Sive Morten
Special Consultant to the FPA
- Messages
- 18,669
Fundamentals
(Reuters) The U.S. dollar hit its highest level against the yen in more than three weeks on Friday on expectations of a potential summer Federal Reserve interest rate hike, while the dollar edged lower against the euro after profit-taking.
The dollar hit 110.58 yen, its highest level against the Japanese currency since April 28. Analysts said minutes from the Fed's April meeting released Wednesday indicating a June rate hike was firmly on the table were still supporting the dollar.
Some analysts also said it was unlikely that Group of 7 countries would reject potential Japanese plans to weaken the yen at a G7 meeting of finance leaders this weekend in Sendai, Japan.
"This week’s adjustment in Fed monetary policy expectations, or expectations of future interest rate hikes, helped U.S. Treasury yields move higher," said Eric Viloria, currency strategist at Wells Fargo in New York.
He said the rise in Treasury yields on Friday, combined with falling Japanese government bond yields, boosted the dollar against the yen.
Expectations for a hawkish Fed failed to buoy the dollar against the euro over the session. Analysts said traders took profits from the dollar's rally against the euro after the euro fell to a more than seven-week low against the greenback of $1.1178 on Thursday.
The euro was last up 0.14 percent against the dollar at $1.1218, but remained on track for its third straight weekly decline against the dollar. The dollar was on track for its third straight weekly gain against the yen.
"It is a tad worrisome that the momentum seems to be waning a little bit in the greenback" against the euro, said Kathy Lien, managing director at BK Asset Management in New York.
Lien said that, in addition to profit-taking in the dollar ahead of the weekend, investors likely bought the euro ahead of next week's European economic data releases. She said that data, which will include manufacturing reports, could push the euro higher.
The dollar index, which measures the greenback against a basket of six major currencies, was last up 0.04 percent at 95.332 .DXY. The index was set for its third straight weekly gain, of about 0.8 percent.
The dollar was last up 0.25 percent against the yen at 110.22 yen. The dollar was last mostly flat against the Swiss franc at 0.9905 franc after hitting a more than 10-week high of 0.9925 franc earlier on Friday.
CFTC Data
Speculators pared back bets against the U.S. dollar for a second straight week, as investors started
pricing in the possibility of an interest rate increase next month. The value of the dollar's net short position fell to $4.19 billion in the week ended May 17, from net shorts of $6.19 billion the previous week, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.
Upbeat U.S. economic data such as last week's strong retail sales report have strengthened the view that the Federal Reserve could raise interest rates again next month. The latest Fed minutes released earlier in the week also did not rule out a June hike if economic data point to stronger second-quarter growth as well as firming inflation and employment.
Fed funds futures, based on the CME Group's FedWatch tool, moved to price in a 26 percent chance of a June hike late on Friday, up from 19 percent two days ago. As a result, the dollar has rallied 3.5 percent against a basket of currencies in the last 13 days. For the month of May, the dollar was up 2.5 percent, on pace for its largest monthly gain since November.
Meanwhile, net euro short contracts edged higher to 22,587 from 21,872 contracts in the previous week. Last week's net short contract in the euro was the smallest since June 2014. The Reuters calculation for the aggregate U.S. dollar position is derived from net positions of International Monetary Market speculators in the yen, euro, sterling, Swiss franc and Canadian and Australian dollars.
At the same time we do not see something really special on EUR chart. Within last month net-short position has decreased due as opening long positons as closing of shorts, but right now they are mostly stable, as well as open interest. Recent drop was not covered yet by CFTC data, thus, we will take a look at it only on next week.
Technical
Monthly
So it is almost a month passed since our last discussion of EUR. Situation has not changed significantly, but something still has changed and mostly short-term sentiment, as US rate hike expectation increases due good data numbers and public statements from Fed representatives.
Although we previously have estimated that major improvements in US economy should come in 2017 and great trends should appear wilthin a year or so. This probably will be great opportunity for trading since market could be caught on opposite course - just market will disappointed with 2016 Fed policy it will meet hawkish 2017 policy that could become a reason for very strong action on market.
Still right now we're mostly interested in shorter term perspectives - May and probably June. Major intrigue right now is what Fed will say. Despite the fact that currently as Fed fund futures and majority of traders still do not expect rate hike - overall sentiment mostly has increased with anticipation of it and any decision anyway will make solid impact on market.
On monthly chart we have two major issues. First one is DRPO "Buy" LAL pattern. I would say that this DRPO is perfect, but there is some mess with closes above 3x3 DMA has happened. The point is we've got formal confirmation in August 2015, there was second close above 3x3 DMA, but this has happened before real second bottom of DRPO has happened. In August we've talked about this moment and said that this is not DRPO by this reason. Real 2nd bottom has come in Nov-Dec. Close above 3x3 DMA 2 months ago is a real confirmation of DRPO "Buy", but as a result we've got some kind of triple REPO, that's why I mostly call it as DRPO "Buy" Look-alike (LAL).
