FOREX PRO WEEKLY October 20-24, 2014

[Sive Morten]

Monthly
Weekly FX Tading Report prepared by Sive Morten exclusively for ForexPeaceArmy.com
According to Reuters news U.S. dollar edged higher against a basket of major currencies on Friday after strong U.S. consumer sentiment data calmed nerves at the end of a week of severe market volatility.
The Thomson Reuters/University of Michigan preliminary October reading on the overall index on consumer sentiment unexpectedly rose to 86.4, the highest since July 2007.
The data eased concerns after worries surrounding the health of the global economy shook stocks, bonds and currencies markets this week. The dollar hit three-week lows against the euro and Swiss franc and a more than one-month low against the yen on Wednesday.
"The market sold aggressively throughout the week, and now is thinking maybe they had taken this too far," said Jose Wynne, global head of FX research at Barclays in New York. He said Barclays still recommended buying the dollar.
He said the strong U.S. data on consumer sentiment was a catalyst for the dollar's move higher, but that currencies broadly could face more volatility as traders await comments from the U.S. Federal Reserve and the European Central Bank on monetary policy.
The dollar gained slightly earlier in the session on greater stability in oil, stocks, and Treasuries markets. Despite Friday's gain, the benchmark U.S. S&P 500 stock index was still on track for its fourth straight weekly decline, its longest streak in more than three years.
"Because we had the recovery in U.S. stocks, we're seeing some of the easing of risk aversion contribute to the strength of the dollar against the yen," said Kathy Lien, managing director at New York's BK Asset Management.
Commerce Department data earlier in the session showing U.S. housing starts and permits rose in September had little impact on the dollar. Traders also shrugged off comments from Federal Reserve Chair Janet Yellen on the growth of U.S. economic inequality.

Recent CFTC report in general shows the same information as week before – no significant jump in long positions. Total open interest has dropped after Scotland referendum and investors has lost interest to GBP that was not re-established yet on initial trading volumes. This information doesn’t confirm that action to 1.67 area could start right now and doesn’t exclude possible lower action to next support.
Non-Commercial Shorts:

Non-Commercial Longs:

Open Interest:

As you know CFTC also prepares “legacy” report, that is a newer version and it shows not just “non-commercial” positions, but “asset-managers/Institutional”. Thus, this chart shows solid increase of short positions within previous 3 weeks – right after Scotland voting.
Asset managers/Institutional shorts:

As on previous week – we warned you on possible deeper drop due to this data (that has happened), and again, we have to express some suspicious on current rally on cable, because market data does not show any solid increase in demand.

Technical
Again – research on GBP.
As we’ve said on previous week, Scotland referendum has made an impact and adjusted normal market’s behavior. Right now USD grow also presses on market. As political turmoil has gone to history market will try to correct the skew that was made by political impact. This in turn, could give us promising setups on different time scales. At the same time we agree that setups that we will discuss today mostly tactical, although they could last for considerable period of time. Also we understand that Scotland’s referendum has changed political sentiment and will lead to changes in domestic political process. The fact that political reasons were existed for referendum and referendum itself has happened – already is negative for Kingdom currency. That’s why we are not count that GBP will return soon at the same top as it was before referendum. You can see big drop in open interest before referendum – that was exit of big players, out from cable. It needs time to bring them back.
First of all take a look at long-term GBP chart. Here is long time 1.70-1.71 natural support/resistance area. Recall that before shadow of referendum has risen upon Great Britain – pound sterling was on nice upward march. BoE was at the eve of rate hiking and this has led to tremendous upside rally. In general market moves north longer than a whole year and has reached 1.70-1.71. This was our major resistance area where we thought that something should happen around and it did:

Rumors around Scotland voting have not appeared suddenly but previously they weren’t treated seariously as they should to. On autumn of 2014 public opinion surveys start to show that percent of “Yes” voters are not really small and approaches to 50%. And this has started to worry investors, forced them to leave cable and logically has led to negative impact on GB currency.
As political force was eliminated after voting – we see that market logically should return to previous action and at least return some previous looses. Besides, pure technical view suggests existing of previous upside momentum that has not dissapeared but was temporally muted by political mess. This leads to appearing of monthly DiNapoli B&B “Buy” setup, as it is shown no second chart:

