Sive Morten
Special Consultant to the FPA
- Messages
- 18,659
Fundamentals
(Reuters) - The dollar pulled back from near a four-month low against the Japanese yen on Friday, and was on pace to snap an eight-day losing streak against the safe-haven currency, after Republicans killed their bill to overhaul the U.S. healthcare system.
Republican leaders of the U.S. House of Representatives pulled legislation to overhaul the U.S. healthcare system from consideration on Friday due to a shortage of votes despite desperate lobbying by the White House and its allies in Congress, dealing a stiff setback to President Donald Trump.
With a risk-averse mood across markets, the greenback has slipped about 1.3 percent against the yen this week. On Friday, it was up 0.31 percent at 111.27 yen.
"The last few days, the market has sort of traded on the back foot on anticipation of the vote that would happen at some point this week," Mazen Issa, senior FX strategist at TD Securities in New York. "Generally, risk sentiment had been undermined off of that."
"Maybe just lifting the uncertainty premium has markets breathing a sigh of relief for now," Issa said.
The dollar index, which measures the greenback against a basket of six major currencies, was down 0.02 percent at 99.739, after falling to a seven-week low of 99.527, earlier in the session.
Investors have been split on whether a defeat for the bill would knock the dollar and stock markets - because it would suggest Trump's inability to get reforms through Congress, or whether it would boost them - as he would then be able to move straight onto tax reforms.
"If this stronger dollar has legs, it depends on the next step. If there is a pivot to taxes from healthcare, the market has to see the plan,” Paresh Upadhyaya, director of currency strategy, Pioneer Investments, in Boston.
The euro gained 0.19 percent, at $1.0800, close to a seven-week peak of $1.0825 touched on Wednesday on the view that the European Central Bank is heading toward tightening monetary policy as growth and inflation accelerates across the euro zone.
Sterling fell against the dollar and euro from the previous session's one-month highs, as investors braced for Britain to begin next week the formal process of leaving the European Union.
We very rare talk on particular economies of EU countries. At first glance we could ask why we do care about it? But we know the first talks about ECB rate hike in December and positive dynamic in France could become significant factor, that could impact on decision.
Here is nice look on French economy from Fathom consulting:
Fathom’s FRESI suggests strong Q1 momentum, despite political risk
by Fathom Consulting
While long-term prospects in the euro area remain bleak, short-term cyclical indicators have turned more positive. France is a case in point. Our French Economic Sentiment Indicator (FRESI), part of a suite of proprietary indicators created by Fathom, distils the message from the responses to 18 different surveys into one composite measure.
Several months of increases in two of the FRESI’s key drivers – the composite PMI and a measure of household confidence provided by the French statistics office INSEE – drove it to 0.7% in February 2017 from 0.6% in the previous month. It is now close to pre-crisis highs.
The indicator has been trained on quarterly French GDP growth, and by construction it has the same mean and variance as that series. Our FRESI displays less short-term volatility than quarterly GDP growth. It aims to measure underlying economic activity in the French economy, rather than act as the best possible predictor of GDP growth from one quarter to the next.
Our FRESI points to strong underlying momentum going into the first quarter of this year, suggesting that the cyclical upturn in France, and across the euro area more broadly, has some way to run.
COT Report
Today CFTC data shows interesting picture. Although net speculative position still stands short - it shows gradual contraction since Nov 2016. Last week it has dropped again, but at this time open interest has raised. It means that investors have not just closed shorts but opened new longs. In general open interest doesn't drop since the beginning of the year. This indicates that shorts were replaced by longs, as net short position gradually decreases. So, last week action mostly shows bullish sentiment and supports idea of possible upward continuation:
Technical
Monthly
So, EUR right now stands on a wave of positive sentiment that has as technical as fundamental backround. First factor is Fed behavior. It seems that Fathom consulting is correct in terms that Fed probably would like to give US economy some time to become hot and support for some time inflationary growth. It means that Fed probably will not accelerate tightening policy in 2017. This gives markets relatively easy time to focus on growth and such assets as gold and equities.
