Sive Morten
Special Consultant to the FPA
- Messages
- 18,648
Fundamentals
Fundamental background has not changed too much compares to previous week. The major driving factors that we've mentioned previously are long-term and will impact market for considerable time. They are policy difference between ECB and Fed reserve, tariffs war, Brexit (in relation to UK and EU) and different geopolitical tensions and near standing political game. Former two driving factors we have discussed previously here and here. But latter issue in particular is most flexible and could be the source of new information, political rumors of different kind that could make impact on financial markets.
As Reuters reports - the dollar slipped to a three-day low against the euro on Friday after European Union leaders reached an agreement on migration European Union leaders on Friday claimed success in reaching a hard-fought agreement to control immigration even though it faced instant criticism as vague, hard to implement and a potential threat to human rights.
“EU accord is helping to boost sentiment in the euro area,” said Karl Schamotta, director of global product and market strategy, at Cambridge Global Payments in Toronto.
“The agreement probably means no further worries about her (A. Merkel) coalition falling apart. It’s therefore positive for the euro,” Marshall Gittler, chief strategist at ACLS Global, said in a note.
This is what stands on a surface, but now let's dig a bit deeper, and try to find some hidden events that could trigger unexpected processes in EU. First, let's start from some newspapers heads, which were not widely announced:
1.US considering troop withdrawal from Germany to Poland, as D. Trump had voiced shock at how many US troops were in Germany;
2. U.S. sanctions will not affect Nord Stream 2: Germany
Germany has been assured by the United States that any sanctions imposed on Russia will not affect the building of a gas pipeline to bring Russian gas to Europe, a spokeswoman for the German economy ministry said on Friday.
3. Quit the EU for better trade deal, Trump reportedly told Macron
Donald Trump suggested to Emmanuel Macron that he pull France out of the European Union in return for a bilateral trade deal, it has been claimed.
4. Trump is trying to destabilize the European Union
As President Trump heads to Europe next month for the NATO summit and then a historic meeting with Russian President Vladimir Putin, his personal attacks on the European Union and other pillars of the Western order are overshadowing his own administration’s attempts to reassure allies that the United States still believes in the transatlantic project it has led since the 1940s.
5. Transatlantic Trade Tensions Turn to Automobiles
Trade tensions between the US and its key trading partners continue to escalate. In a tweet on Friday, US President Donald Trump said that he was considering imposing tariffs on US car imports from the European Union. This was in response to the EU’s decision to levy tariffs on certain imports from the US, which itself was a retaliatory move. Such tit for tat measures are not good for the global economy or business sentiment, on either side of the Atlantic. Imposing tariffs on EU automobile imports would hit the German economy particularly hard. Indeed, the US imported a total of US$30 billion in autos and automobile parts from Germany in the four quarters to 2018 Q1. This was nearly 50% of total US automobile imports from the EU, and nearly 1% of German GDP.
Now guys, let's try to take "2+2". At my opinion, it is difficult to not recognize world-old strategy from D. Trump - "divide and rule". Now former allies are becoming major rivals, because new markets and trade perspectives are not enough for everybody. Against most common opinion, I would suggest that US are not interested in unite Europe. US now intends to make EU weaker, put in some political and economic chaos, divide it by different separated agreements. Then to use this weakness for domination in global trade, political sphere and markets.
On a background of these news, it is important coming meeting D. Trump with V. Putin. This is time of palace coups, guys. It's not occasionally US has cancelled idea of sanctions against North Stream - 2. It is not occasionally Stockholm arbitrage stopped former decision against Gasprom. It's time, guys, for under curtain political games and secret political agreements. It seems that North Stream -2 is could become a chip in mutual US/Russia secret agreements. And it seems that some agreements were made about Germany that US will not rise any barriers on a way of its cooperation with Russia. What US will demand instead from Russia?
Still, we're mostly interested with all this stuff just because it makes impact on financial markets. And it seems that major EUR/USD surprises are still stand ahead. Things that we do see right now do not look really positive for EU. As US as EU now will rush to diversify political and economical mutual dependence, and there is only way to do it - find the wide way to Asian and Middle East markets. But this way stands through Russia. That's why recently overall sentiment around Russia has turned for 180 degrees, as in EU as in US. Also mutual EU/US information background is becoming less friendly.
