FOREX PRO WEEKLY, November 09-13, 2015

Sive Morten

Special Consultant to the FPA
Messages
18,527
Fundamentals

"Alpha Now" guys, has prepared excellent research on recent BoE decision. Mostly this is continuation of our previous analysis which suggests that BoE will not rise rate any time soon. This already has led to miserable plunge of GBP and agrees with our long-term technical view:

UK’s Monetary Policy Committee largely validated the substantial shift in expectations regarding the timing of the first UK rate hike that has occurred between the August and November Inflation Reports. We have long argued that Bank Rate is set to remain on hold for an extended period of time because excessive levels of household debt mean that the economy is not ready for tighter policy. The MPC believes that a lower path for interest rates is necessary in order to stimulate domestic demand as an offset to weaker demand from abroad. However, while China’s economy has slowed considerably, we judge that the direct impact of China’s dramatic slowdown on global growth will be small. Nevertheless, the Bank of England has identified financial contagion from China as a key downside risk. We agree wholeheartedly.
Alpha-Now-06.11.2015-UK-direct-banking-exposure.jpg

On 5 November, the Bank of England simultaneously published the MPC’s latest policy decision, the Minutes of the meeting that produced that decision, and the November Inflation Report. These releases have been interpreted as dovish, with the Committee voting 8 to 1 against raising rates. Prior to the announcement, it had been rumoured that Kristen Forbes or Martin Weale — both more hawkish members of the Committee — might join Ian McCafferty in voting for a hike. This did not materialise. The stock of assets purchased under the Bank’s QE programme was also left unchanged, at £375 billion. Interestingly, the Committee revealed that it would not consider reducing the holdings of gilts until it had raised interest rates to 2 per cent.

Prior to the announcement, market implied expectations regarding the timing of the first UK rate hike had shifted from spring of next year to late 2016 / early 2017. The MPC largely validated this movement, implying that it would be necessary in order to offset external weakness.
Alpha-Now-06.11.2015-UK-policy-rate-expectations.jpg


Indeed, according to Mr Carney, “monetary policy must continue to balance two fundamental forces — domestic strength and foreign weakness.” Reflecting this, the Bank’s forecasts suggest that even if rates do not rise until 2017, there is only a small risk of overshooting the Bank’s 2% inflation target. In response, sterling fell one and a half cents against the US dollar.

Alpha-Now-06.11.2015-UK-CPI-inflation-forecasts.jpg


Global growth concerns

The Minutes made particular reference to the MPC’s global growth outlook, stressing that it had deteriorated since the August Inflation Report. While the Bank acknowledged that the direct effects from China’s slowdown on UK output were likely to be relatively small, it remains worried about indirect effects — highlighting both trade and financial linkages as particular areas of concern.

Within the Inflation Report, the Bank attempted to measure the degree to which these various linkages would weigh on the UK economy. Its model suggests that a 3.0% drop in Chinese GDP relative to its trend would subtract 0.3% from UK GDP.

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With this in mind, the MPC has revised down its forecast for UK growth both this year and next by 0.1 and 0.2 percentage points, respectively. In contrast to the Committee, we believe that the direct impact of China’s dramatic slowdown on global growth will be small. Where we agree, however, is that financial contagion from China poses a downside risk.

According to BIS data, UK domiciled banks hold more than one third of all international banking exposures to China and Hong Kong. Our analysis of published accounts suggests that around 90% of this exposure is concentrated in HSBC and Standard Chartered. We also calculate that HSBC has around 10% of its assets in China and Hong Kong, while Standard Chartered has around 30%.

Alpha-Now-06.11.2015-Exposure-to-China-and-Hong-Kong-by-residency-of-b....jpg

The danger that this poses has not gone unnoticed by the Bank of England, which has designated a deterioration in global economic conditions triggered by China’s hard landing a key scenario in its 2015 banking sector stress tests — the results of which are due to be published on 1 December.

The Bank also highlighted its concerns in the Inflation Report, writing “UK-owned banks with exposures to China could suffer losses, which in turn, might bear down on their ability to lend. There may also be an increase in funding costs; increasing the cost of borrowing for both businesses and households.” Against this backdrop, Tuesday’s announcement that Standard Chartered is to cut 15,000 jobs and raise significant amounts of additional capital is surely no coincidence.

The MPC’s hands are tied

Supported by the plethora of releases, we stand by our call that the Bank of England’s Monetary Policy Committee is unlikely to raise Bank Rate before 2017. Back in January, when we first made this call, we were out on a limb with both market implied pricing and other economic forecasters suggesting that the Committee would tighten much sooner. Now we are not so alone, with market implied pricing having drifted closer to our own view.

