Sive Morten
Special Consultant to the FPA
- Messages
- 18,561
Fundamentals
This week we've got a lot of new inputs to fundamental background. Data is of a different sort - Fed statement, GDP, economic activity statistics and some other. In general, all that we've got doesn't contradict to our long-term view, so we do not need yet to review and adjust long-term trading plan. Still there are few moments exist that could impact on near standing perspective of currencies' performance.
News surfing
The U.S. dollar fell to a two-year low on Wednesday after the Federal Reserve repeated a pledge to use its “full range of tools” to support the U.S. economy and keep interest rates near zero for as long as it takes to recover from the fallout from the coronavirus outbreak. The U.S. central bank cited concerns about economic activity and employment remaining “well below their levels at the beginning of the year.”
“It is definitely a bit more cautious and dovish, and basically tells the market they’re not going to raise interest rates any time soon,” said Kathy Lien, managing director at BK Asset Management in New York. “In an environment where the market is dumping dollars, it’s another excuse to drive it lower.”
The greenback has tumbled on expectations that the Fed will continue its ultra loose monetary policy for years to come and on speculation that it will allow inflation to run higher than it has previously indicated before raising interest rates.
“The dollar’s outlook remains weak thanks to the diverging trends in coronavirus cases between Europe and the U.S.,” said Ulrich Leuchtmann, head of foreign exchange and commodity research at Commerzbank.
“We expect European confidence figures to support our view of the economic divergence between the eurozone and the U.S. and that supports further gains in euro,” said Carol Kong, FX analyst at the Commonwealth Bank of Australia in Sydney.
The U.S. economy contracted at its steepest pace since the Great Depression in the second quarter as the COVID-19 pandemic shattered consumer and business spending, and a nascent recovery is under threat from a resurgence in new cases of coronavirus. U.S. stock futures, Treasury yields and the dollar slipped early Thursday after the Commerce Department said gross domestic product collapsed at a 32.9% annualized rate last quarter, the deepest decline in output since the government started keeping records in 1947. The drop in GDP was more than triple the previous all-time decline of 10% in the second quarter of 1958. The economy contracted at a 5.0% pace in the first quarter.
Earlier data showed that the German economy contracted by a worse-than-expected 10.1% in the second quarter, its steepest plunge on record.
The moves were extended after U.S. President Donald Trump raised the possibility of delaying the nation’s November presidential election, repeating unsubstantiated claims that mail-in ballots could lead to voter fraud. Trump repeated claims of mail-in voter fraud, writing on Twitter “delay the election until people can properly, securely and safely vote???”
“Any form of U.S. uncertainty, whether economics or politics, is an excuse to hit the sell button for the U.S. dollar,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
In a separate report, the Labor Department said initial claims for unemployment benefits increased 12,000 to a seasonally adjusted 1.434 million in the week ending July 25. A staggering 30.2 million Americans were receiving unemployment checks in the week ending July 11.
“Claims are telling us that the recovery is already starting to tire,” said Manimbo.
How much further can Treasury yields drop? The record Q2 U.S. economic contraction sent three, five-and 20-year yields to record lows. The entire yield curve is close to falling under 1%.
Unicredit analysts said they “continue to expect the USD weakness to persist in August, a month in which abrupt moves in intraday activity tend to be more likely due to lighter market conditions.”
But they said that given global economic growth concerns and worries about further COVID-19 developments, and the depreciation the U.S. dollar has already suffered in recent weeks, downward pressure would be “less intense” over the next month.
“Disinflationary pressure from the unprecedented hit to demand alongside the strengthening euro will keep pressure on the ECB to deliver further policy stimulus,” MUFG analyst Lee Hardman said.
The dollar’s drop this month has created space for a rebound in currencies hit hard in March, when investors rushed for the safety of the greenback as panic over the coronavirus gripped markets.
