Sive Morten
Special Consultant to the FPA
- Messages
- 18,648
Fundamentals
(Reuters) The U.S. dollar hit a more than two-week high against a basket of major currencies on Friday after U.S. inflation data boosted bets the Federal Reserve would raise interest rates in December, and touched a one-month high against sterling on worries over Britain's Brexit vote.
The U.S. Labor Department said its Consumer Price Index rose 0.2 percent last month. In the 12 months through August, the CPI increased 1.1 percent. The figures beat expectations of economists polled by Reuters.
Traders' expectations of a rate hike from the Fed at its meeting next week rose slightly to 15 percent from 12 percent on Thursday, according to CME Group's FedWatch program, while expectations for December rose to nearly 52 percent from just over 47 percent.
The inflation data suggested a greater probability of a December move from the U.S. central bank and a quicker pace of rate increases next year, analysts said.
"It’s lining up nicely for the Fed to tie a bow on this year and give us that 25 basis point hike just before the holidays," said Stephen Casey, senior foreign exchange trader at Cambridge Global Payments in New York.
The dollar index, which measures the greenback against a basket of six major currencies, rose 0.8 percent to 96.063 .DXY. The euro hit a 10-day low against the dollar of $1.1149, while the dollar hit a two-week high against the Swiss franc of 0.9817 franc.
Sterling hit a one-month low against the dollar of $1.3001 after Bloomberg reported that Chancellor of the Exchequer Philip Hammond was "ready to accept" that Britain may have to give up membership of the European Union's single market, citing unnamed officials. The currency was last down 1.7 percent at $1.3015.
Hammond said in mid-July that Britain would leave the single market as a result of its decision to leave the EU. Britain voted to exit the EU on June 23.
"It’s just a sign that Brexit comes at a cost," said Vassili Serebriakov, FX strategist at Credit Agricole in New York.
The dollar was last up just 0.25 percent against the yen at 102.35 yen ahead of the BOJ's Sept. 20-21 policy meeting.
The dollar index was on track to post its best week in three, with a gain of about 0.8 percent, but the greenback was set for its second straight weekly loss against the yen, of about 0.3 percent.
So, guys, in general we agree with common view on September Fed meeting. No rate change probably will happen. Despite good inflation data, previously market was shaked by poor ISM and Retail Sales. As ISM is rather volatile and it's single value not as important, retail sales is quite another tune, since it takes 70% of GDP correlation. Besides, rate hike in September will be a bit unexpected and this is not typical for Fed. Usually if Fed brings some suprise it stands around value of rate change but not the time of change. That's being said - all eyes on Sep comments and Dec rate hike.
The end of globalisation?
by Fathom Consulting
It is now almost 200 years since the British economist David Ricardo first wrote at length about the virtues of international trade. His Theory of Comparative Advantage explains why it is advantageous for a country to focus on making whatever goods or services it is best placed to make, and then to exchange those goods or services with other countries whose productive skills lie elsewhere. It has become a fundamental tenet of economics that more trade is good, and less trade is bad.
This week’s chart of the week shows how global trade has evolved over the past 50 years or so. As a share of global GDP, global trade rose steadily from just over 20% in the early 1960s, to as much as 60% on the eve of the financial crisis. It fell off sharply in 2009, only to bounce back again the following year. But since 2010, global trade has stalled. And on some measures it has gone into reverse.
Part of the slowdown in global trade will reflect the fact that China’s economy is not expanding as rapidly as it was just two or three years ago – and it is certainly expanding far less rapidly than the official statistics suggest. As a heavy user of commodities, economic growth in China is very trade intensive. But some of the slowdown, in our view, reflects a more worrying trend towards growing isolationism in a number of the world’s major economies. The UK’s Brexit vote may be seen as part of that trend. So too is the growing popularity of Donald Trump – a US presidential hopeful who has built his campaign around a protectionist, anti-trade message.
Looking across the major economies, we find that a sharp fall in global trade would lower potential growth. But, interestingly, it would raise the labour share – workers would be less exposed to competition from overseas. So workers get a larger share of a smaller pie. The flipside, of course, is that owners of capital get a smaller share of a smaller pie. We find that a period of growing isolationism would be disastrous for equity investors.
