Sive Morten
Special Consultant to the FPA
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Fundamentals
(Reuters) - The dollar made its biggest daily gain in a month on Friday and posted a weekly increase for the fifth time in six weeks as progress on U.S. tax reforms raised prospects of a fiscal lift to the economy, bolstering investor appetite for risk.
The dollar hit a three-month high against the Japanese yen, to 113.56 yen, and a five-month high against the Swiss franc, touching 0.9858 franc. Traders seek the yen and Swiss franc in times of uncertainty and fear, and sell the currencies when they favor riskier assets.
“This is clearly a picture of somewhat of a risk-on rotation today, and it’s ignited some of the animal spirits as we take another step closer to the potential for tax reform coming to fruition,” said Bill Northey, chief investment officer at the Private Client Group at U.S. Bank in Helena, Montana.
“Because from the standpoint of what has the potential to impact economic trajectory and capital markets trajectory, it really is tax reform.”
Senate approval of a budget blueprint on Thursday for the 2018 fiscal year cleared a critical hurdle for Republicans to pursue a tax-cut package without Democratic support.
Investors also have viewed as bullish for the dollar remarks this week from Chair Janet Yellen and other officials of the Federal Reserve that suggest the central bank is moving forward with another rate hike this year.
The dollar briefly fell on news that Trump was considering nominating John Taylor and Jerome Powell to the top two posts at the Fed, one as chair and one as vice-chair, and on news Yellen had lunched at the White House with Trump adviser Gary Cohn. It quickly retraced those losses.
The dollar's strength dragged the euro down 0.6 percent to $1.1763 ahead of a European Central Bank meeting next week in which policymakers are seen cutting bond purchases but voting for an extension in stimulus.
Enhanced risk appetite also helped boost the euro to its highest against the Swiss franc since January 2015, when the Swiss National Bank scrapped its peg with the euro.
Ahead of national elections in Japan on Sunday, surveys suggest Prime Minister Shinzo Abe’s ruling coalition is on track roughly to match the two-thirds “super majority” it held in parliament’s lower house before the snap vote was called.
The New Zealand dollar sank to a five-month low on concerns the new Labour coalition will take a harder stance on immigration and foreign investment than the outgoing center-right government.
Chart of the Week: Euro Area Economic Sentiment Showing Little Signs of Abating Despite Taper Talk
by Fathom Consulting
Fathom’s latest Economic Sentiment Indicators (ESIs) for September show that confidence continues to strengthen across the euro area. On an aggregate level, our euro area ESI rose to an all-time high, surpassing its pre-crisis peak and buoyed by an unusually large jump in the European Commission’s consumer sentiment indicator in September. After consistently underperforming, Italy’s ESI has been volatile in recent months but rose sharply in September, up from 0.9% to 1.2% on the back of Istat’s (Italy’s National Institute of Statistics) economic climate index which climbed almost 15 points in September. This rise in economic sentiment across the currency bloc is set against the backdrop of anticipation of the ECB’s announcement on how it will taper its monthly asset purchases, expected to be made at its next meeting on 26 October.
COT Report
Recent CFTC data doesn't show any big changes yet on EUR. It stands at peak of bullish sentiment as net long position is coiling around absolute high. It means that our conclusion will be the same - upside potential of EUR is limited. May be it could move higher for 1-2 points, but currently it is difficult to count on new bull trend above 1.20-1.21 area.
That's being said despite that sentiment stands extremely bullish - it stands in favor of downside retracement. This is paradox but this is just how markets work - when everybody already hold longs - there is nobody on other side, who could buy more and support existed tendency. As a result - market turns to retracement.
Technical
Monthly
Recent action hardly impacts monthly chart. Mostly situation stands the same here. October price action takes doji indecision shape right above previous long-term consolidation border.
As we have estimated earlier, EUR has formed short-term bearish pattern here - wash'n'rinse of previous top. August was indecision candle and in September price has tried to move higher but failed. This is sign of weakness and it increases chances on deeper retracement on lower time frames, mostly on daily. And this retracement right now stands under way.
Appearing of strong resistance on monthly chart, right at the moment of overloaded speculative bullish positions makes us to be careful with any bullish trades. We have two side-by-side Fib levels at 1.2160-1.2170 area on monthly chart and long-term support/resistance zone, where market stands right now. Monthly OB level stands higher and will not be a barrier. All yearly pivots have been broken up on EUR.
