Sive Morten
Special Consultant to the FPA
- Messages
- 18,776
Fundamentals
This week we have a kind of deja vu, guys, of last week, as situation precisely repeats the one that we saw last week on GDP report. The same story - strong numbers, but the weakness in inflation component. NFP data shows great numbers around 263K which is 1.5 times greater than expected. But hourly earnings shows 0.1 worse numbers than expected and this was the reason of absolutely the same type of price action - drop on first reaction, then upside reversal.
This is the great lesson, that confirmed how important to get position in advance, if you plan to hold it during data release and it illustrates why we've paid a lot of attention to this moment in our daily reports.
Despite a lot of noise around report, it doesn't need some additional analysis, as everything was said last week, when we've put detailed fundamental view on the same situation. Lack of inflation is temporal situation and it gradually should start to change.
Also we keep here the link on very important Fathom consulting report, that puts the vector of our analysis for perspective of few months. We've talked on it two weeks ago and it is still valid and has great importance.
As Reuters reports - The dollar slipped against a basket of currencies on Friday as traders focused on the weaker aspects in the April U.S. payrolls report, brushing aside a stronger-than-forecast in hiring and a drop in the jobless rate to an over 49-year low.
Traders turned their attention to the modest 0.2% monthly pace of wage growth and the drop in the job participation rate, which analysts blamed for the catalysts for some selling in the greenback.
"These soft details didn't provide a compelling reason to add to already pretty big long dollar positions," said Eric Viloria, currency strategist at Credit Agricole in New York.
Adding to the downward pressure on the dollar was a surprise drop in a measure of U.S. services activity from the Institute for Supply Management to a 20-month low in April.
Moreover, comments from two regional Federal Reserve chiefs supported bets the U.S. central bank might lower key lending rates by the end of the year even though Fed Chairman Jerome Powell said two days earlier he did not see the need to raise or cut rates right now.
Chicago Fed President Charles Evans said at an event in Stockholm that lower U.S. rates may be needed if the economy softens.
St. Louis Fed President James Bullard told CNBC television the Fed's policy rate is "a little tight" and that current readings of inflation are uncomfortably low.
Interest rates futures implied traders saw about a 52% chance the Fed would lower rates at its Dec. 10-11 policy meeting, compared with 50% late on Thursday, according to the CME Group's FedWatch program.
But, at the same time we see two interesting things. First is - sentiment slowly but has changed a bit as probability of rate cut has dropped in recent two weeks:
Source: cmegroup.com
Second - take a look at speculative position, guys. Nobody hurry up to close shorts:
Source: cmegroup.com, cftc.gov
It seems that reaction on weaker inflation component in any US statistics is becoming a new feature. It reminds me the moment of "Finding Nemo" cartoon, in dentist bowl, when crab shouts "bubbles, bubbles" every time when bubble machine makes them, despite that this happens every few minutes.
Here is the same, on any statistics release we hear shouts of "weak inflation, weak inflation" and short-term buying with upside reversal on the market. But sooner rather than later it should become the habit and reaction gradually becomes weaker. Within few sessions market turns in previous direction.
Here is some comments of investors on report results, provided by Reuters:
So as a bottom line, we still keep our view the same. Dollar stands with better fundamental background compares to EUR and downside action on EUR/USD should continue. Of course, with potential stronger inflation downside action could be stronger. But, we are where we are...
Technicals
Monthly
Monthly time frame barely was touched by recent action. April month stands narrow, but May stands inside one even to April.
Monthly was standing quiet for long time and every week we tell about two major scenarios that we keep an eye on. They are either downside breakout and start action to 1.08 and later to 1.03 or ability of the EUR to hold above 1.12 and turning up.
Now EUR shows very slow action and to say definitely that "yes" we're going lower we would like to get stronger action as 50 pips below major level doesn't mean yet on monthly chart that it is broken. Only fundamental background lets us to suggest that probably it does. Besides, recently market has moved above 1.12 again. MACD trend stands bearish, no oversold here.Downside targets stand the same - first is YPS1 at 1.09 and second one is AB-CD COP target around 1.03, i.e. previous lows and bottom of the rectangle.
In current circumstances it makes no sense to talk about bullish scenario.
As we said this many times previously - indirect technical factors point on market's weakness, at least in long-term perspectives. Our major long-term driving factors are - Brexit, deteriorating situation in EU economy and politics, its high reliance from US, Brexit and lack of preparedness to change in Fed policy. By our view these factors will make the game in nearest 1-2 years, or even longer.