COT Report
Finally we've got some clarity on EUR, guys, by Friday drop below 1.12 area. Still on COT data information mostly neutral. Thus, since mid July we see gradual decreasing of invsetors' short exposure as net short position has contracted as well as open interest. Then, this tendency has reversed and shorts were back - position has increased and open interest as well. Last week we just see that some longs have been opened - net short position decreased, while open interest has increased. This is logical change because till last moment this was unclear what will happen. We already have talked on bullish potential on EUR. Although we have stand aside, but this is understandable why investors have opened some longs...
Technicals
Monthly
Recent action doesn't have strong impact on monthly chart by far, September stands as inside to August action still. That's why our monthly analysis mostly stands the same.
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, and now even stands slightly below it. This is bearish sign. 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 1-2 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.
Finally expectation of rate hike in US in Dec and more agressive Fed policy 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.
Weekly
So, on weekly chart right now we have two a bit different situations. First one is "by-letter", formal treatment of situation. It stands the same as on last week. Formally, major support around 1.09 area has not been broken down and this keeps door open for any speaches on bullish patterns. For example - monthly DRPO "Buy", or weekly "222" Buy pattern with 1.16 target.
But recently this "by-letter" situation is modified by new inputs that we've got last 2-3 weeks. Above we already have talked on growing changes in sentiment in favor of USD strength, markets strongly reacts on dollar supportive data or events and shows weaker reaction on any events or data against dollar. It means that mentally traders already at the moment of rate hike by Fed.
Second, some pure technical issues. EUR consequently has broken two sloped trend lines. As first line was re-tested after breakout, as second one also has been re-tested 4 weeks ago. In last 4 weeks EUR forms something that reminds bearish dynamic pressure on weekly chart. Trend stands bullish, but price action is not.
Besides overall action from 1.09 low doesn't look like thrust and re-establishing of upside trend. It mostly reminds reaction or respect of some strong support area. From perspectives of AB-CD pattern, this action is too heavy, since EUR even has not reached minor 0.618 extension.
If we suggest that market has formed Double bottom pattern here - current action is also irrational, as EUR has pulled back from neckline and now couldn't return right back up to it.
It seems that downward breakout could happen even on next week. Because Fed will not have meeting in October, thus it should start rethoric preparation to rate hike in December, since in November and December they will talk mostly on 2017 perspectives.
That's being said, although EUR formally still keeps valid bullish patterns as crucial level around 1.09 still stands untouched, we see warning bearish sighs in recent market behavior and think that downward breakout is a question of time.
For those of you who have good imagination - try to find the shape of butterfly here that could lead market to our parity target...
Daily
So, as we have come to conclusion on moderate bearish view in mid-term perspectives, let's take a look at short-term picture. Trend has turned bearish. Last week behavior mostly was irrational, since EUR has formed multiple grabbers but was not able to start upside action and recent inflation data release was the last drop that pushed EUR down.
Previously we've talked a lot about 1.11 level and said that this is crucial level for bullish scenario here, since this is the bottom of right shoulder of potential H&S pattern. Why we do not talk about 1.09 level, which seems more important? Mostly because the failure around 1.11 will automatically will lead to breakout of 1.09. If market fails to form H&S and drop below right shoulder bottom - this sooner or later leads to total collapse of H&S pattern and drop below 1.09 head level.
But 1.09 indeed is important, because this is crucial point for larger pattern - "222" Buy.
So, as we've recalled previous background of our view on EUR, today we would like to discuss action that stands in red circle and pay attention to some details that will let us to undertand situation better. It seems that it would be logical to analyze this by H&S market mechanics.
Let's start right from the bottom of right shoulder. After it has been created, EUR has shown very nice upside rally right to neckline. First it was triggered by ISM manufacturing, later by poor NFP data. As a result - EUR has completed our target for a week and reached neckline. It was OK.
