FOREX PRO WEEKLY, May 16-20, 2016

Sive Morten

Special Consultant to the FPA
Messages
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Fundamentals

(Reuters) The dollar climbed to a two-week peak against a basket of currencies on Friday, as stronger-than-expected U.S. economic data appeared to boost expectations the Federal Reserve may raise interest rates more than once this year.

The move was the best two-week gain for the dollar since late February. The greenback also rose to a two week-high against the euro and Swiss franc.

Data on Friday showed U.S. retail sales gained 1.3 percent in April, the largest rise in more than a year, suggesting the economy was regaining momentum after growth almost stalled in the first quarter.

Excluding automobiles, gasoline, building materials and food services, retail sales shot up 0.9 percent last month after an upwardly revised 0.2 percent gain in March.

The retail sales report "is likely to rekindle arguments from the hawkish camp in the ongoing debate among policy makers about why the Federal Reserve should consider maintaining its rate normalization efforts," said Samarjit Shankar, head of iFlow and quant strategies at BNY Mellon in Boston. The dollar, he added, is likely to continue garnering support from the market's interest rate expectations.

The U.S. currency remained net bought over the past week, although on a more modest basis, according to BNY Mellon data.

The greenback suffered a sharp sell-off in the first four months of 2016, hitting a 16-month low, as market expectations of at least two Fed rate hikes this year faded amid fears about a global economic slowdown and financial market turbulence.

With those concerns having subsided somewhat, some analysts say there are signs the tide could be turning for the dollar and that investors, who now see about a 60 percent chance of a Fed hike this year, may have pushed back their expectations too far.

In late trading, the dollar index rose 0.5 percent to 94.609, its largest one-day gain in more than a week. The index also got a boost after the University of Michigan's consumer sentiment index rose to 95.8 this month, the highest level since June 2015, from April's reading of 89.

The euro meanwhile fell to $1.1304, down 0.6 percent . The euro shrugged off data showing euro zone GDP grew by 0.5 percent in the first quarter, in a downward revision of an earlier estimate.

Against the yen, the dollar fell 0.4 percent to 108.60 yen, clear of an 18-month low of 105.55 hit last week after the Bank of Japan kept monetary policy unchanged.

Big investement banks have updated their view on perspectives of USD value to EUR and other currencies.

Goldman Sachs, one of the most bearish investment banks on the outlook for the euro, ditched its call on Friday for the single currency to fall below $1.00 next year, predicting it will now trough at $1.05.

The bank recently lowered its outlook for U.S. interest rates and Treasury bond yields, which implies a slower rate of appreciation in the dollar in the coming months.

Deutsche Bank, another of the most aggressive euro bears in the investment banking community, has also raised its euro forecasts, although it still expects the euro to fall below parity with the dollar in 2017.

"We delay some of our expectation for euro downside well into next year, given mixed messages from the European Central Bank," Goldman's currency strategy team led by Robin Brooks said in a note on Friday.

"Overall, our view remains that the dollar will rise a further 13 percent, but that appreciation is tilted against the yen near term and more back-loaded elsewhere," they said.

Brooks and his team now see the euro falling as low as $1.05 next year compared with their previous forecast of $0.95. They still expect $0.90 will be reached over the next three years.

Shorter-term, they now see the euro at $1.12 in three months and $1.10 in six months, compared with their previous calls for $1.04 and $1.00, respectively.

They also lowered their dollar/yen forecasts to 115 yen in three months, 120 yen in six months and 125 yen in 12 months, from 122 yen, 125 yen and 130 yen previously.

"Ultimately, we have more faith that the Bank of Japan will find ways to surprise on the dovish side, given that reflation is at the core of Abenomics. As a result, we continue to forecast substantial dollar/yen upside," they wrote.

Both the ECB and BOJ are pumping large amounts of stimulus into the financial system via their respective bond purchase programs. Yet the euro and yen have appreciated substantially against the dollar this year, the euro by 4 percent and the yen by almost 10 percent.

In recent days Goldman lowered its U.S. 10-year yield forecast to 2.40 percent this year from 2.75 percent, and to 2.75 percent next year from 3.30 percent. On Friday it was trading around 1.74 percent.

Last week Goldman's economists cut their expectation for cumulative U.S. rate hikes over the next 18 months by 50 basis points.

Today, guys, we will take a look at NZD currency. It is not very popular and it is not a regular guest on our forum, but we haven't taken a look at it for some time already and we need some time to get clarity on recent drop of our primary currencies - EUR, GBP...

Australian dollar set to rise?
by Fathom Consulting

Last year, we argued that Australia had several aces up its sleeve helping it to avoid recession despite the downturn in its largest trading partner — China. We were right. Now, China appears to be throwing in the towel on rebalancing and doubling down in a bid to kick-start growth.

