FOREX PRO WEEKLY, May 15 - 19, 2017

Sive Morten

Special Consultant to the FPA
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Fundamentals

(Reuters FX news) - The U.S. dollar fell on Friday, easing from a roughly two-month high against the yen touched in the prior session and slumping against the euro, after weaker-than-expected U.S. economic data raised doubts about whether the Federal Reserve would assume a hawkish bent through the end of the year.

The U.S. core consumer price index (CPI) increased 1.9 percent year-on-year in April, the smallest gain since October 2015. Economists polled by Reuters expected the inflation measure to remain at 2 percent.

In addition, the Commerce Department said retail sales rose 0.4 percent last month. While March saw an upwardly revised 0.1 percent gain, the April figure disappointed expectations of economists polled by Reuters for an increase of 0.6 percent.

Federal funds futures implied traders saw about a 49 percent chance the Fed would increase rates twice by the end of 2017 shortly after the data, compared with 54 percent just before the release of the latest readings on U.S. store sales and the consumer price index, CME Group's FedWatch programme showed.

"It’s building on a theme of the last several months which is the actual inflation prints on the core are very non-threatening,” said Richard Franulovich, senior currency strategist at Westpac Banking Corp in New York, in reference to the core CPI reading.

"The Fed is still going to be hiking probably two more times this year, but the urgency to act and deliver a hawkish thrust to their actions is not there."

The euro rose as much as 0.7 percent against the dollar to a session high of $1.0934 . The euro had fallen to a more than two-week low on Thursday of $1.0838.

The dollar fell as much as 0.6 percent against the yen to a session low of 113.21 yen after hitting a roughly two-month high of 114.36 yen on Thursday.

The dollar index, which measures the greenback against a basket of six major rivals, was last down 0.4 percent at 99.274 . It was still on track to gain about 0.6 percent for the week to notch its first gain in five weeks.

Friday's inflation data hurt the dollar partly because it was disappointing after strong U.S. April import and producer price readings released earlier this week, said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York.

"The CPI data didn't confirm what those other two data sets said about inflation," he said.


Have we passed peak protectionism? And if so, what’s next?
by Fathom Consulting

On Tuesday 9 May, we presented an overview of our Global Economic and Markets Outlook for 2017 Q2 at an event hosted by Thomson Reuters in London. We were joined by former Bank of England policymakers Paul Fisher, Ian Plenderleith and Sushil Wadhwani.

Fathom Director Erik Britton began by setting out what, in our judgment, is the most likely outcome for the global economy. Despite wobbles over his initial failure to replace Obamacare, our central scenario sees US President Donald Trump enact a substantial fiscal stimulus package. There is a material pick-up in growth, with the US economy expanding by 2.7% in 2017 and by 3.5% in 2018. With the labour market already close to full employment, inflation begins to rise. Recognising that it has the tools to deal with a period of above target inflation, while another period of below target inflation would be much harder to address, the Fed moves cautiously. There are two increases in the Fed funds rate this year, and four next year. But this is barely enough to keep pace with rising inflation. Our forecast for the real Fed funds rate – the nominal rate, minus core inflation – is set out in our first chart below. We see the real Fed funds rate essentially on hold for at least the next two years. Moving the nominal Fed funds rate only to keep pace with inflation may appear extreme, but it is precisely what the Fed has delivered to date during the present tightening cycle – it is now 17 months since the Fed funds rate was first raised in December 2015, so we are at M17 on the horizontal axis of our chart. In this environment, inflation moves above target, reaching 3.0% by the end of this year, and 3.5% by the end of next year.
GEMO-US-real-fed-funds-rate-2.jpg


With the world’s largest economy growing at its fastest pace in more than ten years, and with China continuing to double down, emerging economies do well in our central scenario. Elsewhere the outlook is mixed. With near record levels of consumer confidence, driven in part by falling unemployment, the euro area continues to enjoy a cyclical upturn. Nevertheless, unless and until members of the single currency bloc form a proper fiscal union, we remain long-term euro area bears. In the UK growth continues to slow as the reality of what is likely to be a messy departure from the EU starts to bite.