But right now normal behavior is shifting to irrational. Insread of upside breakout, market has dropped lower, below MPP, and almost right back to the bottom of right shoulder. After it has spent almost 2 weeks in tight consolidation. This action is absolutely not typical for H&S pattern nad it seems that we could get 1.11 breakout already on next week.
Meanwhile, until 1.11 holds, theoretically we could appeal to possible Butterfly "Sell" pattern that could be formed here. (that's why 1.11 is important), but recent drop is not a good sign for butterfly's wing and we treat chances on its appearing as insignificant.
That's being said our position here is stand away from longs, prepare to go short as soon as 1.11 level will be broken.
4-hour
Intraday charts shows mostly tactical issues. Thus, on 4-hour chart we also see that recent drop is not just deep retracement, but something greater. Take a look at price action in consolidation - long tails up suggest attempts to re-establish trend up and strong selling pressure that has prevented this. The fact that market was not able to restore upside trend up from Agreement support tells about weakness. Real bullish market usually holds at Agreement support and turns up again. But here we see flat consolidation that hints on strong bearish pressure here and Friday collapse. BTW, on daily chart, this consolidation was a combination of multiple bullish grabbers that also become useless.
Drop to 1.618 target was also rather fast, so acceleration to extended target also suggests further downward continuation:
Hourly
This chart suggests minor retracement up on Monday as EUR has completed wide AB=CD pattern. It seems that most probable destination of retracement is strong support cluster around 1.12 area. It includes K-resistance, previous consolidation and area around WPP. If you really would like to anticipate downward breakout (although we do not recommend this, at least not to everybody, since it is dangerous and demands experience), you could keep a close eye on this level.
Finally guys, if you trade on intraday charts - you could watch also for scalp DiNapoli directional patterns, based on recent thrust down - DRPO or B&B could be formed there as well.
Conclusion:
Our long-term view mostly bearish for EUR, based on action that it shows around major support and due anticipation of more agressive Fed policy.
In shorter -term perspective market shows stronger signs of possible downward breakout, while keeping bullish patterns valid still, as crucial level has not been broken yet. On Monday we expect minor upside retracement. After that downward tendency should continue. Fed comments will be very important on next week.
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 U.S. dollar hit a more than two-week high against a basket of major currencies on Friday after U.S. inflation data boosted bets the Federal Reserve would raise interest rates in December, and touched a one-month high against sterling on worries over Britain's Brexit vote.
The U.S. Labor Department said its Consumer Price Index rose 0.2 percent last month. In the 12 months through August, the CPI increased 1.1 percent. The figures beat expectations of economists polled by Reuters.
Traders' expectations of a rate hike from the Fed at its meeting next week rose slightly to 15 percent from 12 percent on Thursday, according to CME Group's FedWatch program, while expectations for December rose to nearly 52 percent from just over 47 percent.
The inflation data suggested a greater probability of a December move from the U.S. central bank and a quicker pace of rate increases next year, analysts said.
"It’s lining up nicely for the Fed to tie a bow on this year and give us that 25 basis point hike just before the holidays," said Stephen Casey, senior foreign exchange trader at Cambridge Global Payments in New York.
The dollar index, which measures the greenback against a basket of six major currencies, rose 0.8 percent to 96.063 .DXY. The euro hit a 10-day low against the dollar of $1.1149, while the dollar hit a two-week high against the Swiss franc of 0.9817 franc.
Sterling hit a one-month low against the dollar of $1.3001 after Bloomberg reported that Chancellor of the Exchequer Philip Hammond was "ready to accept" that Britain may have to give up membership of the European Union's single market, citing unnamed officials. The currency was last down 1.7 percent at $1.3015.
Hammond said in mid-July that Britain would leave the single market as a result of its decision to leave the EU. Britain voted to exit the EU on June 23.
"It’s just a sign that Brexit comes at a cost," said Vassili Serebriakov, FX strategist at Credit Agricole in New York.
The dollar was last up just 0.25 percent against the yen at 102.35 yen ahead of the BOJ's Sept. 20-21 policy meeting.
The dollar index was on track to post its best week in three, with a gain of about 0.8 percent, but the greenback was set for its second straight weekly loss against the yen, of about 0.3 percent.
