Sive Morten
Special Consultant to the FPA
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Fundamentals
(Reuters FX news) - The U.S. dollar hit its lowest level against the euro in roughly six months on Friday after a sharp rebound in U.S. jobs growth in April was not enough to offset investors' bullishness toward the euro ahead of the second round of France's presidential election.
U.S. nonfarm payrolls surged by 211,000 jobs last month, the Labor Department said, beating expectations of economists polled by Reuters for a gain of 185,000.
Payrolls growth in March was revised downward to 79,000 from 98,000, however, and the labor force participation rate dipped slightly to 62.9 percent from 63 percent.
Analysts said traders are anticipating that the euro will get a boost if, as expected, centrist candidate Emmanuel Macron defeats anti-EU candidate Marine Le Pen in Sunday's French election.
They also said the weaker March jobs figure and labor force participation rate gave traders an excuse to continue holding the euro. The euro hit $1.0999, its highest level since early November, in the wake of the U.S. jobs data, and a comeback from a 14-year low of $1.0339 touched in early January.
“People were looking for a Macron victory, the end of event risk from the French election, for that to push us through $1.10," said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets. "There’s nothing in the payrolls data that is going to blow them out of the water from that."
The dollar rose slightly against the yen and was last up 0.1percent against the Japanese currency, at 112.60 yen, but remained below Thursday's roughly seven-week high of 113.04 yen.
Analysts said the dollar remained at elevated levels against the yen because the U.S. jobs data did little to challenge the view that the Federal Reserve will raise interest rates in June.
The dollar index, which measures the greenback against a basket of six major rivals but the majority of whose weighting is against the euro, was last down 0.1 percent at 98.655 after touching a roughly six-month low of 98.593 after the jobs data.
For the week, the index was set to fall 0.4 percent, for a fourth straight weekly decline. The euro was set to gain 0.8 percent against the dollar for the week, in a fourth straight weekly rise. Against the yen, the dollar was set to gain 1 percent for a third straight weekly rise.
The Canadian and Australian dollars recovered from multi-month lows on Friday, trimming losses arising from a dip in oil prices, while the euro backed away from a six-month high ahead of Sunday's presidential election in France.
The Canadian dollar hit a 14-month low and the Australian dollar touched a four-month trough, driven by a drop in oil prices overnight. Both recovered from those levels by midday in Europe, tracking a similar rebound in oil benchmarks.
Prices of a number of major commodities have sunk in the past two weeks, with traders pointing to a number of factors including concerns about growth and changes in leverage in China as well as fears of a continued glut in oil supplies. This has weighed on the currencies of the major commodities exporters.
The loonie - as traders call the Canadian dollar - last traded 0.2 percent lower at C$1.3771, having earlier slipped to C$1.3793 per U.S. dollar earlier, its weakest level since late February 2016.
The Aussie last traded 0.3 percent lower at $0.7388, after an earlier slide to $0.7393, its lowest since Jan. 11.
"We had obviously a continuation of the weakness in oil and a certain amount of risk aversion overnight," said Kit Juckes, currency strategist with Societe Generale in London.
"(Those) moves have all quietened down."
U.S. West Texas Intermediate (WTI) crude oil futures slid as much as 3 percent on the day before steadying.
US GDP: where is all the growth?
by Fathom Consulting
Today’s advance estimate of US GDP shows annualised growth of 0.7% in Q1, above our forecast of 0.2%, but below the consensus estimate. By contrast, business and consumer confidence are at record highs and our US economic sentiment indicator (USESI) points to robust economic activity. The current divergence between hard and soft economic data is unprecedented and is partially explained by transitory factors including seasonal adjustment quirks. But businesses and consumers, while optimistic, want more clarity on the administration’s fiscal and trade policies before loosening the purse strings.
It is well known that Donald Trump’s pledge to pursue pro-business policies including cutting taxes, reducing regulations and spending big on infrastructure lifted US equities, the dollar and Treasury yields following his surprise election victory in November last year. But doubts about the President’s ability to make good on these pledges, combined with a run of disappointingly weak economic data releases, which fly in the face of more upbeat surveys, have seen these gains reversed. We still believe that the President will deliver fiscal stimulus later this year, as we explained in a recent note to clients, but what to make of the divergence between the hard and soft data? Is the economy really slowing?
