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FOREX PRO WEEKLY, October 09-13, 2017

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Oct 7, 2017.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals

    (Reuters) - The U.S. dollar tumbled on Friday on a report that North Korea is preparing to test a long-range missile, overturning earlier gains after the government’s jobs report for September showed an unexpected rise in wages.

    RIA news agency cited a Russian lawmaker’s making comments on the missile test, which North Korea believes can reach the U.S. West Coast.


    “The market is getting more nervous about the prospect of some kind of a conflict,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York. “If they do something over the weekend, even if it’s a mild test, I’m sure we’re going to open up a with little bit of risk aversion on Monday.”


    The dollar earlier rose to a more than two-month high against the yen and seven-week high against the euro as wage data from the September labour market report was seen as a sign of potentially improving inflation.

    Average hourly earnings increased 12 cents, or 0.5 percent, in September after rising 0.2 percent in August. The gains came as nonfarm payrolls fell by 33,000 jobs last month after Hurricanes Harvey and Irma left displaced workers temporarily unemployed and delayed hiring.

    “I think most people realized going in that the headline numbers would be distorted because of the storms, but the surprise was the average hourly earnings,” said Win Thin, head of emerging markets currency strategy at Brown Brothers Harriman in New York. “This is the missing piece in the Fed’s puzzle.”

    The greenback jumped as high as 113.43 yen, the highest level since July 14, before dropping to 112.71. The euro fell to $1.1670, the lowest level since Aug. 17, before rising back to $1.1726.

    Tepid inflation has been a bugbear for the Federal Reserve, which has puzzled over why price pressures remain low even as the job market improves.


    The wage improvement boosted already high expectations that the U.S. central bank will raise rates at its December meeting, and that further hikes in 2018 are likely.

    “The Fed signaled three rate hikes next year for the dot plots, and the market does not believe that,” said Thin. “I think if we start getting more numbers like that the market is going to have to believe it more and more.”


    News in Charts: Upward Revisions to US Earnings Increase the Already-High Odds of a December Rate Hike
    by Fathom Consulting

    Today’s jobs report may have shown a 33,000 drop in nonfarm payroll employment in September, but the US dollar, Treasury yields and the probabilities that investors assign to a rate increase in December all rose. At first glance, these movements seem somewhat surprising, as it is widely known that the monthly change in payroll employment was affected by Hurricanes Harvey and Irma. Moreover, the payroll gains reported in the previous two months were revised lower, which would normally prompt the opposite market reaction, all else equal. Investors may have focused on the increase in average hourly earnings in September, but even these might have been distorted by the storms. Closer inspection of the data, however, reveals that earnings in earlier months were revised higher. This suggests that wage pressures may have been building a little faster than we and the Fed previously thought. The already-high probability of a rate increase in December seem to have risen following today’s release.

    [​IMG]

    In a note to clients last week, we cautioned against reading too much into today’s job figures. After all, even the Bureau of Labor Statistics (BLS) acknowledged that they were unsure of how to quantify the impact of the hurricanes, and that since nearly 11 million workers were employed in FEMA-designated disaster counties, representing around 8 per cent of national employment, there would be a sizeable impact on the figures. The BLS indicated that they would need to make several assumptions on the weather-distorted data. The large decline in the growth of the nonfarm payrolls following Hurricane Katrina in 2005 led us to believe that a large drop this month was imminent. The recent initial jobless claims figures, which have risen sharply in Texas and Florida, also suggested that many people would be unable to work as a result of the storms.
    [​IMG]

    [​IMG]

    [​IMG]

    [​IMG]

    [​IMG]
    Today’s release showed that employment in leisure and hospitality fell by 111,000, which compares with an average monthly increase of 26,000 over the last year for these sectors. These are industries in which the large majority of workers are not paid when they are absent from work. Significantly, they would not be counted as employed if they were unable to work during the payroll survey week (i.e. the week containing the 12th day of the month, which happened to be the same week that Hurricane Irma made landfall). This large deviation from the recent trend therefore appears to confirm that the headline figures were greatly distorted by the recent hurricanes.
    [​IMG]
    [​IMG]
    The 0.5% month over month increase in average hourly earnings reported in September, which pushed up the annual change in average hourly earnings to 2.9%, a ten-month high, points to a tightening labour market. However, it is possible that September’s earnings figures may have also been affected by the storms, a point acknowledged by the BLS today. Nevertheless, there were upward revisions to earnings in the previous two months which resulted in the annual change in average hourly earnings in August being revised up from 2.5% to 2.7%, suggesting that wage pressures may have been building a little faster than we (and the Fed) previously thought. Other economic data released this week, including the ISM business surveys and vehicle sales, were also positive and increase the odds that the Fed will tighten policy again this year.

