FOREX PRO WEEKLY, October 24 - 28, 2016

[Sive Morten]

Fundamentals

(Reuters) The dollar rose to its highest level since early February against a basket of currencies on Friday, boosted by higher expectations of a Federal Reserve interest rate hike this year and by the euro weakening to seven-month lows.

Hawkish comments from Fed officials including New York Fed President William Dudley and higher expectations that Hillary Clinton will win the U.S. presidential election have increased bets that the U.S. central bank will raise rates in December.

Dudley said on Wednesday the Fed will likely increase interest rates later this year if the U.S. economy remains on track.

“There have been some Fed comments where they sound like they are ready to move in December, but also partly related is the market view that a hike in December is much more likely if Clinton wins than if Trump wins,” said Steven Englander, global head of foreign exchange strategy at Citigroup in New York.

A victory by Donald Trump is seen as more likely to create uncertainty and possible market volatility, which could delay an interest rate increase.

Traders are pricing in a 70 percent chance that the Fed will raise rates at its December meeting, up from 64 percent two weeks ago, according to CME Group’s FedWatch Tool.

The dollar index .DXY rose as high as 98.813, the highest since Feb 3. The euro fell as low as $1.0859, the lowest since March 10.

Weakness in the euro following Thursday's European Central Bank meeting boosted the greenback.

ECB President Mario Draghi left a wide range of options on the table and emphasized that a long-awaited rise in inflation is predicated on "very substantial" monetary accommodation.

Weakness in the single currency was also attributed to a possible rebalancing of reserves by China's central bank as the Chinese currency depreciates at a faster pace than expected.

China's yuan exchange rate slipped past 6.75 per dollar on Friday after the central bank set the daily midpoint weaker than that level for the first time in six years.

"Last night when China began coming off we saw the euro coming off,” Citi's Englander said.

“There's a view that if capital exports from China are running at a strong pace, Chinese residents are buying dollars, which means the dollars get supplied by central banks out of reserves. Then they are unbalanced between dollar reserves and euro reserves so they sell some euros to rebalance with dollars,” Englander said.

According to Fathom consulting recent retail sales are not bad at all:
US consumers still spending

US nominal retail sales increased by 0.6% in September compared with the previous month.

This rise was only partly due to gasoline, which jumped 2.4% due to higher oil prices; excluding gasoline, sales still rose by a healthy 0.5%.

Despite these decent figures, growth in real personal consumption expenditure seems to have slowed from 4.3% (annualised) in Q2 to something closer to 3.0% in Q3.

However, the bigger picture is that US consumers have shrugged off political uncertainty and remain willing to part with their money, boosted by the improving labour market.

COT Report
Recent CFTC report shows pure bearish picture and indicates that bearish action takes the pace. Net short position has increased simultaneously with increase in open interest. At the same time, it has a lot of room for more sell-off.
Thus, data tells about clear bearish sentiment on the market

Technical
Monthly

Downward action has continued on previous week. Our bearish view starts to get real confirmation by market action. Thus, major picture that we see on the monthly chart is the same - important bearish reversal candle and flag-shaped consolidation within last 3-4 months that has been broken down recently. This combination doesn't look really bullish for EUR here.

Currently EUR stands at rather strong support area. This is lower border of downward channel and all-time 5/8 Fib support. Here EUR has formed Butterfly "buy" and it has reached first 1.27 extension here. Probably it needs some time to pass through this level and supportive fundamental background of US strength.

EUR is forming typical reversal candle in May. Price has moved above April top and closed below April's lows. It could not get extended continuation, but usually market shows downward continuation within next 1-3 candles.
Sometimes reversal candles lead to collapse, as it was on EUR around 1.40 area. Thrust down has started particularly by reversal candle in March 2014.

Speaking on big scale bearish signs, we have these ones:
EUR was not able to reach YPR1 and returned right back down to YPP. Following this logic next destination could be YPS1 right around parity and 1.618 butterfly target. This is just another destination point that we have here.

Appearing of reversal candle brings nothing good to bulls. Currently we can't precisely forecast the consequences of its appearing, but even minor results will bring some months of downward action inside current 1.04 -1.15 consolidation... Although potential bearish impact could be even stronger.

