Sive Morten
Special Consultant to the FPA
- Messages
- 18,776
Fundamentals
Reuters reports dollar rose to one-week highs on Friday for a fourth straight session of gains after some Federal Reserve officials did not rule out an interest rate hike next month despite this week's market meltdown.
The dollar index, a gauge of the greenback's value against six major currencies, rebounded from seven-month lows struck on Monday and posted its largest weekly gain in a month as financial markets calmed down after recent turmoil.
The index extended gains after Federal Reserve Vice Chair Stanley Fischer said the U.S. central bank can't wait for the case on hiking interest rates to be overwhelming. But he was undecided whether to raise rates in September.
Atlanta Federal Reserve President Dennis Lockhart, a voting member of the rate-setting Federal Open Market Committee, saw the odds of a rate hike in September as roughly even.
Traders in the interest rate market have therefore priced in a more than 50 percent chance of an October increase.
"The August nonfarm payrolls report may play an increased role in shaping market expectations, and a further expansion in U.S. job growth paired with a down-tick in the unemployment rate may boost bets for a rate hike in September," said David Song, currency analyst at DailyFX in New York.
Earlier, St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester voiced no panic about the recent market turmoil.
"Nothing has happened here that is so radically changing the U.S. outlook that the basic trajectory of policy would change," Bullard said on the sidelines of a global central bankers' conference in Jackson Hole, Wyoming.
Mester echoed Bullard's sentiment, saying the U.S. economy could handle a modest rate hike, although she did not commit to backing a move next month.
The euro, meanwhile, fell 0.6 percent to $1.1180 , well off its Monday high above $1.1700 when the sell-off in global markets led investors to unwind euro-funded carry trades.
Also, guys, yesterday Leo4x has posted news that China is selling US Treasuries to accumulate dollars and support yuan. Here is article on Bloomberg:
http://www.bloomberg.com/news/artic...treasuries-as-dollars-needed-for-yuan-support
Here is some comments on CNBC:
http://www.cnbc.com/2015/08/28/china-dumping-treasurys-heres-what-you-must-know.html
This is very important event and definitely it has relation to former turmoil on stock market, but analysts are wide in their opinion. Logically it is bearish for US Treasuries markets and bearish for US Stock and Real Estate markets, because cost of financing has relation to bond short-term rate and T-note rate (for real estate) and as it rises, it becomes more expensive to finance positions on stock market.
Still current situation shows that additional demand on a run to safe-haven should compensate sell-off coming from China. Some analysts think that China devalues other its dollar assets as it pushes Treasuries yield higher. So, currently it is not quite clear what we could get in result, but it is obvious that this sell-off has strong relation to drop on stocks and that this turmoil has not finished yet, despite what US officials have said in Wyoming. It is only beginning. Mostly it will depend on how much Treasuries China will sale and how fast it will do it...Besides, right now rising Fed rate will look like big joke as China already works on it...
Finally, ECB could extend it's QE program:
http://uk.reuters.com/article/2015/08/28/uk-ecb-policy-poll-idUKKCN0QX0LB20150828
Currently we also have got interesting CFTC numbers on EUR. THus by 25th of August Open interest has risen significantly, approx. for 55K contracts. If we will take a look at Speculative positions we will see that longs have increased for ~20K, shorts have decreased approximately for the same value. It means that net long position has grown for 40K. Still shorts exceed longs almost 2:1 and EUR has a lot of room to continue move higher. As Open interest has increased, while speculative positions stands flat is sum, what has tirggered such big increase? Shorts of hedgers - take a look at Commercials shorts. They have jumped for 60K contracts. This is very bullish sign:
Open interest:
Speculative shorts:
Speculative Longs
Hedgers Shorts:
Technicals
Monthly
As we've said recently, monthly charts mostly brings more questions rather than answers. Now it is confusing situation is forming around DiNapoli directional patterns - what in reality we will get B&B "Sell" or DRPO "Buy"?