In the beginning of the year market has tested YPR1 and now stands at YPP. So, we have not just 50% Fib support. And by result of previous week we see that YPP has suported market and led it to bounce higher.
According to B&B rules market has to reach some significant Fib support level within 3 periods of closing below 3x3 DMA. Although we previously expected that B&B has chances to start from 3/8 Fib support, but this has not happened. But following to rules – market can start B&B as from 50% Fib level as from 5/8.The major condition - this level has to be reached within 3 periods after 3x3 DMA has been crossed. And you can see that October is a third period. Hence – we know that B&B will start in October, but we do not know from which level – 50% or 5/8. Right now GBP stands at 50% support. As we’ve find out existing of YPP – situation has changed and chances on upward action right from here increases.
The target of this pattern is 5/8 Fib resistance of total move down after thrust up. As you will see later - right now this is 1.6717 area.
Although B&B is very reliable pattern because it is based not on some trader’s view or opinion or some men-invented patterns, but on real market mechanics, sometimes it still could fail. That’s why reaching of strong support and completion of other conditions are not enough to take position. Since this is monthly pattern – upward action should be visible on lower time frames and probably should start from some clear upside reversal pattern on daily chart. Advantage of this one B&B stands also with its political background – there was a “problem” that now is mostly gone, although some consequences probably will remain. Anyway this should let market to return previous positions, at least partially and 5/8 upside retracement looks really as a mite and rather realistic target.
Previously we have been able to verify the need for a reversal pattern. And still we will expect pattern that will let us to step in.
Weekly

On weekly chart trend is bearish. Market is not at oversold anymore. In fact, right now we have simple task – understand from which level B&B will start. Right now here is GBP at MPS1, YPP and 50% support. On previous week we also have got nicely looking bullish hammer pattern. The most important point of this pattern is it’s lows. Until it holds – chances on upward action will exist. As you know, by itself, hammer is reversal pattern and it has appeared on weekly chart. Now support area becomes more and more solid and there are real chances that upside bounce could start somewhere around.

Daily
It seems guys that we stand rather close to the moment of resolving of B&B riddle. Thus, 1.27 Butterfly target has been hit finally last week. We’ve got nicely looking bullish divergence right at rock hard weekly support area. Trend has turned bullish here. Still, as you can see market still follow “2-step forward, 1-step back” pattern, as downward action continues. That’s why we will keep close eye on this trend line down. Breakout through this line could become first bell of coming reversal. Besides, recently market has turned to formation of wedge pattern, as volatility has increased and this also could be sign of possible changes. Pace of downward action has decreased.

4-hour
So, guys, on coming week we will check possible reversal. Since chances on downward continuation still hold and CFTC data does not look impressive for bulls – do not treat picture below as “must happen” scenario. This picture just shows what could happen if reversal really will come. I do not know what do you see guys, on 4-hour chart, but for me H&S pattern seems as most probable. Besides, it is accompanied by butterfly and this pattern very often becomes a part of H&S. There is one thing that I do not like here – is choppy and unstable upside action, although on Friday there were more signs of thrust have appeared.
So, first we need to watch – whether market will reach WPR1 that coinsides with neckline. After that we will wait for retracement down to right shoulder bottom. This will be our major point where we think about taking long position. Simultaneously this will be retracement back in the body of weekly hammer.
Alternative scenario is 3-Drive “buy” pattern but it suggests failure of weekly hammer and deeper downward action to next weekly support area. This scenario is also probable due some reasons as we’ve said above – but we’ve discussed it in details on previous week.

1-hour
On hourly chart 1.618 AB=CD target coincides with neckline of our potential H&S pattern and WPR1. At the same time market is forming something, that looks like bullish dynamic pressure. Trend has turned bearish, but price continues to creep higher and forms higher lows. Usually this leads to upside breakout. Besides price here stands above 100% AB-CD target. If this upside action will fail – this could mean that market could turn to creation of 3-Drive “buy” pattern instead of H&S.

Conclusion:
So, we are tempted by appetite setup on monthly chart of GBP that looks promising, at least right now. Since this pattern is forming on big picture – it could lasts for weeks and particularly by this reason it looks attractive. Currently we’ve estimated the target of this pattern at 1.6717
In shorter-term perspective we will be watch for two major moments – breakout of downward line and breaking of downside tendency. Second – some clear reversal pattern. Right now H&S or 3-Drive look as most probable to get. Which one will prevail will depend on action around 1.5960 area. If market will fail to hold there and above WPS1 – we will see deeper downward action.


