Sive Morten
Special Consultant to the FPA
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Fundamentals
(Reuters) The U.S. dollar index hit two-month highs on Friday after Federal Reserve Chair Janet Yellen left the door open to an interest rate increase in the coming months.
In remarks in Boston, Yellen said a rate increase in the coming months "would be appropriate," if the economy and labor market continue to improve.
"She didn't say no, the market took that as a positive sign for the dollar," said Boris Schlossberg, managing director at BK Asset Management in New York.
The dollar index rose 0.60 percent to 95.745, the highest level since March 29. It has surged from a low of 91.919 on May 3.
The euro eased to $1.111, the weakest level since March 16. The dollar also gained against the yen, to 110.25 yen , but remained down from last Friday's three-week high of 110.59 yen.
The dollar gained earlier on Friday after U.S. economic growth was revised upward for the first quarter.
"The headline was a little softer than expected, but not really anything that dents the outlook for what we've seen from Fed speakers, which seems to be a bit more hawkish since we've gotten the release of the April minutes last week," said Martin Schwerdtfeger, a foreign exchange strategist at TD Securities in Toronto.
The minutes from the April meeting showed that Fed officials felt the U.S. economy could be ready for another interest rate increase in June.
As recently as early May, a Fed rate hike in June was completely off the agenda. But after a string of stronger data and the Fed officials' comments, the likelihood of an increase based on Fed funds futures has reached around 30 percent.
Investors will scrutinize next week's data releases - which will culminate with the release on June 3 of the employment report for May - for further signs of whether U.S. growth is strong enough for the Fed to pull the trigger on a rate increase.
Wage growth will be a primary focus as inflation continues to improve, though it remains below the Fed's 2 percent target.
"The trajectory of inflation has clearly turned up and is being led by wage growth, which is the key determinant to the Fed wanting to raise monetary policy," Schlossberg said.
Holidays in Britain and the United States are likely to curtail volumes on Monday.
Although today we will not talk on GBP, but Fanthom Consulting has prepared very important and useful research on real estate UK market that has very close relation to currency market and perpsectives of rate hike in UK:
The UK’s housing bubble: ready to pop?
by Fathom Consulting
The UK’s house price to income ratio has been inflated to within a whisker of its pre-recession peak and is well above its long-term average. Property prices would need to fall by up to 40%, or household income grow at ten times its current pace for the next five years, in order to bring the ratio back to balance. The housing market is likely to remain overvalued at anything other than near-zero interest rates.
Following the financial crisis, the UK house price-to-income ratio fell by almost 20%, from an all-time high of 6.4 to 5.2 where it hovered until early 2013. In the 2013 Budget, Chancellor Osborne introduced a game changer in the form of his Help to Buy (HTB) scheme. Providing loans and guaranteeing mortgages, this triggered a surge in residential property prices. House price inflation reached double-digits and the price to income ratio rebounded. Consequently, the UK’s housing market remains highly overvalued at anything other than near-zero interest rates.
Ironically, it reached boiling point in the first quarter of this year as a result of the imminent imposition of a higher rate of stamp duty on second homes and buy-to-let properties —introduced in a bid to cool the sector. Now in place, housing market activity looks to have slowed. But with real mortgage rates as low as they are today, we suspect that macro-prudential measures will do little more than turn the heat down to a gentle simmer — postponing the return to a more normal interest rate environment and prolonging the housing bubble.
In May 2014, we argued that, contrary to popular opinion, the increase in property prices relative to income had little to do with a shortage of housing supply. We did not dispute that growth of the housing stock had slowed, but our analysis suggested that the increase in the house price to income ratio was driven by a demand boost — brought about by exceptionally low real rates of interest. Two years on, we have taken the opportunity to reassess that view.
The house price to rent differential
House price indices are not measures of the price of housing. Rather, they tell us about the cost of owning a physical asset that is able to provide a flow of housing services over time. A more accurate gauge of the price of shelter is provided by housing rents. Interestingly, house prices are booming, but rental costs are growing at a significantly slower pace. We find that, on average, the annual pace of house price inflation has exceeded rental price inflation by 2.3 percentage points per annum since 2006. In London, that figure rises to an average price to rent differential of 4.1 percentage points.