Second - appearing of rumors on possible rate hike in EU by ECB, even prior closing of QE program. Some careful hints were given in recent ECB statement. But here it mostly will depend on real situation in major economies of EU - Germany, France and Italy.
Political events now also supportive for EUR. In Netherlands ultra-right forces were defeated and victory has been taken by more balanced candidate. Next major elections in France by the end of April. Thus market has 1-2 free months to be driven by it's own processes. If you let me, I bring my view on France elections. First is E. Macron, he is Rotshield's figure and follower of previous policy of France external governing through such pappets as N. Sarkozi and F. Hollande. Best choice for France and its people could become F. Fillon, but his political person has been destroyed by scandals which were initiated by France Investigation authorities which is controlled by current government. I have no doubts that this investigation has political background and was started by external order. The same is about legal acts against Le Pen. As F. Hollande is still a president - he will execute tasks from his governor and destroy other candidtes.
I think that E. Macron will be disaster for France. He will work for it's external governor in the same system as Merkel, Hollande, H. Clinton and others. Their major task is rob the world in the interest of tight group of persons and corporations. My opinion is E. Macron will not care about France and just will bargain France vote in United Nations Security Council for different advantages to his master. J. Assange has talked about E. Macron figure and it's relation to H. Clinton.
Those of you who have read about Merkel's visit in US should undertsand what I'm talking about. When Germany blindly has supported all NATO operations on Middle East distruction and putting it in chaos. This had a perfomance in media as Germany follows to its international interests. But in reality they just do what have been ordered to them. Hardly this was needed to Germany ...So it was really interesting dialog between D. Trump and A. Merkel.
Marine Le Pen hardly is better than F. Fillon, but definitely better than E. Macron. This is my personal view, it is arguable and I'm not pretending on absolute opinion.
Recent CFTC data shows moderately positive sentiment on EUR. Thus, combination of these factors tells that EUR could continue growth at least till the end of April, when elections will take place.
Finally, recent inability of D. Trump to push through Congress rolling back process on Obamacare program also was a negative impact on USD. Now Investors have doubts - whether he will push through tax reforms and stimulus program. Expectation of this was a major driving factor for US equities and USD in recent 1-2 months.
From technical point of view we have untouched long-term targets around parity and some time it should be met, but somehow I think that it should happen on a background of surprising tightening policy from the Fed, which has more chances to happen only in 2018. So, in perspectives of 1-2 years EUR looks weaker than USD. Besides, we see that EU will turn to hard restructural processes of exluding "new" Eastern members as they already have been robbed, their industrial potential has been destroyed and now they just ballast on the neck of mature EU members. This process will bring a lot of uncertainty, nervousness and will have negative impact on EUR.
But in shorter-term upside action could continue, although it would be just upside retracement on long-term bear trend. Strong consolidation around MACDP line and standing at YPP makes possible further upside action. If EUR will break 1.0830 area, next logical destination here will be YPR1 around 1.13... Thus overall picture suggests that right now is not very good situation to take long-term shorts...It seems that till the end of the year should get better chances to do it.
Really long-term Bullish perspectives
Concerning bullish perspectives... they exist here, but they stand at even larger picture:
Picture shows classical action. Take a look that since 1999 - EUR was forming upside reversal swing that lasts till Dec 2007. Now market stands in deep retracement - this is typical action as new upside reversal swing has been formed. Based on this picture EUR is approaching to area where this retracement should over and it could get chance to starts extension leg of bull trend that could lead EUR as far as to 1.76-1.82 area. Also you could recognize here some signs of reverse H&S pattern. That's why on big weekly picture we also have made a suggestion on big H&S pattern with head around parity....