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.

 

[Sive Morten]

GBP/USD Daily Update, Tue 21, October 2014

Good morning,

Reuters reports Australian dollar edged higher on Tuesday after China's third-quarter economic growth slightly exceeded market expectations, while the U.S. dollar struggled to gain traction and retreated against the yen.

China's economy grew 7.3 percent in July-September from a year earlier, slightly above the 7.2 percent forecast by analysts. However, the growth was the weakest for any quarter since the 2008/09 global financial crisis.

"The absolute China number isn't all that great and the trend has been toward a slower growth rate, so it's probably hard to openly move in the direction of putting risk on," said Koji Fukaya, CEO of FPG Securities in Tokyo.

Weak Japanese equities lent support to the yen, a low-yielding currency that can get a lift from position squaring when investor risk appetites decline.

The dollar has lost ground in recent weeks as concerns about slowing global growth prompted investors to trim bets that the U.S. Federal Reserve will raise interest rates soon after an expected end in its stimulus later this month.

A drop in U.S. Treasury yields helped to weigh on the dollar. The U.S. 10-year Treasury yield slipped around 4 basis points to 2.146 percent .


Today we will take a look at GBP again, since we can't just abandon monthly trade as market shows progress day by day. On EUR we mostly like weekly chart and the hint here is - possible DiNapoli directional within 1-2 months.
On daily GBP price has reached our resistance - daily overbought at WPR1. So, first step in our trading plan has been achieved:

Next stage is downward retracement in area of WPS1. Among patterns that could be formed here is 1.27 reverse H&S and market need to move lower ~1.5930-1.5950 to create right shoulder. This is what we will be watching for. This is not forbidden to take scalp short position as well, but wait for clear intraday reversal pattern before taking position. This will point you where to place stop.
On 4-hour chart we particularly see the shape of this H&S and the fact that market has reached neckline area. Also we've spoken previously on possible 3-Drive "buy" pattern here, if market will not able to stop around 1.5950, but right now it seems suspicious, since market will not get the shape of 3-Drive - last rally has adjusted the shape and hardly it could be 3-Drive.

On hourly chart our thought on possible bullish dynamic pressure and action right to 1.618 target has confirmed and cable has done it. So, GBP now stands at "logical" area where we will watch for hourly reversal patterns that could trigger retracement to 1.5950 area:

 

[Sive Morten]

Good morning,

The euro flirted with one-week lows on Wednesday following a Reuters report that the European Central Bank is considering buying corporate bonds, while a recovery in risk appetite underpinned the dollar against the yen.

Several sources told Reuters the ECB is considering buying corporate bonds on the secondary market and may make a final decision as soon as December with a view to begin buying the bonds early next year.

The move, if realized, would expand the private-sector asset-buying programme the ECB began on Monday, which is aimed at fostering lending to businesses in the hope of spurring growth.

"It seems like quantitative easing by the ECB is within sight," said a trader at a Japanese bank.

Fresh ECB easing could restore the interest rate gap between Europe and the United States, helping to underpin the dollar.

The dollar rallied in the three months to September on a view that higher U.S. interest rates down the road would attract funds from Europe and Japan, where rates are likely to stay low due to stimulus by their respective central banks.

The U.S. Federal Reserve is expected to wind up its bond buying programme at its policy meeting next week. Fed officials are also seeking rate hikes, even though they are likely to wait several months before starting a hiking cycle to ensure the U.S. economy can withstand policy tightening.

While some Fed officials earlier this month flagged a possible global slowdown as a risk to that scenario, solid earnings from U.S. tech firms, upbeat U.S. housing data, and less worrisome economic figures from China on Tuesday all helped to ease that concern.

Improved risk appetite reduced the need for speculators to hold on to low-yielding yen, which is often used as a safe-haven currency.

U.S. CPI data due at 1230 GMT is the next major focus. Economists expect annual core CPI inflation to stay flat at 1.7 percent in September but a softer reading could undermine the dollar by adding to speculation that the Fed could wait longer before raising rates.

"The CPI data will be very important. If the market turns risk-off, money will flow to U.S. bonds. A weak figure will surely hurt the dollar," said Koichi Takamatsu, the head of forex trading at Nomura Securities.