Our risk scenario has remained largely unchanged in nature over the past year. It sees a series of protectionist policies enacted by populist politicians around the world. Tariffs start to rise, and globalisation goes into reverse, diminishing the size of the global economic ‘pie’ – see chart below. We began the debate by asking Ian Plenderleith whether, with Emmanuel Macron safely installed in the Elysée Palace, we could declare that peak protectionism had passed. Could we at last turn our attention instead to some of the pressing macro-economic questions of the day, such as: ‘Why is the risk-free rate so low?’ and ‘How might we address record levels of debt around the developed world?’.
GEMO-2017-Q2-Trade-weighted-average-global-tariff-rate-and-tr-.jpg


Can we stop worrying about the march of populist politics?

Ian Plenderleith felt that M. Macron’s victory in the French elections would do no more than afford the global economy a little breathing space. The fundamental factors that appeared to have underpinned growing support for populist politicians in Europe, such as significant net inward migration, remained in place. Sushil Wadhwani agreed. He described recent political near misses in Europe, including the Dutch legislative and French presidential elections as a “postponement of the inevitable”. Our audience too were far from convinced that the worst was behind us. Asked to consider whether we had passed peak protectionism, only 8% were confident that we had. 41% of our audience felt that we ‘probably’ had, while the remaining 52% felt that we had not.

GEMO-2017-Q2-Q1-Have-we-passed-peak-protectionism.jpg


Why is the risk-free rate so low?

Mathematician Frank Ramsey demonstrated as long ago as 1928 that, in a world where individuals maximise the present value of expected future happiness, and firms maximise the present value of expected future profits, individuals should save and firms should invest until the real rate of interest is just equal to the sum of economic growth and the rate of time preference, ρ. Frank Ramsey’s theory has, on average, worked well. The following chart compares the real rate of growth of the UK economy since 1870 with the real long-term rate of interest. For all their variability, the means of these two series are very close. GDP growth has averaged 2.11%, while the real long-term rate of interest has averaged 2.90%. That implies that the rate of time preference has averaged 79 basis points. Similar relationships hold in other countries. Looking across all 17 advanced economies in the Jordà-Schularick-Taylor macro-history database, we find that a country’s real long-term rate of interest has, on average, exceeded its real rate of growth since 1870 by 33 basis points.

GEMO-2017-Q2-UK-growth-and-interest-rates.jpg

The idea that a country’s real rate of interest should, in steady state, be close to its real rate of growth works well on average. But, for now at least, the relationship appears to have broken down. Many would consider that we are pessimistic when it comes to our assessment of the UK’s growth prospects. But even we would accept that trend growth in the UK is some way north of -2%, which is more or less what ten-year index-linked gilts are yielding today.

Fathom’s view is that much of the decline in index-linked yields across the developed world, from around 2%-3% at the turn of the century, to less than zero in many countries today, has been driven by the behaviour of the world’s largest emerging economy. Since joining the WTO in 2001, China has become increasingly integrated into global capital markets, which means that its own decisions with regard to saving and investment are able to influence interest rates around the world. Easily the world’s largest saver, China is not following the Ramsey rulebook in our view. It is behaving as if it prefers ‘jam tomorrow’ – its time discount rate, ρ , is effectively negative. It is China’s strong desire to save, rather than consume, that has driven down index-linked yields, in the UK and elsewhere. If our explanation is broadly correct, then the normal relationship between growth and real rates of interest across the developed world might reassert itself in one of two ways. Either China rebalances, and consumes more while saving less, or it is effectively shut out of global capital markets by a collapse in global trade. This, in short, is our risk scenario.

GEMO-2017-Q2-Domestic-savings.jpg


Our panellists were in broad agreement that the normal relationship between growth and the real rate of interest would reassert itself at some point. But there was little consensus regarding when, and it was unclear whether it would be achieved by an increase in the real rate of interest or a reduction in the rate of economic growth. Sushil Wadhwani drew attention to the fact that, ever since 2010, the consensus each year had been that index-linked yields would rise. And yet in almost every year since 2010 they had fallen. But as he pointed out, that is the nature of mean reversion. Forecasts for mean reversion can be wrong for many years, until suddenly they are right.

