Sive Morten
Special Consultant to the FPA
- Messages
- 18,659
Fundamentals
(Reuters) The dollar index whipsawed through the day but ended up little moved on Friday from its late Thursday levels as investors kept positions tight ahead of Monday's U.S. presidential debate.
The index, which measures the dollar against six major world currencies, had its largest weekly drop in a month due in large part to a reduction of long-term interest rate expectations announced by the Federal Reserve at the conclusion of its policy meeting on Wednesday.
The dollar index was flat at 95.472 on the day. It fell by 0.7 percent for the week, its worst weekly performance since the week of Aug. 18.
It hit a session high after Boston Fed President Eric Rosengren said he believed U.S. short-term interest rates should be raised now and warned a decline in the jobless rate below sustainable levels could derail economic recovery.
That moved markets in early trading but the move was reversed as traders saw Rosengren's comments as simply increasing the odds of a rate hike in December, which was already priced into the dollar, analysts said.
"Probabilities (for a rate hike) are now very firmly in December," said Karl Schamotta, director of FX strategy at Cambrdige Global Payments in Toronto. "So that gives traders a good three-month window to pick up nickels in front of the steamroller."
Rosengren was one of three members of the Federal Open Market Committee to dissent at this week's policy meeting that left rates unchanged at a range of 0.25 to 0.50 percent.
Sterling fell 1 percent against the dollar, sliding below $1.30, weighed by further Brexit uncertainty after comments from UK Prime Minister Theresa May reported by The Independent that contrasted a statement by Foreign Minister Boris Johnson on when the country would begin its exit from the European Union.
That report and others over the past few weeks about the British government's handling of the process "are making markets comfortable to stick with sterling shorts," said Vassili Serebriakov, FX strategist at Credit Agricole Corporate & Investment Bank.
The dollar rose by 1 percent against the Canadian dollar after surprisingly weak inflation and retail sales data that suggested Canada could be facing lower growth and higher unemployment.
"We could be looking at weakness in economic fundamentals and the currency in the next couple of months," Cambridge's Schamotta said.
May be next time...
By Fathom consulting
With the FOMC repeatedly stressing the data dependence of its policy decisions we have put together a timeline of US economic events since the Committee last met. Recent US economic data have been mixed
since then. In fact, the number of events that support a rate rise today is roughly the same as the number of events that warrant keeping them on hold. But overall, the good news has probably fallen just short of the threshold required for the FOMC to pull the trigger at today’s meeting.
After all, inflation has barely budged since the committee last convened in July. And while revised data show that annual growth in average hourly earnings hit a post-recession high of 2.7% in July, they then rose just 0.1% in August causing the annual rate to fall to 2.4%. Sluggish investment data and worse-than-expected
rreadings on some closely-watched business surveys also cloud the outlook. Throw in financial market jitters and a looming Presidential election and the FOMC will probably err on the side of caution later today.
That said, the US labour market has continued to improve and there has been almost no evidence to suggest that it is cooling. We expect labour market slack to continue to diminish and wage inflation to follow. This, coupled with higher headline inflation later this year due to base effects, should give the FOMC the confidence it needs to lift the fed funds rate in December. Admittedly, this rests on Hillary Clinton winning November’s presidential election. A victory for Donald Trump would probably cause jitters in markets and a flight to safety by investors, prompting the Fed to hold fire in December.
Nevertheless, as we set out in a forthcoming note, a Trump presidency need not be a disaster for the US economy. Greater protectionism means that wages are likely to rise more rapidly after a Donald Trump victory. With a fiscal splurge generating additional inflationary pressures, US interest rates may well end up higher than otherwise in this scenario.
As result:
The US Federal Open Market Committee (FOMC) left the fed funds rate unchanged yesterday, as widely anticipated.
Significantly though, the normally-dovish Boston Fed President Eric Rosengren, along with two other voting members, dissented and voted for a rate increase.
This, as well as the "dot plot" and a language change to the statement, suggest that one 25 basis point rise is still likely this year.
The FOMC cut its projection for the fed funds rate for end-2017 from 1.6% to 1.1%, implying two further rate hikes next year - in line with our forecast.
COT Report
Recent data mostly shows that some longs were closed last week, although data stands for Tue, day before Fed session. As you can see net short postion has increased but open interest dropped, it means that traders just have closed some longs.
In general, changes look shy. We could acknowledge just minor decrease in open interest as net short position was reduced since the mid Aug. This is bearish tendency, but it is too weak to be taken in consideration and using this changes for some conclusions. Thus, currently COT report is not very useful for us...
Technical
Monthly
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. 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, 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 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.
Finally 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. 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.
Weekly
Last month situation here was mostly "indecision", as market was keeping valid as bullish patterns as some bearish signs that now still exist here. Previously we've talked about it a lot and now I just briefly recall them.
Thus, major support around 1.09 area has not been broken down and this keeps door open for bullish patterns. For example - weekly "222" Buy pattern with 1.16 target.