Our US Economic Sentiment Indicator
Consistent with our suite of proprietary economic indicators, we have created a new index to gauge the level of US economic activity implied by business and consumer confidence surveys. The index is called the US Economic Sentiment Indicator (USESI) and uses a technique called principal component analysis. Essentially, we weight together 23 business and consumer confidence surveys to create a single time series – known as the first principal component. We then transform the first principal component so that it has the same mean and variance as actual GDP growth.
The USESI should not be viewed as the best predictor of current quarter GDP. That is true not least because the official data will capture large, erratic transactions that simple diffusion indices cannot hope to identify. Rather our USESI should be seen as a measure of underlying economic activity. It tells us where actual GDP growth might be heading if survey measures of business and consumer confidence stay broadly where they are. Our first chart shows that the USESI behaves rather like a moving average of actual GDP growth. It follows a similar cycle, but is much less volatile.
In 2017 Q1, our USESI hit an all-time high of 6.0%. Businesses and consumers are bursting with confidence, and yet the advance estimate of US GDP, published today, shows that the US economy grew by a miserly 0.7% (SAAR) in Q1. Such a large gap between the two measures of economic output is unprecedented.
Beware the official GDP data
One explanation for the divergence is seasonal adjustment issues with the official GDP data. Although the Bureau of Economic Analysis (BEA) tried to address this problem last year, it only tweaked its methodology and revised three years of economic data. A full revamp of its seasonal adjustment methods and a revision to historical data is unlikely to occur before its benchmark revision next year.
Accordingly, official economic data still exhibit seasonal bias: since the turn of the century, GDP has grown at an average annualised pace of 1.0% in Q1, compared to average annualised growth of around 2.0% in other quarters.
Unlike the official data, our USESI is free of seasonal bias. It does, however, exhibit significantly higher readings in Q1 than the official output data. The average reading on our USESI in Q1 over the last twenty years is 1.9%, 0.9 percentage points higher than the average for the official GDP growth rates recorded in Q1. Meanwhile, the average readings on the USESI in all other quarters are lower than the average official GDP growth rates in those quarters.
Transitory or troublesome?
Other transitory factors may have depressed the official output figures in 2017 Q1. For example, consumption of electricity and gas services dropped in January and February on the back of unusually warm weather, depressing personal consumption expenditures (PCE). Indeed, the three-month on three-month annualised rate of growth for real PCE was 1.9% in February; excluding consumption of electricity and gas services, this rate was 2.4%. A delay in processing tax rebates for millions of households may have also dampened PCE in Q1, a point noted by some large US retailers.
Nevertheless, some aspects of the hard data cannot simply be dismissed by transitory quirks. For example, according to the BEA, sales of cars and light trucks fell in volume terms by almost 20% on an annualised basis in Q1. Motor vehicle and parts dealers reported a 4% drop in sales, in cash terms, over the same period, according to the Census Bureau. There was also a sizeable fall in the production of automotive products during the first three months of the year.
These drops are at odds with gains in employment, rising wages and improving consumer confidence. However, they are consistent with slowing auto loan growth, rising delinquencies on auto loans and reports from bank loan officers of lower demand and tighter lending standards on auto loans. It would be premature to talk of a credit crunch, although it is possible that the acceleration in consumer credit in recent years has run its course and that slower rates of loan growth are here to stay.
A little more clarity, please
Stepping back a moment, perhaps the most compelling explanation for the marked divergence between hard and soft indicators at present is that businesses and consumers alike want more detail on the new administration’s economic policies before they loosen the purse strings.
Not only does Paul Ryan’s tax proposal include slashing the corporate tax rate from 35% to 20%, but it also proposes allowing an immediate expensing of investment, removing the tax deductibility of interest expense (thereby making debt financing a lot less attractive) and switching from a ‘global’ to a ‘territorial’ tax system (in which profits earned abroad and brought back to the US would not be taxed). All of these changes would have a massive impact on corporate finance decisions. Businesses are unlikely to commit to significant capital expenditures until the administration provides more clarity on these proposals.