Why, if housing is truly in short supply, is the price of renting a property (the purest measure of the cost of housing services) not rising as rapidly? Our analysis leads us to conclude, as we did two years ago, that house price growth has been driven by demand, as opposed to supply.
Indeed, our assessment of the factors that have pushed the house price to income ratio above its pre-2000 average of 3.5 suggests that the reduced rate of growth in the housing stock per capita, when compared to the rate of growth achieved pre-2000, explains less than a 10% increase in the house price to income ratio. Instead, we find that the fall in the cost of owning and maintaining a property, brought about by exceptionally low real rates of interest, accounts for most, if not all of the remainder. Since 2013, the demand for housing has been turbocharged by Chancellor Osborne’s HTB policy and the search for yield — which has resulted in the accumulation of housing wealth as an investment alternative for low-yielding financial assets.
As a consequence, house prices are now close to an all-time high of more than six times disposable income. Based on this metric alone, prices may need to fall by as much as 30-40% to return to their long-run level — three and half times disposable income. Similarly, the house price to rents ratio is well above its pre-2000 average.
In the long-run, the house price to income ratio should be approximately mean-reverting, as it had been until the early 2000s. This is because the price to income ratio is a function of the real user cost of housing, which itself is a function of mean-reverting variables including real mortgage rates and transaction costs. Real mortgage rates will not remain as low as they are today, and when they do rise, the fragile arithmatic supporting the elevated house price to income ratio will unravel.
In the meantime, median income multiples on mortgages for both home movers and first-time buyers are high and climbing, with ratios now exceeding their pre-recession peaks. Worryingly, the proportion of mortgages offered at a high income multiple is rising. Specifically, more than one third of joint mortgages granted, which account for just over half of all new mortgages, exceed this level, compared to under 30% at the pre-crisis peak.
More reassuringly, the proportion of lending at high loan-to-value ratios remains considerably lower than in 2007. Consequently, the share of new mortages with both a high income multiple and high loan-to-value ratio remains well below pre-crisis levels.
More macro-prudential measures on the horizon
Between April 2017 and 2020, a gradual reduction of mortgage interest rate relief from the higher to the basic rate of tax will be phased in. We estimate that this will be equivalent to 15 basis points in additional mortgage-servicing costs per annum, totaling an additional 60 basis points by April 2020. In other words, the aggregate impact is likely to be relatively small. But by serving as a substitute for an increase in interest rates, these macro-prudential policies enable the Bank to postpone a return to a more normal policy environment. All the while, ‘lower for longer’ rates of interest are inflating the housing bubble and worsening the inevitable correction.
Fearful of destabilising the fragile arithmetic that underpins the housing market, we believe that Bank Rate will remain on hold until at least early 2018 — regardless of the EU referendum result. If the UK were to vote to leave the European Union, it would entail a toxic combination of both weaker economic growth and higher inflation. But we believe that concerns about triggering an even deeper economic contraction will mean that the MPC will look through any deviation in inflation from its 2% target — just as it did through 2008 to 2009, and again through 2011 and 2012. If it were to tighten Bank Rate, it could trigger a rapid correction in the UK housing market and compound the slowdown in economic growth.
Under our central scenario, in which the UK votes to remain within the European Union, the government refrains from further housing market intervention, and the MPC remains reluctant to raise rates, we expect house price inflation of 6.9% in 2016, softening to 4.3% in 2017.
___________________________________________________________________________________
Although currently we see interesting setups on CAD, NZD and AUD, but they are not ready yet. Thus, today we will take a look at EUR again, but next week when we will get NFP numbers and will come closer to FPA rate decision and Brexit voting, we will take a look at something else probably...