As you can see August month shows mostly indecision action. May be shadows of this candle are not as big to call it "high wave" pattern, but by it's nature, it's probably the same. Appearing of "indecision" sign at this moment mostly stands in favor of retracement rather than upside breakout.
It is a bit difficult to talk on depth of possible bounce, but monthly chart tells that it will be probably painless for bullish ambitions, if retracement will not be deeper than 1.14 area. Here we draw previous consolidation as rectangle, but in reality, if you draw upper border based on tops sharply, we will get sloped line and it stands around 1.14 area. That's why re-testing of this line is allowable and overall bullish sentiment will not be harmed:
That's being said, monthly chart mostly gives us just single important issue - don't count on upside continuation above 1.2150 area in perspective of few months. This is important for long positions that we could take on lower time frames. Profit should be taken as market comes closer to previous tops.
Weekly
Trend has turned bearish here, OS level stands rather far and doesn't prevent downside action. Last three weeks market mostly stands in the same range, thus, our weekly analysis also barely has changed. Last week even was inside one.
In fact, here we have only one intrigue - whether we will get DRPO "Sell" pattern, or, market will continue downside action right now. Just to remind you - action since middle of the March, right after (or even before) the gap of French elections could be treated as "thrust". For DRPO we need some upside action, above 3x3 DMA and closer to previous tops. Recent pause on downside action on daily chart tells that theoretically this is still possible.
As market shows rather slow downside action - we haven't got here any B&B "Buy". Price has spent 3 bars below 3x3 DMA but major fib level has not been touched - so, no B&B here.
In general, DRPO "Sell" here is more logical to see, if we will take in consideration the scale of ongoing processes. I mean strong monthly dollar index support area and resistance on EUR. Also we should not forget about CFTC EUR positions they are also make mostly long-term effect and potentially should lead to deeper retracement.
If DRPO "Sell" will be formed here, we probably will have to focus on deeper K-support area around 1.14, trend line and OS level.
Here we could only talk on possible retracement levels that could be reached. I've drawn here sloped line that we've mentioned above and it stands in an area of K-support here.
Daily
Here, on daily picture we're coming to most important part of our analysis. Market now stands in narrowing price action, and usually when market does it, it keeps door open for opposite patterns. Partially we've discussed this topic on Friday. Indeed, on daily chart, we could get H&S and downside butterfly on the right shoulder. But at the same time, as stands above 1.1735 lows - it keeps door open for upside AB=CD and "222" Sell, that could be accompanied by smaller upside butterfly, right? So, what we gonna do?
Let's try to find some additional details. First is, we have strong bearish divergence of H&S - right under strong monthly resistance area. Usually it leads to appearing of bearish reversal swing, which we haven't got yet.
Second - it seems that we have bearish dynamic pressure here. Trend stands bullish, but price action mostly stands flat. Upside impulse was held by MPP - now it is the barrier between consolidation on the top of the head (H&S pattern) and shoulder. Market usually protects consolidations that price has abandoned already. If EUR will return back to consolidation above MPP - it probably will erase H&S and only potential weekly DRPO "Sell" will stay.
Finally we have bearish engulfing pattern, that, at least in short-term, suggests another leg down. Putting all this stuff together, it seems that now it is not good point for any long positions. Only above 1.19 area we could suggest suitable situation for taking long trades.
Intraday
Here you can see clear border between two consolidations mentioned above. It stands right at 50% major Fib level and MPP. By the shape of price action - EUR indeed keeps chances as for upside butterfly as for downside one. This is typical for any type of triangle narrowing price action. For us major point is low in red circle. Once it will be broken upside butterfly will be erased.
But what chances that this indeed should happen? Well, if we will take a look at dollar index chart - it already has erased this butterfly (don't forget that DXY and EUR stands in opposite directions).
Also, let's not forget about daily engulfing. Usually it leads to some AB=CD action on hourly chart. Now we have AB leg in place. As price stands at 5/8 Fib support, on Monday we should get upside bounce and BC leg. But then EUR should continue move down to complete engulfing target:
Conclusion:
Despite multiple bearish signs, EUR still shows high degree on uncertainty of short-term perspective. Coming week will be also full of important fundamental data. Still it seems that minor advantage stands on the side of bears.
Still, if you would like to take long position, it makes sense to think about using of stop type of entry order, on a breakout of 1.19 area. Here we have specific situation that gives us advantage as EUR clearly shows the border between consolidation zones. Once it will move above 1.19 again, road to previous tops around 1.21 will be open.