The United States intensified its economic pressure on China’s Xinjiang province on Friday, imposing sanctions on a powerful Chinese company and two officials for what it said were human rights abuses against Uighurs and other ethnic minorities. The move, the latest blow to U.S.-China relations, came a week after U.S. President Donald Trump closed the Chinese consulate in Houston, prompting Beijing to shutter the U.S. consulate in Chengdu.
The U.S. Treasury Department said in a statement it blacklisted the Xinjiang Production and Construction Corps, also known as XPCC, along with Sun Jinlong, former party secretary of XPCC, and Peng Jiarui, XPCC’s deputy party secretary and commander, over accusations they are connected to serious human rights abuse against ethnic minorities in Xinjiang.
“The Chinese Communist Party’s human rights abuses in Xinjiang, China against Uyghurs and other Muslim minorities rank as the stain of the century,” U.S. Secretary of State Mike Pompeo said in a statement.
President Donald Trump said on Friday he would sign an executive order as soon as Saturday to ban TikTok in the United States, ratcheting up the pressure on the popular short-video app’s Chinese owner to sell it. The move would be the culmination of U.S. national security concerns over the safety of the personal data that TikTok handles. It would represent a major blow for TikTok’s owner, Beijing-based ByteDance, which became one of only a handful of truly global Chinese conglomerates thanks to app’s commercial success.
Economy situation snapshot
Focusing on the peaks and shapes of epidemiological curves in any given country fails to drive a simple point home: global cases and deaths from the COVID-19 pandemic have continued to increase at an almost constant rate over the past two months.
There are mitigating circumstances. As we have pointed out before, the countries driving the bulk of the increase in new cases globally have shifted over time, with the virus appearing to spread less rapidly in those countries that have already suffered large outbreaks. Nevertheless, there appears to be no hard and fast rule, with both Belgium and Spain seeing a recent pickup in the rate of transmission, perhaps reflecting an element of complacency, despite suffering severe outbreaks through February and March. Recent data released by the Office of National Statistics also show that the UK has been the worst affected across many countries in Europe from an excess deaths standpoint followed by Spain, Italy, Belgium and Sweden. While a number of ‘yes, buts’ can be raised here too, the point that shutdowns are a blunt tool where timing and coordination is of the essence with probably one true shot at it.
The shape of the recovery has obviously been an intensely debated topic that touches on these policy options. Another one that has become increasingly topical relates to the outlook for inflation. Early in this pandemic we made the point that the mix of supply and demand shocks was creating very different dynamics from a standard recession. Normal recessions dominated by negative demand shocks tend to be deflationary, shorter lived and more easily cushioned through fiscal and monetary policies. Conversely, negative supply shocks are inflationary, require structural adjustments and wash through only over a number of years. The true size and dynamics of these two shocks are not likely to be known for a number of years. At the current juncture, policymakers and investors alike can only resort to an imperfect attribution guided by economic principles, but which is nevertheless prone to various sources of potential error.
In our view, a demand shock is the dominant force at the moment, which the authorities are trying to mitigate using both monetary and fiscal policies aimed at transferring risk from private to public balance sheets. On the one hand, higher public debt, lower rates and more unconventional ‘buyer-of-last-resort’ programmes have ballooned on central banks’ balance sheets.
On the other, a significant household deleveraging has taken place as a result of an unprecedented economic shock to GDP that has so far tracked our expectations quite closely. At the same time, subdued inflation measures across developed markets highlight how deflationary forces have clearly dominated the current juncture. The recovery from many of these early deflationary effects may have already worked through the system as highlighted by the quick recovery in retail sales and a number of consumer surveys.
Yet, signs that not all is on the road to normality abound. Particularly concerning are some signs on the income and employment side of private households. In the US, the new pulse survey from the Census Bureau shows that the share of people reporting difficulty in making rent or mortgage payments has risen to the highest since the beginning of the survey to 26.5%. Separately, Freddie Mac reported the highest increase in delinquencies in June since the GFC. The Fed weekly economic indicator also points to a sluggish recovery across the real economy. Furthermore, initial jobless claims seem to have levelled off at a still staggering 1.5 million or so new claims per week over the past couple of months.
