Sive Morten
Special Consultant to the FPA
- Messages
- 18,655
Fundamentals
So, this week is really tough guys, as a lot of important events have happened and a lot of significant news were released. Political events were so strong that even faded US Consumption statistics on Friday. Least effect has come from ECB statement as C. Lagarde just confirmed status quo and dovish policy in the future.
Week has started on a positive note to EUR as better-than-expected German economic sentiment survey boosted the common currency. ZEW research institute’s monthly index on economic morale among German investors showed the mood improved far more than forecast in December, with an unexpected rise in October exports boosting hopes for an upturn in Europe’s biggest economy.
“Germany’s ZEW expectation readings turned sharply positive possibly indicating a bottom is in place,” Edward Moya, senior market analyst at OANDA, said in a note.
“The current assessment remains deeply in negative territory but did improve and beat expectations,” he said.
The boost to the euro from the survey was unlikely to significantly change the euro’s direction against the greenback, John Doyle, vice president of dealing and trading, at Tempus Inc in Washington, said.
Next day, on Wed, Fed has released its statement. While investors widely expect that Fed probably will keep the same policy and comments on US economy perspective, the statement that rate should be steady through 2020 was a bit more dovish than market suggests.
The U.S. Federal Reserve on Wednesday held interest rates steady and signaled borrowing costs are likely to remain unchanged indefinitely, with moderate economic growth and low unemployment expected to continue through next year’s presidential election.
The decision left the benchmark overnight lending rate in its current target range between 1.50% and 1.75%.
“Our economic outlook remains a favorable one, despite global developments and ongoing risks,” Fed Chair Jerome Powell said in a news conference following the decision. “We believe monetary policy is well positioned to serve the American people by supporting continued economic growth, a strong job market and inflation near our 2% goal.”
Fed drops language from prior statement that ‘uncertainties about this outlook remain’ . Powell says the Fed is strongly committed to achieving symmetric inflation goal, Fed stands ready to adjust repo operations to keep federal funds rate in range and the Fed is open to potential repo market changes that do not threaten safety and soundness.
“The bar to a rate hike remains higher than the bar to lowering rates further, but overall you are looking at a Fed that is fairly confident about where the economy is headed and expects inflation to remain under pressure for a prolonged period of time,” said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.
The U.S. economy is doing well and looks set to stay that way next year, two top Federal Reserve policymakers said on Friday, remarks that suggest they are content to leave interest rates where they are.
“I think the economy is in a good place. U.S Federal Reserve Vice Chair Richard Clarida said in an interview with Fox Business Network, adding that the consumer has never been in better shape. “We have the strongest labor market in 50 years, we have low and stable inflation, we have solid growth and our baseline outlook for the economy is more of the same in 2020.”
Speaking to students and faculty earlier in the day at the Borough of Manhattan Community College, New York Fed President John Williams summed it up this way:
“The economy is performing about as well as we have seen in decades.”
Williams and Clarida work closely with Fed Chair Jerome Powell, who on Wednesday announced the U.S. central bank’s well-telegraphed decision to hold interest rates steady in a range of 1.5% to 1.75%, and signaled borrowing costs would remain there for the foreseeable future.
On Friday the world’s two largest economies announcing a Phase 1 agreement that reduces some U.S. tariffs in exchange for increased Chinese purchases of American farm goods.
“Any resolution of that uncertainty, assuming it’s a good deal, is obviously a positive for the economic outlook,” Clarida said. He added, though, that trade was just a number of risks the Fed will monitor.
“This is obviously a negotiation; it looks like it’s going in a positive direction,” Clarida said. “But ... global developments more broadly have been something we’ve been monitoring. You’ve had a global slowdown this year, emerging markets have been slowing down, there are muted inflation pressures. So it’s not just any one thing that we are focusing on.”
Williams, for his part, said he expects the U.S. economy to grow about 2% annually over the next couple of years.
Indeed by CME FedWatch Tool the first hint of possible rate change relates only to September 2020:
Finally on Friday we've got two major events of this week - UK election results and announcement of US/China trade deal.
The dollar edged lower against a basket of currencies on Friday as news of an initial China-U.S. trade deal and an election victory for Britain’s Brexit-backing Conservative Party appeared to clear the fog on the global investment horizon, hurting safe-haven demand for the greenback.
The United States and China cooled their trade war, announcing a “Phase one” agreement that reduces some U.S. tariffs in exchange for increased Chinese purchases of American farm products and other goods.
The United States would suspend tariffs on Chinese goods due to take effect on Sunday, and reduce others, officials said. A deal is expected to be signed the first week of January in Washington by principal negotiators.
The long-awaited deal could dial down tensions between the United States and China and provide some relief to investors, who have been buffeted for months by worries that a full-blown trade war would pressure global economic growth.
“The market was flooded with many headlines this morning and some were contradictory, but overall we believed this weekend’s tariffs would probably be delayed or canceled, so the end result is not too surprising,” said John Doyle, vice president for dealing and trading at Tempus Inc in Washington.
Beijing has agreed to import at least $200 billion in additional U.S. goods and services over the next two years on top of the amount it purchased in 2017, the top U.S. trade negotiator said here Friday. If the purchases are made, they would represent a huge jump in U.S. exports to China. China bought $130 billion in U.S. goods in 2017, before the trade war began, and $56 billion in services, U.S. Bureau of Economic Analysis data show.