    COT Report
    Today guys, I think it makes sense to take a look at Dollar Index (DXY). Yesterday, in video we've taken a look mostly on intraday setups, as our preparation for NFP (and it works), but today, I take a look at wider picture, and "wow", setup that we have here is really thrilling.
    In fact, all currency pairs on FX market, and EUR, AUD in particular carry reflection of DXY processes. The price action that we expect on index will be seen on currencies as well. On EUR and AUD we have even the same patterns as on DXY. We need to understand what's going on there and what to expect as in long-term as in short-term perspective.
    First - let's take a look at CFTC report. Here is 2017 chart and we mostly are interested in blue bars - non-commercial (speculative component) red is commercial one (hedgers mostly):
    upload_2017-10-7_13-4-41.

    Even if you do not understand anything in CFTC charts - you just can't miss significant narrowing of positions. It means that within 1 week open interest (the value of all positions) has dropped almost 2 times:
    upload_2017-10-7_13-9-53.

    As hedgers as speculators have cancelled bets on further dollar appreciation - (short "red" and long "blue" bars have diminished). This were huge hedging positions against dollar acceleration and all of them were closed. Market has lost almost 50% of its value. Outstanding. But what the reasons for that? Why investors do not believe more in USD growth?
    Based on reports that we have and overall statistics that we get from US, it should be made opposite conclusion. Within 2 years US Fund rate should be somewhere around 2.5%.
    [​IMG]
    It means that investors either see some other factors that should hold dollar growth and become a headwind to its appreciation, or, situation should start to change, closer to December rate increase, and investors should start accumulate bullish positions again.

    Actually, in June DXY net position has turned bearish, while it was bullish long time. Now it still stands bearish but situation is changing slowly. Last 3 weeks (take a look at blue bars again) speculators have increased longs a bit. This doesn't mean that we stand on the door of new bull trend here, but mostly confirms our idea of possible upside bounce here.

    At the same time solution of huge drop of bullish positions stands under curtain and currently it is very difficult to explain it. This is an issue, that probably will become major driving factor of dollar in coming months.

    Technicals
    Monthly


    Actually, guys, our analysis of DXY is not something new. First time, when we seriously were interested with it was in Nov 2011. Here I call you to re-read our very long-term analysis and targets of Dollar Index, because mostly it is completed. Just read fundamental part of the thread:
    LONG TERM US DOLLAR INDEX VIEW
    Now let's take a look at modern monthly chart. Our analysis of 2011 suggests - first is, dollar should take out 90 top as bullish grabber has been formed. It means that it should complete at least AB=CD @ 91.62. But, as price has accelerated without any respect through this level in 2014 - market has moved to next 1.618 extension 103.32. This level has been completed "pips-to-pips" at the end of 2016. Thus, scenario that has started in 2011 by perfect "222' Buy pattern has been completed in 2016:
    dxy_m_09_10_17.

    Now, if you carefully will take a look at DXY chart and CFTC chart - you'll see that long positions were massively closed as market has reached monthly OS and K-support area. Although, it should be oppositely, right? At strong support traders should start accumulate longs and not distribute them. If you have any ideas on this sub - please share in comments, while personally I see only one reasonable explanation - people do not believe much in dollar's appreciation above previous top. Other words, CFTC data keeps room for upside retracement only.
    On monthly chart we have two other technical issues that also suggest reasonable bounce up within few months. They are - DiNapoli bullish "Stretch" pattern, as price has reached K-support at monthly OS. Second one is bearish reversal swing. As upside momentum is still here, deep retracement could be triggered.
    But this is only on first stage. Result of this bounce could lead to appearing of huge H&S pattern on monthly chart in 2018. And here is major tricky moment stands. From one side, we have rather hawkish Fed policy and good stats, that, theoretically should lead to bullish sentiment on the market and upside breakout of widening triangle here, on monthly chart.
    But from the other side, we see traders reaction that have closed longs, which means that now they are more believe in H&S and bearish reversal here.
    Thus, It seems that 101 level will be clue to solution - if DXY will start to break through it - H&S pattern will be vanished and market sentiment could start to change. This is most important level for long-term traders.
    But for us, major conclusion is expectation of upside action in nearest few months here.