While the demand side is relatively well understood, the real risks and uncertainties seem to reside more with the supply-side consequences of this pandemic. For example, a number of sectors have failed to meaningfully normalise even as restriction have eased. Air travel in the US has levelled out and remains 72% below normal levels. Data from restaurant bookings and public transport trips have also shown similar stalling trends. Meanwhile a sector that has seen no recovery has been cinemas, where weekly gross earnings are in the thousands of dollars when they used to be in the millions over the past few years.
In our (Fathom) view, a period of materially above-target inflation in the major economies (above 5% or so) is not our central scenario, but a risk in the short to medium term, even taking into account that the magnitude of the reduction in supply caused by the current pandemic is underappreciated. The massive fiscal support measures that we have seen, combined with ultra-loose monetary policy can only give rise to a sustained pickup in inflation if monetary policy becomes subordinate to fiscal policy, and we enter a world of fiscal dominance.
"As a customary lighter hearted Friday concluding remark, I would point to an unequivocal piece of evidence arguing in favour of a V-shaped recovery thanks to untapped sources of pent-up demand. One of my esteemed Fathom colleagues is taking the plunge and again climbing the property ladder after over a decade of trying to find the perfect entry point. Alternatively, the pandemic may have altered his preferences. The regret risk associated to the latter explanation is probably lower. Time will tell."
CFTC Data
Speculators’ net short U.S. dollar positioning soared to the highest level since August 2011, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday. The position hit $24.27 billion in the week ended July 28, up from $18.81 billion the prior period. U.S. net shorts rose for a fourth straight week as bets against the greenback have persisted since mid-March.
In contrast, net euro longs hit a record high, CFTC data showed. Net euro longs were 157,559 contracts this week.
It means that immediate upside long-term trend is under question. On GBP by the way we have different situation - there net short position has increased. And this is another worrying sign for British currency.
source: cftc.gov
Charting by Investing.com
Next week to watch
A fresh trigger for further falls could be July’s unemployment figures. June payrolls surged by 4.8 million, surpassing expectations of 3 million additions, while July data on Aug. 7 is predicted to show a 2.2 million increase. Weekly jobless claims meanwhile continue to rise. As a supplementary jobless benefits scheme expires.
A raft of upcoming Chinese data will show us how the economy is recovering from the coronavirus. Particular focus will be on trade figures due Aug. 7, which also offer a check-in on the U.S./China trade deal.
Imports rose last month for the first time since the pandemic hit, showing a strong rebound in purchases from the United States. But more big increases will be needed if farm goods buying is to match ambitious targets. Sector detail will be absent from Friday’s figures. But with Sino-U.S. tension simmering before meetings scheduled in August to review the Phase 1 deal’s progress, evidence of solid buying would be a good sign.
Like the ECB and Fed at their latest meetings, the Bank of England may just choose to sit back and assess economic recovery at its Aug. 6 meeting. It’s among the central banks holding out against negative interest rates; analysts reckon it won’t move its borrowing costs until end-2021.
Some are surprised by markets’ reluctance to pressure the BOE for rate cuts. Signs are recovery will be slow and the UK needs to seal an EU trade deal before the Brexit transition period ends on Dec. 31. But the BOE stance may be prudent. Instead it may opt to add another 70 billion pounds to its bond-purchase plan, after a 100 billion pound increase last month. With the clock ticking on the Brexit deadline, the BOE may want to hold on to its remaining bullets.
Technicals
Monthly
By taking in a longer-term, our view is mostly the same. Existed driving factors should provide long lasting effect on EUR. Even rough approximation suggests that market could reach 1.20-1.23 area. The same was mentioned by other analysts as well. Besides, large grabber ultimately suggests action above 1.26 in long-term perspective, although now it seems unbelievable. I'm not an expert in EW, and lets professionals correct me, but it looks like 3rd wave up has started which should become the major swing in upside tendency. Theoretically it should be significantly in excess of "B" wave's top @ 1.25. Price stands above YPR1 as well that indicates new upside trend but not retracement to existing bearish tendency. Monthly overbought area stands far from here and provides room for more upside action.
