Sive Morten
Special Consultant to the FPA
- Messages
- 18,673
Fundamentals
Situation changes very fast on markets right now. Last week we've specified our short-term expectations for three currencies - EUR, GBP and NZD. All of them stand on the way to appointed levels but haven't reached them yet.
At the same time, AUD that we have not taken a look at, for long period already continues to form large pattern. Taking in consideration strong correlation between AUD and Gold and having bullish view on Gold, it makes sense to take a look at AUD again.
Right now we offer you to look at new insight on perspectives of rate hike by Fed from Fanthom Consulting. They mostly expect 1 rate hike in current year and 1% hike in 2017. But they slightly have changed their opinion. Since as Brexit voting as next meeting will be in June - they do not exclude that Fed will rise rate in June, although December still treats as most probable month. Enjoy:
The door to a June rate hike remains ‘ajar’ as the BEA confirms another soft Q1
by Fathom Consulting
Yesterday’s US GDP data were marginally weaker than expected. According to the advance estimate, the economy expanded at an annualised pace of 0.5% in 2016 Q1, down from a reading of 1.4% in the previous quarter. The consensus had been looking for a figure of 0.7%, while our own forecast was for growth of 0.6%. Our central view remains that we will see a single 25 basis point tightening in the fed funds rate this year, probably in December, though June is an outside prospect.
Digging a little into the detail, it appears that uncertainty associated with the financial market turmoil earlier this year played at least a part in the slowdown. Consumption of durable goods and private fixed investment both fell, in each case for the first time in around five years. These two components are particularly susceptible to fluctuations in confidence about the economic outlook. It is also fair to say, as we did this time last year, that the Q1 data have looked suspiciously weak for a number of years. In short, the Bureau of Economic Analysis appears to be struggling fully to adjust for those seasonal factors that typically depress economic activity at the start of each year. On that basis alone, some kind of bounce back in Q2 seems likely.
More broadly, US growth has been disappointingly weak for a number of years. And yet it has been sufficient to produce quite a rapid tightening of the US labour market, because US productivity growth has been weaker still. Over the past five years, US productivity has grown at an average annualised growth of 0.5%. That is not quite the weakest on record, but it is very close to it. As we set out in our Global Economic and Markets Outlook for 2016 Q2, we are becoming increasingly convinced that a long-period of near-zero interest rates has, by preventing the ‘gales of creative destruction’ that would normally drive recovery from recession, begun to harm the supply side of a number of major economies. And that includes the US.
US monetary policy outlook
Turning to the outlook for US interest rates, Wednesday’s FOMC statement had a little something for everyone. Those expecting an early move will take comfort from the fact that members no longer appear troubled by downside risks from ‘global economic and financial market developments’. Those who believe the Fed is in no hurry to tighten will focus instead on new passages that draw attention to a slowdown in economic activity, and to weaker spending by households. This latter group can also point to ongoing concerns about low inflation breakevens.
In the Committee’s own words, the timing of the next move “… will depend on the economic outlook as informed by incoming data”. And yet, members have very little to say about the framework that is being used to interpret the incoming data. How, for example, do they view mounting evidence that the labour market is tightening rapidly, alongside continued low rates of inflation compensation in financial markets? Which one will dominate, and when? We do not know. On balance, investors took little away from Wednesday’s meeting, with fed funds futures more or less unchanged on the day.
Our central view remains that the Fed will err on the side of caution, delivering just a single 25 basis point hike this year. While December is perhaps the most likely month, we would not rule out a hike as early as the next meeting, particularly if both public opinion and market pricing continue to move in favour of a ‘remain’ vote in the UK’s EU referendum, due to take place on 23 June, just one week after the Fed’s policy decision. As our chart shows, three-month sterling volatility, relative to other G3 crosses, has dropped off sharply in recent weeks.
The quid pro quo of Fed caution this year is that there will be much to do next year, particularly if China doubles-down. In that environment, both core and non-core inflation will be rising through next year. That is why, again on our central view, the Fed will deliver 100 basis points of tightening in 2017, in line with the March Summary of Economic Projections.
CFTC Data
Now let's take a look at COT numbers. Speculators' bearish bets on the U.S. dollar hit their largest since February 2013, boosted by expectations that the Federal Reserve will take its time in raising interest rates this year, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.
The value of the dollar's net short position rose to $4.19 billion in the week ended April 26, from short contracts valued at $1.85 billion in the previous week. Speculators were short the dollar for a second straight week.