Weekly
Trend here stands bullish. Right now on a way up EUR has reached 1.0830 - 3/8 major resistance, tested YPP for second time. Honestly speaking, here, even reaching of 5/8 resistance is acceptable. It means that if our daily H&S pattern will work and EUR will reach 1.10 area - this will not erase yet long-term bearish picture.
As market has reached strong resistance area, It could make some pause before upside continuation or form some upside continuation pattern on lower time frames. Our major pattern on weekly chart is upside AB=CD.
Daily
Daily setup also looks bullish for EUR. As you can see EUR has reached our first target - minor 0.618 AB-CD target. In fact, this is not just AB-CD target but also YPP and Fib resistance. Also this is neckline of our H&S pattern. Right now price is not at overbought, but still, odds suggest that retracement down here is probable. At the same time retracement should not be too deep, as market already stands at neckline.
Any retracement here will form background for appearing of upside butterfly pattern, since current top stands slightly below the one that was formed in January.
Another bullish moment here - price is coiling above MPR1. It means that current upside action is not just retracement within bearish trend. Now market takes the shape of the flag, but as it stands near strong resistance, it is not very reliable, or better to say we need some more reliable context for taking position. Flag itself is insufficient.
That's being said, overall picture looks bullish, next target stands at 1.0975 Agreement, but odds right now suggest respect of resistance and reasonable retracement.
4-hour
Here we do not see any clear reversal patterns. Market is moving inside the channel. The only bearish sign here is MACD divergence. Still as EUR stands at resistance, downside retracement is possible. Here we probably could watch for 2 levels. First one is Fib level that coincides with 3/8 Fib support and trend line of the channel. Second is K-support.
Based on picture that we see right now, retracement should not be deeper than this two levels... As usual, we do not want to see here collapse. Any fast drop will forbid long entry, we need gradual downward action.
Conclusion:
Despite changing of short-term sentiment, we do not think that it brings some real hazard to long-term bearish tendency yet. Thus, right now it is better to treat it as retracement as fundamental background slightly has changed.
In the beginning of the week we will watch for tactical retracement that could bring chance for long entry as overall situation supports possible upside breakout of 1.0830 area.
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.
(Reuters) - The dollar pulled back from near a four-month low against the Japanese yen on Friday, and was on pace to snap an eight-day losing streak against the safe-haven currency, after Republicans killed their bill to overhaul the U.S. healthcare system.
Republican leaders of the U.S. House of Representatives pulled legislation to overhaul the U.S. healthcare system from consideration on Friday due to a shortage of votes despite desperate lobbying by the White House and its allies in Congress, dealing a stiff setback to President Donald Trump.
With a risk-averse mood across markets, the greenback has slipped about 1.3 percent against the yen this week. On Friday, it was up 0.31 percent at 111.27 yen.
"The last few days, the market has sort of traded on the back foot on anticipation of the vote that would happen at some point this week," Mazen Issa, senior FX strategist at TD Securities in New York. "Generally, risk sentiment had been undermined off of that."
"Maybe just lifting the uncertainty premium has markets breathing a sigh of relief for now," Issa said.
The dollar index, which measures the greenback against a basket of six major currencies, was down 0.02 percent at 99.739, after falling to a seven-week low of 99.527, earlier in the session.
Investors have been split on whether a defeat for the bill would knock the dollar and stock markets - because it would suggest Trump's inability to get reforms through Congress, or whether it would boost them - as he would then be able to move straight onto tax reforms.
"If this stronger dollar has legs, it depends on the next step. If there is a pivot to taxes from healthcare, the market has to see the plan,” Paresh Upadhyaya, director of currency strategy, Pioneer Investments, in Boston.
The euro gained 0.19 percent, at $1.0800, close to a seven-week peak of $1.0825 touched on Wednesday on the view that the European Central Bank is heading toward tightening monetary policy as growth and inflation accelerates across the euro zone.
Sterling fell against the dollar and euro from the previous session's one-month highs, as investors braced for Britain to begin next week the formal process of leaving the European Union.