In Europe, traders will be looking to the minutes of the Bank of England's policy meeting due later in the day. Poor inflation and wage growth data last week drove investors to push back their bets on the timing of an expected UK rate hike into the second half of next year.

As you can see news are very important today. Month ago we said - think about EU equities...
Ok, now let's back to our GBP. Today we will be watching for BoE minutes, since results of discussion could trigger retracement that we've discussed yesterday. Besides, this move down also could be triggered, say, by good US CPI data. On daily chart we already see some signs of this. Right now we've got nicely looking engulfing pattern at our resistance level that we've discussed yesterday - daily Fib resistance, WPR1 and OB.
As we've said yesterday - now we expect retracement down to 1.5950 area to get bottom of potential right shoulder:

On 4-hour chart trend has turned bearish, we see bounce from our resistance area. So, currently it stands nice with our plan. Let's see what will happen later in the day:

On hourly chart we see logical reversal right at completion point of intraday targets - 1.618 AB-CD, butterfly. Thus, if you search possibility to take scalp short position, this is probably the time, since we''ve got dark cloud pattern on daily chart:

 

[Sive Morten]

GBP/USD Daily Update, Thu 23, October 2014

Good morning,

Reuters reports euro eased on Thursday with the focus turning to a gauge of euro zone business activity due later in the day, while the kiwi slid after a surprisingly weak reading on inflation in New Zealand.

The U.S. dollar managed to stay above water, though a largely muted reaction was seen in currency markets to a survey showing China's factory sector grew a shade faster in October, as the details underscored a still-shaky economy.

Market focus was on the euro zone business sentiment PMI due later in the session. Signs of the euro zone economy losing momentum have helped feed global growth fears this month, and any fresh suggestion of economic weakness is expected to push the euro lower.

"The euro will come under pressure if the PMI readings disappoint. But it will not benefit the dollar too much in turn, as U.S. yields still remain relatively low," said Junichi Ishikawa, market analyst at IG Securities in Tokyo.

"Market players are hesitant to build positions ahead of next week's Federal Reserve meeting, especially as officials have sent dovish signals recently," he said.

The dollar has lost ground in recent weeks as concerns about slowing global growth prompted investors to trim bets that the Fed will raise interest rates soon after an expected end to its bond-buying stimulus later this month.

A weak euro zone PMI reading could add to such worries and act as a drag on the dollar.

At the same time, the euro has been hampered by speculation of further monetary easing by the European Central Bank.

"I get the sense that there are people who think the euro is a sell, based on monetary policy-related topics," said Teppei Ino, an analyst for Bank of Tokyo-Mitsubishi UFJ in Singapore.

Reuters had reported on Tuesday that the ECB is considering buying corporate bonds on the secondary market and may decide on the matter as soon as December.

Concerns over the health of the European banking sector have also weighed on the common currency, and were further heightened

after Spanish newswire Efe said on Wednesday that at least 11 euro zone banks had failed stress tests run by the ECB.

The ECB, which will publish the test outcomes for 130 banks on Sunday, said final results had not yet been sent to the lenders involved, and it could not comment on individual institutions.



Currently is nothing to comment among majors but GBP. Daily chart, probably needs no comments, as we've announced our short-term trading plan and expect action to 1.5950 support area in today-tomorrow sessions:

ON 4-hour chart we see that plunge down has started and this is real action since it shows signs of thrust. Right now market has reached support area of WPP and 50% Fib level and turned to some bounce up:

Our 1.5950 level and WPS1 could be reached by 2 most probable scenarios. First one is compounded AB=CD pattern that should lead market right to WPS1, or, second one is - immediate butterly "Buy" pattern that shows slightly higher bottom. The fact that market stands flat while trend has turned bullish here points that butterfly has more chances.

Anyway, we're mostly interested in what will happen at 1.5950 but not how market will get there...

 

[Sive Morten]

GBP/USD Daily Update, Fri 24, October 2014

Good morning,

Reuters reports "The volatile move was a good chance for some to buy the dollar on dips," said Kaneo Ogino, director at Global-info Co in Tokyo, a foreign exchange research firm.

"I think, next week the market will be more event-driven, with the FOMC and the Bank of Japan, so the downside should be limited," he said, adding that support at 107 was likely to hold for now.