Finally we have another bearish sign that looks like bearish dynamic pressure. Take a look that although trend holds bullish - market shows inablitity to move up, even from strong support area. Next strong support stands precisely at parity and will become a culmination of downward action, since this level includes support line, YPS1 and butterfly 1.618 target. Brexit results hardly will bring prosperity to EU and probably will become another bearish driving factor for EUR. We aleardy see consequences of Brexit on GBP, so, some negative impact on EUR also will happen, this is just a question of time.

Finally, ECB recent comments and expectation of rate hike in US in Dec and continuation in 2017 will make additional pressure on EUR/USD rate in medium-term perspective.

Also take a look at different behavior near low border of channel. Previously when market has touched it - it shows immediate upside pullback, it was V-shape reversal. Right now behavior is absolutely different, price just hangs on the border and shows no upside action. Any tight consolidation near trendline could become a sign of coming breakout.

Thus, based on monthly chart we could make two major conclusions. First is - real bullish trend will be re-established only when EUR will erase reversal candle and overcome its top above 1.16. Second, if EUR will still keep moderate bearish sentiment, downside potential hardly will be lower than parity, due recent Fed dovish adjustments to its policy for 2017-2018.
Right now EUR stands in some kind of range action of 1.05-1.16. That's why logical next destination for monthly chart stands around 1.05.

Weekly

Last week finally we've got some clarity and our suspicious about bullish perspectives were confirmed. EUR has dropped. Drop, as you can see was rather solid. Trend has turned bearish, all monthly pivot lines have been broken, as well as 5/8 major Fib support.

As market is not at oversold here, it should continue downward action. On weekly chart our major AB=CD pattern starts right from the top. On Brexit drop market has completed it's 1.0 target, i.e. AB=CD, after that we've got upside 5/8 retracement and now EUR is re-established downward action. Since 1.09 target already has been hit, following the logic of AB=CD extensions, it should continue to next one, 1.618 target that stands around 1.06 area. EUR already has dropped below 100% extension. Abscence of oversold tells that any upside bounce should not be too high.

Also take a look that downward action could take the shape of butterfly with the same 1.0630 target, as 1.618 extension. As we have suggested, if H&S fails, it should fail miserably, i.e. price should drop below the head. Last week this has happened.

That's being said, weekly picture in general agrees with monthly idea of moving to 1.05 level - bottom of monthly small consolidation.

Daily

Here, guys, we're interested only with one thing - upside rally to sell into. As you can see daily EUR is not at oversold as well, thus, upside bounce hardly will be to significant. All short-term targets and extensions have been hit, and actually now we have only weekly objective points around 1.06 area.

Another important moment is breakout of Brexit bottom. EUR has not returned right back up and looks like this was not a W&R. This is very important moment. Sometimes, market doubles long-ranged candle in direction of breakout. And this also leads us to 1.05 area...

As you can see last retracements were very small 30-50% Fib levels. On Thursday we've got the chance, but market reaction on Draghi comments was very fast, so it was difficult to use it.

Now we will be watching for another bounce. EUR could re-test broken 1.10 area, touch WPP, or even WPR1. This will be normal retracement before downward continuation.

Intraday

On intraday charts we do not see yet any really special. The only thing that we could point is approx. equal, harmonic bounces.
Market is not at Fib support or oversold on daily chart. That's why we could not get meaningful daily retracement. In such circumstances we have to watch for smaller ones on intraday charts. If we also will get some reversal pattern - that will be much better.

Please read conclusion carefully to avoid any misapprehension.

Conclusion:

Our long-term view mostly bearish on EUR, based on action that it shows around major support, due dovish recent ECB comments and anticipation of more agressive Fed policy. Bearish view will be valid until market will stand below 1.16 top.

In shorter -term perspective we need to get some rally to sell into. All short-term objective points have been hit.

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]

Good morning,

(Reuters) China's yuan hit its lowest since offshore trading was introduced in 2010 on Tuesday as the dollar remained strong across the board, trading near a nine-month high on expectations for a U.S. interest rate hike by year-end.

The Chinese currency's fall of more than 1.5 percent since the end of September has prompted renewed suspicion among some in the market of a possible extended slide in the Chinese currency. It traded as weakly as 6.7882 yuan per dollar on Tuesday.

Officials, however, have reiterated their expectations for a stable currency.