Recent CFTC data shows that people gradually close long positions on EUR last week. Although net short speculative position has increased significantly - open interest stands flat, and shows just minor increase. It means that major jump in speculative net position has happened by closing of longs. Just few shorts were opened.
Reasons for that could be different, say, traders could contract their positions at the eve of major summer events, or, they start preparation for further drop on EUR. It is difficult to say definitely. Thus, we could describe situation as slightly bearish, since no new shorts were opened.Also it is interesting observation - everytime when EUR moves up - open interest decreases. This was in May, this was repeated on recent rally...Most time traders have bearish view on EUR as speculative positions stands bearish. It seems that degree of bearishness is major driving factor for EUR. Thus, any rally mostly is driven by reducing of shorts rather than real new longs.
Technical
Monthly
Reversal candle that we've discussed last time has become even greater and has increased its reversal quality. As we have said previously - EUR right now shows many bearish signs, as mentioned reversal candle, inability to reach YPR1 etc.
Now short-term sentiment shows that 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. Yesterday Yellen also didn't say "no". She said "probably if economy data will support it". The culmination will come probably on Friday as we will get NFP data. Right now chances on June rate hike stands around 30%.
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, 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.
Finally EUR was not able to reach YPR1 and returned right back down to YPP. This is bearish sign. Following this logic next destination could be YPS1 right around parity and 1.618 butterfly target. This is just another destination point that we have here.
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
Here we first recall what we've said last time.
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.
Now you can see that this target mostly has been completed - EUR is tending to its favorite 50% Fib support around 1.1060 level. Now the major question whether it will stop here or not? Most details tell that hardly this will happen. Reversal swing on monthly... Take a look carefully at weekly chart - we have drop out from the top. Last time when this has happened EUR has doubled harmonic swing on a way down and reached 1.05 lows. As we have similar situation here - harmonic swing again could be doubled. In this case we again will appear around 1.05 lows.
But this is not the end guys. Right now we see relatively rare candlestick pattern that calls "3 black crows". This is bearish reversal pattern and very often becomes a sign for significant downward action. Thus, in perspective of 1-2 months we really could get downward continuation here, on EUR.
Daily
This time frame shows shy action last week. Last 5 sessions were a bit lazy and very gradual, so we even had no reason to bring updates on EUR. Last two weekly harmonic swings (green line) point on 1.1065 area. It stands slightly below our K-support and 1.27 extension of last swing up.
As market has dropped below June Pivot Support1 - this is another bearish sign hinting on further downward continuation. It tells that current move down is not a retracement within long-term bull trend but reversal, or at least deep retracement that should get a continuation.
Still, EUR will not move down without pauses. As it has formed bearish reversal swing - upside retracement should happen as we've aknowledged last week. It means that next week EUR should form some bullish reversal pattern on hourly chart. Odds suggest that upside retracement should be compounded, i.e. take the shape of some AB-CD pattern.
That's being said, here is the steps of our trading plan on next week: wait for reaching 50% support around 1.1065 area, watch for reversal pattern on hourly chart and either take long for upside retracement or just watch it, depending on personal trading style.
Hourly
Here we see our sequence of harmonic swings that was kept pretty nice by EUR. Hourly chart makes our task simplier since it shows what particular pattern we will watch around 1.1065 area.
As you can see right now market is forming butterfly pattern that has the same destination point. Harmonic swing down also ending around this area. As soon as butterfly will be completed - we should watch for reverse H&S pattern here, since butterfies very often become a part of it. 1.618 ratio is also typical for H&S pattern.
Also pay attention how suitable Weekly Pivots stand - WPS1 matches to potential head bottom, while WPR1 stands at possible neckline.
If we will get it as we want - it will mean that upside retracement has started by H&S pattern.
Conclusion:
Support where market stands on monthly chart is very long-term and wide. Standing there could last for months or even years, and may be sometime upward action will happen there. But right now, EUR shows bearish signs for perspective of 1-2 months. It's really high probability exists that move down will continue at least to 1.08 area or even deeper.
In shorter -term perspective we expect minor retracement up on daily and intraday charts before move down will continue. On coming week we will watch for it's starting point.