    Weekly

    We already has discussed some details on weekly chart previously. Speaking in two words - major task for weekly time frame is to create setup for upside reaction on monthly support area, to justify upside action, make a background for this. And we see two different scenarios.

    First one we briefly have discussed in Friday's video. This is B&B "Sell" trade who leads to appearing bullish reversal pattern on daily chart. To get this setup we use short part of the thrust, and market has started well.
    Now is the question where downside retracement will stop.
    Currently price action is kept well by monthly pivot levels. But if price will drop below MPP - this will open door to second scenario.

    Here, as you can see we have another alternative starting point for thrust down that makes thrust longer. But in this case we do not have B&B trade. If market will drop below MPP - this could lead to forming of DRPO "Buy" pattern here. These are two patterns that we will be watching for. But we stand in optimal situation as we already have short positions with breakeven stops (due our Friday video):
    dxy_w_09_10_17.

    Daily

    As DRPO on weekly is just a potential scenario and time is not come yet, daily chart mostly shows first scenario with B&B "Sell" trade.

    This trade, in turn, could lead to appearing of reverse H&S pattern here - now recall setups that we have on daily AUD and EUR. Same H&S patterns... Existence of bullish divergence around H&S pattern and major monthly K-support brings more confidence for perspecitve of upside reaction here.

    Upside action was stopped by MPR1. Also price shows puny W&R of previous tops, which also minor bearish sign. The one think that I do not like is price has not reached 94.20 weekly Fib resistance. Top was around 94.09. This could mean that somehow price could make an attempt to do it. But... may be not...

    Anyway, right now the major question is how deep price will drop. If it will hold above 92, then we will get H&S and upside action will start. If not, and drop will be stronger, then we will have to turn to our weekly DRPO "Buy" Scenario as price could return back to previous lows around 91 area:
    dxy_d_09_10_17.

    Intraday

    This setup we mostly have discussed on Friday's video. Just few comments on it. First is - you can see my entry point, based on our analysis.
    If you're scalp trader and just want to grab profit from 3-Drive pattern, think about exit around 0.93 area. This is K-support and WPS1. DXY could show some bounce out from it. As 94.20 weekly level has not been tested, who knows, may be some larger bearish reversal pattern could be formed. Currently it is difficult to say definitely. At least some risk of this exists.
    As potential downside target it would be better to watch for 93.20 Fib level, as it more corresponds to the bottom of left shoulder on daily chart.
    As you can see, in general, downside action has started pretty nice and was justified by our 3-Drive "Sell" pattern and 1.618 AB-CD target. Dollar has formed strong bearish reversal candle there:
    dxy_4h_09_10_17.

    Conclusion:

    Dollar now brings a riddle about long term perspective, as some contradiction exists between massive longs closing and positive perspective of Fed fund rate. As Dollar index is a core for many other currencies and assets this riddle will spread across the board. And this is the riddle that we have to resolve. Right now we provide just one possible explanation, but it doesn't mean that its unique.

    In shorter term perspective, we mostly will focus on downside action on coming week and following upside action that could take few weeks as well.



    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.
     
    #1 Sive Morten, Oct 7, 2017
    Last edited: Oct 7, 2017
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  2. Rabul

    Rabul Private

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    Excellent analysis Sive, thank you very much.
    One possible explanation to what's happening with USD is China preparing to introduce gold-backed oil exchange, getting independent from US dollar. Russia, Saudi Arabia might be involved as well. So USD hegemony slowly coming to an end.

    USD appreciation should not be too significant. 101 level seems very distant, my feeling makes me believe this move should stop around 97 in the middle of the megaphone created.
     