Area where market has formed this DRPO looks solid. This is lower border of downward channel and all-time 5/8 Fib support. Here EUR has formed Butterfly "buy". Thus, if even this butterfly will not trigger upside reversal - market still could show upside retracement. Reactions on reaching of levels of this kind could last for months, or even years. That's why, may be sometime EUR indeed will show stronger upside action. But right now I'm mostly worried by appearing of reversal candle. Although it has not been completed totally, it's still about a week to complete it, but currently it seems that we could get downward action during June.
EUR is forming typical reversal candle in May. Price has moved above April top and tends to close below April's lows. It could not get extended continuation, but usually market shows downward continuation within next 1-3 candles. But we're on monthly chart guys...
Sometimes reversal candles lead to collapse, as it was on EUR around 1.40 area. Thrust down has started particularly by reversal candle in March 2014.
Also, market starts to show signs of bearish dynamic pressure. Although trend has turned bullish in summer of 2015 - EUR still can't abandon sideways consolidation and move above 1.15 area.
That's being said, appearing of reversal candle brings nothing good to bulls. Currently we can't precisely forecast the consequences of its appearing, but even minor results will bring 1-2 months of downward action inside current 1.04 -1.15 consolidation... Although potential bearish impact could be even stronger. Thus, currently we do not recommend to take long-term bullish positions on EUR.
Weekly
Trend has turned bearish on weekly chart. Market has dropped below MPS1. These moments give a hint that current move down could get further continuation. Despite multiple fluctuations in wide range - market keeps valid the shape of butterfly. It is especially interesting that during last upside action EUR has stopped slightly below the top of major butterfly swing. As well as 1.05 low was slightly higher that low of March 2015. This lets EUR to keep chances on this large butterfly that has the same targets around parity as monthly one by the way....
But let's get closer to shorter-term perspective. Careful analysis of the swings shows that EUR keeps almost equal all downward harmonic swings inside this consolidation. Sometimes they are slightly greater, sometimes slightly smaller, but this difference is mild and mostly they are equal. It means that EUR should move slightly lower to major 50% support around 1.1060 area. And then we will think about monthly reversal candle, what impact it will make on market.
Daily
On intraday charts guys, right now we have very smooth action and EUR does not show any clear patterns yet. On daily chart we could talk on two important moments. First is breakout of MPS1 - it usually means that current action down is not just retracement within upside trend, but either reversal or deeper retracement. MPS1 breakout means that EUR probably will continue move down.
It seems, guys, that here we're move to greater scale of swings. Take a look - ultimate 1.618 AB-CD target has completed and it has its own uspide and downside scales, right? Now, this whole move could become some kind of "AB" leg and EUR should show the swing that corresponds to its scale. That's why downward action will lead market to some major support. But we also do not exclude "total" finish of AB-CD action that could lead to reversal and following downward breakout. As we've said above - we will focus first on less drastic scenario and see what will happen. If market will break through major 5/8 support, we probably will have to acknowledge some greater consequences of reversal month and start to talk on reversal but not on retracement.
Second issue - EUR has completed our target and reached K-support at daily chart. This is also daily oversold. Still, K-area is rather wide and price still could move slightly deeper inside of it. EUR also has formed reversal swing down - since it has broken the sequence of higher tops and higher bottoms as it has created lower bottom. Very often after reversal swings market shows AB-CD upside retracement. In general this idea corresponds to strength of K-support. Thus, somewhere around intraday targets of 1.1060-1.11 some upside reversal patterns could be formed that trigger AB-CD upside action.
4-hour
Here we mostly are interested in extension of last upside swing. I've drawn it in the shape of butterfly, although, strictly speaking it is not, since it stands at top. Anyway, it points on 1.11 area. Weekly charts points on 1.1065 as target of harmonic swing.
Hourly
This chart is also almost blank and all that we could do here is to analyse harmonic swings again. EUR keeps them rather sharp. So, if we will try to extrapolate current sequence then we will get that current retracement should finish somewhere around 1.1245 and then market should drop to 1.1090 - again area around 1.11. So, let's see what will really happen:
Conclusion:
Overall fundamental picture is promised to be extra interesting within nearest 1-2 years. We expect solid swings on long-term charts due mistatches among market expectation on Fed action and real Fed action based on US fundamental data. Thus, major USD appreciation should come in 2017 but not in 2016.
Right now we see some bearish patterns that are forming on monthly/weekly charts. They should lead to some downward action, but real strength currently unlcear. EUR could show less decrease and hold inside 1.05-1.15 range, but extremely it could turn to breakout and action to parity.
In short-term we will watch for first leg of this downward action that should finish around 1.1060-1.11 area. Then upward bounce should start. This is a trading program for coming week.
