Sive Morten
Special Consultant to the FPA
- Messages
- 18,630
Guys, I will be on vacation for 2 weeks. So, reports will be placed slightly later, just want to sleep a bit... 
Fundamentals
This week EUR has shown very important action - upside reversal from major 5/8 daily support, which is important for short-term scenario. Despite some pullback on Friday, overall performance was positive this week. Next 7 days will be thrilling, because world will monitor EU - GB summit where some new inputs on Brexit subject could appear.
As Reuters reports on other driving subjects - China's exports jumped 14.5 percent in September from a year earlier, the biggest year-over-year increase in seven months and marking a record trade surplus with the United States. The data suggested that the tariffs U.S. President Donald Trump has slapped on Beijing have yet to bite.
"The market breathed a sigh of relief with the Chinese trade numbers despite the tit-for-tat trade war with the U.S.," said Dean Popplewell, vice president of market analysis at Oanda in Toronto. "People were happy to put on some risk."
A weaker yuan likely mitigated the sting from U.S. duties on $250 billion worth of Chinese-made goods, analysts said. U.S. Treasury Secretary Steven Mnuchin said on Friday that he told China's central bank chief that currency issues need to be part of any further U.S.-China trade talks.
"The underlying sentiment remains positive for the buck, but vulnerabilities, as this week exposed, remained, particularly on the political front ahead of U.S. midterm elections next month," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
The euro and pound retreated from two-week and three-week peaks, respectively, versus the greenback after EU Brexit negotiator Michel Barnier in comments on Wednesday suggested an agreement for Britain to leave the EU could be reached next week.
The common currency also fell after European Central Bank President Mario Draghi toned down his outlook for a rise in underlying inflation from "relatively vigorous" to "gradual."
As we already have shown our position on Brexit topic - we are far from naive attitude that EU and GB will come to agreement next week. This will be very painful, mostly for GB because they want too much from Brussels - keep economic trading space untouched, pay no penalties but leave EU. Speaking in two words - the perfect scenario for GB is to leave EU juridically but stay there practically. That's what they really want.
In fact, EU have advanced position in Brexit story, actually it doesn't care much how it will happen, where the border will be and so on. The on thing that they need is to get billion of penalties for exit and protect their domestic producers. It means that they will twist GB arms painfully and long while, until inner GB social pressure and public opinion will reach boiling point.
But EUR now has its own Trojan horse. Italy... some problems with domestic debt appears to be more serious that it stands on a surface. Fanthom consulting tells about it in new report.
In two words speaking, "Markets have taken a dim view of the proposed fiscal expansion and are currently pricing in a nearly 15% probability that the Italian government defaults on its debt within the next five years. Several rating agencies had already revised Italy’s outlook to negative ahead of the budget proposals, and any downgrade to the country’s credit rating could spark a new wave of volatility."
Italy’s fiscal space is already limited and, despite running a primary surplus, the government’s debt repayments equate to roughly 4% of GDP. According to Fathom calculations, the coalition’s current spending plans would see government debt hit 134% of GDP in 2020.
COT Report also shows that EUR sentiment is not bullish. This week net short position has increased:
Source: CFTC.gov
Charting by Investing.com
Take a look that despite total open interest has decreased - non-commercial position shows strong bearish changes as additional 8K contracts were opened, while short position also was closed for 1.5K contracts. Hedgers also shows the same tendency but at less degree.
This nuance tells that we should be careful with recent upside action on EUR, it could appear to be fragile. At the same time this fact supports our idea that we're dealing with a retracement, but not with new bull trend.
Technicals
Monthly
Guys, as you understand, we do not have big changes on technical side this week. Trading range was narrow - August range holds action of September and October. Mostly we stand in the same position as on Friday, before NFP release.
On monthly chart 1.14-1.15 area is strong and very important support, because it includes YPP. Since our fundamental background supports dollar strength within a year or so - downside breakout should happen sooner or later. The fact that EUR has turned down precisely from YPR1 area tells that recent 1.05-1.26 action was an upside retracement within long-term bear trend. And YPP break could become another vital confirmation of this scenario.