From the other side, 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.
That's being said, EUR has formed a lot of different hints on patterns in both sides, but all action mostly stands in "horizon" direction and price doesn't show any meaningful progress neither upside nor downside.
Last week we've got another pattern, but this time it is bullish one. As you can see EUR has formed bullish grabber due drop on Fed statement. This pattern suggests at least 1.1365 top breakout. Invalidation point is the same, our favorite 1.1130 level.
Appearing of this pattern obliges us to not go short, until grabber is valid. Also we have reasons to go long, although I do not like this kind of grabbers, that stand in opposite direction to previous action.
Daily
So, daily chart makes overall situation more tricky. Here, I will not repeat all this stuff that we've talked about "222" Buy, H&S pattern, potential upside butterfly and our 1.1130 level. We've talked about it a lot in previous couple of weeks. So, you probably remember all important moments about this subject.
Now we should pay attention to bearish grabber that was formed on Friday. EUR was able to move back again above MPP, but bearish pattern was formed. Theoretically this pattern suggests drop below 1.1130 area.
As you can see we have opposite patterns on weekly and daily chart. Usually longer time frame overrule shorter one. It means that weekly pattern should be stronger but not our prefference to weekly pattern.
Still, we think that it would be better to wait when one of these patterns will be cancelled. Thus, action above 1.1250 area will destroy daily pattern and rest just weekly one that is bullish.
4-hour
Today, guys is "day of stop grabbers". On 4-hour chart we another one, that stands in the same direction as weekly and it suggests moving above 1.1250 and, as you undertsand, erasing of daily pattern. On 4-hour chart you can see the pattern that I like, since it supports previous direction and appears on retracement.
So, if this pattern really will erase daily one, it will rest only one valid grabber on weekly chart which suggests breakout through 1.1322 top. But this will mean breakout of our triangle that we have here and neckline of daily H&S pattern.
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. Bearish view will be valid until market will stand below 1.16 top.
In shorter -term perspective our conclusion stands as follows:
- do not take shorts, until market holds above 1.1130 lows;
- Long position is possible, if you satisfy with background - bullish weekly grabber, or if you want to make scalp trade, based on 4-hour time frame pattern. If you will decide to anticipate destruction of daily bearish grabber - keep an eye on this moment, if market will not able to do this - it would be better to close long position. Since theoretically daily pattern could destroy even weekly one.
In general guys, although we have multiple patterns here, but all of them are rather weak, mostly because they are not preceded by strong price action. Such patterns are always weaker.
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 index whipsawed through the day but ended up little moved on Friday from its late Thursday levels as investors kept positions tight ahead of Monday's U.S. presidential debate.
The index, which measures the dollar against six major world currencies, had its largest weekly drop in a month due in large part to a reduction of long-term interest rate expectations announced by the Federal Reserve at the conclusion of its policy meeting on Wednesday.
The dollar index was flat at 95.472 on the day. It fell by 0.7 percent for the week, its worst weekly performance since the week of Aug. 18.
It hit a session high after Boston Fed President Eric Rosengren said he believed U.S. short-term interest rates should be raised now and warned a decline in the jobless rate below sustainable levels could derail economic recovery.
That moved markets in early trading but the move was reversed as traders saw Rosengren's comments as simply increasing the odds of a rate hike in December, which was already priced into the dollar, analysts said.
"Probabilities (for a rate hike) are now very firmly in December," said Karl Schamotta, director of FX strategy at Cambrdige Global Payments in Toronto. "So that gives traders a good three-month window to pick up nickels in front of the steamroller."
Rosengren was one of three members of the Federal Open Market Committee to dissent at this week's policy meeting that left rates unchanged at a range of 0.25 to 0.50 percent.
Sterling fell 1 percent against the dollar, sliding below $1.30, weighed by further Brexit uncertainty after comments from UK Prime Minister Theresa May reported by The Independent that contrasted a statement by Foreign Minister Boris Johnson on when the country would begin its exit from the European Union.
That report and others over the past few weeks about the British government's handling of the process "are making markets comfortable to stick with sterling shorts," said Vassili Serebriakov, FX strategist at Credit Agricole Corporate & Investment Bank.
The dollar rose by 1 percent against the Canadian dollar after surprisingly weak inflation and retail sales data that suggested Canada could be facing lower growth and higher unemployment.
"We could be looking at weakness in economic fundamentals and the currency in the next couple of months," Cambridge's Schamotta said.
May be next time...
By Fathom consulting
With the FOMC repeatedly stressing the data dependence of its policy decisions we have put together a timeline of US economic events since the Committee last met. Recent US economic data have been mixed
since then. In fact, the number of events that support a rate rise today is roughly the same as the number of events that warrant keeping them on hold. But overall, the good news has probably fallen just short of the threshold required for the FOMC to pull the trigger at today’s meeting.