From one point of view we could get second close above 3x3 DMA. Right now EUR stands above 3x3 and if it will close above it by the end of the month – this one will be second close. But probably you will agree with me that this DRPO looks curious. We have no recognizable second bottom as usually it should to, also we have this untypical spike up that confuses the idea and market mechanics of DRPO.
So, may this is still B&B "Sell"? Market has reached 3/8 Fib resistance on 3rd close above 3x3 DMA? But the problem is that 2nd close was below 3x3... so it also some confusing moment, although my the shape, this mostly reminds B&B...
But this is not yet. Last week we at least could count on upside AB=CD by bullish engulfing here, and this pattern in joining with DRPO have provided relatively good confidence on upside action. But right now - we haven't got DRPO yet, but AB-CD and engulfing already has been completed.
That's being said, here we have absolutely confusing information. CFTC data points on strong bullish shift, while monthly picture does not clearly confirm this. All patterns are with flaws and look not very reliable.
Our minor target at 1.18 mostly have been completed. But next possible target @1.22 currently stands under question. It should follow from DRPO, but due to the reasons that we've placed above, we can't rely on it.
Still, despite the depth of this retracement, we still will treat it as bounce, if even EUR will reach 1.20-1.22 area. Market too long stands in downward action, especially during recent year and market has solid bearish momentum. Also take a look at butterfly pattern. Here we see definite acceleration right to 1.27 target point. Usually it leads market to next 1.618 target after retracement.
Weekly
Our conclusion last week has suggested reaching of 1.15 area and then retracement down due overbought. But market has made a spike up right to 1.18 target. On weekly chart we have clear bullish signs - market has moved strongly above MPR1 and now we have corresponding confirmation from COT report on sentiment shifting. Trend is still bullish here.
Although recently we have counted on shyer retracement, but market has dropped lower. This does not erase bullish perspective yet, at the same time we also see some not very pleasant features. For example, the shape of upside action. It takes the form of flag and this flag is bearish since it was formed after plunge down and after 1.27 target of monthly butterfly been hit.
Second - if EUR will drop below 1.08 lows - trend will shift bearish and upside AB=CD will be broken. This will be bearish sign and probably will lead market to 1.04 lows again at the least.
Now to think again on possible long entry we need to get reversal on daily chart and wait when daily trend will shift bullish. Last week this was a question on daily-intraday scale, while right now it comes on higher level and becomes the scale of weekly-daily frame as daily chart has turned bearish.
Daily
Well, yesterday market has failed the chance for "easy and light" retracement if it would kept upside trend around 50% support. But this setup has failed, trend has turned bearish and retracement has come on higher scale. As you can see the MACD lines have very steep angle of crossing and this is not good sign.
Still current situation is not a tragedy, EUR still keeps chances on re-establishing of upside action. But we will be able to take long position only if daily trend will shift bullish again. Currently, as soon as trend holds bearish and we do not have any bullish directional patterns - we can't take long position. Yesterday was the last chance, but market has broken the trend in break even point...
Next week we will be watching for 1.11 area. This conjunction of supports - two different Fib support levels, including major 50% Fib support of whole upside action, daily oversold - that potentially could give us bullish Stretch pattern. This will be an area of particular interest and probably we will not take any steps until we understand market reaction there.
4-hour
Here we do not have a lot of additional information. Market will open below WPP. As EUR has passed through 1.0 AB-CD target, next logical destination is 1.618 extension that creates an Agreement with daily major 50% Fib level around 1.1080. This moment just confirms that we should wait reaching of mentioned support cluster and targets. Then, if somehow daily trend will turn bullish again - we return back to discussion of long positions. If not - our daily context will turn bearish totally and we will discuss action to 1.08 first and in perspective to 1.03 lows...So right now EUR perspective mostly depends on 1.10-1.11 support area
Conclusion:
EUR still keeps chances on upside continuation but it's inability to keep daily trend bullish has increased the scale of retracement. Now to talk on bullish perspectives again we need to get reversal of daily trend.