The currency's weakness has revived memories of China's surprise devaluation last August and another rapid depreciation early this year - falls that spread turmoil in global financial markets, as investors fretted about deepening economic woes as growth slipped to a quarter-century low.

But analysts pointed out that during this round of yuan weakness, global risk sentiment was holding up.

"That highlights the extent to which dollar gains are unlikely to be as extended as they were (in the past)," said BNP Paribas currency strategist Sam Lynton-Brown, in London.

"As the dollar pushes higher against the yuan, which has a large weighting in the Fed's exchange rate, it means the Fed is going to be more likely to rein in some of its more hawkish rhetoric, because of the strong dollar, negative risk feedback loop," he added.

The dollar was close to a nine-month high against a basket of currencies, having already risen 3.6 percent so far this month, as solid U.S. manufacturing activity and comments from a Federal Reserve official cemented U.S. rate hike bets.

"Strong U.S. manufacturing data boosted U.S. bond yields and supported the dollar," said Shinichiro Kadota, senior strategist at Barclays Securities in Tokyo.

Adding to the positive backdrop, Chicago Fed President Charles Evans said on Monday the Fed could raise rates three times between now and the end of 2017, so long as inflation expectations and the labour market continue to improve.

Evans' comments built on similarly hawkish remarks from Fed rate-setters in recent weeks.

As the dollar held firm, the euro eased 0.1 percent to $1.0876, languishing near its seven-month low of $1.0859 touched on Friday.

The euro has come under renewed pressure after the European Central Bank last week kept the door open to more stimulus in December and doused speculation that it would taper its asset buying programme.

The dollar also had an edge against the yen, rising 0.3 percent to a 12-day high of 104.495 yen, just below a 2-1/2-month high of 104.635 yen set earlier this month.

Guys, today we just can't ignore situation on CAD. Since our last discussion on Friday some changes have happened. If you remember we're mostly interested in DRPO "Sell" pattern on daily Crude. Right now situation looks so that we could get DRPO Failure with high probability. It has seemed that drop has started on Mon when Iraq has denied agreement between Saudi Arabia and Russia on crude oil extraction, but this drop was very short term and price has returned back. This makes me think that Crude will not go to our 50$ target and could really continue move up:

In general this is normal since on big picture we have huge reverse H&S pattern, and right shoulder is also butterfly...
Second, now we're coming to most interesting stuff. On CAD - we said that DRPO should let CAD to complete 1.34+ target on daily chart. So, this Iraq refusion was enough to let CAD to do it. Thus, all daily targets have been completed - AB=CD, butterfy, MPR1, also CAD has reached daily overbought.
CD leg is very flat and usually this leads to reversal after AB=CD has been completed:

And now take a look how this has happened - fast spike and returned back. Some kind of W&R. As a result we've got very rare 3-candle DRPO "Sell" pattern. This setup has very attractive risk/reward ratio. Minimal target of this pattern stands @1.32, but this could become just a beginning:

As a result of combining Crude analysis and CAD - we come to conclusion that DRPO failure on Crude Oil is very probable. This, in turn, should lead to further upside action on Crude and drop on CAD...

 

[Sive Morten]

Greetings everybody,

(Reuters) The Australian dollar was an outperformer on Wednesday, bucking a broad risk averse environment in global markets, helped by a better-than-expected inflation reading that dented chances of an interest rate cut in the near term.

Consumer prices rebounded by more than forecast last quarter in Australia, while the annual pace of core inflation edged up for the first time in over a year, leading investors to price out almost any chance of a cut in rates next week.

The Reserve Bank of Australia holds its monthly policy meeting early next week and is expected to keep rates at a record low 1.5 percent.

The Aussie jumped to $0.7709 from $0.7645 before the data. It was last up 0.7 percent on the day at $0.77 and rose to a three-month high against the lower-yielding yen . The safe-haven yen performs well during weakness in stock markets as is the case on Wednesday, but the momentum was clearly in favor of the higher-yielding Australian dollar.

"The headline inflation was stronger than expected and it looks like a November rate cut is off the table," said Yujiro Goto, currency strategist at Nomura.

"While there are expectations lurking of further rate cuts early in the next year, at the moment we could see some more upside in the Aussie."

DOLLAR RETREATS

Meanwhile, the dollar index, which tracks the greenback against six major rivals, slipped to 98.606 .DXY after rising as high as 99.119 on Tuesday, its highest level since Feb. 1.