But that is for long-term perspective. In short-term we have few technical limitations. First is and the major one - overextended net long position on EUR. Market sets the new record of 157K contracts (and every contract stands for 125K of EUR). Second - market meets monthly major 5/8 resistance level and something tells me that hardly it will be passed unsigned. It means that we should be prepared to the pullback, keeping long-term view intact.
Weekly
This chart definitely shows that market has the mood but is loosing power. It has passed through 1.27 butterfly extension, our XOP target on daily chart but stuck in overbought and Fib level with 300 pips till major target of 1.20 area. Here, around 5/8 level we also have minor OP target as well... This situation definitely tells that it's not good moment for buying and major question here is whether EUR gives up and stands for pullback or it continues struggle trying to pass 300 pips and finally hit monthly COP and weekly standing targets as well:
Daily
Whatever scenario happens it will be good for us. For instance, daily chart could give us nice DiNapoli setups. Here we're interested only in most recent upside swing, as daily Oversold stands accurately around 5/8 Fib support. Range below it is not interesting now. Thus, pullback equals to harmonic swing could be nice B&B "Buy" pattern, that could give us more in case if EUR will try to break to 1.20 area... This is the first setup that we intend to watch next week.
Intraday
Here we could do nothing but wait. Despite some pullback, EUR has not formed yet the reversal swing and HH-HL tendency still stands here. We could suggest here either H&S pattern or, maybe downside AB-CD to 1.1630 area if our theory of B&B on daily chart will be correct. For the bears it is also not safe to go short right now by the same reasons - no clear shape of retracement is formed yet. Chances on last effort to reach 1.20 level exist still.
Conclusion:
Our long-term view stands intact and we do not see any reasons yet to change it. Meantime, in shorter term perspective market meets technical difficulties and barriers, as price action was to fast&furious. Investors need to take the breath and get some relief. That could provide good chance for long position taking in a perspective of 1-2 weeks.
This week we've got a lot of new inputs to fundamental background. Data is of a different sort - Fed statement, GDP, economic activity statistics and some other. In general, all that we've got doesn't contradict to our long-term view, so we do not need yet to review and adjust long-term trading plan. Still there are few moments exist that could impact on near standing perspective of currencies' performance.
News surfing
The U.S. dollar fell to a two-year low on Wednesday after the Federal Reserve repeated a pledge to use its “full range of tools” to support the U.S. economy and keep interest rates near zero for as long as it takes to recover from the fallout from the coronavirus outbreak. The U.S. central bank cited concerns about economic activity and employment remaining “well below their levels at the beginning of the year.”
“It is definitely a bit more cautious and dovish, and basically tells the market they’re not going to raise interest rates any time soon,” said Kathy Lien, managing director at BK Asset Management in New York. “In an environment where the market is dumping dollars, it’s another excuse to drive it lower.”
The greenback has tumbled on expectations that the Fed will continue its ultra loose monetary policy for years to come and on speculation that it will allow inflation to run higher than it has previously indicated before raising interest rates.
“The dollar’s outlook remains weak thanks to the diverging trends in coronavirus cases between Europe and the U.S.,” said Ulrich Leuchtmann, head of foreign exchange and commodity research at Commerzbank.
“We expect European confidence figures to support our view of the economic divergence between the eurozone and the U.S. and that supports further gains in euro,” said Carol Kong, FX analyst at the Commonwealth Bank of Australia in Sydney.
The U.S. economy contracted at its steepest pace since the Great Depression in the second quarter as the COVID-19 pandemic shattered consumer and business spending, and a nascent recovery is under threat from a resurgence in new cases of coronavirus. U.S. stock futures, Treasury yields and the dollar slipped early Thursday after the Commerce Department said gross domestic product collapsed at a 32.9% annualized rate last quarter, the deepest decline in output since the government started keeping records in 1947. The drop in GDP was more than triple the previous all-time decline of 10% in the second quarter of 1958. The economy contracted at a 5.0% pace in the first quarter.