AUS.jpg


Last week, after keeping policy on hold for a year, the Reserve Bank of Australia (RBA) cut the cash rate by 25 basis points to an all-time low of 1.75%. That decision came less than a week after data revealed that consumer prices had fallen by 0.2% in the first quarter of 2016, marking the first quarterly decline since 2008.

In the statement released alongside the Bank’s interest rate cut, Governor Glenn Stevens observed that “commodity prices have firmed noticeably from recent lows.” In our view, that turnaround over the past month or two is consistent with some recovery in economic activity in China as it reverts to its old growth model of credit-fuelled investment.

Closely correlated with industrial commodities prices, the Australian dollar has also strengthened since its recent trough in January — up 3.9% on a trade-weighted basis at the time of writing. Although this complicates Australia’s transition from its mining investment boom to broader-based growth, we believe that the RBA should refrain from further interest rate cuts. Whether it will or not is finely balanced.

Nevertheless, we would recommend going long the Australian dollar against the New Zealand dollar. That is because the former is likely to experience greater upward pressure as China reverts to its old growth model. In other words, the prices of Australia’s metal-based commodities are likely to rise faster than New Zealand’s agricultural exports as China reverts to its old ways, with growth driven by investment rather than consumption.

Our chart uses the copper to milk price ratio as a timely proxy for this, with copper and milk some of the most important exports for Australia and New Zealand, respectively. As our chart highlights, the copper to milk price ratio has been on an upward trajectory since January, offering further evidence of a doubling down in China that is likely to support the Australian dollar.

CFTC Report
COT data shows very interesting picture. Open interest has increased significantly, while net-long position has not changed. It means that speculators have added aproximately equal amount of short and long positions. If will take a look at Long Format, then you'll see that Intermediary dealers mostly have added longs while Asset Managers and Institutional investors - shorts. But both of them are stand in speculative part of investors. This is very rare situation for analysis.


upload_2016-5-14_14-24-38.png

Here is the CFTC chart:
upload_2016-5-14_14-28-18.png


Currently we have an unique situation, that gives us very important tool for trading. Huge jump in trading volume tells that market mostly indecision and further direction will depend on short-term action. Thus, if market will drop below current lows - massive closing of longs probably should happen and NZD will drop, while minor upward action will lead to opposite action.

Technicals
Monthly

So, today we will take a look again at NZD that has long-term interesting setup.

In huge time scale perspective (this is probably not even monthly chart), we have big AB=CD pattern. NZD has turned to downward action in summer 2014 and has not reached it's target. It means that sometime it will turn to upside action again and could hit estimated 0.92 area.

Our discussion of this setup has started as soon as market has reached major 5/8 monthly Fib support @ monthly Oversold (not shown). Logical bounce up mostly has done. The speed of this action suggests that we do not have any new bulltrend but mostly are dealing with just technical retracement and respect of strong monthly chart. May be later situtation could change to something promising to NZD, but currently we do not see any signs of it. Besides, overall fundamental situation around NZD has not real advantages to USD.

Last two months Kiwi has reached strong resistance area. Although this is not overbought, but still it is a Yearly Pivot and major 3/8 monthly resistance. Somewhere around we would like to switch from bulilsh to bearish trading. The precise point and time for short entry we will have to estimate on lower time frames.

The most important issue, of course, is testing of YPP, especially failure to break it up. It means that by pivot framework NZD should drop to YPS1, which matches to former lows around 0.60. Currently it is difficult to imagine what reasons could help NZD to break through 0.7150 and to estimate long-term bullish sentiment by moving above YPP.

That's being said, we probably will watch for bearish reversal patterns and try to take medium-term short position.
nzd_m_16_05_16.png


Weekly

This is the most important picture that shows all our trading context for few weeks ahead. Here we should undertsand one thing. Right now we try to find out one important detail - wether market will show slightly higher first and then will drop, or, it will drop immediately. As you can see - here is most important word is "drop", that should happen anyway. That's why for long-term perspective it is not as important - in one way or another market should turn to downward action.


Still for short-term perspective this question is very important. Because it determines the level where we will search chance to go short and there will be quite different tactics if, say, market will move up a bit more, or if it will turn down right now...

Weekly chart shows that we have not just YPP and Fib level, but also weekly K-resistance and Agreement. Right now market stands in upside AB=CD action and "D" point has not been reached for few pips. Last week market has formed bullish grabber that suggests final leg up and washing of the tops. Theoretically this should let kiwi to complete AB=CD pattern and finalize bearish setup.