Our audience too believed that index-linked gilt yields would normalise, but that it would take a long time. Most believed it would take between 10 and 20 years. However, almost one in five felt that long-term real rates of interest would remain below zero indefinitely.
GEMO-2017-Q2-will-UK-index-linked-yields-ever-make-it-back-.jpg

Too much debt? A growing problem.

In many advanced economies, the total quantity of debt, relative to GDP, is close to levels last seen in the immediate aftermath of World War II. Having been broadly stable for more than 100 years, rising only in the immediate aftermath of a major global conflict before falling back again, debt began to increase as a share of GDP across the developed world around 1980. Financial innovation undoubtedly facilitated this move. But is the inexorable rise of debt, relative to GDP, a sign of market completion, or market failure? We tend to side with the latter interpretation. The burden of debt has reached such levels, in many advanced economies, but particularly in Japan, that it is scarcely possible to believe it can ever be repaid in full, on the terms envisaged by the lender. That is to say, some form of default whether soft, in the form of higher-than-expected inflation, or hard, through outright non-payment, seems almost inevitable. That is why we have advocated a policy of helicopter money for Japan.
GEMO-2017-Q2-Total-debt.jpg

A reduction in the rate of interest typically stimulates an economy through two channels. First, it lowers the repayments required on variable interest loans, boosting the post-interest income of debtors. Second, by reducing the opportunity cost of consuming today rather than tomorrow, it encourages people to bring forward expenditures that would otherwise have occurred in the future. But crucially, there are limits to this second channel. There must come a time when people have borrowed so much against their expected future incomes that they are either unwilling or unable to borrow any more. At that point, monetary policy becomes much less effective. Arguably, that is pretty much the position in which much of the developed world finds itself today. The boost to demand afforded by rising debt over the past 40 years has, in broad terms, come to an end. In support of this view, our own analysis suggests a doubling of a country’s debt-to-GDP ratio, from 100% to 200%, would reduce long-run economic growth by ½ a percentage point.

Among our panel, there was general agreement that debt levels had become problematic. But there was no clear consensus as to the appropriate solution. Ian Plenderleith felt that it could be repaid, more or less in full without the need for persistently high inflation, just as it had been in many countries following World War II. The difficulty with this approach, as Erik Britton pointed out, is that it would take a very long time. It took almost 30 years for the UK’s debt-to-GDP ratio to fall from an all-time high of 288% in 1946, to a more manageable 84% in 1975. Paul Fisher felt that, in an ideal world, the debt would be inflated away, at least in part. This led on to a discussion of whether, in the present circumstances, it would be advantageous for developed economy central banks to target a higher rate of inflation than 2%.

Paul Fisher was strongly of the view that inflation targets should not be raised merely in an attempt to deliver higher growth. He argued that inflation targeting was one of very few policies that had worked. Erik Britton countered that, while a higher inflation target would not boost inflation in and of itself, it is a policy that might benefit an economy, such as the US, that was already close to full employment, and where inflation was rising. Sushil Wadhwani believed that, for many countries, a higher inflation target would be beneficial. Recent experience had taught us that, with debt levels as high as they are, and with inflation intended to average around 2%, an economy can get itself into a position where the real rate of interest cannot be cut sufficiently to stimulate demand. This had caused a number of major central banks to engage in policies, such as quantitative easing and even negative rates on deposits that in his view were harmful to central bank independence.