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 index hit two-month highs on Friday after Federal Reserve Chair Janet Yellen left the door open to an interest rate increase in the coming months.
In remarks in Boston, Yellen said a rate increase in the coming months "would be appropriate," if the economy and labor market continue to improve.
"She didn't say no, the market took that as a positive sign for the dollar," said Boris Schlossberg, managing director at BK Asset Management in New York.
The dollar index rose 0.60 percent to 95.745, the highest level since March 29. It has surged from a low of 91.919 on May 3.
The euro eased to $1.111, the weakest level since March 16. The dollar also gained against the yen, to 110.25 yen , but remained down from last Friday's three-week high of 110.59 yen.
The dollar gained earlier on Friday after U.S. economic growth was revised upward for the first quarter.
"The headline was a little softer than expected, but not really anything that dents the outlook for what we've seen from Fed speakers, which seems to be a bit more hawkish since we've gotten the release of the April minutes last week," said Martin Schwerdtfeger, a foreign exchange strategist at TD Securities in Toronto.
The minutes from the April meeting showed that Fed officials felt the U.S. economy could be ready for another interest rate increase in June.
As recently as early May, a Fed rate hike in June was completely off the agenda. But after a string of stronger data and the Fed officials' comments, the likelihood of an increase based on Fed funds futures has reached around 30 percent.
Investors will scrutinize next week's data releases - which will culminate with the release on June 3 of the employment report for May - for further signs of whether U.S. growth is strong enough for the Fed to pull the trigger on a rate increase.
Wage growth will be a primary focus as inflation continues to improve, though it remains below the Fed's 2 percent target.
"The trajectory of inflation has clearly turned up and is being led by wage growth, which is the key determinant to the Fed wanting to raise monetary policy," Schlossberg said.
Holidays in Britain and the United States are likely to curtail volumes on Monday.
Although today we will not talk on GBP, but Fanthom Consulting has prepared very important and useful research on real estate UK market that has very close relation to currency market and perpsectives of rate hike in UK:
The UK’s housing bubble: ready to pop?
by Fathom Consulting
The UK’s house price to income ratio has been inflated to within a whisker of its pre-recession peak and is well above its long-term average. Property prices would need to fall by up to 40%, or household income grow at ten times its current pace for the next five years, in order to bring the ratio back to balance. The housing market is likely to remain overvalued at anything other than near-zero interest rates.
Following the financial crisis, the UK house price-to-income ratio fell by almost 20%, from an all-time high of 6.4 to 5.2 where it hovered until early 2013. In the 2013 Budget, Chancellor Osborne introduced a game changer in the form of his Help to Buy (HTB) scheme. Providing loans and guaranteeing mortgages, this triggered a surge in residential property prices. House price inflation reached double-digits and the price to income ratio rebounded. Consequently, the UK’s housing market remains highly overvalued at anything other than near-zero interest rates.
Ironically, it reached boiling point in the first quarter of this year as a result of the imminent imposition of a higher rate of stamp duty on second homes and buy-to-let properties —introduced in a bid to cool the sector. Now in place, housing market activity looks to have slowed. But with real mortgage rates as low as they are today, we suspect that macro-prudential measures will do little more than turn the heat down to a gentle simmer — postponing the return to a more normal interest rate environment and prolonging the housing bubble.
In May 2014, we argued that, contrary to popular opinion, the increase in property prices relative to income had little to do with a shortage of housing supply. We did not dispute that growth of the housing stock had slowed, but our analysis suggested that the increase in the house price to income ratio was driven by a demand boost — brought about by exceptionally low real rates of interest. Two years on, we have taken the opportunity to reassess that view.
The house price to rent differential
House price indices are not measures of the price of housing. Rather, they tell us about the cost of owning a physical asset that is able to provide a flow of housing services over time. A more accurate gauge of the price of shelter is provided by housing rents. Interestingly, house prices are booming, but rental costs are growing at a significantly slower pace. We find that, on average, the annual pace of house price inflation has exceeded rental price inflation by 2.3 percentage points per annum since 2006. In London, that figure rises to an average price to rent differential of 4.1 percentage points.