But until price stands below 1.19 any long position will be accompanied with significant risk.
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 dollar made its biggest daily gain in a month on Friday and posted a weekly increase for the fifth time in six weeks as progress on U.S. tax reforms raised prospects of a fiscal lift to the economy, bolstering investor appetite for risk.
The dollar hit a three-month high against the Japanese yen, to 113.56 yen, and a five-month high against the Swiss franc, touching 0.9858 franc. Traders seek the yen and Swiss franc in times of uncertainty and fear, and sell the currencies when they favor riskier assets.
“This is clearly a picture of somewhat of a risk-on rotation today, and it’s ignited some of the animal spirits as we take another step closer to the potential for tax reform coming to fruition,” said Bill Northey, chief investment officer at the Private Client Group at U.S. Bank in Helena, Montana.
“Because from the standpoint of what has the potential to impact economic trajectory and capital markets trajectory, it really is tax reform.”
Senate approval of a budget blueprint on Thursday for the 2018 fiscal year cleared a critical hurdle for Republicans to pursue a tax-cut package without Democratic support.
Investors also have viewed as bullish for the dollar remarks this week from Chair Janet Yellen and other officials of the Federal Reserve that suggest the central bank is moving forward with another rate hike this year.
The dollar briefly fell on news that Trump was considering nominating John Taylor and Jerome Powell to the top two posts at the Fed, one as chair and one as vice-chair, and on news Yellen had lunched at the White House with Trump adviser Gary Cohn. It quickly retraced those losses.
The dollar's strength dragged the euro down 0.6 percent to $1.1763 ahead of a European Central Bank meeting next week in which policymakers are seen cutting bond purchases but voting for an extension in stimulus.
Enhanced risk appetite also helped boost the euro to its highest against the Swiss franc since January 2015, when the Swiss National Bank scrapped its peg with the euro.
Ahead of national elections in Japan on Sunday, surveys suggest Prime Minister Shinzo Abe’s ruling coalition is on track roughly to match the two-thirds “super majority” it held in parliament’s lower house before the snap vote was called.
The New Zealand dollar sank to a five-month low on concerns the new Labour coalition will take a harder stance on immigration and foreign investment than the outgoing center-right government.
Chart of the Week: Euro Area Economic Sentiment Showing Little Signs of Abating Despite Taper Talk
by Fathom Consulting
Fathom’s latest Economic Sentiment Indicators (ESIs) for September show that confidence continues to strengthen across the euro area. On an aggregate level, our euro area ESI rose to an all-time high, surpassing its pre-crisis peak and buoyed by an unusually large jump in the European Commission’s consumer sentiment indicator in September. After consistently underperforming, Italy’s ESI has been volatile in recent months but rose sharply in September, up from 0.9% to 1.2% on the back of Istat’s (Italy’s National Institute of Statistics) economic climate index which climbed almost 15 points in September. This rise in economic sentiment across the currency bloc is set against the backdrop of anticipation of the ECB’s announcement on how it will taper its monthly asset purchases, expected to be made at its next meeting on 26 October.
COT Report
Recent CFTC data doesn't show any big changes yet on EUR. It stands at peak of bullish sentiment as net long position is coiling around absolute high. It means that our conclusion will be the same - upside potential of EUR is limited. May be it could move higher for 1-2 points, but currently it is difficult to count on new bull trend above 1.20-1.21 area.
That's being said despite that sentiment stands extremely bullish - it stands in favor of downside retracement. This is paradox but this is just how markets work - when everybody already hold longs - there is nobody on other side, who could buy more and support existed tendency. As a result - market turns to retracement.
Technical
Monthly
Recent action hardly impacts monthly chart. Mostly situation stands the same here. October price action takes doji indecision shape right above previous long-term consolidation border.
As we have estimated earlier, EUR has formed short-term bearish pattern here - wash'n'rinse of previous top. August was indecision candle and in September price has tried to move higher but failed. This is sign of weakness and it increases chances on deeper retracement on lower time frames, mostly on daily. And this retracement right now stands under way.
Appearing of strong resistance on monthly chart, right at the moment of overloaded speculative bullish positions makes us to be careful with any bullish trades. We have two side-by-side Fib levels at 1.2160-1.2170 area on monthly chart and long-term support/resistance zone, where market stands right now. Monthly OB level stands higher and will not be a barrier. All yearly pivots have been broken up on EUR.