COT Report

Recent COT data shows interesting picture. Actually net speculative position on EUR has become long. Last time it was in 2014. Open interest mostly stands unchanged, only shy increase is visible. It means that investors mostly have reversed their positions from bearish to bullish. This moment tells that sentiment, at least on 9th of May (when report was released) stands bullish on EUR. But, to be honest, It will be interesting to see what will happen next week. My suspicion is - this was just reaction on France elections and E. Macron victory. Thus, taking in consideration two moments - opposite Fed and ECB policy and Macron line (actually he is just a logical continuation of Sarkozi-Hollande chain) which supports mostly existent course in France policy, we think that current optimism could be temporal.
upload_2017-5-13_12-16-35.png


Technical
Monthly


As we've said in videos last week, our technical view could be harmed by elections result, but mostly in short-term. Whoever will become a president, existed financial background will stand the same, thus, major long-term trends should be the same. Right now we've got E. Macron and he brings least uncertainty in France policy as he actually just a continuation of previous two presidents - Sarkozi and Hollande. The only intrigue still stands around Parlament elections in June. It could become really tough combination if Macron will not get majority in Parlament... So, we will see.

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. In coming years EU will meet hard restructural political process that could change the structure of the Union, role of different members and financial relations. Also it is a question what will be with newbie members in Eastern Europe. Now we can see some old conflicts in Balkans countries (Serbia, Montenegro) are raised again.

Short-term technical picture doesn't exclude totally some upside continuation. Trend here stands bullish. Yes, we see signs of bearish dynamic pressure, as price mostly stands flat, but fluctuations inside of this "flat standing" are rather wide. A the same time, this fluctuations and even upside action to YPR1 will not change overall bearish setup. Price needs to create new top and exceed 1.16 high to change situation on monthly chart. While EUR will drift inside 1.03-1.16 range, it should be treated as consolidation or retracement action.

Right now we need to answer on question, in what direction market will follow on coming week.

Long term situation on monthly chart suggests that there are more chances on reaching parity but it is difficult to judge on timing of this process.
eur_m_15_05_17.png


Weekly

Right now, guys, weekly chart is very interesting and we have a lot of important features here. Currently overall action match to existent bearish setup. As market has completed large AB=CD target, it has turned to upside retracement. This retracement, actually takes the shape of 3-Drive "Sell" pattern, that has been completed last week. May be it doesn't look absolutely perfect, as we see some space between drives' targets, but still they stand rather close to each other and this lets us treat it as 3-Drive.

Another important issue - by forming 3-Drive EUR has reached major 50% resistance level, and we know that 50% levels are favorite for this market. As you can see, such combination forbids any long entry, at least until appearing of new bullish issues.

The one flaw that we see here in this bearish idyll - it's a gap up, acceleration to 3rd drive point. This is negative sign for any bearish reversal pattern. We know that this is due France elections etc., but from technical point of view - there is no difference why particular this has happened. Existence of the gap is the only thing that important.

That's being said - overall picture will remain bearish and not suitable for long entry, until... right.. upside breakout will happen. The only thing that could drastically change overall balance here is upside breakout, if market will move above 1.1050 area.
eur_w_15_05_17.png


Daily

Trend is bearish here, we see solid reversal action on Monday, when EUR drops, but overall situation mostly stands unclear still. Most interesting thing here is H&S pattern, but we will talk on it below, on intraday charts.

Coming action will depend on breakout. If H&S will work properly, as it should, we will get downward continuaiton, while H&S failure will lead to upside continuation.

As EUR stands here below MPR1 by far, this let's us to treat overall upside action as retracement. Situation here comes to boiling point and on coming week we should get the solution. That's why H&S pattern here is a culmination moment.
eur_d_15_05_17.png


4-hour

So, guys, upside action that we've discussed in beginning of the last week, finally has happened, but only on Friday. Actually we've got DPRO "Buy" on the slope of the head, but this is not matter any more...

Situation here stands very tricky. H&S could failed differently - either in classical manner, when price will just move above the top of right shoulder or... by DiNapoli method. This is combination that he calls as "Ooops!".
And we have it. Take a look that EUR has K-support area right below the neckline. DiNapoli pattern, suggests that K-support should hold downward action and push price above neckline again. This, in turn, should trigger stops and push price even higher. This is the hazard that we have.

That's why, if you intend to take short position right around 1.0950, where the top of shoulder should appear - do not relax after it. Tight stops and take profit partially around K-support.