Why, if housing is truly in short supply, is the price of renting a property (the purest measure of the cost of housing services) not rising as rapidly? Our analysis leads us to conclude, as we did two years ago, that house price growth has been driven by demand, as opposed to supply.
Indeed, our assessment of the factors that have pushed the house price to income ratio above its pre-2000 average of 3.5 suggests that the reduced rate of growth in the housing stock per capita, when compared to the rate of growth achieved pre-2000, explains less than a 10% increase in the house price to income ratio. Instead, we find that the fall in the cost of owning and maintaining a property, brought about by exceptionally low real rates of interest, accounts for most, if not all of the remainder. Since 2013, the demand for housing has been turbocharged by Chancellor Osborne’s HTB policy and the search for yield — which has resulted in the accumulation of housing wealth as an investment alternative for low-yielding financial assets.
As a consequence, house prices are now close to an all-time high of more than six times disposable income. Based on this metric alone, prices may need to fall by as much as 30-40% to return to their long-run level — three and half times disposable income. Similarly, the house price to rents ratio is well above its pre-2000 average.
In the long-run, the house price to income ratio should be approximately mean-reverting, as it had been until the early 2000s. This is because the price to income ratio is a function of the real user cost of housing, which itself is a function of mean-reverting variables including real mortgage rates and transaction costs. Real mortgage rates will not remain as low as they are today, and when they do rise, the fragile arithmatic supporting the elevated house price to income ratio will unravel.
In the meantime, median income multiples on mortgages for both home movers and first-time buyers are high and climbing, with ratios now exceeding their pre-recession peaks. Worryingly, the proportion of mortgages offered at a high income multiple is rising. Specifically, more than one third of joint mortgages granted, which account for just over half of all new mortgages, exceed this level, compared to under 30% at the pre-crisis peak.
More reassuringly, the proportion of lending at high loan-to-value ratios remains considerably lower than in 2007. Consequently, the share of new mortages with both a high income multiple and high loan-to-value ratio remains well below pre-crisis levels.
More macro-prudential measures on the horizon
Between April 2017 and 2020, a gradual reduction of mortgage interest rate relief from the higher to the basic rate of tax will be phased in. We estimate that this will be equivalent to 15 basis points in additional mortgage-servicing costs per annum, totaling an additional 60 basis points by April 2020. In other words, the aggregate impact is likely to be relatively small. But by serving as a substitute for an increase in interest rates, these macro-prudential policies enable the Bank to postpone a return to a more normal policy environment. All the while, ‘lower for longer’ rates of interest are inflating the housing bubble and worsening the inevitable correction.
Fearful of destabilising the fragile arithmetic that underpins the housing market, we believe that Bank Rate will remain on hold until at least early 2018 — regardless of the EU referendum result. If the UK were to vote to leave the European Union, it would entail a toxic combination of both weaker economic growth and higher inflation. But we believe that concerns about triggering an even deeper economic contraction will mean that the MPC will look through any deviation in inflation from its 2% target — just as it did through 2008 to 2009, and again through 2011 and 2012. If it were to tighten Bank Rate, it could trigger a rapid correction in the UK housing market and compound the slowdown in economic growth.
Under our central scenario, in which the UK votes to remain within the European Union, the government refrains from further housing market intervention, and the MPC remains reluctant to raise rates, we expect house price inflation of 6.9% in 2016, softening to 4.3% in 2017.
___________________________________________________________________________________
Although currently we see interesting setups on CAD, NZD and AUD, but they are not ready yet. Thus, today we will take a look at EUR again, but next week when we will get NFP numbers and will come closer to FPA rate decision and Brexit voting, we will take a look at something else probably...
Recent CFTC data shows that people gradually close long positions on EUR last week. Although net short speculative position has increased significantly - open interest stands flat, and shows just minor increase. It means that major jump in speculative net position has happened by closing of longs. Just few shorts were opened.