As you can see August month shows mostly indecision action. May be shadows of this candle are not as big to call it "high wave" pattern, but by it's nature, it's probably the same. Appearing of "indecision" sign at this moment mostly stands in favor of retracement rather than upside breakout.
It is a bit difficult to talk on depth of possible bounce, but monthly chart tells that it will be probably painless for bullish ambitions, if retracement will not be deeper than 1.14 area. Here we draw previous consolidation as rectangle, but in reality, if you draw upper border based on tops sharply, we will get sloped line and it stands around 1.14 area. That's why re-testing of this line is allowable and overall bullish sentiment will not be harmed:
That's being said, monthly chart mostly gives us just single important issue - don't count on upside continuation above 1.2150 area in perspective of few months. This is important for long positions that we could take on lower time frames. Profit should be taken as market comes closer to previous tops.
Weekly
Trend has turned bearish here, OS level stands rather far and doesn't prevent downside action. Last three weeks market mostly stands in the same range, thus, our weekly analysis also barely has changed. Last week even was inside one.
In fact, here we have only one intrigue - whether we will get DRPO "Sell" pattern, or, market will continue downside action right now. Just to remind you - action since middle of the March, right after (or even before) the gap of French elections could be treated as "thrust". For DRPO we need some upside action, above 3x3 DMA and closer to previous tops. Recent pause on downside action on daily chart tells that theoretically this is still possible.
As market shows rather slow downside action - we haven't got here any B&B "Buy". Price has spent 3 bars below 3x3 DMA but major fib level has not been touched - so, no B&B here.
In general, DRPO "Sell" here is more logical to see, if we will take in consideration the scale of ongoing processes. I mean strong monthly dollar index support area and resistance on EUR. Also we should not forget about CFTC EUR positions they are also make mostly long-term effect and potentially should lead to deeper retracement.
If DRPO "Sell" will be formed here, we probably will have to focus on deeper K-support area around 1.14, trend line and OS level.
Here we could only talk on possible retracement levels that could be reached. I've drawn here sloped line that we've mentioned above and it stands in an area of K-support here.
Daily
Here, on daily picture we're coming to most important part of our analysis. Market now stands in narrowing price action, and usually when market does it, it keeps door open for opposite patterns. Partially we've discussed this topic on Friday. Indeed, on daily chart, we could get H&S and downside butterfly on the right shoulder. But at the same time, as stands above 1.1735 lows - it keeps door open for upside AB=CD and "222" Sell, that could be accompanied by smaller upside butterfly, right? So, what we gonna do?
Let's try to find some additional details. First is, we have strong bearish divergence of H&S - right under strong monthly resistance area. Usually it leads to appearing of bearish reversal swing, which we haven't got yet.
Second - it seems that we have bearish dynamic pressure here. Trend stands bullish, but price action mostly stands flat. Upside impulse was held by MPP - now it is the barrier between consolidation on the top of the head (H&S pattern) and shoulder. Market usually protects consolidations that price has abandoned already. If EUR will return back to consolidation above MPP - it probably will erase H&S and only potential weekly DRPO "Sell" will stay.
Finally we have bearish engulfing pattern, that, at least in short-term, suggests another leg down. Putting all this stuff together, it seems that now it is not good point for any long positions. Only above 1.19 area we could suggest suitable situation for taking long trades.
Intraday
Here you can see clear border between two consolidations mentioned above. It stands right at 50% major Fib level and MPP. By the shape of price action - EUR indeed keeps chances as for upside butterfly as for downside one. This is typical for any type of triangle narrowing price action. For us major point is low in red circle. Once it will be broken upside butterfly will be erased.
But what chances that this indeed should happen? Well, if we will take a look at dollar index chart - it already has erased this butterfly (don't forget that DXY and EUR stands in opposite directions).
Also, let's not forget about daily engulfing. Usually it leads to some AB=CD action on hourly chart. Now we have AB leg in place. As price stands at 5/8 Fib support, on Monday we should get upside bounce and BC leg. But then EUR should continue move down to complete engulfing target:
Conclusion:
Despite multiple bearish signs, EUR still shows high degree on uncertainty of short-term perspective. Coming week will be also full of important fundamental data. Still it seems that minor advantage stands on the side of bears.
Still, if you would like to take long position, it makes sense to think about using of stop type of entry order, on a breakout of 1.19 area. Here we have specific situation that gives us advantage as EUR clearly shows the border between consolidation zones. Once it will move above 1.19 again, road to previous tops around 1.21 will be open.
But until price stands below 1.19 any long position will be accompanied with significant risk.
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.