We very rare talk on particular economies of EU countries. At first glance we could ask why we do care about it? But we know the first talks about ECB rate hike in December and positive dynamic in France could become significant factor, that could impact on decision.
Here is nice look on French economy from Fathom consulting:
Fathom’s FRESI suggests strong Q1 momentum, despite political risk
by Fathom Consulting
While long-term prospects in the euro area remain bleak, short-term cyclical indicators have turned more positive. France is a case in point. Our French Economic Sentiment Indicator (FRESI), part of a suite of proprietary indicators created by Fathom, distils the message from the responses to 18 different surveys into one composite measure.
Several months of increases in two of the FRESI’s key drivers – the composite PMI and a measure of household confidence provided by the French statistics office INSEE – drove it to 0.7% in February 2017 from 0.6% in the previous month. It is now close to pre-crisis highs.
The indicator has been trained on quarterly French GDP growth, and by construction it has the same mean and variance as that series. Our FRESI displays less short-term volatility than quarterly GDP growth. It aims to measure underlying economic activity in the French economy, rather than act as the best possible predictor of GDP growth from one quarter to the next.
Our FRESI points to strong underlying momentum going into the first quarter of this year, suggesting that the cyclical upturn in France, and across the euro area more broadly, has some way to run.
COT Report
Today CFTC data shows interesting picture. Although net speculative position still stands short - it shows gradual contraction since Nov 2016. Last week it has dropped again, but at this time open interest has raised. It means that investors have not just closed shorts but opened new longs. In general open interest doesn't drop since the beginning of the year. This indicates that shorts were replaced by longs, as net short position gradually decreases. So, last week action mostly shows bullish sentiment and supports idea of possible upward continuation:
Technical
Monthly
So, EUR right now stands on a wave of positive sentiment that has as technical as fundamental backround. First factor is Fed behavior. It seems that Fathom consulting is correct in terms that Fed probably would like to give US economy some time to become hot and support for some time inflationary growth. It means that Fed probably will not accelerate tightening policy in 2017. This gives markets relatively easy time to focus on growth and such assets as gold and equities.
Second - appearing of rumors on possible rate hike in EU by ECB, even prior closing of QE program. Some careful hints were given in recent ECB statement. But here it mostly will depend on real situation in major economies of EU - Germany, France and Italy.
Political events now also supportive for EUR. In Netherlands ultra-right forces were defeated and victory has been taken by more balanced candidate. Next major elections in France by the end of April. Thus market has 1-2 free months to be driven by it's own processes. If you let me, I bring my view on France elections. First is E. Macron, he is Rotshield's figure and follower of previous policy of France external governing through such pappets as N. Sarkozi and F. Hollande. Best choice for France and its people could become F. Fillon, but his political person has been destroyed by scandals which were initiated by France Investigation authorities which is controlled by current government. I have no doubts that this investigation has political background and was started by external order. The same is about legal acts against Le Pen. As F. Hollande is still a president - he will execute tasks from his governor and destroy other candidtes.
I think that E. Macron will be disaster for France. He will work for it's external governor in the same system as Merkel, Hollande, H. Clinton and others. Their major task is rob the world in the interest of tight group of persons and corporations. My opinion is E. Macron will not care about France and just will bargain France vote in United Nations Security Council for different advantages to his master. J. Assange has talked about E. Macron figure and it's relation to H. Clinton.
Those of you who have read about Merkel's visit in US should undertsand what I'm talking about. When Germany blindly has supported all NATO operations on Middle East distruction and putting it in chaos. This had a perfomance in media as Germany follows to its international interests. But in reality they just do what have been ordered to them. Hardly this was needed to Germany ...So it was really interesting dialog between D. Trump and A. Merkel.
Marine Le Pen hardly is better than F. Fillon, but definitely better than E. Macron. This is my personal view, it is arguable and I'm not pretending on absolute opinion.
Recent CFTC data shows moderately positive sentiment on EUR. Thus, combination of these factors tells that EUR could continue growth at least till the end of April, when elections will take place.