Speaking on AUD directly, we see pure bullish sentiment - net long position increases with fast tempo, as well as open interest. At the same time they have pretty much room still to extreme points of 2013
Technicals
Monthly
Situation on monthly chart has not changed significantly. Although we've discussed this major support long-time ago, in Autumn 2015, market still stands here. In fact, March is the first month when AUD finally turns to upside reaction and shows respect to major support level. Trend has turned bullish.
In March AUD has moved above Yearly Pivot. Next logical long-term destination is YPR1 around 0.81 that also coincides with monthly overbought. As market has completed huge all-time AB=CD pattern, and now has shown retracement back to major 5/8 Fib support - whether market will return back to upside action is a rhetoric question. This is too long perspective. At the same time as market already was at 1.10, why it could not be at 1.16 1.618 Fib extension of all-time AB-CD pattern. Right now is tough time, situation changes rapidly, so we can't exclude any scenario. Besides, I've heard some opinions on perspectives of gold market and analysts do not exclude 2000-2500$ area. As AUD will follow gold, 1.10-1.16 doesn't seem as impossible.
Another pattern that we have here is DRPO "Buy" Look-alike (LAL). I call it LAL because thrust has a pause
in the middle of it. But this DiNapoli pattern also points on the same 0.81 area - 50% Fib level that coincides with YPR1 and overbought.
April month was quiet mostly due situation on lower time frames. It doesn't make impact on current picture.
Weekly
This chart is very informative and full of different patterns - as short-term as long term.
Here trend also is bullish. On a way up initially market has broken very strong resistance - neckline, Yearly Pivot and all these stuff around weekly overbought. Now Double Bottom pattern has hit the target - right around Fib resistance and neckline of larger H&S pattern. On a way up price also has moved above MPP and reached MPR1. Thus, our first target that we've specified month ago has been hit. Here is a part of our former analysis:
"Following this logic nearest target should stand around 0.7850 area - important Fib resistance and double bottom target. Usually it equals the depth of double bottom itself, counted up from neckline"
Thus Double Bottom has become a part of larger H&S pattern.
Next logical step should be creation of right shoulder bottom. This should become an opportunity for taking long position for medium term bull trend. On a way down AUD could re-test former neckline of Double Bottom pattern, since it will work as support now. So, it seems that market is preparing for some big shift on monthly chart and H&S should become a starting point of it.
Daily
Here we see how market turns to forming of right shoulder of weekly pattern. 3-Drive "Sell" has finalized upward action right around neckline and double-bottom 200% target. Right now we see drop down. On this way AUD has reached first Fib support and daily OS level. Thus we have scalp bullish "Stretch" pattern, that probably should lead to some minor bounce up in the beginning of next week.
May be we will get some AB-CD pattern. Our destination point here is 0.7380 area. It is interesting that minimum target of 3-Drive sell (bottom of 2nd drive) also mostly corresponds to final destination of retracement.
This level stands in harmonic matching to left shoulder bottom. Also, as you can see this is very strong support per se - K-support area on daily chart and former neckline of double bottom pattern.
Daily picture brings trading setup for those traders who trades on intraday charts. Thus, as bullish "Stretch" could be traded up, as when it will be completed - downward reversal could be traded with target around 0.7380 area. Still, since we're mostly focused on daily trading - our major issue here is to get long entry around right shoulder bottom and daily K-support area:
4-hour
Here we could try to estimate possible target of upside retracement and daily bullish "Stretch" completion point. Most probable destination is higher level, because market is oversold on daily chart. That's why upside AB=CD action is more probable.
As a result, combination of Fib level and WPR1 around 0.77-0.7720 looks like most probable destination of upside retracement. This level also coincides with middle range between the bands of OB/OS indicator on daily chart that usually uses as target of Stretch pattern.
Conclusion:
That's being said, if Australian Central Bank will not change it's policy drastically and will not be involved strongly in currency war - Australia could get significant advantages from healthy interest rates, relation to gold mining industry, self-sufficient economy and one of financial centers of Asia region. Thus currently we have a positive view on AUD.
On long-term charts market could form really thrilling setup that could push AUD for 10 points higher to 0.81 area first. Most positive scenario for AUD in 1-2 year perspective is 1.16 area, if gold indeed will start long-term bullish trend with 2200-2500 upside potential. But currently we will treat is as dream only
In short-term charts we will monitor process of creation of H&S pattern and right shoulder in particular. Since we intend to use it for long entry around 0.7380 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.