Reasons for that could be different, say, traders could contract their positions at the eve of major summer events, or, they start preparation for further drop on EUR. It is difficult to say definitely. Thus, we could describe situation as slightly bearish, since no new shorts were opened.Also it is interesting observation - everytime when EUR moves up - open interest decreases. This was in May, this was repeated on recent rally...Most time traders have bearish view on EUR as speculative positions stands bearish. It seems that degree of bearishness is major driving factor for EUR. Thus, any rally mostly is driven by reducing of shorts rather than real new longs.
Technical
Monthly
Reversal candle that we've discussed last time has become even greater and has increased its reversal quality. As we have said previously - EUR right now shows many bearish signs, as mentioned reversal candle, inability to reach YPR1 etc.
Now short-term sentiment shows that 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. Yesterday Yellen also didn't say "no". She said "probably if economy data will support it". The culmination will come probably on Friday as we will get NFP data. Right now chances on June rate hike stands around 30%.
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, 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.
Finally EUR was not able to reach YPR1 and returned right back down to YPP. This is bearish sign. Following this logic next destination could be YPS1 right around parity and 1.618 butterfly target. This is just another destination point that we have here.
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
Here we first recall what we've said last time.
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.
Now you can see that this target mostly has been completed - EUR is tending to its favorite 50% Fib support around 1.1060 level. Now the major question whether it will stop here or not? Most details tell that hardly this will happen. Reversal swing on monthly... Take a look carefully at weekly chart - we have drop out from the top. Last time when this has happened EUR has doubled harmonic swing on a way down and reached 1.05 lows. As we have similar situation here - harmonic swing again could be doubled. In this case we again will appear around 1.05 lows.
But this is not the end guys. Right now we see relatively rare candlestick pattern that calls "3 black crows". This is bearish reversal pattern and very often becomes a sign for significant downward action. Thus, in perspective of 1-2 months we really could get downward continuation here, on EUR.
Daily
This time frame shows shy action last week. Last 5 sessions were a bit lazy and very gradual, so we even had no reason to bring updates on EUR. Last two weekly harmonic swings (green line) point on 1.1065 area. It stands slightly below our K-support and 1.27 extension of last swing up.
As market has dropped below June Pivot Support1 - this is another bearish sign hinting on further downward continuation. It tells that current move down is not a retracement within long-term bull trend but reversal, or at least deep retracement that should get a continuation.
Still, EUR will not move down without pauses. As it has formed bearish reversal swing - upside retracement should happen as we've aknowledged last week. It means that next week EUR should form some bullish reversal pattern on hourly chart. Odds suggest that upside retracement should be compounded, i.e. take the shape of some AB-CD pattern.
That's being said, here is the steps of our trading plan on next week: wait for reaching 50% support around 1.1065 area, watch for reversal pattern on hourly chart and either take long for upside retracement or just watch it, depending on personal trading style.
Hourly
Here we see our sequence of harmonic swings that was kept pretty nice by EUR. Hourly chart makes our task simplier since it shows what particular pattern we will watch around 1.1065 area.
As you can see right now market is forming butterfly pattern that has the same destination point. Harmonic swing down also ending around this area. As soon as butterfly will be completed - we should watch for reverse H&S pattern here, since butterfies very often become a part of it. 1.618 ratio is also typical for H&S pattern.
Also pay attention how suitable Weekly Pivots stand - WPS1 matches to potential head bottom, while WPR1 stands at possible neckline.
If we will get it as we want - it will mean that upside retracement has started by H&S pattern.
Conclusion:
Support where market stands on monthly chart is very long-term and wide. Standing there could last for months or even years, and may be sometime upward action will happen there. But right now, EUR shows bearish signs for perspective of 1-2 months. It's really high probability exists that move down will continue at least to 1.08 area or even deeper.
In shorter -term perspective we expect minor retracement up on daily and intraday charts before move down will continue. On coming week we will watch for it's starting point.
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.