Finally, classical failure also could happen - Friday upside action on poor statistics was rather fast and, take a look - we have nice hidden bullish divergence with MACD.
eur_4h_15_05_17.png


That's being said, for daily traders task is simplier - they just need to wait for breakout. Upward will mean upside continuation, downside - yes, downwar action.
But for those, who usually starts trades on intraday patterns it will be more difficult. Thus, bulls could wait for either upside breakout of right shoulder, or reaching of K-support around 1.0815 area, while bears could try go short around 1.0950 (by using bearish reversal patterns on 5-min chart, for example), with target around 1.0815 area.

Conclusion:

Upside action on France elections has not broken yet long-term tendency. Currently we limit our trading space by 1.03-1.16 area on monthly chart.

On coming week a lot will depend from H&S pattern. Trading process could become really difficult as it is not simple H&S and has some traps around.


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.
 
Good morning,

(Reuters) - The euro touched a one-week high on Tuesday ahead of the release of euro zone gross domestic product data, as the dollar struggled to gain traction in the wake of a surprisingly soft U.S. manufacturing report.

The euro rose 0.1 percent to $1.0986, having risen to $1.0990 earlier. That was the euro's strongest level since May 8, when it climbed to a six-month high of $1.1024 after France's presidential election.

With concerns about political risks in the euro zone having receded after centrist Emmanuel Macron was elected France's president over far-right nationalist Marine Le Pen, focus is shifting back towards the outlook for monetary policy.

Investors are now focusing on when and how the European Central Bank (ECB) could scale back its quantitative easing given the recent strength in the euro zone economy.

"Long positions in the euro tend to be favoured now, given the chances that the ECB could discuss the possibility of future policy changes at its June meeting," said Shinsuke Sato, head of FX trading group for Sumitomo Mitsui Banking Corporation in Tokyo.

"Overall, there seems to be a mood of looking for chances to buy (euros) on dips," he added.

Later on Tuesday, the euro could take cues from the second reading of the euro zone's January-March GDP growth, as well as a speech by ECB Executive Board Member Benoit Coeure.

The dollar index, which measures the greenback's value against a basket of six major currencies, eased 0.1 percent to 98.805.

The greenback had come under pressure on Monday after the New York Federal Reserve said its barometer on business activity in New York state unexpectedly fell in May, sinking into negative territory for the first time since October.

On the whole, Teppei Ino, analyst for Bank of Tokyo-Mitsubishi UFJ in Singapore, said the weak reading on New York manufacturing activity hasn't substantially altered the positive sentiment toward the U.S. economy.

"I think people want to wait and see," Ino said, adding the general view seems to be that the U.S. economy is still holding firm.

Against the yen, the dollar fell 0.3 percent to 113.52 yen, edging away from an eight-week high of 114.38 yen set last week.

The greenback has risen 1.7 percent against the yen so far this month, as risk sentiment improved after France's presidential elections.

Market expectations for the Federal Reserve to raise interest rates in June have helped underpin the dollar recently.

"If strength in equities or rises in yields around the world continues, that will probably result in a supportive environment for the dollar against the yen," said Shinichiro Kadota, senior FX strategist for Barclays in Tokyo.


So, guys, our setup of DRPO "Sell" on CAD has started, JPY also stands just one step from some DiNapoli pattern...

But today, we mostly will talk on EUR... In weekend we've created clear trading plan. And first step was - watching for H&S pattern. If it will fail - this will become great sign of futher upward continuation. This is almost done.
In general, on daily picture we see fast upside action in area where right shoulder should be formed. This contradicts to market mechanics of H&S pattern and it becomes a very strong bullish sign.
eur_d_16_05_17.png


Although we haven't got yet total failure of H&S as price is not exceeded yet the top, but now we have a chance to take position in advance of this issue and do it relatively safe. Besides, here we have clear picture that right shoulder has failed and our doubts that we've discussed in weekly research were not in vain:
eur_4h_16_05_17.png


Here is actually, how we could do it. Take a look that upside action is a good thrust up. As we expect continuation, we mostly should watch for B&B "Buy" pattern here. If it will be formed - this will let us to take position safer, before real upside breakout of 1.1050 area. Once market will approach to the 1.1050 top, our position already will be protected by breakeven stop.
Thus, let's watch for B&B "Buy" here around first Fib support area:
eur_4h1_16_05_17.png
 
Good morning,

(Reuters) - The dollar nursed its losses on Wednesday after taking a hit from solid eurozone economic data, a fall in U.S. yields on heightened turmoil in Washington and downbeat housing data that reduced expectations of a Federal Reserve rate hike next month.