Just by using of common sense, guys, in nowadays it is difficult to expect something positive as in global economy as in politics. Hence, any bad new triggers demand for safe haven assets and US dollar. Following simple logic odds stand in favor of downside trend rather than sharp upside reversal.
So, although on technical picture we see just light and indirect signs of EUR weakness, political background stands negative. This is the major reason why I do not believe in resurrection of bull trend on EUR in this year.
Weekly
Weekly chart shows the same lazy action. Our suggestion that it is too early to speak on real downside breakout was correct. Price now stands slightly above the support level again. Thus, EUR doesn't show "major" breakout yet, overall action is gradual and slow as price still stands inside wedge consolidation.
Unfortunately here we haven't got another bearish grabber for a few pips, so no patterns on weekly by far, guys.
At the same time, weekly COP on dollar index has not been hit yet, which suggests some downside continuation here, on EUR, as well.
Daily
But on the daily chart, guys, we have quite different story. Despite sharp reversal on Friday - both of our grabbers are still valid and market stands below MPP. It means that bearish setup that we've discussed last week is still valid and it will be valid until market stands below recent top of 1.1270. Now we need time to see whether grabbers will work. If they will, one of the possible ways is butterfly pattern.
Intraday
On next week we need to keep an eye on how market will behave inside grabbers' downside swing. As our scenario suggests bearish view, at least until grabbers are valid, the only logical upside target stands 1.1230, which is COP around 5/8 Fib level. Also here we have bearish grabber, but chances are not really good that it works, as upside action was rather fast.
Market could hit COP differently. For example, if we get AB=CD action - we also will get "222" Sell, which perfectly fits to daily view.
That's being said, with bearish daily grabbers on the back, personally I do not want to go long and if somehow EUR will complete clear bearish patterns near 1.1265 top - this could be good setup for short entry.
Conclusion:
Things that we've talked last week on GDP, now we could say about NFP - we still think that recent NFP data gives good image of US economy. Despite that data was mixed and we haven't got big drop that we were counted on, this is temporal measure as data was good anyway. It means that we keep our long-term bearish view on EUR, although downside pace could be slow, at least until some new strong factor will appear.
On the beginning of the week, we sit on the hands and look for market behavior inside recent downside swing.
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.
This week we have a kind of deja vu, guys, of last week, as situation precisely repeats the one that we saw last week on GDP report. The same story - strong numbers, but the weakness in inflation component. NFP data shows great numbers around 263K which is 1.5 times greater than expected. But hourly earnings shows 0.1 worse numbers than expected and this was the reason of absolutely the same type of price action - drop on first reaction, then upside reversal.
This is the great lesson, that confirmed how important to get position in advance, if you plan to hold it during data release and it illustrates why we've paid a lot of attention to this moment in our daily reports.
Despite a lot of noise around report, it doesn't need some additional analysis, as everything was said last week, when we've put detailed fundamental view on the same situation. Lack of inflation is temporal situation and it gradually should start to change.
Also we keep here the link on very important Fathom consulting report, that puts the vector of our analysis for perspective of few months. We've talked on it two weeks ago and it is still valid and has great importance.
As Reuters reports - The dollar slipped against a basket of currencies on Friday as traders focused on the weaker aspects in the April U.S. payrolls report, brushing aside a stronger-than-forecast in hiring and a drop in the jobless rate to an over 49-year low.
Traders turned their attention to the modest 0.2% monthly pace of wage growth and the drop in the job participation rate, which analysts blamed for the catalysts for some selling in the greenback.
"These soft details didn't provide a compelling reason to add to already pretty big long dollar positions," said Eric Viloria, currency strategist at Credit Agricole in New York.
Adding to the downward pressure on the dollar was a surprise drop in a measure of U.S. services activity from the Institute for Supply Management to a 20-month low in April.
Moreover, comments from two regional Federal Reserve chiefs supported bets the U.S. central bank might lower key lending rates by the end of the year even though Fed Chairman Jerome Powell said two days earlier he did not see the need to raise or cut rates right now.
Chicago Fed President Charles Evans said at an event in Stockholm that lower U.S. rates may be needed if the economy softens.
St. Louis Fed President James Bullard told CNBC television the Fed's policy rate is "a little tight" and that current readings of inflation are uncomfortably low.
Interest rates futures implied traders saw about a 52% chance the Fed would lower rates at its Dec. 10-11 policy meeting, compared with 50% late on Thursday, according to the CME Group's FedWatch program.