Earlier data showed that the German economy contracted by a worse-than-expected 10.1% in the second quarter, its steepest plunge on record.
The moves were extended after U.S. President Donald Trump raised the possibility of delaying the nation’s November presidential election, repeating unsubstantiated claims that mail-in ballots could lead to voter fraud. Trump repeated claims of mail-in voter fraud, writing on Twitter “delay the election until people can properly, securely and safely vote???”
“Any form of U.S. uncertainty, whether economics or politics, is an excuse to hit the sell button for the U.S. dollar,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
In a separate report, the Labor Department said initial claims for unemployment benefits increased 12,000 to a seasonally adjusted 1.434 million in the week ending July 25. A staggering 30.2 million Americans were receiving unemployment checks in the week ending July 11.
“Claims are telling us that the recovery is already starting to tire,” said Manimbo.
How much further can Treasury yields drop? The record Q2 U.S. economic contraction sent three, five-and 20-year yields to record lows. The entire yield curve is close to falling under 1%.
Unicredit analysts said they “continue to expect the USD weakness to persist in August, a month in which abrupt moves in intraday activity tend to be more likely due to lighter market conditions.”
But they said that given global economic growth concerns and worries about further COVID-19 developments, and the depreciation the U.S. dollar has already suffered in recent weeks, downward pressure would be “less intense” over the next month.
“Disinflationary pressure from the unprecedented hit to demand alongside the strengthening euro will keep pressure on the ECB to deliver further policy stimulus,” MUFG analyst Lee Hardman said.
The dollar’s drop this month has created space for a rebound in currencies hit hard in March, when investors rushed for the safety of the greenback as panic over the coronavirus gripped markets.
The United States intensified its economic pressure on China’s Xinjiang province on Friday, imposing sanctions on a powerful Chinese company and two officials for what it said were human rights abuses against Uighurs and other ethnic minorities. The move, the latest blow to U.S.-China relations, came a week after U.S. President Donald Trump closed the Chinese consulate in Houston, prompting Beijing to shutter the U.S. consulate in Chengdu.
The U.S. Treasury Department said in a statement it blacklisted the Xinjiang Production and Construction Corps, also known as XPCC, along with Sun Jinlong, former party secretary of XPCC, and Peng Jiarui, XPCC’s deputy party secretary and commander, over accusations they are connected to serious human rights abuse against ethnic minorities in Xinjiang.
“The Chinese Communist Party’s human rights abuses in Xinjiang, China against Uyghurs and other Muslim minorities rank as the stain of the century,” U.S. Secretary of State Mike Pompeo said in a statement.
President Donald Trump said on Friday he would sign an executive order as soon as Saturday to ban TikTok in the United States, ratcheting up the pressure on the popular short-video app’s Chinese owner to sell it. The move would be the culmination of U.S. national security concerns over the safety of the personal data that TikTok handles. It would represent a major blow for TikTok’s owner, Beijing-based ByteDance, which became one of only a handful of truly global Chinese conglomerates thanks to app’s commercial success.
Economy situation snapshot
Focusing on the peaks and shapes of epidemiological curves in any given country fails to drive a simple point home: global cases and deaths from the COVID-19 pandemic have continued to increase at an almost constant rate over the past two months.
There are mitigating circumstances. As we have pointed out before, the countries driving the bulk of the increase in new cases globally have shifted over time, with the virus appearing to spread less rapidly in those countries that have already suffered large outbreaks. Nevertheless, there appears to be no hard and fast rule, with both Belgium and Spain seeing a recent pickup in the rate of transmission, perhaps reflecting an element of complacency, despite suffering severe outbreaks through February and March. Recent data released by the Office of National Statistics also show that the UK has been the worst affected across many countries in Europe from an excess deaths standpoint followed by Spain, Italy, Belgium and Sweden. While a number of ‘yes, buts’ can be raised here too, the point that shutdowns are a blunt tool where timing and coordination is of the essence with probably one true shot at it.