    #2 Rabul, Oct 8, 2017
    Last edited: Oct 8, 2017
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  3. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Good morning,

    (Reuters) - The leader of the small nationalist party that will decide New Zealand’s next government said on Tuesday that exporters should welcome a recent fall in the local dollar following an inconclusive general election.

    The New Zealand dollar, or kiwi, fell to its lowest levels since late May on Monday after a final tally of votes at the weekend showed the opposition Labour-Green bloc gaining ground over the ruling National Party, although the latter still has the largest number of seats.


    The final tally led to market speculation that New Zealand First, whose support is needed by both parties to gain enough seats to govern under the country’s proportional representation system, would be more comfortable joining forces with the center-left Labour-Green bloc, prompting investors to sell New Zealand assets.

    The New Zealand dollar has dropped around 3.7 percent since the election on Sept. 23, hitting a four-month low of low of $0.7052 on Monday. It was trading at $0.7063 on Tuesday afternoon.

    “I think exporters will be pleased, we are an export-dependent nation,” NZ First leader Winston Peters told reporters after a meeting with Labour, when asked about the currency’s decline.

    NZ First favors greater central bank intervention in the foreign currency market. The New Zealand dollar was the 11th most traded currency in the world in 2016.

    Peters is holding the third day of substantive negotiations with both Labour and National, ahead of his self-imposed deadline of Thursday to announce which party he plans to support. He has in the past served under both National and Labour governments.

    Asked whether the talks had included any policies aimed at keeping the NZ dollar down, Peters said: “Well if you’re an export dependent nation why would you persist with an inflated dollar, which even the IMF (International Monetary Fund) says is over-valued? Why would you just ignore all the best advice in the world? But then again this is not just an economic matter.”

    NZ First has more policies in common with Labour than the center-right, raising jitters in the market about a change in policies after National’s decade in power.


    Labour supports some changes to the mandate of the RBNZ, lobbying for employment to be added to the central bank’s inflation-targeting mandate. Both parties also favor curbs on immigration, foreign ownership and the renegotiation of certain trade deals.

    While Peters has kept his cards close to his chest, he told reporters on Monday that foreign ownership restrictions would constitute a large part of the talks.


    Our setups on EUR and DXY develop well. Other currencies also show upside bounce, except kiwi dollar. Thus, I think it makes sense to take a look at it. As you can see from above text - mostly NZD stands under pressure of political factors. Still, it doesn't prevent forming of bullish pattern on daily chart - this is "222" Buy:
    nzd_d_10_10_17.

    All fib levels have been broken and now market mostly stands flat due touching of OS area. Still, as you can see major target of AB=CD has not been met and it lets us to suggest that some another leg down should be formed.
    Another intrigue stands around monthly chart. Price stands there very close to MACDP line and bullish grabber could be formed by the end of October. From this point of view, this "222" pattern could get special meaning as it could push price above previous tops around 0.7550. As you understand, kiwi deserves at least some part of our attention.

    The fact that market should drop a bit more also comes from Mon-Tue price action. As other currencies show good reaction against USD - NZD is not. It stands flat after gap down opening on Mon:
    nzd_4h_10_10_17.

    As a result, here we have some signs of bearish dynamic pressure which suggests another leg down as well.

    That's being said - NZD potentially is forming thrilling setup. Although it should show another leg down, but 0.70 area is the one where we will be watch for bullish reversal patterns.
     
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  4. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Good morning,

    (Reuters) - peculation that President Donald Trump’s tax overhaul plan would stall kept the dollar below a recent 10-week peak against major currencies on Wednesday, and the euro held near a 12-day high as political tensions over Catalonia receded slightly.

    The euro was flat at $1.1808 after touching $1.1828, its highest since Sept. 29, thanks partly to upbeat euro zone economic indicators that have helped it rally from a seven-week low of $1.1669 on Friday.

    The euro’s rally strengthened after Catalan leader Carles Puigdemont on Tuesday proclaimed the region’s independence from Spain but said the effects would be postponed to allow for talks, averting an immediate crisis.


    “That Puidgemont has suggested making time for talks is supporting the euro. The main scenario is likely to involve the Spanish central government award some concessions to Catalonia to defuse the situation,” said Daisuke Karakama, chief market economist at Mizuho Bank.