The dollar index, which scaled a 14-year peak of 103.82 on Jan. 3 on hopes for tax reform and stimulus measures from the administration of U.S. President Donald Trump, gave back all of its "Trump bump" and wallowed near its lowest levels since Nov. 9.

The index, which tracks the U.S. currency against a basket of six major rivals, last stood at 97.929, down 0.2 percent on the day.

Pressure on the dollar increased after news that Trump asked his now-dismissed FBI Director James Comey to end the agency's investigation into ties between former White House national security adviser Michael Flynn and Russia, according to a source who has seen a memo written by Comey.

The memo raises questions about whether Trump tried to interfere with a federal investigation at a time when investors were beginning to doubt that his administration would be able to get a divided U.S. Congress to support its promised policy steps.

"Investors need to see if he can carry out all of his original ideas, compromise, and get organised," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

"There are still Japanese institutional investors who want to buy the dollar on dips, but for now, they're standing back to see what happens next, " he added.

The dollar skidded 0.5 percent to one-week lows against its perceived safe-haven Japanese counterpart and last stood at 112.56 yen.

"The political shenanigans in Washington concerning Trump appear to be denting appetite for the U.S. dollar at the moment, but it's run into technical selling as well," said Sue Trinh, head of Asia FX strategy at Royal Bank of Canada in Hong Kong.

"The move in FX looks to be exaggerated by the addition of the systematic selling of the U.S. dollar by technical trading accounts," she said.

U.S. Treasury yields fell after data showing U.S. homebuilding unexpectedly dropped last month, adding to a recent spate of mixed data that has raised doubts about the U.S. monetary policy outlook. Separate data showed U.S. manufacturing production recorded its biggest increase in more than three years in April.

The yield on benchmark 10-year notes fell to a two-week low of 2.291 percent in early Asian trade, down from its U.S. close on Tuesday of 2.327 percent. It last stood at 2.301 percent.

Interest rate futures showed the market was still pricing in a nearly three in four chance that the Fed will implement a June hike, but that was down from over 80 percent a week ago, according to the CME Group's FedWatch Tool.

Investors were pricing in slightly below an even chance for two or more rate increases in 2017, despite central bankers' stated view that they will hike two more times this year.

The euro added 0.1 percent to $1.10965 after earlier touching $1.1098, its highest since November.

Against the resurgent Japanese currency, the euro tumbled 0.4 percent to 124.88, as investors locked in gains following the European currency's move to a 13-month high of 125.815 on Tuesday.

Data on Tuesday showed the euro zone growing at 1.7 percent year-on-year in the first quarter, in line with expectations.


EUR yesterday has not given us any chances to take long position as no meaningful retracement has happened on a way up. Right now it stands at daily overbought and this may be will provide some deep to buy.
Overall upside momentum is rather strong, by upside breakout market has confirmed bullish sentiment. Also price right now stands above MPR1 and this moment suggests that upside action should continue:
eur_d_17_05_17.png

So, on 4-hour chart now we have excellent thrust and here we could watch for B&B "Buy" pattern:
eur_4h_17_05_17.png


To speak on potential targets - it is useful to take a look at daily CHF. It has solid relation to EUR, but it brings better technical picture. Besides, those of you who was not in time to trade EUR - take a look, CHF still has not broken the low yet.
So, daily franc shows two clear patterns- AB=CD and butterfly. If Plunge will continue with the same pace, we could count on 1.618 butterfly target and this shows potential of this action:
chf_d_17_05_17.png
 
Good morning,

(Reuters) - The dollar wallowed near six-month lows against a basket of major currencies on Thursday as the U.S. political crisis appeared to deepen, threatening to delay efforts by President Donald Trump to implement his economic stimulus plans.