In general 1.14-1.15 is important not just because of YPP. Take a look - this is upper border of former 1.05-1.14 consolidation. If price will drop back inside it - it will open road to the bottom of 1.05 area. Also this is monthly 50% support area. Price has problems with breaking borders of any consolidation, but it has no barriers inside and could freely move from up to bottom.
Weekly
This week we've got the clarity on weekly support reliability. EUR has shown that pullback was not only due daily OB, but indeed people were buying around it. Here EUR behaves well, keeping valid 1.1450 support. Trend stands bullish price moves up from Fib level and MPS1. Nothing criminal. It lets us to keep AB=CD pattern valid. Now all eyes on upside progress on daily and intraday charts:
Daily
Daily situation is tricky, guys. If you check EUR futures, you'll see that on daily chart we have bearish grabber, that has been formed on Friday. Retail broker, in turn, shows that trend just has turned bearish. I would rely more on futures quotes in this subject. It means that EUR could drop below recent lows, whatever drop it will be - either just W&R or real downside continuation. To be honest, sentiment supports this idea. What are we gonna do?
Well, first - our B&B LAL setup in place. Now we are short with 1.15 target. As soon as B&B will be completed, following our previous logic, we were going to search bullish patterns and put the bet on upside continuation, according weekly AB=CD pattern.
So, our first step here is - complete B&B trade.
Second - we will keep an eye on possible bullish patterns, but keep in mind daily grabber as well...That's the task for Mon-Tue.
Intraday
Trend stands bearish as on 4H as on 1H charts. Downside action has started precisely after completion of our XOP target @1.1613. Congrats to everybody who jumped-in on top, you could move stops to b/e. Others - don't be upside too much. Market has hit our first target - K-support area, which also will be WPP of next week.
Now we have good bullish engulfing pattern and this fact suggests AB=CD type of upside retracement. Hence, here high probability exists that we will get "222" Sell pattern. 1.1580 area is the one to watch for.
Larger AB-CD could lead us directly to B&B minimal target - 5/8 support @ 1.15. But, keep in mind possible daily grabber...
Conclusion:
Despite the fact that EUR keeps bullish picture by far, we have to acknowledge appearing new risk factors that could turn equilibrium later to bears again. For example our B&B trade could become not a retracement, but starting point of bearish trend continuation.
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.
Fundamentals
This week EUR has shown very important action - upside reversal from major 5/8 daily support, which is important for short-term scenario. Despite some pullback on Friday, overall performance was positive this week. Next 7 days will be thrilling, because world will monitor EU - GB summit where some new inputs on Brexit subject could appear.
As Reuters reports on other driving subjects - China's exports jumped 14.5 percent in September from a year earlier, the biggest year-over-year increase in seven months and marking a record trade surplus with the United States. The data suggested that the tariffs U.S. President Donald Trump has slapped on Beijing have yet to bite.
"The market breathed a sigh of relief with the Chinese trade numbers despite the tit-for-tat trade war with the U.S.," said Dean Popplewell, vice president of market analysis at Oanda in Toronto. "People were happy to put on some risk."
A weaker yuan likely mitigated the sting from U.S. duties on $250 billion worth of Chinese-made goods, analysts said. U.S. Treasury Secretary Steven Mnuchin said on Friday that he told China's central bank chief that currency issues need to be part of any further U.S.-China trade talks.
"The underlying sentiment remains positive for the buck, but vulnerabilities, as this week exposed, remained, particularly on the political front ahead of U.S. midterm elections next month," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
The euro and pound retreated from two-week and three-week peaks, respectively, versus the greenback after EU Brexit negotiator Michel Barnier in comments on Wednesday suggested an agreement for Britain to leave the EU could be reached next week.
The common currency also fell after European Central Bank President Mario Draghi toned down his outlook for a rise in underlying inflation from "relatively vigorous" to "gradual."
As we already have shown our position on Brexit topic - we are far from naive attitude that EU and GB will come to agreement next week. This will be very painful, mostly for GB because they want too much from Brussels - keep economic trading space untouched, pay no penalties but leave EU. Speaking in two words - the perfect scenario for GB is to leave EU juridically but stay there practically. That's what they really want.