COT Report
EUR net long position again has dropped slightly, and it is doesn't correspond to recent rally. It makes rally look fragile. In general it agrees with our conception of "retracement", although major trend stands bearish:
Open interest has increased slightly, which means new shorts were opened last week:
That's being said, we should not be deceived by recent rally, because overall sentiment still stands bearish and corresponds to our long-term view on EUR/USD.
Technicals
Monthly
Although in the beginning of the week I've counted on new monthly lows in June and destruction of May bullish grabber, but miracle has not happened, and June has become bore inside month, which doesn't make any impact on long-term technical picture. Monthly trend has turned bearish.
Since we have bearish view on EUR in a perspectives of 6-12 months, major concern stands not around direction, but around manner of price action. Particularly speaking - whether we will get our 1.20 bounce before turning south or, EUR will continue down immediately. Taking in consideration recent action, it seems that bounce gets some probability support.
Position of grabber also looks interesting, because it contradicts to other inputs. Grabber suggests action above 1.26, but this scenario doesn't agree with ECB policy and investors sentiment that we see from COT report. Since they are mutually exceptive scenarios - one of them should fail.
Also, long-term price behavior stands bearish. Reversal down has happened after completion of harmonic swing and around YPR1. The fact that EUR has failed to break through YPR1 tells that upside rally from 1.03 to 1.26 was just a retracement within larger bear trend. Now it is particularly interesting how EUR will behave around YPP. Drop below it will open road to YPS1 at ~1.09 which corresponds to our fundamental 1.10 target.
It means that to make grabber work we need to get strong positive fundamental factor. Current inputs that we have definitely are not sufficient for drastic upside reversal on EUR.
Weekly
Here we do not have any global changes either. EUR still keeps chances on H&S scenario as price holds well around major support and potential neckline.
Just to remind you, our basic scenario suggests upside bounce back to 1.20-1.21 area, where market should form right arm of our H&S pattern. If, by that time, when arm will be completed, no major shifts in EU/US balance will happen - drop to 1.10 could become a reality. Whole action will take approximately 6 month. 1.09 - 1.10 area is major 5/8 Fib support and YPS1.
Alternative scenarios, such as immediate downside breakout and failure of H&S pattern in 1.20 area, if EUR
will not stop but continue upside action now look less probable as both of them need extra strong political or economical driving factors which we do not have on a table yet.
Here we need to keep our concern of untouched major support area. EUR has turned up but major supports still has not been touched.I would prefer testing of weekly support first just because untouched is perfect situation for traps of different kind and fake downside breakouts. Everything could happen, of course, but it is better to get stronger signs of upside action to be sure that it is indeed tending to 1.20...
Daily
Despite that rally looks nice, on Friday we've said, that while price stands inside triangle - EUR keeps multiple scenarios valid. They could be as bullish as bearish. Symmetrical triangle could form a bottom and trigger upside reversal as it was in 2000 lows on monthly chart. That's why it would be better to wait for upside breakout. Here again, our major level to watch for is 1.1850 K-resistance. This is a border of bullish sentiment. Once market will break it, chances to complete our 1.20-1.21 target will increase.
Meantime, we also have bearish scenarios in place. Large butterfly we've discussed last week here and it is still valid. But even inside triangle we could get "222" Sell pattern. So, riddle of EUR reversal is far from final solution yet, as some unexpected and dramatic action could happen before final reversal will start.
Intraday
Although major pattern that we will be watching for is "222" Sell inside triangle (or even upside breakout), currently, while market stands inside consolidation other patterns also are possible. Thus - here we have theoretical chances for butterfly as well:
Conclusion:
Right now we do not see any changes in fundamental background and even more - some US efforts for EU destabilization, it has big chances for negative effect in long term perspective for EU.
Thus, 1.20-1.21 retracement still stands on the table, but, danger is threatening EU and re-establishing of long-term bear trend after retracement is very probable.
In shorter-term perspective our task is relatively simple - we need to get either 1.1850 upside breakout or clear bullish reversal pattern, such as daily butterfly or something of this kind. While market stands inside triangle it could be a lot of negative surprises around and position taking could be rather expensive issue.