The shape of the recovery has obviously been an intensely debated topic that touches on these policy options. Another one that has become increasingly topical relates to the outlook for inflation. Early in this pandemic we made the point that the mix of supply and demand shocks was creating very different dynamics from a standard recession. Normal recessions dominated by negative demand shocks tend to be deflationary, shorter lived and more easily cushioned through fiscal and monetary policies. Conversely, negative supply shocks are inflationary, require structural adjustments and wash through only over a number of years. The true size and dynamics of these two shocks are not likely to be known for a number of years. At the current juncture, policymakers and investors alike can only resort to an imperfect attribution guided by economic principles, but which is nevertheless prone to various sources of potential error.
In our view, a demand shock is the dominant force at the moment, which the authorities are trying to mitigate using both monetary and fiscal policies aimed at transferring risk from private to public balance sheets. On the one hand, higher public debt, lower rates and more unconventional ‘buyer-of-last-resort’ programmes have ballooned on central banks’ balance sheets.
On the other, a significant household deleveraging has taken place as a result of an unprecedented economic shock to GDP that has so far tracked our expectations quite closely. At the same time, subdued inflation measures across developed markets highlight how deflationary forces have clearly dominated the current juncture. The recovery from many of these early deflationary effects may have already worked through the system as highlighted by the quick recovery in retail sales and a number of consumer surveys.
Yet, signs that not all is on the road to normality abound. Particularly concerning are some signs on the income and employment side of private households. In the US, the new pulse survey from the Census Bureau shows that the share of people reporting difficulty in making rent or mortgage payments has risen to the highest since the beginning of the survey to 26.5%. Separately, Freddie Mac reported the highest increase in delinquencies in June since the GFC. The Fed weekly economic indicator also points to a sluggish recovery across the real economy. Furthermore, initial jobless claims seem to have levelled off at a still staggering 1.5 million or so new claims per week over the past couple of months.
While the demand side is relatively well understood, the real risks and uncertainties seem to reside more with the supply-side consequences of this pandemic. For example, a number of sectors have failed to meaningfully normalise even as restriction have eased. Air travel in the US has levelled out and remains 72% below normal levels. Data from restaurant bookings and public transport trips have also shown similar stalling trends. Meanwhile a sector that has seen no recovery has been cinemas, where weekly gross earnings are in the thousands of dollars when they used to be in the millions over the past few years.
In our (Fathom) view, a period of materially above-target inflation in the major economies (above 5% or so) is not our central scenario, but a risk in the short to medium term, even taking into account that the magnitude of the reduction in supply caused by the current pandemic is underappreciated. The massive fiscal support measures that we have seen, combined with ultra-loose monetary policy can only give rise to a sustained pickup in inflation if monetary policy becomes subordinate to fiscal policy, and we enter a world of fiscal dominance.
"As a customary lighter hearted Friday concluding remark, I would point to an unequivocal piece of evidence arguing in favour of a V-shaped recovery thanks to untapped sources of pent-up demand. One of my esteemed Fathom colleagues is taking the plunge and again climbing the property ladder after over a decade of trying to find the perfect entry point. Alternatively, the pandemic may have altered his preferences. The regret risk associated to the latter explanation is probably lower. Time will tell."
CFTC Data
Speculators’ net short U.S. dollar positioning soared to the highest level since August 2011, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday. The position hit $24.27 billion in the week ended July 28, up from $18.81 billion the prior period. U.S. net shorts rose for a fourth straight week as bets against the greenback have persisted since mid-March.
In contrast, net euro longs hit a record high, CFTC data showed. Net euro longs were 157,559 contracts this week.
It means that immediate upside long-term trend is under question. On GBP by the way we have different situation - there net short position has increased. And this is another worrying sign for British currency.
source: cftc.gov
Charting by Investing.com
Next week to watch
A fresh trigger for further falls could be July’s unemployment figures. June payrolls surged by 4.8 million, surpassing expectations of 3 million additions, while July data on Aug. 7 is predicted to show a 2.2 million increase. Weekly jobless claims meanwhile continue to rise. As a supplementary jobless benefits scheme expires.