It also remains to be seen where Donald Trump’s US$1 trillion infrastructure spending plans will be targeted, how projects will be auctioned and how they will be financed. Businesses also want clarity on trade policy and whether ‘border adjustment taxes’ will be part of the tax reform. Ultimately, we still think that Donald Trump will succeed in cutting taxes and increasing infrastructure spending later this year, boosting real GDP growth from 1.6% in 2016 to 2.7% this year and 3.5% next year.
________________________________________________________________________________________
Following logic, we probably should focus today on EUR, as France now stands in center of public attention, but we're mostly interested in what will happen after that and now it is not good idea, trying to forecast what will happen. Currently we will give just two hints on France elections. Wilileaks has published сompromising evidence, Macron letters just 2 days before elections. It is unclear whether it will make any impact or not, but this has happened.
Second interesting fact... my primary occupation guys, is managing macro finance fund and by my work I follow a lot of different assets, Eurostoxx 50 is one of them. Here EDF shares attrack my attention. Company has poor results a lot of structural problems, but it is state-owned company. One of the step in Le Pen programm is increasing of stake in key state-owned companies that have government strategic importancy. In particular, she told about EDF. Thus, 3-4 days ago EDF starts to show tremendous rally that absolutely doesn't correspond to financial background of the company.
Finally, we beilieve that press skews real situation in polls to support Macron. Real situation stands different and I suspect that we're on the edge of big surprise. Just because Melenchon voters gravitate to Le Pen. This is enough to make a suggestion that hardly Macron has real 30-40% advantage...
Situation in UK is also intriquing. Some concern also exists about fast gathering of Royal Family in Palace. Also T. May audience on Parlament dismissing was made in rush. We also could take a look at GBP as well.
But technically we see interesting CAD right now. Besides, we haven't taken a look at it for a long time already. Thus, let's make an update...
CFTC Data
We have very bright picture on CAD. Pay attention that we have reverse scale for net speculative position on the chart. In the beginning of spring position has shown drastic reversal and turned from bullish to bearish. It has happened very fast and was supported by big changes in open interest as well.
Right now we see clear bearish sentiment as net-short position as open interest are growing. At the same time speculative position is rather far from saturation and has big space to grow.
Crude oil also shows bearish tendency on last three week. Net long position is contracting, while open interest grows. It means that investors not just close longs, but replace them with shorts:
Technicals
Monthly
Last time we've talked on CAD in January, so, it was rather long time ago. Situation has changed a bit since then, although some issues that we've discussed on monthly chart are still valid.
We've traded initial upside rally in 2015-2016. Once market has reached our AB=CD target around 1.34 area it has turned to ping-pong action from monthly OB to OS. After that, whole 2016 year CAD mostly spent in this range. Trend is bearish here, right now market is not at OB/OS.
Right now we see three setups here but of different time scales. The longest one is upside continuation to 1.618 all-time AB-CD target around 1.60 area. Currently it is difficult to imagine, how this could happen, as most people look only on CAD/Crude Oil relation, but prices already stands low. But we think - this is possible is D. Trump will take tighter steps in mutual trading agreement between US and Canada. So, impact on CAD could come not only from Crude prices, but also from political measures and restrictions that could be put by US.
Second scenario is downward AB-CD retracement, approximately to 1.156 area. As you can see, action since Feb 2011 is first reversal swing, when upside action is greater than previous swing down. Usually, after reversal swing market shows deep retracement. This comes from existing of previous bearish momentum that should be faded down but it pushes price lower while still working. As a result, we could get AB=CD retracement down right to 1.1560 major Fib support. Right now we have first half of this pattern in place. The major concern of this scenario - where and when CD leg down will start. This question stands in tight relation with our third scenario, which is relatively short-term
So, third scenario is the one that we will talk today and that has shortest term. It suggests analysis of CAD in perspective of 1-2 weeks. On monthly chart we do not have a lot of information, except may be bearish grabber that could be formed here. But we will know it only by May closing.