The U.S. currency has been bolstered by expectations the Fed is on track to raise rates by the year-end. The market was pricing in a greater than 78 percent chance that the Fed would raise rates in December, according to CME Group's FedWatch.

The focus will be on third-quarter growth data to be released on Friday but traders expect the dollar to trade in a range ahead of a key jobs report next week and the U.S. Presidential vote in early November.

"With November Fed meeting and Presidential election approaching, we would not be surprised to see the dollar settling into the more neutral pattern in the coming days," analysts at Credit Agricole said in a note.

"This is particularly the case since historically the greenback tends to weaken around one-two weeks ahead of the Presidential vote."

The euro was 0.2 percent higher at $1.09075, after slipping to an almost eight-month low of $1.0848 on Tuesday. Against the yen, the dollar stood at 104.14, slightly lower on the day but not far from a roughly three-month high of 104.87 yen struck on Tuesday.

So, yesterday we haven't got DRPO "Failure" pattern on Crude oil and it still keeps valid direct pattern, but as Crude has dropped a bit reaction on CAD was weak, it even has not re-newed the top. Thus, both scenarios are still possible. But if you have doubts, it would be better to leave trade at breakeven point...

Today we will take a look at EUR. It has started upside bounce that we've discussed in weekly research. Mostly, we are watching for 2 possible destination point. First one is 1.0925 area around WPP and second - 1.10 area around WPR1. I'm not sure about daily B&B, since thrust is a bit choppy. But, taking in consideration fundamental and sentiment background, may be we will treat upside bounce to 3/8 Fib level as B&B, we will see:

4-hour chart shows that area around WPR1 is a K-resistance as well:

Based on hourly picture, we see that upside reversal has started with good Butterfly, or even H&S pattern. Also we see fast W&R on hourly chart. These patterns mostly confirm the same levels, as AB-CD targets create an Agreements with them. As current upside action looks fast, may be EUR will climb to 1.0965-1.10 area. It would be nice...

 

[Sive Morten]

Good morning,

(Reuters) The dollar traded close to a three-month high against the yen on Thursday, underpinned by higher U.S. bond yields and growing expectations that the U.S. Federal Reserve will raise interest rates by the end of the year.

The market is now pricing in a 74-percent chance that the Fed will raise rates at its December meeting, according to CME Group's FedWatch tool, following a series of hawkish comments from Fed policymakers.

Those expectations have driven the dollar to nine-month highs against a basket of currencies this week, and it was up 0.1 percent on Thursday at 98.716, just off those highs.

Bets on a 2016 Fed rate hike have also supported U.S. 10-year Treasury yields, which rose to 1.813 percent in Asian trade, their highest since this month's five-month high of 1.814 percent. In turn, those have supported the dollar.

"We're see a renewed pick-up in Fed rate hike expectations, which will likely intensify going into the November Fed meeting next week," Credit Agricole's head of G10 currency research, Valentin Marinov, said.

"We will be looking for an explicit indication in the statement that rates will be going higher in December."

Marinov said that the dollar was also being supported by a pick-up in corporate demand for dollar funding into the end of the year.

Against the yen, the greenback rose 0.2 percent to 104.65, just off its high of 104.875 touched on Tuesday.

With the Bank of Japan seen likely to keep its monetary policy steady for a while and to stick to its pledge to guide 10-year government bond yields around zero percent, U.S. bond yields will be the main driver for dollar/yen for the time being, UBS Wealth Management FX strategist, Tan Teck Leng, said.

In focus for European traders were policy decisions from Sweden's and Norway's central banks, due at 0730 GMT and 0800 GMT respectively. Neither is expected to ease policy further this month, so any new additional measures would drive down those countries' currencies.

Sterling eased 0.3 percent to $1.2210, but remained above an 18-day low of $1.2082 plumbed on Tuesday.

The market will look to the third quarter U.K. GDP data due at 0830 GMT for the latest clues on how the economy is holding up in the aftermath of Britain's vote to leave the European Union.

So, we continue to track situation on EUR. Our first level of retracement around 1.0925 has been achieved. Now is major question, whether EUR will proceed to next one around 1.10 or not. On daily chart one of the most important issues is MACDP line. Price stands very close to it. So, if we will get, say, bearish grabber, this could become as additional signal that retracement is over. Second moment on daily chart is harmonic retracement. As you can see harmonic swing has been completed. Usually, if price exceeds it, it has a tendency to double it. This could lead EUR right to the next our level - 1.10.