We have long considered excessive levels of household debt a constraint on policy normalisation. This remains the case, with UK household debt still in excess of 140% of disposable income. Now, with China in the midst of a hard landing, we believe that the MPC has something new to fear in the form of financial contagion.

Alpha-Now-06.11.2015-UK-household-debt-and-mortgage-debt.jpg



Technicals

Today, guys, we put research on GBP, since patterns that are forming there look brighter compares to any other major currency. At the same time similar scenario we could expect on other currencies. Thus, on EUR, our suggestion on gradual action to parity is confirming, and next destination should be 1.04 lows probably. On NZD our B&B "Sell" almost has reached target and should do this finally very soon.
We look at GBP very often recently, mostly because it provides large strategic scale picture. Market swings that could be formed in perspective of 1 year look really stunning.

"As usual, we continue to keep our long-term analysis that we’ve made in December 2013 in our Forex Military School Course, where we were learning Elliot Waves technique.

Long Term Forecast on GBP rate


Our long term analysis suggests first appearing of new high on 4th wave at ~1.76 level and then starting of last 5th wave down. First condition was accomplished and we’ve got new high, but it was a bit lower – not 1.76 but 1.72. This was and is all time support/resistance area. Now we stand in final part of our journey. According to our 2013 analysis market should reach lows at 1.35 area. Let’s see what additional information we have right now."


Trend is bearish here, but GBP is not at oversold. Couple of months ago market has reached strong support area – Yearly Pivot support 1 and 5/8 major monthly Fib level. Market gradually was struggling through YPS1 but it seems that first attempt to pass through it has failed.
Our conclusion was - GBP will continue move down, but after some retracement.Right now it seems that downward action is re-establishing. Also we have huge AB-CD pattern that specifies target with more precision. It is not quite 1.35, actually it is 1.3088.

August month has become bearish grabber that suggests taking out of 1.45 lows. So we have pattern on monthly chart that gives us clear direction for considerable time period. September has become also a bearish grabber and take a look October - as well. It means that market gradually was challenge upside action but fails within 3 recent month. November has started with miserable drop, may be it will become grabber as well... Anyway, now we see clear signs that market starts action to challenge 1.4650 support for second time and this time could become successful.

Appearing of these patterns let's us easily specify conditions of validity of bearish scenario. It probably will be valid until market will stay below 1.5930 top.

Since market has not taken out yet 1.4650 lows, theoretically, as opposite action to our bearish scenario we could suggest minor AB-CD upside action. But right now, this perspective is mostly just hypothetical, since Fundamental picture and technical analysis on lower time frames suggest further downward continuation. Mostly all real chances on this perspective, I mean AB-CD have been destroyed by BoE comments and decision. So, right now our next target here is 1.4650 lows.
gbp_m_09_11_15.png


Weekly
This chart has changed drastically as BoE brings clarity in overall picture. Upward scenario hardly will happen any time soon. Right now as EU as UK are hostages of their own monetary policy compares to Fed one. While Fed gets positive stats and prepares to rate hiking, EU brings dovish comments and increase QE program. So do UK. Last week candle has become a bearish grabber, but simultaneously has completed its target.. Trend is bearish here.
Besides of 1.4550 lows, we have two other targets. First one is mostly strategical, and it stands around 1.42 area. It suggests taking out 1.4560 lows and trigger stops that right now are below it. This is butterfly destination point and minor 0.618 extension of large AB-CD pattern
But tactically, we have 1.48 oversold level. Although it does not coincide with any Fib support, this will be important area that could stop market for some time. We do not plot pivots just because Cable has broken MPS1 already. By the way this also tells on appearing new bear trend...
gbp_w_09_11_15.png


Daily
Technical signs correctly indicated market weakness last week. As a result we've got bearish breakout of wide triangle consolidation. So, two points should be said here. First is - as recent plunge was really strong, it tells that we will get continuation to next butterfly target - 1.618 @ 1.48. Pay attention that butterfly destination coincides with weekly oversold...
Second - right now market stands at Fib support, daily oversold and butterfly 1.27 point. Odds suggest appearing of retracement up on next week. Based on this chart most logical target of retracement is former border of triangle - 1.51-1.5150 area:
gbp_d_09_11_15.png