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) The U.S. dollar hit its highest level against the yen in more than three weeks on Friday on expectations of a potential summer Federal Reserve interest rate hike, while the dollar edged lower against the euro after profit-taking.
The dollar hit 110.58 yen, its highest level against the Japanese currency since April 28. Analysts said minutes from the Fed's April meeting released Wednesday indicating a June rate hike was firmly on the table were still supporting the dollar.
Some analysts also said it was unlikely that Group of 7 countries would reject potential Japanese plans to weaken the yen at a G7 meeting of finance leaders this weekend in Sendai, Japan.
"This week’s adjustment in Fed monetary policy expectations, or expectations of future interest rate hikes, helped U.S. Treasury yields move higher," said Eric Viloria, currency strategist at Wells Fargo in New York.
He said the rise in Treasury yields on Friday, combined with falling Japanese government bond yields, boosted the dollar against the yen.
Expectations for a hawkish Fed failed to buoy the dollar against the euro over the session. Analysts said traders took profits from the dollar's rally against the euro after the euro fell to a more than seven-week low against the greenback of $1.1178 on Thursday.
The euro was last up 0.14 percent against the dollar at $1.1218, but remained on track for its third straight weekly decline against the dollar. The dollar was on track for its third straight weekly gain against the yen.
"It is a tad worrisome that the momentum seems to be waning a little bit in the greenback" against the euro, said Kathy Lien, managing director at BK Asset Management in New York.
Lien said that, in addition to profit-taking in the dollar ahead of the weekend, investors likely bought the euro ahead of next week's European economic data releases. She said that data, which will include manufacturing reports, could push the euro higher.
The dollar index, which measures the greenback against a basket of six major currencies, was last up 0.04 percent at 95.332 .DXY. The index was set for its third straight weekly gain, of about 0.8 percent.
The dollar was last up 0.25 percent against the yen at 110.22 yen. The dollar was last mostly flat against the Swiss franc at 0.9905 franc after hitting a more than 10-week high of 0.9925 franc earlier on Friday.
CFTC Data
Speculators pared back bets against the U.S. dollar for a second straight week, as investors started
pricing in the possibility of an interest rate increase next month. The value of the dollar's net short position fell to $4.19 billion in the week ended May 17, from net shorts of $6.19 billion the previous week, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.
Upbeat U.S. economic data such as last week's strong retail sales report have strengthened the view that the Federal Reserve could raise interest rates again next month. The latest Fed minutes released earlier in the week also did not rule out a June hike if economic data point to stronger second-quarter growth as well as firming inflation and employment.
Fed funds futures, based on the CME Group's FedWatch tool, moved to price in a 26 percent chance of a June hike late on Friday, up from 19 percent two days ago. As a result, the dollar has rallied 3.5 percent against a basket of currencies in the last 13 days. For the month of May, the dollar was up 2.5 percent, on pace for its largest monthly gain since November.
Meanwhile, net euro short contracts edged higher to 22,587 from 21,872 contracts in the previous week. Last week's net short contract in the euro was the smallest since June 2014. The Reuters calculation for the aggregate U.S. dollar position is derived from net positions of International Monetary Market speculators in the yen, euro, sterling, Swiss franc and Canadian and Australian dollars.
At the same time we do not see something really special on EUR chart. Within last month net-short position has decreased due as opening long positons as closing of shorts, but right now they are mostly stable, as well as open interest. Recent drop was not covered yet by CFTC data, thus, we will take a look at it only on next week.
Technical
Monthly
So it is almost a month passed since our last discussion of EUR. Situation has not changed significantly, but something still has changed and mostly short-term sentiment, as US rate hike expectation increases due good data numbers and public statements from Fed representatives.
Although we previously have estimated that major improvements in US economy should come in 2017 and great trends should appear wilthin a year or so. This probably will be great opportunity for trading since market could be caught on opposite course - just market will disappointed with 2016 Fed policy it will meet hawkish 2017 policy that could become a reason for very strong action on market.
Still right now we're mostly interested in shorter term perspectives - May and probably June. Major intrigue right now is what Fed will say. Despite the fact that currently as Fed fund futures and majority of traders still do not expect rate hike - overall sentiment mostly has increased with anticipation of it and any decision anyway will make solid impact on market.
On monthly chart we have two major issues. First one is DRPO "Buy" LAL pattern. I would say that this DRPO is perfect, but there is some mess with closes above 3x3 DMA has happened. The point is we've got formal confirmation in August 2015, there was second close above 3x3 DMA, but this has happened before real second bottom of DRPO has happened. In August we've talked about this moment and said that this is not DRPO by this reason. Real 2nd bottom has come in Nov-Dec. Close above 3x3 DMA 2 months ago is a real confirmation of DRPO "Buy", but as a result we've got some kind of triple REPO, that's why I mostly call it as DRPO "Buy" Look-alike (LAL).