Next week market mostly will depend on 1.10-1.11 support area. If EUR will fall further - chances on upside continuation will decrease significantly.
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 reports dollar rose to one-week highs on Friday for a fourth straight session of gains after some Federal Reserve officials did not rule out an interest rate hike next month despite this week's market meltdown.
The dollar index, a gauge of the greenback's value against six major currencies, rebounded from seven-month lows struck on Monday and posted its largest weekly gain in a month as financial markets calmed down after recent turmoil.
The index extended gains after Federal Reserve Vice Chair Stanley Fischer said the U.S. central bank can't wait for the case on hiking interest rates to be overwhelming. But he was undecided whether to raise rates in September.
Atlanta Federal Reserve President Dennis Lockhart, a voting member of the rate-setting Federal Open Market Committee, saw the odds of a rate hike in September as roughly even.
Traders in the interest rate market have therefore priced in a more than 50 percent chance of an October increase.
"The August nonfarm payrolls report may play an increased role in shaping market expectations, and a further expansion in U.S. job growth paired with a down-tick in the unemployment rate may boost bets for a rate hike in September," said David Song, currency analyst at DailyFX in New York.
Earlier, St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester voiced no panic about the recent market turmoil.
"Nothing has happened here that is so radically changing the U.S. outlook that the basic trajectory of policy would change," Bullard said on the sidelines of a global central bankers' conference in Jackson Hole, Wyoming.
Mester echoed Bullard's sentiment, saying the U.S. economy could handle a modest rate hike, although she did not commit to backing a move next month.
The euro, meanwhile, fell 0.6 percent to $1.1180 , well off its Monday high above $1.1700 when the sell-off in global markets led investors to unwind euro-funded carry trades.
Also, guys, yesterday Leo4x has posted news that China is selling US Treasuries to accumulate dollars and support yuan. Here is article on Bloomberg:
http://www.bloomberg.com/news/artic...treasuries-as-dollars-needed-for-yuan-support
Here is some comments on CNBC:
http://www.cnbc.com/2015/08/28/china-dumping-treasurys-heres-what-you-must-know.html
This is very important event and definitely it has relation to former turmoil on stock market, but analysts are wide in their opinion. Logically it is bearish for US Treasuries markets and bearish for US Stock and Real Estate markets, because cost of financing has relation to bond short-term rate and T-note rate (for real estate) and as it rises, it becomes more expensive to finance positions on stock market.
Still current situation shows that additional demand on a run to safe-haven should compensate sell-off coming from China. Some analysts think that China devalues other its dollar assets as it pushes Treasuries yield higher. So, currently it is not quite clear what we could get in result, but it is obvious that this sell-off has strong relation to drop on stocks and that this turmoil has not finished yet, despite what US officials have said in Wyoming. It is only beginning. Mostly it will depend on how much Treasuries China will sale and how fast it will do it...Besides, right now rising Fed rate will look like big joke as China already works on it...
Finally, ECB could extend it's QE program:
http://uk.reuters.com/article/2015/08/28/uk-ecb-policy-poll-idUKKCN0QX0LB20150828
Currently we also have got interesting CFTC numbers on EUR. THus by 25th of August Open interest has risen significantly, approx. for 55K contracts. If we will take a look at Speculative positions we will see that longs have increased for ~20K, shorts have decreased approximately for the same value. It means that net long position has grown for 40K. Still shorts exceed longs almost 2:1 and EUR has a lot of room to continue move higher. As Open interest has increased, while speculative positions stands flat is sum, what has tirggered such big increase? Shorts of hedgers - take a look at Commercials shorts. They have jumped for 60K contracts. This is very bullish sign:
Open interest:
Technicals
Monthly
As we've said recently, monthly charts mostly brings more questions rather than answers. Now it is confusing situation is forming around DiNapoli directional patterns - what in reality we will get B&B "Sell" or DRPO "Buy"?