Weekly
On weekly chart trend stands bullish, price is neither at OB nor OS. Here we see that loonie has reached rather solid resistance area, which includes weekly major Fib resistance @1.3837, upper border of the channel and MPR1. Last week has taken the shape of nicely looking gravestone doji.
This combination around resistance is our primary scenario for coming week. Althogh overall picture looks rather good, but still we should avoid treat it as global bearish reversal to 1.1560 target. Not yet. First is, here we have upside AB=CD pattern in progress with 1.4085 target. Second - our bearish grabber on monthly has not been confirmed yet. That's why, right now it would be better to look at this scenario as on retracement and reaction on strong resistance. That's why our weekly target could suggest ultimate target only to lower border of the channel - somewhere around 1.32 area.
Daily
So, here is how we will start... Take a look that daily picture shows valuable add-on to bearish look. We have excellent butterfly "Sell" pattern and inner AB=CD completed at that the same point. Right at top price has formed reversal session.
Here we think that first destination point will be 1.3470 area by two reasons. First is - this is K-support and OS area. From butterfly point of view - minimum respect also stands at 3/8 Fib level of whole butterfly action.
Second reason is more tricky. Recall our weekly upside AB-CD with 1.4085 target. Here, guys, apply your imagination and find reverse H&S pattern. I hope you can do it. Thus, 1.618 target of H&S stands precisely around the same 1.4085. Upside action was rather fast, and we could get upside continuation before all this stuff will over. That's why we think it would be better to focus on conservative target around K-support but not dream on total reversal. Even conservative target still has 200 pips potential.
Daily#2
To start trade we will be watching for DiNapoli patterns on daily thurst action. Here we could get as B&B pattern as DRPO. DRPO looks more logical and it will be a bit simplier to trade it. While B&S will bring two trade possibilities. First, we could trade it as B&B "Buy" and as soon as it will reach target - reverse position down with major daily setup:
Taking in consideration the pace of dropping - B&B scenario looks more probable.
Conclusion:
CAD is very interesting currency as in short-term as in long-term perspective. Right now we have three setups of different time scales.
On coming week we will deal with the shortest one that suggests retracement to 1.3470 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 FX news) - The U.S. dollar hit its lowest level against the euro in roughly six months on Friday after a sharp rebound in U.S. jobs growth in April was not enough to offset investors' bullishness toward the euro ahead of the second round of France's presidential election.
U.S. nonfarm payrolls surged by 211,000 jobs last month, the Labor Department said, beating expectations of economists polled by Reuters for a gain of 185,000.
Payrolls growth in March was revised downward to 79,000 from 98,000, however, and the labor force participation rate dipped slightly to 62.9 percent from 63 percent.
Analysts said traders are anticipating that the euro will get a boost if, as expected, centrist candidate Emmanuel Macron defeats anti-EU candidate Marine Le Pen in Sunday's French election.
They also said the weaker March jobs figure and labor force participation rate gave traders an excuse to continue holding the euro. The euro hit $1.0999, its highest level since early November, in the wake of the U.S. jobs data, and a comeback from a 14-year low of $1.0339 touched in early January.
“People were looking for a Macron victory, the end of event risk from the French election, for that to push us through $1.10," said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets. "There’s nothing in the payrolls data that is going to blow them out of the water from that."
The dollar rose slightly against the yen and was last up 0.1percent against the Japanese currency, at 112.60 yen, but remained below Thursday's roughly seven-week high of 113.04 yen.
Analysts said the dollar remained at elevated levels against the yen because the U.S. jobs data did little to challenge the view that the Federal Reserve will raise interest rates in June.
The dollar index, which measures the greenback against a basket of six major rivals but the majority of whose weighting is against the euro, was last down 0.1 percent at 98.655 after touching a roughly six-month low of 98.593 after the jobs data.
For the week, the index was set to fall 0.4 percent, for a fourth straight weekly decline. The euro was set to gain 0.8 percent against the dollar for the week, in a fourth straight weekly rise. Against the yen, the dollar was set to gain 1 percent for a third straight weekly rise.
The Canadian and Australian dollars recovered from multi-month lows on Friday, trimming losses arising from a dip in oil prices, while the euro backed away from a six-month high ahead of Sunday's presidential election in France.