Situation changes very fast on markets right now. Last week we've specified our short-term expectations for three currencies - EUR, GBP and NZD. All of them stand on the way to appointed levels but haven't reached them yet.
At the same time, AUD that we have not taken a look at, for long period already continues to form large pattern. Taking in consideration strong correlation between AUD and Gold and having bullish view on Gold, it makes sense to take a look at AUD again.
Right now we offer you to look at new insight on perspectives of rate hike by Fed from Fanthom Consulting. They mostly expect 1 rate hike in current year and 1% hike in 2017. But they slightly have changed their opinion. Since as Brexit voting as next meeting will be in June - they do not exclude that Fed will rise rate in June, although December still treats as most probable month. Enjoy:
The door to a June rate hike remains ‘ajar’ as the BEA confirms another soft Q1
by Fathom Consulting
Yesterday’s US GDP data were marginally weaker than expected. According to the advance estimate, the economy expanded at an annualised pace of 0.5% in 2016 Q1, down from a reading of 1.4% in the previous quarter. The consensus had been looking for a figure of 0.7%, while our own forecast was for growth of 0.6%. Our central view remains that we will see a single 25 basis point tightening in the fed funds rate this year, probably in December, though June is an outside prospect.
Digging a little into the detail, it appears that uncertainty associated with the financial market turmoil earlier this year played at least a part in the slowdown. Consumption of durable goods and private fixed investment both fell, in each case for the first time in around five years. These two components are particularly susceptible to fluctuations in confidence about the economic outlook. It is also fair to say, as we did this time last year, that the Q1 data have looked suspiciously weak for a number of years. In short, the Bureau of Economic Analysis appears to be struggling fully to adjust for those seasonal factors that typically depress economic activity at the start of each year. On that basis alone, some kind of bounce back in Q2 seems likely.
More broadly, US growth has been disappointingly weak for a number of years. And yet it has been sufficient to produce quite a rapid tightening of the US labour market, because US productivity growth has been weaker still. Over the past five years, US productivity has grown at an average annualised growth of 0.5%. That is not quite the weakest on record, but it is very close to it. As we set out in our Global Economic and Markets Outlook for 2016 Q2, we are becoming increasingly convinced that a long-period of near-zero interest rates has, by preventing the ‘gales of creative destruction’ that would normally drive recovery from recession, begun to harm the supply side of a number of major economies. And that includes the US.
US monetary policy outlook
Turning to the outlook for US interest rates, Wednesday’s FOMC statement had a little something for everyone. Those expecting an early move will take comfort from the fact that members no longer appear troubled by downside risks from ‘global economic and financial market developments’. Those who believe the Fed is in no hurry to tighten will focus instead on new passages that draw attention to a slowdown in economic activity, and to weaker spending by households. This latter group can also point to ongoing concerns about low inflation breakevens.
In the Committee’s own words, the timing of the next move “… will depend on the economic outlook as informed by incoming data”. And yet, members have very little to say about the framework that is being used to interpret the incoming data. How, for example, do they view mounting evidence that the labour market is tightening rapidly, alongside continued low rates of inflation compensation in financial markets? Which one will dominate, and when? We do not know. On balance, investors took little away from Wednesday’s meeting, with fed funds futures more or less unchanged on the day.
Our central view remains that the Fed will err on the side of caution, delivering just a single 25 basis point hike this year. While December is perhaps the most likely month, we would not rule out a hike as early as the next meeting, particularly if both public opinion and market pricing continue to move in favour of a ‘remain’ vote in the UK’s EU referendum, due to take place on 23 June, just one week after the Fed’s policy decision. As our chart shows, three-month sterling volatility, relative to other G3 crosses, has dropped off sharply in recent weeks.
The quid pro quo of Fed caution this year is that there will be much to do next year, particularly if China doubles-down. In that environment, both core and non-core inflation will be rising through next year. That is why, again on our central view, the Fed will deliver 100 basis points of tightening in 2017, in line with the March Summary of Economic Projections.
CFTC Data
Now let's take a look at COT numbers. Speculators' bearish bets on the U.S. dollar hit their largest since February 2013, boosted by expectations that the Federal Reserve will take its time in raising interest rates this year, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.
The value of the dollar's net short position rose to $4.19 billion in the week ended April 26, from short contracts valued at $1.85 billion in the previous week. Speculators were short the dollar for a second straight week.