Finally, recent inability of D. Trump to push through Congress rolling back process on Obamacare program also was a negative impact on USD. Now Investors have doubts - whether he will push through tax reforms and stimulus program. Expectation of this was a major driving factor for US equities and USD in recent 1-2 months.
From technical point of view we have untouched long-term targets around parity and some time it should be met, but somehow I think that it should happen on a background of surprising tightening policy from the Fed, which has more chances to happen only in 2018. So, in perspectives of 1-2 years EUR looks weaker than USD. Besides, we see that EU will turn to hard restructural processes of exluding "new" Eastern members as they already have been robbed, their industrial potential has been destroyed and now they just ballast on the neck of mature EU members. This process will bring a lot of uncertainty, nervousness and will have negative impact on EUR.
But in shorter-term upside action could continue, although it would be just upside retracement on long-term bear trend. Strong consolidation around MACDP line and standing at YPP makes possible further upside action. If EUR will break 1.0830 area, next logical destination here will be YPR1 around 1.13... Thus overall picture suggests that right now is not very good situation to take long-term shorts...It seems that till the end of the year should get better chances to do it.
Really long-term Bullish perspectives
Concerning bullish perspectives... they exist here, but they stand at even larger picture:
Picture shows classical action. Take a look that since 1999 - EUR was forming upside reversal swing that lasts till Dec 2007. Now market stands in deep retracement - this is typical action as new upside reversal swing has been formed. Based on this picture EUR is approaching to area where this retracement should over and it could get chance to starts extension leg of bull trend that could lead EUR as far as to 1.76-1.82 area. Also you could recognize here some signs of reverse H&S pattern. That's why on big weekly picture we also have made a suggestion on big H&S pattern with head around parity....
Weekly
Trend here stands bullish. Right now on a way up EUR has reached 1.0830 - 3/8 major resistance, tested YPP for second time. Honestly speaking, here, even reaching of 5/8 resistance is acceptable. It means that if our daily H&S pattern will work and EUR will reach 1.10 area - this will not erase yet long-term bearish picture.
As market has reached strong resistance area, It could make some pause before upside continuation or form some upside continuation pattern on lower time frames. Our major pattern on weekly chart is upside AB=CD.
Daily
Daily setup also looks bullish for EUR. As you can see EUR has reached our first target - minor 0.618 AB-CD target. In fact, this is not just AB-CD target but also YPP and Fib resistance. Also this is neckline of our H&S pattern. Right now price is not at overbought, but still, odds suggest that retracement down here is probable. At the same time retracement should not be too deep, as market already stands at neckline.
Any retracement here will form background for appearing of upside butterfly pattern, since current top stands slightly below the one that was formed in January.
Another bullish moment here - price is coiling above MPR1. It means that current upside action is not just retracement within bearish trend. Now market takes the shape of the flag, but as it stands near strong resistance, it is not very reliable, or better to say we need some more reliable context for taking position. Flag itself is insufficient.
That's being said, overall picture looks bullish, next target stands at 1.0975 Agreement, but odds right now suggest respect of resistance and reasonable retracement.
4-hour
Here we do not see any clear reversal patterns. Market is moving inside the channel. The only bearish sign here is MACD divergence. Still as EUR stands at resistance, downside retracement is possible. Here we probably could watch for 2 levels. First one is Fib level that coincides with 3/8 Fib support and trend line of the channel. Second is K-support.
Based on picture that we see right now, retracement should not be deeper than this two levels... As usual, we do not want to see here collapse. Any fast drop will forbid long entry, we need gradual downward action.
Conclusion:
Despite changing of short-term sentiment, we do not think that it brings some real hazard to long-term bearish tendency yet. Thus, right now it is better to treat it as retracement as fundamental background slightly has changed.
In the beginning of the week we will watch for tactical retracement that could bring chance for long entry as overall situation supports possible upside breakout of 1.0830 area.
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.