The Canadian dollar hit a 14-month low and the Australian dollar touched a four-month trough, driven by a drop in oil prices overnight. Both recovered from those levels by midday in Europe, tracking a similar rebound in oil benchmarks.
Prices of a number of major commodities have sunk in the past two weeks, with traders pointing to a number of factors including concerns about growth and changes in leverage in China as well as fears of a continued glut in oil supplies. This has weighed on the currencies of the major commodities exporters.
The loonie - as traders call the Canadian dollar - last traded 0.2 percent lower at C$1.3771, having earlier slipped to C$1.3793 per U.S. dollar earlier, its weakest level since late February 2016.
The Aussie last traded 0.3 percent lower at $0.7388, after an earlier slide to $0.7393, its lowest since Jan. 11.
"We had obviously a continuation of the weakness in oil and a certain amount of risk aversion overnight," said Kit Juckes, currency strategist with Societe Generale in London.
"(Those) moves have all quietened down."
U.S. West Texas Intermediate (WTI) crude oil futures slid as much as 3 percent on the day before steadying.
US GDP: where is all the growth?
by Fathom Consulting
Today’s advance estimate of US GDP shows annualised growth of 0.7% in Q1, above our forecast of 0.2%, but below the consensus estimate. By contrast, business and consumer confidence are at record highs and our US economic sentiment indicator (USESI) points to robust economic activity. The current divergence between hard and soft economic data is unprecedented and is partially explained by transitory factors including seasonal adjustment quirks. But businesses and consumers, while optimistic, want more clarity on the administration’s fiscal and trade policies before loosening the purse strings.
It is well known that Donald Trump’s pledge to pursue pro-business policies including cutting taxes, reducing regulations and spending big on infrastructure lifted US equities, the dollar and Treasury yields following his surprise election victory in November last year. But doubts about the President’s ability to make good on these pledges, combined with a run of disappointingly weak economic data releases, which fly in the face of more upbeat surveys, have seen these gains reversed. We still believe that the President will deliver fiscal stimulus later this year, as we explained in a recent note to clients, but what to make of the divergence between the hard and soft data? Is the economy really slowing?
Our US Economic Sentiment Indicator
Consistent with our suite of proprietary economic indicators, we have created a new index to gauge the level of US economic activity implied by business and consumer confidence surveys. The index is called the US Economic Sentiment Indicator (USESI) and uses a technique called principal component analysis. Essentially, we weight together 23 business and consumer confidence surveys to create a single time series – known as the first principal component. We then transform the first principal component so that it has the same mean and variance as actual GDP growth.
The USESI should not be viewed as the best predictor of current quarter GDP. That is true not least because the official data will capture large, erratic transactions that simple diffusion indices cannot hope to identify. Rather our USESI should be seen as a measure of underlying economic activity. It tells us where actual GDP growth might be heading if survey measures of business and consumer confidence stay broadly where they are. Our first chart shows that the USESI behaves rather like a moving average of actual GDP growth. It follows a similar cycle, but is much less volatile.
In 2017 Q1, our USESI hit an all-time high of 6.0%. Businesses and consumers are bursting with confidence, and yet the advance estimate of US GDP, published today, shows that the US economy grew by a miserly 0.7% (SAAR) in Q1. Such a large gap between the two measures of economic output is unprecedented.
Beware the official GDP data
One explanation for the divergence is seasonal adjustment issues with the official GDP data. Although the Bureau of Economic Analysis (BEA) tried to address this problem last year, it only tweaked its methodology and revised three years of economic data. A full revamp of its seasonal adjustment methods and a revision to historical data is unlikely to occur before its benchmark revision next year.
Accordingly, official economic data still exhibit seasonal bias: since the turn of the century, GDP has grown at an average annualised pace of 1.0% in Q1, compared to average annualised growth of around 2.0% in other quarters.
Unlike the official data, our USESI is free of seasonal bias. It does, however, exhibit significantly higher readings in Q1 than the official output data. The average reading on our USESI in Q1 over the last twenty years is 1.9%, 0.9 percentage points higher than the average for the official GDP growth rates recorded in Q1. Meanwhile, the average readings on the USESI in all other quarters are lower than the average official GDP growth rates in those quarters.