"Political instability in the United States is shaking markets. You put a brake on investments to the U.S. when you see those headlines," said Bart Wakabayashi, Tokyo Branch Manager of State Street Bank.

The Justice Department appointed a former FBI director as special counsel to investigate possible collusion between President Donald Trump's 2016 campaign team and Russia.

The appointment of a special counsel follows Trump's dismissal of James Comey, his FBI director who was investigating Russia's role in the U.S. election.

Media then reported that Trump may have interfered with a federal investigation, a serious allegation that could even lead to his impeachment if verified.

"Some politicians might try to begin the impeachment process, and if they do, that would take much time to carry it out, and while it is ongoing, it would be almost impossible to push fiscal stimulus through," said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo, noting that it took almost two years for the Bill Clinton impeachment process to proceed though Congress.

The dollar index, which tracks the greenback against six major rivals, fell as low as 97.333 on Wednesday, its lowest level since Nov. 9, having given up all the gains it had made following the U.S. presidential election in November.

It last stood at 97.588, flat from late U.S. trade, and down more than 2 percent over the past four sessions.

Trump's surprise election victory had initially sparked buying in the dollar and U.S. assets on hopes for his tax cuts and infrastructure spending plans, but such "Trump trades" have been wound back.

The dollar index has now fallen more than 5 percent from its 14-year high of 103.82 set on Jan 3, despite expectations of higher U.S. interest rates that should bolster the U.S. currency.

The Federal Reserve raised rates in March and its officials have said there could be two or three more rate hikes this year.

Yet, U.S. political turmoil and softer-than-expected U.S. economic data such as retail sales, consumer inflation and housing starts in the past week is leading market players to discount the chance of more rate hikes.

Fed Fund futures are now pricing in only about 60 percent chance of a rate hike by June, compared to around 90 percent earlier this month, and are no longer pricing in a 100 percent chance of a hike even by December.

Against that backdrop, the dollar dropped 2.09 percent against the yen on Wednesday, its biggest fall since July 29 last year.

It fell to a three-week low of 110.53 yen early on Thursday before bouncing back slightly to 111.25 yen, up 0.5 percent from late U.S. levels on bargain-hunting by Japanese investors.

The yen gave a limited response to data showing Japan's GDP grew an annualized 2.2 percent in the first quarter, handily beating economists' forecast of 1.7 percent rise.

"Although the headline GDP was stronger than expected, the GDP deflator was deeper into negative, pointing to persistent deflationary pressure," said Minori Uchida, chief currency analyst at the Bank of Tokyo-Mitsubishi UFJ.

The euro hit a six-month high of $1.1174 and last stood at $1.1143, down 0.1 percent on the day.

"My feeling is that the current level of the euro is too high, and isn't sustainable based on fundamentals, when U.S. growth and the economy are not so bad, so I'm feeling that the current levels are a very good chance to sell the euro against the dollar," Brown Brothers Harriman's Murata said.

"I'm guessing that some ECB officials will speak up about euro strength having a downside for the eurozone economy," he added.

The Swiss franc hit a six-month high of 0.9772 to the dollar on Wednesday before easing back to 0.9805.

Against the euro, to which the Swiss currency is closely tied, the franc firmed to 1.0923 franc per euro from last week's eight-month low of 1.0988.


So, although on EUR overall thrust up looks attractive, but yesterday we've agreed to wait a deep to buy as market is strongly overbought and it is not good idea to go long right now. As on EUR as CHF this retracement has started and we hope to get some DiNapoli thrust-based pattern.