So, guys, in general we agree with common view on September Fed meeting. No rate change probably will happen. Despite good inflation data, previously market was shaked by poor ISM and Retail Sales. As ISM is rather volatile and it's single value not as important, retail sales is quite another tune, since it takes 70% of GDP correlation. Besides, rate hike in September will be a bit unexpected and this is not typical for Fed. Usually if Fed brings some suprise it stands around value of rate change but not the time of change. That's being said - all eyes on Sep comments and Dec rate hike.
The end of globalisation?
by Fathom Consulting
It is now almost 200 years since the British economist David Ricardo first wrote at length about the virtues of international trade. His Theory of Comparative Advantage explains why it is advantageous for a country to focus on making whatever goods or services it is best placed to make, and then to exchange those goods or services with other countries whose productive skills lie elsewhere. It has become a fundamental tenet of economics that more trade is good, and less trade is bad.
This week’s chart of the week shows how global trade has evolved over the past 50 years or so. As a share of global GDP, global trade rose steadily from just over 20% in the early 1960s, to as much as 60% on the eve of the financial crisis. It fell off sharply in 2009, only to bounce back again the following year. But since 2010, global trade has stalled. And on some measures it has gone into reverse.
Part of the slowdown in global trade will reflect the fact that China’s economy is not expanding as rapidly as it was just two or three years ago – and it is certainly expanding far less rapidly than the official statistics suggest. As a heavy user of commodities, economic growth in China is very trade intensive. But some of the slowdown, in our view, reflects a more worrying trend towards growing isolationism in a number of the world’s major economies. The UK’s Brexit vote may be seen as part of that trend. So too is the growing popularity of Donald Trump – a US presidential hopeful who has built his campaign around a protectionist, anti-trade message.
Looking across the major economies, we find that a sharp fall in global trade would lower potential growth. But, interestingly, it would raise the labour share – workers would be less exposed to competition from overseas. So workers get a larger share of a smaller pie. The flipside, of course, is that owners of capital get a smaller share of a smaller pie. We find that a period of growing isolationism would be disastrous for equity investors.
COT Report
Finally we've got some clarity on EUR, guys, by Friday drop below 1.12 area. Still on COT data information mostly neutral. Thus, since mid July we see gradual decreasing of invsetors' short exposure as net short position has contracted as well as open interest. Then, this tendency has reversed and shorts were back - position has increased and open interest as well. Last week we just see that some longs have been opened - net short position decreased, while open interest has increased. This is logical change because till last moment this was unclear what will happen. We already have talked on bullish potential on EUR. Although we have stand aside, but this is understandable why investors have opened some longs...
Technicals
Monthly
Recent action doesn't have strong impact on monthly chart by far, September stands as inside to August action still. That's why our monthly analysis mostly stands the same.
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, and now even stands slightly below it. This is bearish sign. 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 1-2 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.
Finally expectation of rate hike in US in Dec and more agressive Fed policy 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.
Weekly
So, on weekly chart right now we have two a bit different situations. First one is "by-letter", formal treatment of situation. It stands the same as on last week. Formally, major support around 1.09 area has not been broken down and this keeps door open for any speaches on bullish patterns. For example - monthly DRPO "Buy", or weekly "222" Buy pattern with 1.16 target.
But recently this "by-letter" situation is modified by new inputs that we've got last 2-3 weeks. Above we already have talked on growing changes in sentiment in favor of USD strength, markets strongly reacts on dollar supportive data or events and shows weaker reaction on any events or data against dollar. It means that mentally traders already at the moment of rate hike by Fed.
Second, some pure technical issues. EUR consequently has broken two sloped trend lines. As first line was re-tested after breakout, as second one also has been re-tested 4 weeks ago. In last 4 weeks EUR forms something that reminds bearish dynamic pressure on weekly chart. Trend stands bullish, but price action is not.
Besides overall action from 1.09 low doesn't look like thrust and re-establishing of upside trend. It mostly reminds reaction or respect of some strong support area. From perspectives of AB-CD pattern, this action is too heavy, since EUR even has not reached minor 0.618 extension.