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.
Fundamental background has not changed too much compares to previous week. The major driving factors that we've mentioned previously are long-term and will impact market for considerable time. They are policy difference between ECB and Fed reserve, tariffs war, Brexit (in relation to UK and EU) and different geopolitical tensions and near standing political game. Former two driving factors we have discussed previously here and here. But latter issue in particular is most flexible and could be the source of new information, political rumors of different kind that could make impact on financial markets.
As Reuters reports - the dollar slipped to a three-day low against the euro on Friday after European Union leaders reached an agreement on migration European Union leaders on Friday claimed success in reaching a hard-fought agreement to control immigration even though it faced instant criticism as vague, hard to implement and a potential threat to human rights.
“EU accord is helping to boost sentiment in the euro area,” said Karl Schamotta, director of global product and market strategy, at Cambridge Global Payments in Toronto.
“The agreement probably means no further worries about her (A. Merkel) coalition falling apart. It’s therefore positive for the euro,” Marshall Gittler, chief strategist at ACLS Global, said in a note.
This is what stands on a surface, but now let's dig a bit deeper, and try to find some hidden events that could trigger unexpected processes in EU. First, let's start from some newspapers heads, which were not widely announced:
1.US considering troop withdrawal from Germany to Poland, as D. Trump had voiced shock at how many US troops were in Germany;
2. U.S. sanctions will not affect Nord Stream 2: Germany
Germany has been assured by the United States that any sanctions imposed on Russia will not affect the building of a gas pipeline to bring Russian gas to Europe, a spokeswoman for the German economy ministry said on Friday.
3. Quit the EU for better trade deal, Trump reportedly told Macron
Donald Trump suggested to Emmanuel Macron that he pull France out of the European Union in return for a bilateral trade deal, it has been claimed.
4. Trump is trying to destabilize the European Union
As President Trump heads to Europe next month for the NATO summit and then a historic meeting with Russian President Vladimir Putin, his personal attacks on the European Union and other pillars of the Western order are overshadowing his own administration’s attempts to reassure allies that the United States still believes in the transatlantic project it has led since the 1940s.
5. Transatlantic Trade Tensions Turn to Automobiles
Trade tensions between the US and its key trading partners continue to escalate. In a tweet on Friday, US President Donald Trump said that he was considering imposing tariffs on US car imports from the European Union. This was in response to the EU’s decision to levy tariffs on certain imports from the US, which itself was a retaliatory move. Such tit for tat measures are not good for the global economy or business sentiment, on either side of the Atlantic. Imposing tariffs on EU automobile imports would hit the German economy particularly hard. Indeed, the US imported a total of US$30 billion in autos and automobile parts from Germany in the four quarters to 2018 Q1. This was nearly 50% of total US automobile imports from the EU, and nearly 1% of German GDP.
Now guys, let's try to take "2+2". At my opinion, it is difficult to not recognize world-old strategy from D. Trump - "divide and rule". Now former allies are becoming major rivals, because new markets and trade perspectives are not enough for everybody. Against most common opinion, I would suggest that US are not interested in unite Europe. US now intends to make EU weaker, put in some political and economic chaos, divide it by different separated agreements. Then to use this weakness for domination in global trade, political sphere and markets.
On a background of these news, it is important coming meeting D. Trump with V. Putin. This is time of palace coups, guys. It's not occasionally US has cancelled idea of sanctions against North Stream - 2. It is not occasionally Stockholm arbitrage stopped former decision against Gasprom. It's time, guys, for under curtain political games and secret political agreements. It seems that North Stream -2 is could become a chip in mutual US/Russia secret agreements. And it seems that some agreements were made about Germany that US will not rise any barriers on a way of its cooperation with Russia. What US will demand instead from Russia?
Still, we're mostly interested with all this stuff just because it makes impact on financial markets. And it seems that major EUR/USD surprises are still stand ahead. Things that we do see right now do not look really positive for EU. As US as EU now will rush to diversify political and economical mutual dependence, and there is only way to do it - find the wide way to Asian and Middle East markets. But this way stands through Russia. That's why recently overall sentiment around Russia has turned for 180 degrees, as in EU as in US. Also mutual EU/US information background is becoming less friendly.