Meantime, on JPY we already has pattern in place that we've discussed, but it looks not quite ordinary due strong impact of fundamentals - political scandal in US and impressive Japan GDP data. By letter we have DiNapoli B&B "Buy" pattern, but the trick stands around Fib level - actually this is not 3/8, not 50% but 6/8 support. It is rather deep and we have solid drop against the pattern. This moment brings some nuances in trading process:
jpy_d_18_05_17.png


4-hour chart shows that this is also MPP. Target of daily B&B "Buy" coincides with MPR1 and major 5/8 resistance around 112.90.
At the same time, here, recent drop is also good thrust down, and it is also, in turn, suitable for DINapoli directional pattern. Here is what we can do...
if we will get DRPO "Buy" here - this is bullish reversal pattern and it could be used for trading daily B&B "Buy".
If, instead, here we will get B&B "Sell" - we will trade it. Market needs to reach 111.80 level within 3 candles above green line. As soon as it will be completed, our next step will be - is to watch for bullish reversal pattern here, that will let us to trade daily B&B.

Read all this mess twice, I hope you're not confused too much...

Finally, if we will not get any bullish reversal pattern here - we will not trade daily B&B as it looks too risky.
jpy_4h_18_05_17.png
 
Good morning,

(Reuters) - The dollar sagged against the yen on Friday and was on track for weekly losses, bruised by worries that political turmoil in Washington could delay efforts by U.S. President Donald Trump to implement his economic stimulus plans.

The dollar eased 0.1 percent to 111.39 yen, having set a three-week low of 110.24 yen on Thursday. The dollar is down about 1.7 percent against the yen for the week, putting it on track for its biggest weekly fall in a month.

The greenback had gained some reprieve on Thursday, helped by solid U.S. economic data, including a jump in the Philadelphia Fed's gauge of mid-Atlantic manufacturing activity in May.

Focus will remain on the Trump administration's troubles following the controversial dismissal of the Federal Bureau of Investigation's director, James Comey, and that could continue to weigh on the dollar, analysts said.

"It hasn't gone away...and so the market will be swayed by any related headlines," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

Trump, striking a defiant tone on Thursday after days of political tumult, denied colluding with Russia during his 2016 campaign or asking Comey to drop a probe into disgraced former national security advisor Mike Flynn.

On Wednesday, the Justice Department appointed former FBI chief Robert Mueller on Wednesday as special counsel to probe possible ties between Russia and Trump's 2016 presidential campaign.

"I think we will get a lot more...headlines in coming weeks and months, especially as the investigations takes place," said Tan Teck Leng, forex analyst for UBS Wealth Management in Singapore. "It will be a hit sentiment for the dollar."

Against a basket of six major currencies, the dollar held steady at 97.797

The dollar index, which fell to a six-month low of 97.333 on Wednesday, is down nearly 1.5 percent for the week, putting it on track for its biggest weekly slide since July 2016.

The euro was last trading at $1.1112, up 0.1 percent on the day but down from a six-month high of $1.1174 set on Thursday.

UBS Wealth Management's Tan said the euro will probably rise over the next several months, supported by the euro zone's improving growth momentum. He also expected the European Central Bank (ECB) to start signaling in June or July its intent to begin reducing its asset-buying program.

Tan expected the ECB to announce in September that it will start reducing its monthly asset purchases from January 2018. The ECB is currently purchasing 60 billion euros a month, mostly in bonds.


Today, guys, we continue our discussion of JPY as setup is ready for trading. Please recall our yesterday discussion. We've said that while we're waiting for bullish reversal pattern on intraday charts, that should bring more confidence and let us to trade daily B&B setup - we will keep watching for another B&B pattern but on Sell side and on 4-hour chart. Right now we've got this pattern:
jpy_4h_19_05_17.png


Even more - yen also has formed bearish grabber that suggests even deeper drop, right to previous lows. Right now is good moment to go short - price stands at 111.60 Agreement resistance and also has formed small bearish grabber. Donward action probably will take a shape of AB-CD right to our 110.80 target.
jpy_1h_19_05_17.png


So, when price will reach B&B target here - take the half of profit and move stop to breakeven on the rest of position. This will let you to get some result on 4-hour bearish grabber as well, if price will drop below 110.20 area.
 
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