A raft of upcoming Chinese data will show us how the economy is recovering from the coronavirus. Particular focus will be on trade figures due Aug. 7, which also offer a check-in on the U.S./China trade deal.
Imports rose last month for the first time since the pandemic hit, showing a strong rebound in purchases from the United States. But more big increases will be needed if farm goods buying is to match ambitious targets. Sector detail will be absent from Friday’s figures. But with Sino-U.S. tension simmering before meetings scheduled in August to review the Phase 1 deal’s progress, evidence of solid buying would be a good sign.
Like the ECB and Fed at their latest meetings, the Bank of England may just choose to sit back and assess economic recovery at its Aug. 6 meeting. It’s among the central banks holding out against negative interest rates; analysts reckon it won’t move its borrowing costs until end-2021.
Some are surprised by markets’ reluctance to pressure the BOE for rate cuts. Signs are recovery will be slow and the UK needs to seal an EU trade deal before the Brexit transition period ends on Dec. 31. But the BOE stance may be prudent. Instead it may opt to add another 70 billion pounds to its bond-purchase plan, after a 100 billion pound increase last month. With the clock ticking on the Brexit deadline, the BOE may want to hold on to its remaining bullets.
Technicals
Monthly
By taking in a longer-term, our view is mostly the same. Existed driving factors should provide long lasting effect on EUR. Even rough approximation suggests that market could reach 1.20-1.23 area. The same was mentioned by other analysts as well. Besides, large grabber ultimately suggests action above 1.26 in long-term perspective, although now it seems unbelievable. I'm not an expert in EW, and lets professionals correct me, but it looks like 3rd wave up has started which should become the major swing in upside tendency. Theoretically it should be significantly in excess of "B" wave's top @ 1.25. Price stands above YPR1 as well that indicates new upside trend but not retracement to existing bearish tendency. Monthly overbought area stands far from here and provides room for more upside action.
But that is for long-term perspective. In short-term we have few technical limitations. First is and the major one - overextended net long position on EUR. Market sets the new record of 157K contracts (and every contract stands for 125K of EUR). Second - market meets monthly major 5/8 resistance level and something tells me that hardly it will be passed unsigned. It means that we should be prepared to the pullback, keeping long-term view intact.
Weekly
This chart definitely shows that market has the mood but is loosing power. It has passed through 1.27 butterfly extension, our XOP target on daily chart but stuck in overbought and Fib level with 300 pips till major target of 1.20 area. Here, around 5/8 level we also have minor OP target as well... This situation definitely tells that it's not good moment for buying and major question here is whether EUR gives up and stands for pullback or it continues struggle trying to pass 300 pips and finally hit monthly COP and weekly standing targets as well:
Daily
Whatever scenario happens it will be good for us. For instance, daily chart could give us nice DiNapoli setups. Here we're interested only in most recent upside swing, as daily Oversold stands accurately around 5/8 Fib support. Range below it is not interesting now. Thus, pullback equals to harmonic swing could be nice B&B "Buy" pattern, that could give us more in case if EUR will try to break to 1.20 area... This is the first setup that we intend to watch next week.
Intraday
Here we could do nothing but wait. Despite some pullback, EUR has not formed yet the reversal swing and HH-HL tendency still stands here. We could suggest here either H&S pattern or, maybe downside AB-CD to 1.1630 area if our theory of B&B on daily chart will be correct. For the bears it is also not safe to go short right now by the same reasons - no clear shape of retracement is formed yet. Chances on last effort to reach 1.20 level exist still.
Conclusion:
Our long-term view stands intact and we do not see any reasons yet to change it. Meantime, in shorter term perspective market meets technical difficulties and barriers, as price action was to fast&furious. Investors need to take the breath and get some relief. That could provide good chance for long position taking in a perspective of 1-2 weeks.