After all, inflation has barely budged since the committee last convened in July. And while revised data show that annual growth in average hourly earnings hit a post-recession high of 2.7% in July, they then rose just 0.1% in August causing the annual rate to fall to 2.4%. Sluggish investment data and worse-than-expected
rreadings on some closely-watched business surveys also cloud the outlook. Throw in financial market jitters and a looming Presidential election and the FOMC will probably err on the side of caution later today.
That said, the US labour market has continued to improve and there has been almost no evidence to suggest that it is cooling. We expect labour market slack to continue to diminish and wage inflation to follow. This, coupled with higher headline inflation later this year due to base effects, should give the FOMC the confidence it needs to lift the fed funds rate in December. Admittedly, this rests on Hillary Clinton winning November’s presidential election. A victory for Donald Trump would probably cause jitters in markets and a flight to safety by investors, prompting the Fed to hold fire in December.
Nevertheless, as we set out in a forthcoming note, a Trump presidency need not be a disaster for the US economy. Greater protectionism means that wages are likely to rise more rapidly after a Donald Trump victory. With a fiscal splurge generating additional inflationary pressures, US interest rates may well end up higher than otherwise in this scenario.
As result:
The US Federal Open Market Committee (FOMC) left the fed funds rate unchanged yesterday, as widely anticipated.
Significantly though, the normally-dovish Boston Fed President Eric Rosengren, along with two other voting members, dissented and voted for a rate increase.
This, as well as the "dot plot" and a language change to the statement, suggest that one 25 basis point rise is still likely this year.
The FOMC cut its projection for the fed funds rate for end-2017 from 1.6% to 1.1%, implying two further rate hikes next year - in line with our forecast.
COT Report
Recent data mostly shows that some longs were closed last week, although data stands for Tue, day before Fed session. As you can see net short postion has increased but open interest dropped, it means that traders just have closed some longs.
In general, changes look shy. We could acknowledge just minor decrease in open interest as net short position was reduced since the mid Aug. This is bearish tendency, but it is too weak to be taken in consideration and using this changes for some conclusions. Thus, currently COT report is not very useful for us...
Technical
Monthly
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. 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, 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 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.
Finally 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. 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.
Weekly
Last month situation here was mostly "indecision", as market was keeping valid as bullish patterns as some bearish signs that now still exist here. Previously we've talked about it a lot and now I just briefly recall them.
Thus, major support around 1.09 area has not been broken down and this keeps door open for bullish patterns. For example - weekly "222" Buy pattern with 1.16 target.
From the other side, 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.
That's being said, EUR has formed a lot of different hints on patterns in both sides, but all action mostly stands in "horizon" direction and price doesn't show any meaningful progress neither upside nor downside.
Last week we've got another pattern, but this time it is bullish one. As you can see EUR has formed bullish grabber due drop on Fed statement. This pattern suggests at least 1.1365 top breakout. Invalidation point is the same, our favorite 1.1130 level.
Appearing of this pattern obliges us to not go short, until grabber is valid. Also we have reasons to go long, although I do not like this kind of grabbers, that stand in opposite direction to previous action.
Daily
So, daily chart makes overall situation more tricky. Here, I will not repeat all this stuff that we've talked about "222" Buy, H&S pattern, potential upside butterfly and our 1.1130 level. We've talked about it a lot in previous couple of weeks. So, you probably remember all important moments about this subject.
Now we should pay attention to bearish grabber that was formed on Friday. EUR was able to move back again above MPP, but bearish pattern was formed. Theoretically this pattern suggests drop below 1.1130 area.
As you can see we have opposite patterns on weekly and daily chart. Usually longer time frame overrule shorter one. It means that weekly pattern should be stronger but not our prefference to weekly pattern.
Still, we think that it would be better to wait when one of these patterns will be cancelled. Thus, action above 1.1250 area will destroy daily pattern and rest just weekly one that is bullish.
4-hour
Today, guys is "day of stop grabbers". On 4-hour chart we another one, that stands in the same direction as weekly and it suggests moving above 1.1250 and, as you undertsand, erasing of daily pattern. On 4-hour chart you can see the pattern that I like, since it supports previous direction and appears on retracement.
So, if this pattern really will erase daily one, it will rest only one valid grabber on weekly chart which suggests breakout through 1.1322 top. But this will mean breakout of our triangle that we have here and neckline of daily H&S pattern.
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. Bearish view will be valid until market will stand below 1.16 top.
In shorter -term perspective our conclusion stands as follows:
- do not take shorts, until market holds above 1.1130 lows;
- Long position is possible, if you satisfy with background - bullish weekly grabber, or if you want to make scalp trade, based on 4-hour time frame pattern. If you will decide to anticipate destruction of daily bearish grabber - keep an eye on this moment, if market will not able to do this - it would be better to close long position. Since theoretically daily pattern could destroy even weekly one.
In general guys, although we have multiple patterns here, but all of them are rather weak, mostly because they are not preceded by strong price action. Such patterns are always weaker.
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.
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