If we suggest that market has formed Double bottom pattern here - current action is also irrational, as EUR has pulled back from neckline and now couldn't return right back up to it.
It seems that downward breakout could happen even on next week. Because Fed will not have meeting in October, thus it should start rethoric preparation to rate hike in December, since in November and December they will talk mostly on 2017 perspectives.
That's being said, although EUR formally still keeps valid bullish patterns as crucial level around 1.09 still stands untouched, we see warning bearish sighs in recent market behavior and think that downward breakout is a question of time.
For those of you who have good imagination - try to find the shape of butterfly here that could lead market to our parity target...
Daily
So, as we have come to conclusion on moderate bearish view in mid-term perspectives, let's take a look at short-term picture. Trend has turned bearish. Last week behavior mostly was irrational, since EUR has formed multiple grabbers but was not able to start upside action and recent inflation data release was the last drop that pushed EUR down.
Previously we've talked a lot about 1.11 level and said that this is crucial level for bullish scenario here, since this is the bottom of right shoulder of potential H&S pattern. Why we do not talk about 1.09 level, which seems more important? Mostly because the failure around 1.11 will automatically will lead to breakout of 1.09. If market fails to form H&S and drop below right shoulder bottom - this sooner or later leads to total collapse of H&S pattern and drop below 1.09 head level.
But 1.09 indeed is important, because this is crucial point for larger pattern - "222" Buy.
So, as we've recalled previous background of our view on EUR, today we would like to discuss action that stands in red circle and pay attention to some details that will let us to undertand situation better. It seems that it would be logical to analyze this by H&S market mechanics.
Let's start right from the bottom of right shoulder. After it has been created, EUR has shown very nice upside rally right to neckline. First it was triggered by ISM manufacturing, later by poor NFP data. As a result - EUR has completed our target for a week and reached neckline. It was OK.
But right now normal behavior is shifting to irrational. Insread of upside breakout, market has dropped lower, below MPP, and almost right back to the bottom of right shoulder. After it has spent almost 2 weeks in tight consolidation. This action is absolutely not typical for H&S pattern nad it seems that we could get 1.11 breakout already on next week.
Meanwhile, until 1.11 holds, theoretically we could appeal to possible Butterfly "Sell" pattern that could be formed here. (that's why 1.11 is important), but recent drop is not a good sign for butterfly's wing and we treat chances on its appearing as insignificant.
That's being said our position here is stand away from longs, prepare to go short as soon as 1.11 level will be broken.
4-hour
Intraday charts shows mostly tactical issues. Thus, on 4-hour chart we also see that recent drop is not just deep retracement, but something greater. Take a look at price action in consolidation - long tails up suggest attempts to re-establish trend up and strong selling pressure that has prevented this. The fact that market was not able to restore upside trend up from Agreement support tells about weakness. Real bullish market usually holds at Agreement support and turns up again. But here we see flat consolidation that hints on strong bearish pressure here and Friday collapse. BTW, on daily chart, this consolidation was a combination of multiple bullish grabbers that also become useless.
Drop to 1.618 target was also rather fast, so acceleration to extended target also suggests further downward continuation:
Hourly
This chart suggests minor retracement up on Monday as EUR has completed wide AB=CD pattern. It seems that most probable destination of retracement is strong support cluster around 1.12 area. It includes K-resistance, previous consolidation and area around WPP. If you really would like to anticipate downward breakout (although we do not recommend this, at least not to everybody, since it is dangerous and demands experience), you could keep a close eye on this level.
Finally guys, if you trade on intraday charts - you could watch also for scalp DiNapoli directional patterns, based on recent thrust down - DRPO or B&B could be formed there as well.
Conclusion:
Our long-term view mostly bearish for EUR, based on action that it shows around major support and due anticipation of more agressive Fed policy.
In shorter -term perspective market shows stronger signs of possible downward breakout, while keeping bullish patterns valid still, as crucial level has not been broken yet. On Monday we expect minor upside retracement. After that downward tendency should continue. Fed comments will be very important on next week.
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.