Transitory or troublesome?
Other transitory factors may have depressed the official output figures in 2017 Q1. For example, consumption of electricity and gas services dropped in January and February on the back of unusually warm weather, depressing personal consumption expenditures (PCE). Indeed, the three-month on three-month annualised rate of growth for real PCE was 1.9% in February; excluding consumption of electricity and gas services, this rate was 2.4%. A delay in processing tax rebates for millions of households may have also dampened PCE in Q1, a point noted by some large US retailers.
Nevertheless, some aspects of the hard data cannot simply be dismissed by transitory quirks. For example, according to the BEA, sales of cars and light trucks fell in volume terms by almost 20% on an annualised basis in Q1. Motor vehicle and parts dealers reported a 4% drop in sales, in cash terms, over the same period, according to the Census Bureau. There was also a sizeable fall in the production of automotive products during the first three months of the year.
These drops are at odds with gains in employment, rising wages and improving consumer confidence. However, they are consistent with slowing auto loan growth, rising delinquencies on auto loans and reports from bank loan officers of lower demand and tighter lending standards on auto loans. It would be premature to talk of a credit crunch, although it is possible that the acceleration in consumer credit in recent years has run its course and that slower rates of loan growth are here to stay.
A little more clarity, please
Stepping back a moment, perhaps the most compelling explanation for the marked divergence between hard and soft indicators at present is that businesses and consumers alike want more detail on the new administration’s economic policies before they loosen the purse strings.
Not only does Paul Ryan’s tax proposal include slashing the corporate tax rate from 35% to 20%, but it also proposes allowing an immediate expensing of investment, removing the tax deductibility of interest expense (thereby making debt financing a lot less attractive) and switching from a ‘global’ to a ‘territorial’ tax system (in which profits earned abroad and brought back to the US would not be taxed). All of these changes would have a massive impact on corporate finance decisions. Businesses are unlikely to commit to significant capital expenditures until the administration provides more clarity on these proposals.
It also remains to be seen where Donald Trump’s US$1 trillion infrastructure spending plans will be targeted, how projects will be auctioned and how they will be financed. Businesses also want clarity on trade policy and whether ‘border adjustment taxes’ will be part of the tax reform. Ultimately, we still think that Donald Trump will succeed in cutting taxes and increasing infrastructure spending later this year, boosting real GDP growth from 1.6% in 2016 to 2.7% this year and 3.5% next year.
________________________________________________________________________________________
Following logic, we probably should focus today on EUR, as France now stands in center of public attention, but we're mostly interested in what will happen after that and now it is not good idea, trying to forecast what will happen. Currently we will give just two hints on France elections. Wilileaks has published сompromising evidence, Macron letters just 2 days before elections. It is unclear whether it will make any impact or not, but this has happened.
Second interesting fact... my primary occupation guys, is managing macro finance fund and by my work I follow a lot of different assets, Eurostoxx 50 is one of them. Here EDF shares attrack my attention. Company has poor results a lot of structural problems, but it is state-owned company. One of the step in Le Pen programm is increasing of stake in key state-owned companies that have government strategic importancy. In particular, she told about EDF. Thus, 3-4 days ago EDF starts to show tremendous rally that absolutely doesn't correspond to financial background of the company.
Finally, we beilieve that press skews real situation in polls to support Macron. Real situation stands different and I suspect that we're on the edge of big surprise. Just because Melenchon voters gravitate to Le Pen. This is enough to make a suggestion that hardly Macron has real 30-40% advantage...
Situation in UK is also intriquing. Some concern also exists about fast gathering of Royal Family in Palace. Also T. May audience on Parlament dismissing was made in rush. We also could take a look at GBP as well.
But technically we see interesting CAD right now. Besides, we haven't taken a look at it for a long time already. Thus, let's make an update...
CFTC Data
We have very bright picture on CAD. Pay attention that we have reverse scale for net speculative position on the chart. In the beginning of spring position has shown drastic reversal and turned from bullish to bearish. It has happened very fast and was supported by big changes in open interest as well.