From one point of view we could get second close above 3x3 DMA. Right now EUR stands above 3x3 and if it will close above it by the end of the month – this one will be second close. But probably you will agree with me that this DRPO looks curious. We have no recognizable second bottom as usually it should to, also we have this untypical spike up that confuses the idea and market mechanics of DRPO.
So, may this is still B&B "Sell"? Market has reached 3/8 Fib resistance on 3rd close above 3x3 DMA? But the problem is that 2nd close was below 3x3... so it also some confusing moment, although my the shape, this mostly reminds B&B...
But this is not yet. Last week we at least could count on upside AB=CD by bullish engulfing here, and this pattern in joining with DRPO have provided relatively good confidence on upside action. But right now - we haven't got DRPO yet, but AB-CD and engulfing already has been completed.
That's being said, here we have absolutely confusing information. CFTC data points on strong bullish shift, while monthly picture does not clearly confirm this. All patterns are with flaws and look not very reliable.
Our minor target at 1.18 mostly have been completed. But next possible target @1.22 currently stands under question. It should follow from DRPO, but due to the reasons that we've placed above, we can't rely on it.
Still, despite the depth of this retracement, we still will treat it as bounce, if even EUR will reach 1.20-1.22 area. Market too long stands in downward action, especially during recent year and market has solid bearish momentum. Also take a look at butterfly pattern. Here we see definite acceleration right to 1.27 target point. Usually it leads market to next 1.618 target after retracement.
Weekly
Our conclusion last week has suggested reaching of 1.15 area and then retracement down due overbought. But market has made a spike up right to 1.18 target. On weekly chart we have clear bullish signs - market has moved strongly above MPR1 and now we have corresponding confirmation from COT report on sentiment shifting. Trend is still bullish here.
Although recently we have counted on shyer retracement, but market has dropped lower. This does not erase bullish perspective yet, at the same time we also see some not very pleasant features. For example, the shape of upside action. It takes the form of flag and this flag is bearish since it was formed after plunge down and after 1.27 target of monthly butterfly been hit.
Second - if EUR will drop below 1.08 lows - trend will shift bearish and upside AB=CD will be broken. This will be bearish sign and probably will lead market to 1.04 lows again at the least.
Now to think again on possible long entry we need to get reversal on daily chart and wait when daily trend will shift bullish. Last week this was a question on daily-intraday scale, while right now it comes on higher level and becomes the scale of weekly-daily frame as daily chart has turned bearish.
Daily
Well, yesterday market has failed the chance for "easy and light" retracement if it would kept upside trend around 50% support. But this setup has failed, trend has turned bearish and retracement has come on higher scale. As you can see the MACD lines have very steep angle of crossing and this is not good sign.
Still current situation is not a tragedy, EUR still keeps chances on re-establishing of upside action. But we will be able to take long position only if daily trend will shift bullish again. Currently, as soon as trend holds bearish and we do not have any bullish directional patterns - we can't take long position. Yesterday was the last chance, but market has broken the trend in break even point...
Next week we will be watching for 1.11 area. This conjunction of supports - two different Fib support levels, including major 50% Fib support of whole upside action, daily oversold - that potentially could give us bullish Stretch pattern. This will be an area of particular interest and probably we will not take any steps until we understand market reaction there.
4-hour
Here we do not have a lot of additional information. Market will open below WPP. As EUR has passed through 1.0 AB-CD target, next logical destination is 1.618 extension that creates an Agreement with daily major 50% Fib level around 1.1080. This moment just confirms that we should wait reaching of mentioned support cluster and targets. Then, if somehow daily trend will turn bullish again - we return back to discussion of long positions. If not - our daily context will turn bearish totally and we will discuss action to 1.08 first and in perspective to 1.03 lows...So right now EUR perspective mostly depends on 1.10-1.11 support area
Conclusion:
EUR still keeps chances on upside continuation but it's inability to keep daily trend bullish has increased the scale of retracement. Now to talk on bullish perspectives again we need to get reversal of daily trend.
Next week market mostly will depend on 1.10-1.11 support area. If EUR will fall further - chances on upside continuation will decrease significantly.
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.