Area where market has formed this DRPO looks solid. This is lower border of downward channel and all-time 5/8 Fib support. Here EUR has formed Butterfly "buy". Thus, if even this butterfly will not trigger upside reversal - market still could show upside retracement. Reactions on reaching of levels of this kind could last for months, or even years. That's why, may be sometime EUR indeed will show stronger upside action. But right now I'm mostly worried by appearing of reversal candle. Although it has not been completed totally, it's still about a week to complete it, but currently it seems that we could get downward action during June.
EUR is forming typical reversal candle in May. Price has moved above April top and tends to close below April's lows. It could not get extended continuation, but usually market shows downward continuation within next 1-3 candles. But we're on monthly chart guys...
Sometimes reversal candles lead to collapse, as it was on EUR around 1.40 area. Thrust down has started particularly by reversal candle in March 2014.
Also, market starts to show signs of bearish dynamic pressure. Although trend has turned bullish in summer of 2015 - EUR still can't abandon sideways consolidation and move above 1.15 area.
That's being said, appearing of reversal candle brings nothing good to bulls. Currently we can't precisely forecast the consequences of its appearing, but even minor results will bring 1-2 months of downward action inside current 1.04 -1.15 consolidation... Although potential bearish impact could be even stronger. Thus, currently we do not recommend to take long-term bullish positions on EUR.
Weekly
Trend has turned bearish on weekly chart. Market has dropped below MPS1. These moments give a hint that current move down could get further continuation. Despite multiple fluctuations in wide range - market keeps valid the shape of butterfly. It is especially interesting that during last upside action EUR has stopped slightly below the top of major butterfly swing. As well as 1.05 low was slightly higher that low of March 2015. This lets EUR to keep chances on this large butterfly that has the same targets around parity as monthly one by the way....
But let's get closer to shorter-term perspective. Careful analysis of the swings shows that EUR keeps almost equal all downward harmonic swings inside this consolidation. Sometimes they are slightly greater, sometimes slightly smaller, but this difference is mild and mostly they are equal. It means that EUR should move slightly lower to major 50% support around 1.1060 area. And then we will think about monthly reversal candle, what impact it will make on market.
Daily
On intraday charts guys, right now we have very smooth action and EUR does not show any clear patterns yet. On daily chart we could talk on two important moments. First is breakout of MPS1 - it usually means that current action down is not just retracement within upside trend, but either reversal or deeper retracement. MPS1 breakout means that EUR probably will continue move down.
It seems, guys, that here we're move to greater scale of swings. Take a look - ultimate 1.618 AB-CD target has completed and it has its own uspide and downside scales, right? Now, this whole move could become some kind of "AB" leg and EUR should show the swing that corresponds to its scale. That's why downward action will lead market to some major support. But we also do not exclude "total" finish of AB-CD action that could lead to reversal and following downward breakout. As we've said above - we will focus first on less drastic scenario and see what will happen. If market will break through major 5/8 support, we probably will have to acknowledge some greater consequences of reversal month and start to talk on reversal but not on retracement.
Second issue - EUR has completed our target and reached K-support at daily chart. This is also daily oversold. Still, K-area is rather wide and price still could move slightly deeper inside of it. EUR also has formed reversal swing down - since it has broken the sequence of higher tops and higher bottoms as it has created lower bottom. Very often after reversal swings market shows AB-CD upside retracement. In general this idea corresponds to strength of K-support. Thus, somewhere around intraday targets of 1.1060-1.11 some upside reversal patterns could be formed that trigger AB-CD upside action.
4-hour
Here we mostly are interested in extension of last upside swing. I've drawn it in the shape of butterfly, although, strictly speaking it is not, since it stands at top. Anyway, it points on 1.11 area. Weekly charts points on 1.1065 as target of harmonic swing.
Hourly
This chart is also almost blank and all that we could do here is to analyse harmonic swings again. EUR keeps them rather sharp. So, if we will try to extrapolate current sequence then we will get that current retracement should finish somewhere around 1.1245 and then market should drop to 1.1090 - again area around 1.11. So, let's see what will really happen:
Conclusion:
Overall fundamental picture is promised to be extra interesting within nearest 1-2 years. We expect solid swings on long-term charts due mistatches among market expectation on Fed action and real Fed action based on US fundamental data. Thus, major USD appreciation should come in 2017 but not in 2016.
Right now we see some bearish patterns that are forming on monthly/weekly charts. They should lead to some downward action, but real strength currently unlcear. EUR could show less decrease and hold inside 1.05-1.15 range, but extremely it could turn to breakout and action to parity.
In short-term we will watch for first leg of this downward action that should finish around 1.1060-1.11 area. Then upward bounce should start. This is a trading program for coming week.
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.