Speaking on AUD directly, we see pure bullish sentiment - net long position increases with fast tempo, as well as open interest. At the same time they have pretty much room still to extreme points of 2013
Technicals
Monthly
Situation on monthly chart has not changed significantly. Although we've discussed this major support long-time ago, in Autumn 2015, market still stands here. In fact, March is the first month when AUD finally turns to upside reaction and shows respect to major support level. Trend has turned bullish.
In March AUD has moved above Yearly Pivot. Next logical long-term destination is YPR1 around 0.81 that also coincides with monthly overbought. As market has completed huge all-time AB=CD pattern, and now has shown retracement back to major 5/8 Fib support - whether market will return back to upside action is a rhetoric question. This is too long perspective. At the same time as market already was at 1.10, why it could not be at 1.16 1.618 Fib extension of all-time AB-CD pattern. Right now is tough time, situation changes rapidly, so we can't exclude any scenario. Besides, I've heard some opinions on perspectives of gold market and analysts do not exclude 2000-2500$ area. As AUD will follow gold, 1.10-1.16 doesn't seem as impossible.
Another pattern that we have here is DRPO "Buy" Look-alike (LAL). I call it LAL because thrust has a pause
in the middle of it. But this DiNapoli pattern also points on the same 0.81 area - 50% Fib level that coincides with YPR1 and overbought.
April month was quiet mostly due situation on lower time frames. It doesn't make impact on current picture.
Weekly
This chart is very informative and full of different patterns - as short-term as long term.
Here trend also is bullish. On a way up initially market has broken very strong resistance - neckline, Yearly Pivot and all these stuff around weekly overbought. Now Double Bottom pattern has hit the target - right around Fib resistance and neckline of larger H&S pattern. On a way up price also has moved above MPP and reached MPR1. Thus, our first target that we've specified month ago has been hit. Here is a part of our former analysis:
"Following this logic nearest target should stand around 0.7850 area - important Fib resistance and double bottom target. Usually it equals the depth of double bottom itself, counted up from neckline"
Thus Double Bottom has become a part of larger H&S pattern.
Next logical step should be creation of right shoulder bottom. This should become an opportunity for taking long position for medium term bull trend. On a way down AUD could re-test former neckline of Double Bottom pattern, since it will work as support now. So, it seems that market is preparing for some big shift on monthly chart and H&S should become a starting point of it.
Daily
Here we see how market turns to forming of right shoulder of weekly pattern. 3-Drive "Sell" has finalized upward action right around neckline and double-bottom 200% target. Right now we see drop down. On this way AUD has reached first Fib support and daily OS level. Thus we have scalp bullish "Stretch" pattern, that probably should lead to some minor bounce up in the beginning of next week.
May be we will get some AB-CD pattern. Our destination point here is 0.7380 area. It is interesting that minimum target of 3-Drive sell (bottom of 2nd drive) also mostly corresponds to final destination of retracement.
This level stands in harmonic matching to left shoulder bottom. Also, as you can see this is very strong support per se - K-support area on daily chart and former neckline of double bottom pattern.
Daily picture brings trading setup for those traders who trades on intraday charts. Thus, as bullish "Stretch" could be traded up, as when it will be completed - downward reversal could be traded with target around 0.7380 area. Still, since we're mostly focused on daily trading - our major issue here is to get long entry around right shoulder bottom and daily K-support area:
4-hour
Here we could try to estimate possible target of upside retracement and daily bullish "Stretch" completion point. Most probable destination is higher level, because market is oversold on daily chart. That's why upside AB=CD action is more probable.
As a result, combination of Fib level and WPR1 around 0.77-0.7720 looks like most probable destination of upside retracement. This level also coincides with middle range between the bands of OB/OS indicator on daily chart that usually uses as target of Stretch pattern.
Conclusion:
That's being said, if Australian Central Bank will not change it's policy drastically and will not be involved strongly in currency war - Australia could get significant advantages from healthy interest rates, relation to gold mining industry, self-sufficient economy and one of financial centers of Asia region. Thus currently we have a positive view on AUD.
On long-term charts market could form really thrilling setup that could push AUD for 10 points higher to 0.81 area first. Most positive scenario for AUD in 1-2 year perspective is 1.16 area, if gold indeed will start long-term bullish trend with 2200-2500 upside potential. But currently we will treat is as dream only
In short-term charts we will monitor process of creation of H&S pattern and right shoulder in particular. Since we intend to use it for long entry around 0.7380 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.