4-hour

Here we've got level that market could reach on retracement. Very good area is 1.5180-1.52. This is WPP and K-support on 4-hour chart. It also stands around lower border of daily triangle and it would be better if GBP will stay out from it.
At the same time, retracement probably should be deep, since market stands at solid Agreement support and oversold. It would be nice if we will get, say, B&B "Sell" here.
gbp_4h_09_11_15.png


Conclusion:
Our bearish long-term view has got confirmation from recent statistics and BoE decision. Fundamental analysis suggests that hardly situation will improve significantly in near term, thus, GBP mostly will gravitate to downside action, especially due opposite policy on USD by Fed. This let's us create target steps on a way
down. On coming week it will be 1.48 probably
But first, market could show upside bounce to 1.5150-1.52 area since it stands at support and daily oversold. This bounce could let us to take short position of scale-in if you already have it.


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 reports today - The dollar edged back toward a seven-month peak against a basket of major currencies on Tuesday, bolstered by rising expectations that the U.S. Federal Reserve is gearing up to raise interest rates next month.

The dollar index added about 0.1 percent to 99.035, moving back toward Friday's peak of 99.345, a high not seen since mid-April. Against the yen, the dollar was buying 123.16 yen , steady on the day and nor far from the previous session's 2-1/2-month high of 123.60.

The euro traded at $1.0746 , down about 1 percent and moving back towards Friday's low of $1.0704.

Against the yen, the common currency stood at 132.20 yen , drifting off a six-month low of 131.45 plumbed overnight.

Pressuring the euro, four governing council members said a consensus is forming at the European Central Bank to take one of its benchmark interest rates deeper into negative territory in December.

"That's what many people are citing as the reason the euro got crushed, in comparison to other currencies," said Bart Wakabayashi, head of foreign exchange for State Street Global Markets in Tokyo.

"The U.S. is out in front on its own, and everyone else is heading the other way. In that case, positioning becomes very key, if the interest-rate story is going to be centre-stage," he said.

In sharp contrast with the ECB, the Fed is now considered very likely in mid-December to tighten U.S. monetary policy for the first time in nearly a decade, following Friday's robust employment data.

Even Eric Rosengren, the dovish president of the Boston Fed, pointed to December as an appropriate time to begin raising rates.

In a speech on Monday, Rosengren said it was now reasonable to ask whether the current level of near-zero rates was necessary given he expects the economy to continue expanding at above its potential rate of around 2 percent.

Analysts at BNP Paribas, in a note to clients, wrote "We think USD gains have further to run, but with the Fed also sensitive to headwinds created by currency strength, we think gains are likely to be limited in scope."

Commodity currencies also regained their footing after Friday's slide against the greenback. The Australian dollar stood at $0.7049, recovering from a one-month trough of $0.7016. Its kiwi peer was at $0.6528 , off a one-month low of $0.6499.

The Aussie largely shrugged off downbeat Chinese price data that showed intensifying deflationary pressure. The October consumer price index (CPI) cooled more than expected, rising 1.3 percent from a year earlier.


So as we've suggested, yesterday all markets have got a relief. Action is really slow and lazy. Thus, today update will be minor as well.
On daily chart market has started retracement up that we're waiting for. For us it will be perfect if market will stuck somewhere around 1.5150-1.52 area without deep return back inside daily triangle:
gbp_d_10_11_15.png


Probably we could count on compound AB -CD retracement on intraday chart. If it will be formed, we should get action right now our area. Besides, this will be also WPP:
gbp_4h_10_11_15.png
 
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Good morning,

Reuters reports today - The euro wobbled on Wednesday as political uncertainty in Portugal weighed on the currency already bracing for further monetary policy easing from the European Central Bank.

The Australian dollar, often used as a proxy of China-related trades, took in stride data that showed industrial production growth in the world's second largest economy was roughly in line with expectations.

The euro last stood at $1.0757 , recovering after having slid below $1.0700 for the first time in over six months overnight. On Tuesday, it fell as far as $1.0674 after breaking below Friday's trough of $1.0704.

Investors took aim at the euro after Portugal's minority government collapsed as left-wing parties ousted the ruling centre-right. It was the first such move against an elected government since the end of dictatorship in 1974.

"While political uncertainty in Portugal does not bode well for the euro, a Greece-like scenario is not in the cards. Portugal's fiscal backdrop is much more manageable than Greece's," said Elias Haddad, senor currency strategist at Commonwealth Bank.

"Rather, expectations of more ECB easing will continue to keep the euro under downside pressure."

In contrast, expectations that the Federal Reserve will hike U.S. interest rates in December for the first time in nearly a decade were keeping the greenback underpinned.