And here is the time to go back to CFTC data. Inside this week huge amount of opposite positions were opened. We again should recall "churning" term. If grabber will fail - then market could accelerate down withought completing of AB=CD pattern, while starting upside action should lead to gradual closing of shorts that will make grabber work. Thus coming 2-3 weeks will be very interesting
nzd_w_16_05_16.png


Daily

Currently NZD forms very bright and simple setup at the same time. All bullish hopes are based on one pattern. This pattern is morning star on daily chart. In fact weekly grabber and this "Star" are the same and have the same invalidation point - the lows.

Here we have another bullish setup that calls DiNapoli "Stretch" pattern. This is combination of Oversold and Fib support. Current action looks logical - as soon as pattern has been formed, I mean candlestick, kiwi has shown retracement back inside its body.

Right now market stands at the point where it has to turn up, if it is bullish. For us it means that if you want to take long position based on grabber and last upside leg to 0.7150 you have to do it somewhere around. When market will move out of this point - it either will destroy bullish setup totally by dropping below lows, or turn down and you will not get chances for another entry.

nzd_d_16_05_16.png


Hourly
Here we see that market has shown 5/8 retracement back inside the body of the pattern. Still it was able to hold above the lows even on a background of good US data that was released on Friday. Till 0.67 lows kiwi has no other support. Thus, if it will break through this level - nothing will be able to hold it, and mostly bullish setup will be doomed. That's why this level is important for decision making on long entry.

Still, our major interest stands around short entry but not in trading of last leg up. We're interested with it only because it could give us better entry price.

nzd_1h_16_05_16.png


Conclusion:
Long-term view on NZD currently looks bearish. As technical patterns as fundamental situation shows nothing that could support Kiwi right now or turn it up. Thus, we mostly will be looking for change to sell a rally and get bearish position. Currently we hope for getting chance to sell around 0.7150.

On coming 1-2 weeks we will watch how particularly market will turn down - either after "final" leg up, or immediately. Thus, on Monday we have to keep an eye on perspectives of weekly bullish stop grabber.

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 dollar firmed on Tuesday as a recovery in crude oil prices lifted equities and U.S. Treasury yields, and lessened demand for the safe-haven yen.

Oil prices hit six-month highs overnight on fears about global supply outages, and on a more bullish assessment from long-time bear Goldman Sachs.

The yield on benchmark 10-year notes stood at 1.7533 percent in early Asian trade, compared to its U.S. close of 1.753 percent, and up from 1.71 percent on Friday.

The dollar index, which tracks the U.S. currency against a basket of six rivals, was nearly flat at 94.547, within sight of a three-week high of 94.845 hit on Friday.

The dollar edged up to 109.07 yen, while euro bought 123.40 yen, up slightly.

The euro was slightly lower at $1.1316.

The British pound added 0.4 percent to $1.4447 after dropping to a three-week low of $1.4333 in the previous session ahead of Britain's June 23 referendum on European Union membership.

The "remain" camp was ahead of "leave" by eight points in the latest ICM telephone poll released on Monday.

On the U.S. data front, New York's Empire State survey was weaker than expected, coming in at its lowest level since February. But few investors used it as an excuse to sell the greenback.

"Dollar bulls weren't excited by Friday's strong retail sales report - which showed the largest rise in consumer spending in more than a year and today dollar bears found no reason to jump into fresh short positions after one soft manufacturing report," Kathy Lien, managing director at BK Asset Management, said in a note to clients.

"Until some piece of data significantly alters the market's expectations for Fed policy, we expect the dollar to remain confined to its recent range against the euro and Japanese yen," she said.

Richmond Fed President Jeffrey Lacker told the Washington Post in an interview published on Monday that the central bank should consider raising rates at its June meeting. But Lacker is not a voting member of the Fed's policy-making board this year, and markets have all but priced out a move next month.

Fed funds futures rates show investors see only a 4 percent chance the Fed will raise interest rates at its upcoming June policy meeting and market pricing indicates an increase will not occur until early 2017, according to CME Group's FedWatch tool. But many investors believe the next hike will come later this year.

The higher crude oil prices gave the Australian dollar a lift. The Aussie was trading at $0.7283, pulling above a two-and-a-half month low of $0.7236 plumbed in the previous session.


Today guys, we will update GBP analysis. But first - looks like our NZD view has some reason, at least currently it bounces up, it would be great if we will get precisely what we want to...