The U.S. Federal Reserve will meet next Tuesday and Wednesday, and the consensus view is that the central bank will decide to wrap up its asset purchases under its third round of quantitative easing.

The yen had faced pressure on Thursday after a Wall Street rally, as upbeat earnings from the likes of Caterpillar and 3M helped drive U.S. stocks to a two-week high. That in turn lifted U.S. Treasury yields.

This earnings season has largely been positive for companies. With more than a third of the S&P 500's results in, 69.5 percent have exceeded profit expectations, according to Thomson Reuters data, above the long-term average of 63 percent.

Higher yields usually have the effect of boosting the greenback against the yen and it duly climbed as high as 108.36 yen overnight, gaining more than 1 percent on Thursday.

The yen had also faced pressure after a Wall Street Journal report sparked talk of more easing from the Bank of Japan. The article, citing people familiar with the central bank's thinking, said the BOJ now saw "a much bigger possibility of inflation slipping below 1 percent" due to falling oil prices.

Euro bears were tethered by a closely watched survey showing Germany's private sector grew faster in October as manufacturing rebounded, suggesting Europe's largest economy may be gaining momentum in the fourth quarter.


Meantime, GBP still stands on the way to our 1.5950 area. Right now it has taken some pause due support from WPP:

On 4-hour chart right now we're mostly interested it possible bearish stop grabber. Yesterday we've said, that minor butterfly "buy" on hourly chart could point the area where upside reversal could start, but we had concern - wether it will be 1.27 or 1.618 butterfly. If we will get grabber here, then we should be ready for 1.618 pattern probably and taking out of current lows here:

On hourly chart we another reason to think in this way. Take a look current move up looks really heavy and does not have any sign of thrusting action. it means that this is just respect of Fib support. Besides, we again have some sort of bearish pressure - trend stands bullish but price action mostly flat. This also hints on possible another leg down. As a result we could get 3-Drive buy pattern as well. So, today we're watching for 1.618 butterfly destination point:

 

[stelore]

Thank you for the detailed Analysis Sive,
great as usual!!!

For the EUR are the 2 Butterflies sell still valid?

Have a nice weekend with your Family.
Ciao
Stefano

 

[Smart Ogbata]

Good Day Sir....I have been your follower for over two years now.....and i have been watching your videos and free tutorial......it's GREAT having you around......I pray that GOD will continue to strengthen you in all your endeavors..SIR pls what are your view on AUD/USD? Bellow is my Observation....
On the monthly time frame, market stands at the MACD-PREDICTOR. Trend is bullish here but price action doesn't support that, and market is not overbought according to oscillator predictor, This show some hidden power of the Bears......I expect market to complete 3Drive buy pattern and also hit the 161.8 Target of AB=CD Pattern, and that will also be the O/S Level and Gartlly222 completion point....The Range 0.8346-0.8101 is a nice area to watch for a buy signal.......View attachment ori.bmp On the daily Timeframe we have confirmed Dapo-Repo buy with target close to monthly pivot point.....

 

[Sive Morten]

Good Day Sir....I have been your follower for over two years now.....and i have been watching your videos and free tutorial......it's GREAT having you around......I pray that GOD will continue to strengthen you in all your endeavors..SIR pls what are your view on AUD/USD? Bellow is my Observation....
On the monthly time frame, market stands at the MACD-PREDICTOR. Trend is bullish here but price action doesn't support that, and market is not overbought according to oscillator predictor, This show some hidden power of the Bears......I expect market to complete 3Drive buy pattern and also hit the 161.8 Target of AB=CD Pattern, and that will also be the O/S Level and Gartlly222 completion point....The Range 0.8346-0.8101 is a nice area to watch for a buy signal.......View attachment 17229 On the daily Timeframe we have confirmed Dapo-Repo buy with target close to monthly pivot point.....

And what conclusion is?
AUD very sensitive to Gold & China. Recent bounce up mostly was due reaching monthly K-support area and right now market has stopped downward action due weekly oversold.
Action on daily chart is very choppy and this is not DRPO "Buy". It has worked out already with minimum target been hit. Currently action looks like something support market rather than prevent it upside action.Other words AUD looks heavy and seems that down action will continue when AUD will leave weekly OS.

 

[Ghandi1]

Nice to see that the like button is back again...

 

[jerry4all]

Looks like we're getting Gartley's 222 sell on USDJPY, 4hr