    Strong economic data out of Germany boosted confidence in the euro, as robust industrial output numbers posted on Monday were followed by figures on Tuesday showing exports surged in August.


    “The Catalonia issue is likely to fade away as a market theme and speculators will find it harder to sell the euro in turn,” said Yukio Izhizuki, senior currency strategist at Daiwa Securities.

    “The dollar is also looking heavy against the euro due to uncertainty over U.S. tax issues. Squabbles surrounding Trump’s efforts come as no surprise, but it is still not helping the dollar.”

    President Trump’s public feud with Tennessee Senator Bob Corker, an influential fellow Republican, has raised concern that his push for a tax-code overhaul could be harmed.

    The dollar was effectively unchanged at 112.470 yen after slipping to as low as 111.990 overnight.

    Stronger than expected U.S. wages had helped the greenback rise to a three-month high of 113.440 yen on Friday, but the latest flare up in tensions with North Korea reduced the gains.

    The dollar index against a basket of six major currencies was steady at 93.282 on Wednesday, having come back from a 10-week peak of 94.267 on Friday.

    Investors were awaiting the release of minutes of the September Federal Reserve policy meeting later in the session. The Fed had signaled at the meeting that it may raise interest rates for a third time this year even with inflation staying below its 2 percent goal.

    But with the Fed funds futures almost fully pricing in the likelihood of a rate hike in December and the recent spike in Treasury yields losing momentum, analysts said fresh factors could be needed for the dollar to renew its advance.

    The Australian dollar was steady at $0.7781 after rising to $0.7810 earlier on an upbeat domestic consumer confidence reading.


    The New Zealand dollar was 0.1 percent higher at $0.7077 after a brief foray to $0.7099. The kiwi remained in reach of a four-month low of $0.7052 struck on Monday after a final vote count in the country’s tight general election failed to identify a clear winner.

    A wait and see mood prevailed as small party that holds the balance of power is holding a fourth day of talks aimed at forming a government in New Zealand, having delayed a decision on which party it would back.

    The pound was nearly flat at $1.3202. Sterling had risen 0.5 percent overnight after stronger-than-expected British industry data cemented expectations that the Bank of England would raise rates for the first time in more than a decade next month.


    Today guys we turn back to EUR analysis, but actually it has mirror of DXY - same patterns, same price behavior even on intraday charts. Dollar index has met our first 93 target, but overall harmony of patterns suggests a bit deeper action.

    The same we see on EUR - upside action has started, as we've expected, but price should climb slightly higher, somewhere to 1.1880-1.19 area to keep harmony of daily H&S pattern:
    eur_d_11_10_17.

    As dollar index as EUR now stands at K-resistance on 4-hour chart. Overall price action is strong but gradual and mostly shows features of retracement. This is good for our scenario:
    eur_4h1_11_10_17.

    Meantime, the top of left shoulder on daily stands around 1.1880-1.1890. This is 50% Fib resistance that EUR likes most of all and neckline of our minor H&S pattern. Thus, re-testing of this area and finalizing of daily right shoulder is our major object to watch for. This is an area where we will start watching for short entry:

    eur_4h_11_10_17.
     
  5. cosmos

    cosmos Corporal

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    I agree that the head and shoulders pattern look perfect, but what of the potential bullish engulfing pattern on the weekly. Should this occur, might we be looking at an upward progression at that point?
     
  6. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Hi, very good question, buddy.
    Indeed, market has chance to reach new top and keep overall bearish situation. In this case we could get weekly DRPO "Sell", for example. We've talked about it in our weekly research.
    To not get in this trap - we need just keep eyes open. For example, if, on 4-hour chart market will break 1.19 and continue move above former neckline of minor H&S pattern - this will be worrying sign...

    As usual - our signal is bearish reversal patterns on intraday charts. No patterns - no short position. If no patterns will be formed, this also will be a hint on possible upside continuation.
     
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  7. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Good morning,

    (Reuters) - The dollar hit a two-week low versus a basket of currencies on Thursday after minutes from the U.S. Federal Reserve’s latest meeting suggested some central bankers are still concerned about persistently low inflation.