On GBP last tme (in our weekly research) we said that we expect to see some kind of AB=CD retracement down. AB leg, according to our view should reach K-support area on daily chart and this finally has happened. Now we will take a look at BC leg. Then we expect some continuation, either 61.8% or even 100%, mostly because GBP is overbought as on weekly as on daily chart.
gbp_d_17_05_16.png


On 4-hour chart we have nicely looking bullish divergence:

gbp_4h_17_05_16.png


But our major chart right now is hourly one. Currently we suggest that we could get 1.27 H&S pattern. Left shoulder and head has been formed already. Right now we will be watching for right shoulder and then AB=CD action right to 1.46 level.
gbp_1h_17_05_16.png


That's being said this brings multiple setup. For example, if you're watching for long position - you could monitor 1.44 area where the bottom of right shoulder should appear, while if you're bearish - your choice probably is 1.46 level.
Besides, scalp traders could drop time frame even further and, say, watch for sell signals right now for taking short position on a process of right shoulder creation...
 
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Good morning,

(Reuters) The dollar rose to a three-week high against the euro and a basket of currencies on Wednesday on renewed expectations that the Federal Reserve could raise interest rates soon.

U.S. consumer prices recorded their biggest increase in more than three years in April as gasoline prices and rents rose, while other data showed housing starts and industrial production rebounded strongly, adding to the case for an early rate hike.

U.S. interest rate futures moved to price in a 70-80 percent chance of a rate hike by December, with a 50 percent chance of a move priced in by September. The chance of a hike in June was at around 12 percent, up from around 5 percent before the inflation data was released.
The two-year U.S. Treasury notes yield hit a three-week high of 0.847 percent.

Furthermore, Atlanta Fed President Dennis Lockhart, viewed as a centrist on the Federal Reserve board, said he still assumed there would be two to three rate hikes this year, a view echoed by San Francisco Fed President John Williams.

The dollar index was up 0.4 percent at 94.897, its highest level since April 25. The euro slipped against the dollar to a three-week low of $1.1271 but rose 0.3 percent against the yen to 109.52 yen.

"The two-year U.S. yields seem to be breaking their recent ranges so that is helping the dollar," said Yujiro Goto, currency analyst at Nomura. "The Fed officials also sounded a bit more hawkish about policy."

Earlier, the yen rose against the dollar after data showed Japan's economy unexpectedly expanded at the fastest pace in a year in the first quarter, an annualized 1.7 percent, beating forecasts and rebounding from a 1.7 percent contraction in the previous quarter.

But less bullish aspects of the GDP report kept alive expectations of more stimulus from policymakers in coming months.

"The yen strengthened a bit because growth was stronger than many had expected," said Ayako Sera, market strategist at Sumitomo Trust and Banking. "But looking at the details, there were still some concerning areas, including capital spending."

Some 80 percent of analysts surveyed by Reuters from May 11-17 said they expected the BOJ to take action, including a combination of cutting negative interest rates further and boosting its purchases of government bonds, exchange-traded funds and corporate bonds.


While GBP is forming our H&S pattern - we will take a look at EUR. Although it does not show clear patterns right now, but we need to estimate next downside target. On daily picture we see 2 bearish moments. First is dropping below our consolidation, second - below MPS1. It tells that in one or another manner, but downward action will continue on next week as well. It could happen differently. Right now market stands at minor support area - WPS1 and daily trend line. THus, if upside bounce will happen - we could get H&S pattern on daily chart. If not, and market will drop immediately - you can recognize butterfly shape on top.
Anyway - next area that is our medium term target is 1.1125-1.1190 K-support. It probably will become daily OS area and includes YPP.
eur_d_18_05_16.png


Today is major question whether we will get H&S on daily chart or EUR will drop directly to 1.12 area. It will depend on what we will get around WPS1+potential neckline. If EUR will form here, say small reverse H&S pattern, then upside action could happen and currency will start to form right shoulder on daily chart.
eur_4h_18_05_16.png

That's being said, we mostly will be watching for appearing of right shoulder. If we will get it - we will try to go short from there. Scalp traders could try to take long position out from neckline, but only if EUR will form upside reversal pattern on 4-hour chart around WPS1. If not - sit on the hands, since it could drop directly to daily K-support area and YPP.
 
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Good morning,

(Reuters) The dollar stood tall and set a three-week high against the yen on Thursday, after the minutes of the U.S. Federal Reserve's latest policy meeting rekindled expectations for a June interest rate hike.

The dollar rose to 110.27 yen at one point, its strongest since April 28, marking a gain of nearly 4.5 percent from an 18-month low of 105.55 yen in early May.

The greenback later came off that high and last stood at 110.05 yen, down 0.1 percent on the day.

While the dollar could see further gains against the yen in the near term, the pace is likely to become more gradual given the potential for dollar-selling by Japanese exporters, said a trader for a Japanese bank in Tokyo.

"There is no doubt that the levels are becoming attractive for exporters to conduct some currency hedging," he said.

A number of major Japanese exporters have set their dollar/yen exchange rate assumptions for the 2016/17 business year, which began in April, at levels around 110 yen to 105 yen.

