you get an idea. Bears think about result booking, while bulls watch for reaction on support area.