    The dollar index, which measures the greenback’s value against a basket of six major currencies, touched 92.827, its lowest level since Sept. 26. It was last down 0.2 percent at 92.854.

    The Fed minutes on Wednesday showed many policymakers still felt that another rate increase this year “was likely to be warranted” but several noted that additional tightening was dependent on upcoming inflation data.


    “Many participants expressed concern that the low inflation readings this year might reflect... the influence of developments that could prove more persistent, and it was noted that some patience in removing policy accommodation while assessing trends in inflation was warranted,” the Fed said in its minutes.

    “The FOMC minutes indicated that the board was still profoundly divided about the slow pick up in prices,” Stephen Innes, head of trading in Asia-Pacific at Oanda, said in a note.


    “As always, the Fed will continue to watch the data as we move into December,” he wrote.

    U.S. producer price data on Thursday and consumer price data on Friday will be the next focus, after U.S. jobs figures last week showed a rise in wages that boosted expectations that inflation is picking up.

    The dollar slipped 0.1 percent against the yen to 112.38 yen, but remained above Wednesday’s intraday low of 112.08 yen.

    Analysts said the dollar had found some support against the yen on Wednesday, after a survey published by the Nikkei business daily showed that Japanese Prime Minister Shinzo Abe’s ruling bloc could come close to keeping its two-thirds “super” majority in an Oct. 22 lower house election.

    The Nikkei poll suggested that Abe could solidify his grip on power, defying some predictions that the ruling bloc may suffer substantial losses in the election.

    Such an electoral outcome would suggest a continuation of Abe’s reflationary economic policies, said Heng Koon How, head of markets strategy for United Overseas Bank in Singapore.

    “It means that the Bank of Japan’s quantitative easing will continue, that will keep the yen on balance weak and so it supports dollar/yen,” Heng said.

    Since the global economy remains on solid footing and investor risk sentiment has been holding up, the dollar’s downside against the yen appears limited, said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

    The dollar will probably find some support around 111.80 yen, near the 200-day moving average, he added.


    The yen is a low-yielding currency that is often used to fund investments in higher-yielding currencies and assets, especially when the economic outlook is benign and market volatility is subdued.

    The euro touched its highest in more than two weeks at $1.1878, and was last up 0.1 percent on the day at $1.1874.

    The euro has risen this week, after Catalonia stopped short of formally declaring independence from Spain. The single currency was also supported by expectations that the European Central Bank would announce at its policy meeting later this month that it would wind back its 2.3 trillion euro bond-buying programme.


    So, on EUR we see desirable progress, as well as on DXY. Market has touched 1.1880 area for the first time. On daily chart price stands at the point where, at least theoretically, bears should step in, right?
    eur_d_12_10_17.
    But this is most tricky moment today. Price action on 4-hour chart is straight forward - we do not have any hints on classical or harmonic reversal patterns. What will happen, if market will break 1.19 and continue move up and what we need to do, to not been trapped with this action?
    eur_4h_12_10_17.

    Actually, guys, nothing new - the same things that we do at any trading setup. We're waiting for clear bearish patterns. Today situation is even simpler. As we do not have any classical and harmonic patterns, the only ones that we could watch for is DiNapoli reversal setups, i.e. DRPO "Sell" on 4-hour chart:
    eur_4h1_12_10_17.

    Second moment is to watch over former neckline and 1.1930 resistance. If market will break it up then do not take any shorts. This will be big challenge to H&S failure. But these two moments are linked between each other. Upside breakout of 1.1930 probably will follow, if we will not get any bearish reversal patterns...

    What will happen, if H&S will fail? Well, it will not cancel totally bearish setup, because on weekly we could get DRPO "Sell" that we've discussed in our weekly research. Just do not try to anticipate patterns and run ahead of train. Wait for clear entry signs.
     
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  8. Robban68

    Robban68 Private

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    Trying a short in AUD/USD at current level, 0783 targeting,0765. Hopefully the swing .0787 - 0773 is the first leg in a three drive buy
     
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  9. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Good morning,

    (Reuters) - The dollar inched down on Friday, as U.S. Treasury yields stayed near recent lows, awaiting U.S. inflation data for a potential boost following this week’s fall from 10-week highs.