Among them are major car makers Toyota Motor Corp and Honda Motor Co, which are both assuming an average dollar rate of 105 yen in 2016/17.

The dollar's rebound against the yen no doubt came as a relief to Japanese officials, who were concerned that the yen's recent strength would stifle Japan's nascent economic recovery.

Currency stability is likely to be a topic at the G7 finance leaders' meeting in Sendai, northern Japan on Friday and Saturday. The meeting could expose a rift on issues ranging from currency to fiscal policies within the group.

"I would expect Japan to seek understanding of their FX and monetary policy. However 'dissent' from the U.S. on FX intervention will still remain," said Roy Teo, senior FX strategist for ABN AMRO Bank in Singapore.

Japanese officials are likely to reiterate that they will act if moves in dollar/yen become one-sided and volatile, Teo said, adding that the market's wariness toward possible intervention will probably heighten if the dollar were to weaken back below 105.55 yen.

The euro fetched $1.1216, steady on the day, after setting a seven-week low of $1.12145 on Wednesday, its weakest since March 29.

The dollar index, which tracks the greenback against a basket of six major currencies, traded at 95.237 .DXY. On Wednesday, the index touched a seven-week high of 95.270.

So far in May, the dollar index has risen about 2.3 percent, partly on the back of solid U.S. economic data.

"With April activity indicators consistent with a healthy bounce-back in growth, we see risks of two rate hikes in 2016, with the first coming in the June/July time horizon," strategists at Barclays said.

Data earlier this week showed U.S. consumer prices increased the most in three years in April while industrial output and housing starts both rebounded, suggesting the economy was regaining steam at the start of the second quarter after almost stalling early in the year.

The Australian dollar hit a two-and-a-half month low after mixed Australian jobs data sparked some speculative selling though the numbers were unlikely to build the case for an imminent rate cut by the Reserve Bank of Australia.

The Aussie dollar touched a low of $0.7199, its lowest level since early March. The Aussie dollar last traded at $0.7200, down 0.4 percent.


Today we turn back to GBP, since our first target has been hit. As you now recent rally has been triggered by UK public opinion poll release that shows ~76% are against Brexit. This was a bit surprising. Anyway, upside action has happened.
Still our initial expectation was about 2-leg AB=CD retracement down. Now it might happen that AB and BC legs are here and we should watch for starting of final CD leg. Although this is not the fact yet that it will start, but, despite super positive poll results, we see dollar stands on positive march and GBP was overbought on weekly chart. That's why, currently we still follow our initial setup, at least until market will tell us opposite thing. At least first our setup has been completed perfectly - drop to daily K-support&MPP, re-testing neckline and upside bounce:
gbp_d_19_05_16.png


Here our attention will stand on intraday charts. As upside impulse was very fast, we do not exclude some inertional upside continuaiton for 50-100 pips more. For example, market could completed this butterfly on 4-hour chart:
gbp_4h_19_05_16.png


On hourly chart you can see how precisely GBP has completed our H&S pattern. Now it has hit first target - AB=CD and Agreement around 1.46 resistance. Now we start to watch for reversal patterns. Some upside action is possible, as we said, but we do not sure that GBP definitely will reach 1.618 target. We will see... So if we will get reversal pattern, then it could become a signal daily CD leg is starting. IF not, well, then will be watching what will happen next...
gbp_1h_19_05_16.png
 
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Good morning,

(Reuters) The dollar held at its highest in nearly two months against a basket of major currencies early on Friday, on track for a third week of gains as investors awaken to the risk of a hike in U.S. interest rates as early as next month.

New York Federal Reserve President William Dudley on Thursday said the U.S. economy could be strong enough to warrant a rate increase in June or July.

His comments reinforced surprisingly clear signals of a possibly imminent rate hike in minutes of the Federal Reserve's April policy meeting and underpinned an already-firm greenback.

The dollar index .DXY last stood at 95.289, having been as high as 95.502 overnight - a level last seen on March 29. It was up nearly 0.8 percent this week and has risen 2.4 percent in the past three weeks.

"The market is currently ascribing around a 60 percent chance that the U.S. Fed will hike rates by the July meeting, and NAB has pencilled-in a July rate hike," said Tapas Strickland, economist at National Australia Bank.

"Fed officials are seemingly content with such a pricing," he said, adding an earlier June move could be complicated by the Brexit referendum which occurs a week after the June 14-15 Fed review.

Against the yen, the greenback reached a three-week high of 110.39 but dipped back to around 110.00 as weakness on Wall Street, hit by revived prospects of a near-term U.S. rate hike, shored up the safe-haven Japanese currency.

The U.S. currency was on track to gain 1.3 percent this week, during which it pulled significantly away from an 18-month low of 105.55 yen plumbed early in May after the Bank of Japan refrained from further monetary easing.