In Asia, the greenback stepped back a bit with the dollar index at 98.885, but traders said there was still underlying support for the U.S. currency.

"Markets have already concluded that the Fed will raise rates in December and I don't think the big picture has changed. I expect the dollar to strengthen further a bit towards the Fed's policy meeting (on Dec. 15-16)," said a trader at a Japanese bank.

Against the yen, the greenback fetched 122.87 , easing from a 2-1/2 month peak of 123.60 set on Monday.

The Aussie was up 0.5 percent at $0.7066 , little affected by figures showing Chinese industrial output growth at 5.6 percent in October, a touch below forecasts of a 5.8 percent rise. The Aussie was still within reach of a one-month low of $0.7016.


So GBP has shown retracement that we've specified. Today on EUR. On Daily charrt EUR stands in strong bearish action that we've discussed in details already. We expect step downward action and nearest target probably stands around 1.04 lows.
Meantime, EUR stands with AB-CD pattern and right now price is between 1.0 and 1. 618 targets. Mostly it was stopped by oversold rather than any other supports. In fact EUR already has broken all significant level - major Fib support, MPS1 etc. It means that retracement could be a bit higher, but hardly it will be significant. After minor bounce EUR probably should continue move down:
eur_d_11_11_15.png


Speaking on retracement - its depth probably will depend on the pattern that we now see on hourly chart. Yes , it is reverse H&S. Logically it should work, since market has not tested yet WPP and, take a look at daily chart again - small black line on recent bottom - market could re-test it. Both these levels stands a the same level around 1.0830.
That's being said, if it will work - area around WPP will be chance to sell, while if market will break the shape and harmony of H&S, it will mean that it probably will drop immediately
eur_1h_11_11_15.png
 
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Good morning,

Today Reuters comments on FX - The dollar was down against the euro and yen on Thursday as the currency consolidated after a recent rally, while the Australian dollar soared on suprisingly strong local jobs data.

The euro was up 0.2 percent at $1.0763 , having gone as low as $1.0674 this week - a level seen in late April. It was up 0.3 percent versus the yen at 132.25 , pulling away from Friday's six-month trough of 131.45.

The biggest mover in Asia was the Aussie, which was last up 1.2 percent at $0.7144 after Australian employment came in at 58,600 new jobs in October versus forecasts of a modest increase of 15,000.

The strong jobs report boosted the Aussie by reducing expectations of a near-term interest rate cut by the Reserve Bank of Australia, although analysts saw the currency remaining under pressure in the longer run.

"The rise by the Australian dollar is likely to be temporary, because the surrounding structural conditions remain unchanged. China is facing an economic slowdown and the Australian economy is also in the process of rebalancing," said Shinichiro Kadota, chief Japan FX strategist at Barclays in Tokyo.

The Australian dollar is often used as a liquid proxy for China-related trades. It has declined steadily after hitting a 2-month peak of $0.7382 in mid-October, stooping to a 1-month low of $0.7016 earlier this week.

The broad trend still favours the greenback with expectations for a hike in U.S. interest rates next month standing in stark contrast to prospects for more policy stimulus from the European Central Bank.

Traders expect more action later on Thursday with no less than five Fed officials due to speak. They include Fed Chair Janet Yellen, Vice Chair Stanley Fischer and New York Fed President William Dudley, known as a close Yellen ally.

Dudley's speech at Economic Club of New York "may provide more fodder," analysts at BNP Paribas wrote in a note to clients. "The USD could be vulnerable if Dudley were to emphasize that USD strength might be a factor restraining tightening over the course of 2016.

Another standout performer was sterling, which climbed as far as $1.5246 , pulling further away from six-month lows of $1.5027 set on Friday.

Data showing UK wages growing at a slower-than-expected pace in the third quarter was offset by a fall in the jobless rate to its lowest since early 2008.


So, today on EUR again. On daily chart is no big changes at all. Market shows minor action and this is logical, since last week we had really doom and gloom action. Still, our thoughts here are the same mostly - chances still exist that EUR will re-test broken 1.08 area:
eur_d_12_11_15.png


There are some reasons for that. On 4-hour chart we still have bullish grabber that suggests taking out of previous top:
eur_4h_12_11_15.png


If this really will happen - that will be just few pips lower than hourly targets around WPP. And hardly market will turn down prior will reach it. Right now we have another small bullish grabber on hourly chart. That's why we still think that upward action is possible.
That's being said today we will wait either for target reaching around WPP or, if market will drop immediately - in this case we will have to search chance for taking short on some minor retracement on hourly chart.

eur_1h_12_11_15.png
 
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Good morning,

Reuters reports today - dollar stalled on Friday, on track to post weekly losses against the euro and yen, as the market's appetite for risk receded amid a tumble in equities that pulled the greenback further away from its recent highs.