COT Report
EUR net long position again has dropped slightly, and it is doesn't correspond to recent rally. It makes rally look fragile. In general it agrees with our conception of "retracement", although major trend stands bearish:
Open interest has increased slightly, which means new shorts were opened last week:
That's being said, we should not be deceived by recent rally, because overall sentiment still stands bearish and corresponds to our long-term view on EUR/USD.
Technicals
Monthly
Although in the beginning of the week I've counted on new monthly lows in June and destruction of May bullish grabber, but miracle has not happened, and June has become bore inside month, which doesn't make any impact on long-term technical picture. Monthly trend has turned bearish.
Since we have bearish view on EUR in a perspectives of 6-12 months, major concern stands not around direction, but around manner of price action. Particularly speaking - whether we will get our 1.20 bounce before turning south or, EUR will continue down immediately. Taking in consideration recent action, it seems that bounce gets some probability support.
Position of grabber also looks interesting, because it contradicts to other inputs. Grabber suggests action above 1.26, but this scenario doesn't agree with ECB policy and investors sentiment that we see from COT report. Since they are mutually exceptive scenarios - one of them should fail.
Also, long-term price behavior stands bearish. Reversal down has happened after completion of harmonic swing and around YPR1. The fact that EUR has failed to break through YPR1 tells that upside rally from 1.03 to 1.26 was just a retracement within larger bear trend. Now it is particularly interesting how EUR will behave around YPP. Drop below it will open road to YPS1 at ~1.09 which corresponds to our fundamental 1.10 target.
It means that to make grabber work we need to get strong positive fundamental factor. Current inputs that we have definitely are not sufficient for drastic upside reversal on EUR.
Weekly
Here we do not have any global changes either. EUR still keeps chances on H&S scenario as price holds well around major support and potential neckline.
Just to remind you, our basic scenario suggests upside bounce back to 1.20-1.21 area, where market should form right arm of our H&S pattern. If, by that time, when arm will be completed, no major shifts in EU/US balance will happen - drop to 1.10 could become a reality. Whole action will take approximately 6 month. 1.09 - 1.10 area is major 5/8 Fib support and YPS1.
Alternative scenarios, such as immediate downside breakout and failure of H&S pattern in 1.20 area, if EUR
will not stop but continue upside action now look less probable as both of them need extra strong political or economical driving factors which we do not have on a table yet.
Here we need to keep our concern of untouched major support area. EUR has turned up but major supports still has not been touched.I would prefer testing of weekly support first just because untouched is perfect situation for traps of different kind and fake downside breakouts. Everything could happen, of course, but it is better to get stronger signs of upside action to be sure that it is indeed tending to 1.20...
Daily
Despite that rally looks nice, on Friday we've said, that while price stands inside triangle - EUR keeps multiple scenarios valid. They could be as bullish as bearish. Symmetrical triangle could form a bottom and trigger upside reversal as it was in 2000 lows on monthly chart. That's why it would be better to wait for upside breakout. Here again, our major level to watch for is 1.1850 K-resistance. This is a border of bullish sentiment. Once market will break it, chances to complete our 1.20-1.21 target will increase.
Meantime, we also have bearish scenarios in place. Large butterfly we've discussed last week here and it is still valid. But even inside triangle we could get "222" Sell pattern. So, riddle of EUR reversal is far from final solution yet, as some unexpected and dramatic action could happen before final reversal will start.
Intraday
Although major pattern that we will be watching for is "222" Sell inside triangle (or even upside breakout), currently, while market stands inside consolidation other patterns also are possible. Thus - here we have theoretical chances for butterfly as well:
Conclusion:
Right now we do not see any changes in fundamental background and even more - some US efforts for EU destabilization, it has big chances for negative effect in long term perspective for EU.
Thus, 1.20-1.21 retracement still stands on the table, but, danger is threatening EU and re-establishing of long-term bear trend after retracement is very probable.
In shorter-term perspective our task is relatively simple - we need to get either 1.1850 upside breakout or clear bullish reversal pattern, such as daily butterfly or something of this kind. While market stands inside triangle it could be a lot of negative surprises around and position taking could be rather expensive issue.
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.