The euro also eased against the yen to 123.22, though it remained tightly range-bound since bouncing off a three-year trough of 121.48 early this month.

On the dollar, the common currency hovered around $1.1200, having touched its lowest in over seven weeks at $1.1180.

For potential cues the currency market awaited the G7 meeting of central bankers and finance ministers kicking off on Friday in the northern Japanese city of Sendai, although the event's potential impact may have lessened since the yen's bull run has ended.

"Had the yen remained strong going in to the G7 meeting, discussions would have revolved around the possibility of intervention. But the market has calmed down and the meeting is drawing less attention from participants," said Koji Fukaya, president of FPG Securities in Tokyo.

The yen's surge to an 18-month high versus the greenback earlier this month had prompted threats of intervention from Japanese authorities. U.S. Treasury Secretary Jack Lew, on the other hand, said that he saw no "disorderly" moves in the market that warrants intervention.

A standout performer was sterling, which rose broadly after a robust UK retail sales report diminished chances of an interest rate cut that some investors were factoring in.

The pound reached a two-week high of $1.4663 and was last at $1.4598. Its trade-weighted index peaked at 87.9, its highest since Feb. 5.

In contrast, the embattled Australian dollar stood little changed at $0.7233 after briefly dipping below 72 U.S. cents for the first time since early March.

Although EUR finally has touched our K-support area around 1.1180, but it has not formed yet any patterns around and it is still unclear what to expect, thus we need to wait a bit more. It let's us again take a look at GBP.
Yesterday we've said that we could watch for reversal patterns on hourly chart. If we will get them - this could mean that market could form CD leg of large daily AB=CD retracement.
gbp_d_20_05_16.png


On 4-hour chart our suggestion was correct and cable indeed has completed Butterfly "sell" pattern. If this pattern will become a reversal one, then GBP could form AB=CD. First minor target of this pattern stands at 1.44 level - again on daily K-support area:
gbp_4h_20_05_16.png


On hourly chart we unfortunately have no bright patterns, but consolidation reminds pennant, or even diamond (although I'm suspious about this shape). Usually when GBP forms diamond - after breakout it re-tests broken line and then estimate direction, either drops or moves higher. Something of that sort we expect here. Breakout has happened, now GBP will try to re-test broken line. This will form opportunity for short-entry for those of you who are searching for this... Besides it will let to place tight stop, slightly above trend line and 5/8 Fib resistance will be enough. Because if market will move above it again - it will mean that it will continue move up.
gbp_1h_20_05_16.png

That's being said today we're waiting short-term perspective clarity. First - re-testing of broken line. Second - either upward continuation or turning down and completion of 4-hour AB=CD with minimal target around 1.44...
 
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Fundamentals

(Reuters) The dollar climbed to a two-week peak against a basket of currencies on Friday, as stronger-than-expected U.S. economic data appeared to boost expectations the Federal Reserve may raise interest rates more than once this year.

The move was the best two-week gain for the dollar since late February. The greenback also rose to a two week-high against the euro and Swiss franc.

Data on Friday showed U.S. retail sales gained 1.3 percent in April, the largest rise in more than a year, suggesting the economy was regaining momentum after growth almost stalled in the first quarter.

Excluding automobiles, gasoline, building materials and food services, retail sales shot up 0.9 percent last month after an upwardly revised 0.2 percent gain in March.

The retail sales report "is likely to rekindle arguments from the hawkish camp in the ongoing debate among policy makers about why the Federal Reserve should consider maintaining its rate normalization efforts," said Samarjit Shankar, head of iFlow and quant strategies at BNY Mellon in Boston. The dollar, he added, is likely to continue garnering support from the market's interest rate expectations.

The U.S. currency remained net bought over the past week, although on a more modest basis, according to BNY Mellon data.

The greenback suffered a sharp sell-off in the first four months of 2016, hitting a 16-month low, as market expectations of at least two Fed rate hikes this year faded amid fears about a global economic slowdown and financial market turbulence.

With those concerns having subsided somewhat, some analysts say there are signs the tide could be turning for the dollar and that investors, who now see about a 60 percent chance of a Fed hike this year, may have pushed back their expectations too far.

In late trading, the dollar index rose 0.5 percent to 94.609, its largest one-day gain in more than a week. The index also got a boost after the University of Michigan's consumer sentiment index rose to 95.8 this month, the highest level since June 2015, from April's reading of 89.

The euro meanwhile fell to $1.1304, down 0.6 percent . The euro shrugged off data showing euro zone GDP grew by 0.5 percent in the first quarter, in a downward revision of an earlier estimate.