    The dollar index, which tracks the U.S. currency against a basket of six major peers, was 0.1 percent lower at 92.970 , and poised to shed 0.9 percent for the week.

    The index had risen to the 10-week peak of 94.267 last Friday after robust U.S. wages data hardened expectations for a December Federal Reserve rate hike, but it has slipped through the week along with a steady decline in Treasury yields.


    The dollar was slightly lower on the day against its Japanese counterpart at 112.120 yen, and on track for a fall of 0.3 percent for this week, during which it went as low as 111.990.

    The greenback often makes strides against the yen in times of heightened investor risk appetite, but its response to Japan’s Nikkei climbing to a 21-year high this week has been limited.


    “When the U.S. 10-year yield struggles below 2.4 percent, it is comes as no surprise to see the dollar having a difficult time rising against the yen,” said Makoto Noji, senior strategist at SMBC Nikko Securities.

    “The difference between domestic and foreign bond yields drive short-term trends and yen selling momentum is suppressed when foreign yields stay relatively low.”

    Although Wall Street shares have hit consecutive record highs, the Treasury yields were on track to decline on the week.

    The 10-year yield stood at 2.328 percent, having slipped from the five-month peak above 2.400 percent touched on Oct. 9 on strong wages numbers.

    Since then, the yield slipped on geopolitical concerns and as the Fed’s September meeting minutes showed that while policymakers are open to raising interest rates in December, they were still concerned about inflation.

    Investors will have an opportunity to gauge the latest U.S. inflation figures when September consumer price data is released at 1230 GMT Friday.

    On Thursday, the U.S. Department of Labor said its producer price index for final demand increased 0.4 percent on-month and 2.6 percent on-year in September, the biggest annual gain since February 2012.

    “PPI showed some signs of inflation, at least at the producer level, and next we’ll get a reading on CPI,” said Bill Northey, chief investment officer at U.S. Bank Wealth Management in Helena, Montana.

    “There are some encouraging nascent signs that there are building inflationary pressures, but with respect to looking at data points, we must acknowledge that these will be noisy data series,” Northey said, referring the effects of Hurricanes Harvey and Irma which battered U.S. cities in recent weeks.

    The Singapore dollar slipped 0.1 pct to 1.3540 versus the U.S. dollar from 1.3514 after the Monetary Authority of Singapore kept all its monetary policy settings unchanged on Friday, noting 2018 economic growth was likely to be slower than seen this year.

    The euro was 0.15 percent higher at $1.1848 . It was up 1 percent on the week, during which an ebb in fears over Catalonia breaking away from Spain lifted the common currency.


    Today we will take a look at dollar index. So we have parallel analysis right now of EUR and DXY as they have mostly the same setup. Even patterns are equal there.

    On daily chart market mostly has reached an area where upside reversal should happen, at least it is suggested by H&S shape. Now major concern is where and how precisely upward action will start:
    dxy_d_13_10_17.

    Although, some bullish patterns are forming right now on hourly chart, situation looks a bit suspicious as price has stopped in empty space, without any support at the back. While slightly lower we have MPP and 50% Fib support. At the same time, our 93 K-support level has been passed relatively simple, just short-term pause was taken there.
    That's why we do not exclude another minor leg down here to ~93.50 area. On 4-hour chart we continue to look for DRPO "Buy" pattern (As well as on EUR DRPO "Sell"), but the bottom of DRPO could take a shape of butterfly:
    dxy_4h_13_10_17.

    Meantime, on hourly chart we almost have "222" Buy pattern. This pattern suggests that upside action could start without any legs down to 95.50. As you know, butterfly is a failed "222" usually. And "222" very often becomes a part of butterfly. So what we could do?
    dxy_1h_13_10_17.

    My suggestion is it would be better to use both chances. "222" probably could become a left wing of potential
    butterfly. It means that as soon as it will be completed - market should show at least minor upside reaction to start forming right wing. This action has to be used for stop adjustment to breakeven. If later "222" will fail, this will be painless and trader could focus on DRPO and butterfly directly...
    If it sounds too sophisticated, then just wait for DRPO "Buy" on 4-hour chart...
     
    Robban68 and FreddyFX like this.

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