Right now we see clear bearish sentiment as net-short position as open interest are growing. At the same time speculative position is rather far from saturation and has big space to grow.
Crude oil also shows bearish tendency on last three week. Net long position is contracting, while open interest grows. It means that investors not just close longs, but replace them with shorts:
Technicals
Monthly
Last time we've talked on CAD in January, so, it was rather long time ago. Situation has changed a bit since then, although some issues that we've discussed on monthly chart are still valid.
We've traded initial upside rally in 2015-2016. Once market has reached our AB=CD target around 1.34 area it has turned to ping-pong action from monthly OB to OS. After that, whole 2016 year CAD mostly spent in this range. Trend is bearish here, right now market is not at OB/OS.
Right now we see three setups here but of different time scales. The longest one is upside continuation to 1.618 all-time AB-CD target around 1.60 area. Currently it is difficult to imagine, how this could happen, as most people look only on CAD/Crude Oil relation, but prices already stands low. But we think - this is possible is D. Trump will take tighter steps in mutual trading agreement between US and Canada. So, impact on CAD could come not only from Crude prices, but also from political measures and restrictions that could be put by US.
Second scenario is downward AB-CD retracement, approximately to 1.156 area. As you can see, action since Feb 2011 is first reversal swing, when upside action is greater than previous swing down. Usually, after reversal swing market shows deep retracement. This comes from existing of previous bearish momentum that should be faded down but it pushes price lower while still working. As a result, we could get AB=CD retracement down right to 1.1560 major Fib support. Right now we have first half of this pattern in place. The major concern of this scenario - where and when CD leg down will start. This question stands in tight relation with our third scenario, which is relatively short-term
So, third scenario is the one that we will talk today and that has shortest term. It suggests analysis of CAD in perspective of 1-2 weeks. On monthly chart we do not have a lot of information, except may be bearish grabber that could be formed here. But we will know it only by May closing.
Weekly
On weekly chart trend stands bullish, price is neither at OB nor OS. Here we see that loonie has reached rather solid resistance area, which includes weekly major Fib resistance @1.3837, upper border of the channel and MPR1. Last week has taken the shape of nicely looking gravestone doji.
This combination around resistance is our primary scenario for coming week. Althogh overall picture looks rather good, but still we should avoid treat it as global bearish reversal to 1.1560 target. Not yet. First is, here we have upside AB=CD pattern in progress with 1.4085 target. Second - our bearish grabber on monthly has not been confirmed yet. That's why, right now it would be better to look at this scenario as on retracement and reaction on strong resistance. That's why our weekly target could suggest ultimate target only to lower border of the channel - somewhere around 1.32 area.
Daily
So, here is how we will start... Take a look that daily picture shows valuable add-on to bearish look. We have excellent butterfly "Sell" pattern and inner AB=CD completed at that the same point. Right at top price has formed reversal session.
Here we think that first destination point will be 1.3470 area by two reasons. First is - this is K-support and OS area. From butterfly point of view - minimum respect also stands at 3/8 Fib level of whole butterfly action.
Second reason is more tricky. Recall our weekly upside AB-CD with 1.4085 target. Here, guys, apply your imagination and find reverse H&S pattern. I hope you can do it. Thus, 1.618 target of H&S stands precisely around the same 1.4085. Upside action was rather fast, and we could get upside continuation before all this stuff will over. That's why we think it would be better to focus on conservative target around K-support but not dream on total reversal. Even conservative target still has 200 pips potential.
Daily#2
To start trade we will be watching for DiNapoli patterns on daily thurst action. Here we could get as B&B pattern as DRPO. DRPO looks more logical and it will be a bit simplier to trade it. While B&S will bring two trade possibilities. First, we could trade it as B&B "Buy" and as soon as it will reach target - reverse position down with major daily setup:
Taking in consideration the pace of dropping - B&B scenario looks more probable.
Conclusion:
CAD is very interesting currency as in short-term as in long-term perspective. Right now we have three setups of different time scales.
On coming week we will deal with the shortest one that suggests retracement to 1.3470 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.