In fact, EU have advanced position in Brexit story, actually it doesn't care much how it will happen, where the border will be and so on. The on thing that they need is to get billion of penalties for exit and protect their domestic producers. It means that they will twist GB arms painfully and long while, until inner GB social pressure and public opinion will reach boiling point.
But EUR now has its own Trojan horse. Italy... some problems with domestic debt appears to be more serious that it stands on a surface. Fanthom consulting tells about it in new report.
In two words speaking, "Markets have taken a dim view of the proposed fiscal expansion and are currently pricing in a nearly 15% probability that the Italian government defaults on its debt within the next five years. Several rating agencies had already revised Italy’s outlook to negative ahead of the budget proposals, and any downgrade to the country’s credit rating could spark a new wave of volatility."
Italy’s fiscal space is already limited and, despite running a primary surplus, the government’s debt repayments equate to roughly 4% of GDP. According to Fathom calculations, the coalition’s current spending plans would see government debt hit 134% of GDP in 2020.
COT Report also shows that EUR sentiment is not bullish. This week net short position has increased:
Source: CFTC.gov
Charting by Investing.com
Take a look that despite total open interest has decreased - non-commercial position shows strong bearish changes as additional 8K contracts were opened, while short position also was closed for 1.5K contracts. Hedgers also shows the same tendency but at less degree.
This nuance tells that we should be careful with recent upside action on EUR, it could appear to be fragile. At the same time this fact supports our idea that we're dealing with a retracement, but not with new bull trend.
Technicals
Monthly
Guys, as you understand, we do not have big changes on technical side this week. Trading range was narrow - August range holds action of September and October. Mostly we stand in the same position as on Friday, before NFP release.
On monthly chart 1.14-1.15 area is strong and very important support, because it includes YPP. Since our fundamental background supports dollar strength within a year or so - downside breakout should happen sooner or later. The fact that EUR has turned down precisely from YPR1 area tells that recent 1.05-1.26 action was an upside retracement within long-term bear trend. And YPP break could become another vital confirmation of this scenario.
In general 1.14-1.15 is important not just because of YPP. Take a look - this is upper border of former 1.05-1.14 consolidation. If price will drop back inside it - it will open road to the bottom of 1.05 area. Also this is monthly 50% support area. Price has problems with breaking borders of any consolidation, but it has no barriers inside and could freely move from up to bottom.
Weekly
This week we've got the clarity on weekly support reliability. EUR has shown that pullback was not only due daily OB, but indeed people were buying around it. Here EUR behaves well, keeping valid 1.1450 support. Trend stands bullish price moves up from Fib level and MPS1. Nothing criminal. It lets us to keep AB=CD pattern valid. Now all eyes on upside progress on daily and intraday charts:
Daily
Daily situation is tricky, guys. If you check EUR futures, you'll see that on daily chart we have bearish grabber, that has been formed on Friday. Retail broker, in turn, shows that trend just has turned bearish. I would rely more on futures quotes in this subject. It means that EUR could drop below recent lows, whatever drop it will be - either just W&R or real downside continuation. To be honest, sentiment supports this idea. What are we gonna do?
Well, first - our B&B LAL setup in place. Now we are short with 1.15 target. As soon as B&B will be completed, following our previous logic, we were going to search bullish patterns and put the bet on upside continuation, according weekly AB=CD pattern.
So, our first step here is - complete B&B trade.
Second - we will keep an eye on possible bullish patterns, but keep in mind daily grabber as well...That's the task for Mon-Tue.
Intraday
Trend stands bearish as on 4H as on 1H charts. Downside action has started precisely after completion of our XOP target @1.1613. Congrats to everybody who jumped-in on top, you could move stops to b/e. Others - don't be upside too much. Market has hit our first target - K-support area, which also will be WPP of next week.
Now we have good bullish engulfing pattern and this fact suggests AB=CD type of upside retracement. Hence, here high probability exists that we will get "222" Sell pattern. 1.1580 area is the one to watch for.
Larger AB-CD could lead us directly to B&B minimal target - 5/8 support @ 1.15. But, keep in mind possible daily grabber...
Conclusion:
Despite the fact that EUR keeps bullish picture by far, we have to acknowledge appearing new risk factors that could turn equilibrium later to bears again. For example our B&B trade could become not a retracement, but starting point of bearish trend continuation.
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.