Till the end of the week, we mostly will watch on hourly chart. Currently action is very logical. As EUR has completed AB=CD target, normal bounce has followed. So, EUR still keeps chances on 1.618 AB-CD target. Here we see clear natural support/resistance level at 1.09 that will have very important meaning for short-term perspective. EUR should hold above it to keep chances on deeper 1.10 retracement. If Price will drop below it - this will be first sign that upside retracement is over.

Thus, watching for patterns on daily chart and 1.09 area on hourly should help us to estimate perspectives of current upward action.

 

[Sive Morten]

Good morning,

(Reuters) The dollar traded near a three-month high versus the yen on Friday, on track for monthly gains against most rivals as investors waited for U.S. third quarter growth data later in the day.

Positive growth numbers would reinforce expectations that the U.S. Federal Reserve is gearing up to hike interest rates.

A disappointing result, however, could trigger a fall in the dollar, a scenario that played out in late July when U.S. second-quarter GDP data came in weak.

The dollar eased 0.1 percent to 105.16 yen, holding near Thursday's high of 105.35 yen, which was the greenback's strongest level since late July.

Third-quarter GDP growth of around 2 percent that is unlikely to be a big game-changer, said Roy Teo, senior FX strategist for ABN AMRO Bank in Singapore.

"Obviously if we see a material downside risk of say 1.5 percent, that's a different ball game," Teo said, adding that such an outcome could cool expectations for the Fed to raise interest rates this year - denting the greenback.

An upside surprise could open the way for the dollar to rise toward 107 to 108 yen over the next month, he added.

The median forecast in a Reuters poll is for the U.S. advance third-quarter GDP data to show growth of 2.5 percent.

U.S. interest rate futures are implying a more than 78 percent chance of the Fed raising interest rates by December, according to the CME Group's FedWatch tool.

A rise in U.S. bond yields has helped bolster the dollar in recent weeks, with the greenback having risen 3.7 percent against the yen so far this month, its biggest monthly gain since May.

The euro edged up 0.1 percent to $1.0909, but was down nearly 3 percent for the month.

U.S. Treasury yields climbed to roughly five-month peaks on Thursday, tracking rises in German and British bond yields as investors speculated that the Bank of England and the European Central Bank would both hold off on further easing measures.

Investors trimmed bets that the Bank of England will cut interest rates next week, after data on Thursday showed that Britain's economy grew faster than expected in the three months after the Brexit vote.

Sterling last traded at $1.2180, up 0.2 percent on the day, but down from Thursday's one-week high of $1.2273, set immediately after the UK GDP data.

"The UK GDP was higher than expected, which boosted yields, and then higher U.S. yields in turn helped lift the dollar," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

The dollar traded around a 7-1/2 year high against the Swedish crown after Sweden's Riksbank said the chances of another interest rate cut had increased and it was ready to expand its quantitative easing program.

The greenback last stood at 9.0572 crowns after climbing to 9.0890 crowns on Thursday, its highest level since March 2009.

So, on EUR we still watch for upside bounce. Currently we see technical signs that retracement might be over around current levels. First, we've got bearish grabber on daily, EUR is challenging WPP but can't move through:

Still, it's definitely GDP data will be driving factor today, so some volatility spikes could happen, if even market will continue move down, so be careful...

On 4-hour chart we see multiple bullish grabbers, that theoretically suggest erasing of daily pattern, but higher time frame patterns overrule lower time frame ones. That's why daily grabber has more value than 4-hour time frame grabbers:

Finally, on hourly chart we also see some bearish signs. Take a look that after AB=CD has been completed, market has shown reasonable retracement down, but after that it couldn't re-establish upside action to 1.618 target. This is bearish moment:

That's being said, taking in consideration coming GDP data, we need to watch for 2 moments today. First is GDP numbers 2-2.5% probably will push market lower, while 1.5-1.8% could trigger short-term continuation to 1.10 area. Second - watch for 1.09 level, this is some kind of edge, signal line. if EUR will drop below it, it could mean that downward trend is re-established and daily grabber has started to work... Here i mean not just some spike or piercing of this area, but real move below it and standing there.