But, at the same time we see two interesting things. First is - sentiment slowly but has changed a bit as probability of rate cut has dropped in recent two weeks:
Source: cmegroup.com
Second - take a look at speculative position, guys. Nobody hurry up to close shorts:
Source: cmegroup.com, cftc.gov
It seems that reaction on weaker inflation component in any US statistics is becoming a new feature. It reminds me the moment of "Finding Nemo" cartoon, in dentist bowl, when crab shouts "bubbles, bubbles" every time when bubble machine makes them, despite that this happens every few minutes.
Here is the same, on any statistics release we hear shouts of "weak inflation, weak inflation" and short-term buying with upside reversal on the market. But sooner rather than later it should become the habit and reaction gradually becomes weaker. Within few sessions market turns in previous direction.
Here is some comments of investors on report results, provided by Reuters:
So as a bottom line, we still keep our view the same. Dollar stands with better fundamental background compares to EUR and downside action on EUR/USD should continue. Of course, with potential stronger inflation downside action could be stronger. But, we are where we are...
Technicals
Monthly
Monthly time frame barely was touched by recent action. April month stands narrow, but May stands inside one even to April.
Monthly was standing quiet for long time and every week we tell about two major scenarios that we keep an eye on. They are either downside breakout and start action to 1.08 and later to 1.03 or ability of the EUR to hold above 1.12 and turning up.
Now EUR shows very slow action and to say definitely that "yes" we're going lower we would like to get stronger action as 50 pips below major level doesn't mean yet on monthly chart that it is broken. Only fundamental background lets us to suggest that probably it does. Besides, recently market has moved above 1.12 again. MACD trend stands bearish, no oversold here.Downside targets stand the same - first is YPS1 at 1.09 and second one is AB-CD COP target around 1.03, i.e. previous lows and bottom of the rectangle.
In current circumstances it makes no sense to talk about bullish scenario.
As we said this many times previously - indirect technical factors point on market's weakness, at least in long-term perspectives. Our major long-term driving factors are - Brexit, deteriorating situation in EU economy and politics, its high reliance from US, Brexit and lack of preparedness to change in Fed policy. By our view these factors will make the game in nearest 1-2 years, or even longer.
Just by using of common sense, guys, in nowadays it is difficult to expect something positive as in global economy as in politics. Hence, any bad new triggers demand for safe haven assets and US dollar. Following simple logic odds stand in favor of downside trend rather than sharp upside reversal.
So, although on technical picture we see just light and indirect signs of EUR weakness, political background stands negative. This is the major reason why I do not believe in resurrection of bull trend on EUR in this year.
Weekly
Weekly chart shows the same lazy action. Our suggestion that it is too early to speak on real downside breakout was correct. Price now stands slightly above the support level again. Thus, EUR doesn't show "major" breakout yet, overall action is gradual and slow as price still stands inside wedge consolidation.
Unfortunately here we haven't got another bearish grabber for a few pips, so no patterns on weekly by far, guys.
At the same time, weekly COP on dollar index has not been hit yet, which suggests some downside continuation here, on EUR, as well.
Daily
But on the daily chart, guys, we have quite different story. Despite sharp reversal on Friday - both of our grabbers are still valid and market stands below MPP. It means that bearish setup that we've discussed last week is still valid and it will be valid until market stands below recent top of 1.1270. Now we need time to see whether grabbers will work. If they will, one of the possible ways is butterfly pattern.
Intraday
On next week we need to keep an eye on how market will behave inside grabbers' downside swing. As our scenario suggests bearish view, at least until grabbers are valid, the only logical upside target stands 1.1230, which is COP around 5/8 Fib level. Also here we have bearish grabber, but chances are not really good that it works, as upside action was rather fast.
Market could hit COP differently. For example, if we get AB=CD action - we also will get "222" Sell, which perfectly fits to daily view.
That's being said, with bearish daily grabbers on the back, personally I do not want to go long and if somehow EUR will complete clear bearish patterns near 1.1265 top - this could be good setup for short entry.
Conclusion:
Things that we've talked last week on GDP, now we could say about NFP - we still think that recent NFP data gives good image of US economy. Despite that data was mixed and we haven't got big drop that we were counted on, this is temporal measure as data was good anyway. It means that we keep our long-term bearish view on EUR, although downside pace could be slow, at least until some new strong factor will appear.
On the beginning of the week, we sit on the hands and look for market behavior inside recent downside swing.
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.