The dollar fetched 122.60 yen after capping off three straight days of losses on Thursday and was enroute for a 0.4 percent loss on the week.

It had scaled a 2-1/2-month high of 123.60 on Monday after a bullish U.S. jobs report heightened prospects of the Federal Reserve raising interest rates in December.

The dollar also sank against the Swiss franc . The dollar tends to lose ground against safe havens such as the franc and yen when investor appetite for risk weakens.

"The Fed will now have to actually hike rates for the dollar to gain further, so focus will begin drifting towards the December policy meeting and how 2-year Treasury yields move," said Koji Fukaya, president of FPG Securities in Tokyo.

The dollar has a rough positive correlation with Treasury yields, and the 2-year bill yield spiked to a 6-1/2-year high late last week on rate hike expectations.

"Dollar/yen surging to 123.60 looked overdone and we are now seeing a consolidation. On the other hand, the dollar cannot drift too low due to the U.S.-Japanese yield differential theme. I don't see the currency falling much below 122.00 yen," Fukaya said.


SLIDING STOCKS

Wall Street saw its worst session in more than a month on Thursday on lower commodity prices and comments by New York Fed President William Dudley who gave the latest round of hints about an approaching rate hike.

"Prospects of a December rate hike were initially supportive for the dollar, as seen in the rally early this week, as it also entailed a surge in risk assets," said Junichi Ishikawa, market analyst at IG Securities in Tokyo.

"But the dollar is beginning to flag as risk assets are beginning to show negative reactions to the potential for higher rates."

The euro, which was hit earlier on Thursday by dovish-sounding comments from European Central Bank President Mario Draghi, benefited from the broad dollar weakness.

The euro traded at $1.0796 after rebounding sharply from a low of $1.0691 stooped on comments by Draghi, who singled out the currency's more robust performance since May as one driver for a "weakening" outlook on inflation.

The common currency was poised to gain 0.5 percent on the week thanks to its rally overnight although it had sunk to a 6-1/2-month trough of $1.0674 on Tuesday.

The Australian dollar remained on the front foot with momentum from Thursday's much stronger-than-expected local jobs report buffering the slide in commodities.

The Aussie nudged up 0.1 percent to $0.7134 after rallying more than 1 percent on Thursday as the upbeat employment data reduced the odds of a near-term rate cut by the Reserve Bank of Australia.

Other commodity currencies such as the Canadian dollar did not fare so well amid declining crude oil prices.

The loonie touched a 6-week low of C$1.3342 to the greenback on Thursday and was last little changed at C$1.3289.

Soft bank lending, trade, inflation and industrial output numbers from China this week have fanned global growth concerns and weakened commodities, sending Brent crude to late-August lows.


So, let's finish with our EUR short-term analysis. Yesterday action was really dramatic on intraday charts. On daily - EUR just has completed our suggestion on retracement - 1.0830 area. It seems that EUR has completed short-term retracement and could continue move down, because it has no solid supports below and it was just oversold that holds EUR from further drop. If you want more confidence - you could wait for appearing of bearish grabber here.
eur_d_13_11_15.png


On intraday chart EUR also has completed our patterns and extensions, finally tested WPP. Now trend is bearish here and EUR could continue bear trend right from here. We can't exclude upside continuation totally of course, but currently we do not see any signs or patterns that this should happen...
That's being said - who wants to go short right now - try to use any minor bounce from current small down swing. Others, who needs more confirmation -wait for possible grabber on daily chart:
eur_1h_13_11_15.png
 
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..wow...that's exactly what I was looking for on the GBP
Thank you very much Sive for your valuable insight and educated analysis which I surely can and will use for my trades.

Cheers and all the best! :)
 
Dear Sive,
super Analysis for GBP that is coiling around, but EURUSD keeps its (slow) fallowing, what could we expect next?

Thanks a lot
 
Thank you Sive for your superb analyses week after week.
Was pleased to read re the GBP last few weeks may be going to 148 but it has retraced as you pointed out into the triangle. Is there any chance that the GBP will go to 147/8 area as their data are not great, their rate hike has been postponed to 2017- the main reason for the upward move seems to be sentiment.
Or is there other interference you observe or know.?
Thank you again :)
 
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