Against the yen, the dollar fell 0.4 percent to 108.60 yen, clear of an 18-month low of 105.55 hit last week after the Bank of Japan kept monetary policy unchanged.

Big investement banks have updated their view on perspectives of USD value to EUR and other currencies.

Goldman Sachs, one of the most bearish investment banks on the outlook for the euro, ditched its call on Friday for the single currency to fall below $1.00 next year, predicting it will now trough at $1.05.

The bank recently lowered its outlook for U.S. interest rates and Treasury bond yields, which implies a slower rate of appreciation in the dollar in the coming months.

Deutsche Bank, another of the most aggressive euro bears in the investment banking community, has also raised its euro forecasts, although it still expects the euro to fall below parity with the dollar in 2017.

"We delay some of our expectation for euro downside well into next year, given mixed messages from the European Central Bank," Goldman's currency strategy team led by Robin Brooks said in a note on Friday.

"Overall, our view remains that the dollar will rise a further 13 percent, but that appreciation is tilted against the yen near term and more back-loaded elsewhere," they said.

Brooks and his team now see the euro falling as low as $1.05 next year compared with their previous forecast of $0.95. They still expect $0.90 will be reached over the next three years.

Shorter-term, they now see the euro at $1.12 in three months and $1.10 in six months, compared with their previous calls for $1.04 and $1.00, respectively.

They also lowered their dollar/yen forecasts to 115 yen in three months, 120 yen in six months and 125 yen in 12 months, from 122 yen, 125 yen and 130 yen previously.

"Ultimately, we have more faith that the Bank of Japan will find ways to surprise on the dovish side, given that reflation is at the core of Abenomics. As a result, we continue to forecast substantial dollar/yen upside," they wrote.

Both the ECB and BOJ are pumping large amounts of stimulus into the financial system via their respective bond purchase programs. Yet the euro and yen have appreciated substantially against the dollar this year, the euro by 4 percent and the yen by almost 10 percent.

In recent days Goldman lowered its U.S. 10-year yield forecast to 2.40 percent this year from 2.75 percent, and to 2.75 percent next year from 3.30 percent. On Friday it was trading around 1.74 percent.

Last week Goldman's economists cut their expectation for cumulative U.S. rate hikes over the next 18 months by 50 basis points.

Today, guys, we will take a look at NZD currency. It is not very popular and it is not a regular guest on our forum, but we haven't taken a look at it for some time already and we need some time to get clarity on recent drop of our primary currencies - EUR, GBP...

Australian dollar set to rise?
by Fathom Consulting

Last year, we argued that Australia had several aces up its sleeve helping it to avoid recession despite the downturn in its largest trading partner — China. We were right. Now, China appears to be throwing in the towel on rebalancing and doubling down in a bid to kick-start growth.

AUS.jpg


Last week, after keeping policy on hold for a year, the Reserve Bank of Australia (RBA) cut the cash rate by 25 basis points to an all-time low of 1.75%. That decision came less than a week after data revealed that consumer prices had fallen by 0.2% in the first quarter of 2016, marking the first quarterly decline since 2008.

In the statement released alongside the Bank’s interest rate cut, Governor Glenn Stevens observed that “commodity prices have firmed noticeably from recent lows.” In our view, that turnaround over the past month or two is consistent with some recovery in economic activity in China as it reverts to its old growth model of credit-fuelled investment.

Closely correlated with industrial commodities prices, the Australian dollar has also strengthened since its recent trough in January — up 3.9% on a trade-weighted basis at the time of writing. Although this complicates Australia’s transition from its mining investment boom to broader-based growth, we believe that the RBA should refrain from further interest rate cuts. Whether it will or not is finely balanced.

Nevertheless, we would recommend going long the Australian dollar against the New Zealand dollar. That is because the former is likely to experience greater upward pressure as China reverts to its old growth model. In other words, the prices of Australia’s metal-based commodities are likely to rise faster than New Zealand’s agricultural exports as China reverts to its old ways, with growth driven by investment rather than consumption.

Our chart uses the copper to milk price ratio as a timely proxy for this, with copper and milk some of the most important exports for Australia and New Zealand, respectively. As our chart highlights, the copper to milk price ratio has been on an upward trajectory since January, offering further evidence of a doubling down in China that is likely to support the Australian dollar.

CFTC Report
COT data shows very interesting picture. Open interest has increased significantly, while net-long position has not changed. It means that speculators have added aproximately equal amount of short and long positions. If will take a look at Long Format, then you'll see that Intermediary dealers mostly have added longs while Asset Managers and Institutional investors - shorts. But both of them are stand in speculative part of investors. This is very rare situation for analysis.


View attachment 25339
Here is the CFTC chart:
View attachment 25340

Currently we have an unique situation, that gives us very important tool for trading. Huge jump in trading volume tells that market mostly indecision and further direction will depend on short-term action. Thus, if market will drop below current lows - massive closing of longs probably should happen and NZD will drop, while minor upward action will lead to opposite action.

Technicals
Monthly

So, today we will take a look again at NZD that has long-term interesting setup.

In huge time scale perspective (this is probably not even monthly chart), we have big AB=CD pattern. NZD has turned to downward action in summer 2014 and has not reached it's target. It means that sometime it will turn to upside action again and could hit estimated 0.92 area.

Our discussion of this setup has started as soon as market has reached major 5/8 monthly Fib support @ monthly Oversold (not shown). Logical bounce up mostly has done. The speed of this action suggests that we do not have any new bulltrend but mostly are dealing with just technical retracement and respect of strong monthly chart. May be later situtation could change to something promising to NZD, but currently we do not see any signs of it. Besides, overall fundamental situation around NZD has not real advantages to USD.

Last two months Kiwi has reached strong resistance area. Although this is not overbought, but still it is a Yearly Pivot and major 3/8 monthly resistance. Somewhere around we would like to switch from bulilsh to bearish trading. The precise point and time for short entry we will have to estimate on lower time frames.

The most important issue, of course, is testing of YPP, especially failure to break it up. It means that by pivot framework NZD should drop to YPS1, which matches to former lows around 0.60. Currently it is difficult to imagine what reasons could help NZD to break through 0.7150 and to estimate long-term bullish sentiment by moving above YPP.

That's being said, we probably will watch for bearish reversal patterns and try to take medium-term short position.
View attachment 25342

Weekly

This is the most important picture that shows all our trading context for few weeks ahead. Here we should undertsand one thing. Right now we try to find out one important detail - wether market will show slightly higher first and then will drop, or, it will drop immediately. As you can see - here is most important word is "drop", that should happen anyway. That's why for long-term perspective it is not as important - in one way or another market should turn to downward action.


Still for short-term perspective this question is very important. Because it determines the level where we will search chance to go short and there will be quite different tactics if, say, market will move up a bit more, or if it will turn down right now...

Weekly chart shows that we have not just YPP and Fib level, but also weekly K-resistance and Agreement. Right now market stands in upside AB=CD action and "D" point has not been reached for few pips. Last week market has formed bullish grabber that suggests final leg up and washing of the tops. Theoretically this should let kiwi to complete AB=CD pattern and finalize bearish setup.

And here is the time to go back to CFTC data. Inside this week huge amount of opposite positions were opened. We again should recall "churning" term. If grabber will fail - then market could accelerate down withought completing of AB=CD pattern, while starting upside action should lead to gradual closing of shorts that will make grabber work. Thus coming 2-3 weeks will be very interesting
View attachment 25344

Daily

Currently NZD forms very bright and simple setup at the same time. All bullish hopes are based on one pattern. This pattern is morning star on daily chart. In fact weekly grabber and this "Star" are the same and have the same invalidation point - the lows.

Here we have another bullish setup that calls DiNapoli "Stretch" pattern. This is combination of Oversold and Fib support. Current action looks logical - as soon as pattern has been formed, I mean candlestick, kiwi has shown retracement back inside its body.

Right now market stands at the point where it has to turn up, if it is bullish. For us it means that if you want to take long position based on grabber and last upside leg to 0.7150 you have to do it somewhere around. When market will move out of this point - it either will destroy bullish setup totally by dropping below lows, or turn down and you will not get chances for another entry.

View attachment 25345

Hourly
Here we see that market has shown 5/8 retracement back inside the body of the pattern. Still it was able to hold above the lows even on a background of good US data that was released on Friday. Till 0.67 lows kiwi has no other support. Thus, if it will break through this level - nothing will be able to hold it, and mostly bullish setup will be doomed. That's why this level is important for decision making on long entry.

Still, our major interest stands around short entry but not in trading of last leg up. We're interested with it only because it could give us better entry price.

View attachment 25346

Conclusion:
Long-term view on NZD currently looks bearish. As technical patterns as fundamental situation shows nothing that could support Kiwi right now or turn it up. Thus, we mostly will be looking for change to sell a rally and get bearish position. Currently we hope for getting chance to sell around 0.7150.

On coming 1-2 weeks we will watch how particularly market will turn down - either after "final" leg up, or immediately. Thus, on Monday we have to keep an eye on perspectives of weekly bullish stop grabber.

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.

Wow Sive thank you.
When i come back in my next life, i am going to ask for a brain like yours especially if there are still currencies :)
I am repeatedly in awe and feel inspired by your fast knowledge as well as enjoy learning from you.
Thank you for sharing this so graciously week in week out. Love reading your posts.
 
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