“We have agreed to a very large Phase One Deal with China,” U.S. President Donald Trump tweeted Friday morning. Officials in China have “agreed to many structural changes and massive purchases of Agricultural Product, Energy, and Manufactured Goods, plus much more,” he said.
At a news conference in Beijing, Chinese officials said the two sides had agreed on the text of a deal, but offered no specific details on the amount of U.S. goods China had agreed to buy.
U.S. markets have gyrated on rumors and leaks about the trade deal in recent months, but were muted on Friday on news it had been agreed.
The agreement was announced as the U.S. House Judiciary Committee voted to charge Trump with abuse of power and obstruction during an impeachment inquiry. It also followed closely on the heels of a deal with the U.S. Congress paving the way for passage of a new North American trade agreement.
Beijing has committed to buying $32 billion more in farm products over the next two years, or about $16 billion a year, U.S. Trade Representative Robert Lighthizer told reporters at the White House, on top of a baseline of $24 billion in Chinese purchases in 2017. In addition, Beijing said it would make a big effort to spend an additional $5 billion a year.
“To me it’s an enormously important first step in our relationship,” Lighthizer said. “This is China taking real commitments to do real things in a reasonable period of time, that’s enforceable.”
He said China would be free to buy things when “it’s the perfect time in the market to buy things.”
China will import more U.S. wheat, corn, and rice, China’s vice agricultural minister said on Friday, without elaborating.
China has not been a major buyer of U.S. corn, wheat or rice in the past - though in recent years it has been the No. 3 or 4 buyer of one particular variety of wheat, U.S. spring wheat used for blending. China was a top 5 buyer of U.S. corn from 2011 to 2014 but has not been a major buyer since.
Soybeans made up half of China’s agricultural purchases in 2017. Demand has since cratered because the pig herds that eat it have been reduced by African swine fever, however.
Lighthizer said China also agreed to buy more U.S. manufactured goods, energy and services, but provided no details. He said the agreement included specific targets for those broad areas that would be published later, and specific targets for specific products that would remain classified.
The U.S. has agreed to suspend tariffs on $160 billion in Chinese-made cell phones, laptop computers and other consumer goods due to go into effect on Dec. 15, Trump said on Twitter. USTR said existing tariffs on $120 billion of other goods such as smart speakers and Bluetooth headphones would be cut to 7.5%.
A statement issued by USTR on Friday said that the United States would leave in place 25% tariffs on $250 billion worth of Chinese goods.
China has also agreed to suspend retaliatory tariffs, targeting goods ranging from corn and wheat to U.S. made vehicles and auto parts, that were due to take effect Dec. 15.
“Some have been burned in the past for believing there was true progress, only to be disappointed,” Tempus’ Doyle said.
While Trump announced that “phase two” trade talks would start immediately, Beijing made it clear that moving to the next stage of the trade negotiations would depend on implementing phase one first. While markets cheered the December rally, few expect the trade deal rollercoaster ride to be quite over yet.
Sterling was well-supported day as investors rushed to unwind bets on a weaker pound after a resounding election victory for Prime Minister Boris Johnson’s Conservative Party. Johnson’s win will allow him to end three years of political paralysis and take Britain out of the European Union in an orderly manner in a matter of weeks. We saw some profit taking on recent rally by "Sell on fact" speculators, which seems to be a short-term retracement, while in longer perspective GBP keeps positive mood. The contraction of net short position by recent CFTC reports also supports this view.
A thumping election win for Prime Minister Boris Johnson has raised hopes that 3-1/2 years of Brexit-fuelled chaos will finally end. Expectations that he may swing slightly nearer the centre of his Conservative Party, sidelining the fiercest eurosceptics, and ease the path towards a free-trade deal with the European Union have sent sterling and British shares surging.
Yet there are signs of caution, with sterling stalling around $1.35. Further gains will hinge on Johnson’s new cabinet, how the global growth and trade war backdrop pans out and what the Bank of England might do.
At the central bank’s Dec. 19 meeting, markets will watch for any shifts in its views on inflation, the UK economy and the interest rate outlook for 2020. While policymakers have skewed dovish of late amid a torrent of dismal data and sub-target inflation, the election result - and a hoped-for growth recovery - have seen money markets halve the probability of an end-2020 cut to 25%. Without more clarity, investors might just be wary of chasing sterling much higher.
First clues as to whether euro zone powerhouse Germany can avoid a fourth quarter recession emerge on Monday when advance PMI readings for November are released globally.
The economic activity surveys, a key barometer of economic health, come after Citi’s economic surprise index showed euro zone economic data beating consensus expectations at the fastest pace since February 2018. The latest surprise was a 1.2% rise in German exports in October, defying forecasts of a contraction.
Hopes are high that exports and private consumption, which helped Germany skirt recession, will hold up. Last month’s PMI data showed manufacturing remained in deep contraction across the bloc.
A Reuters poll showed expectations of a modestly higher 46.0 manufacturing reading in the euro zone but that’s still far below the 50-mark which separates growth from contraction. Services, which have held up better so far, are expected to grow modestly from November, at 52.0.
Final topic that was standing in the shadow of big events this week is President's impeachment. Democrats in the U.S. House of Representatives on Friday took Republican President Donald Trump to the brink of impeachment by approving two charges against him over his efforts to pressure Ukraine to investigate Democratic political rival Joe Biden.
A divided House Judiciary Committee voted 23-17 along party lines to approve articles of impeachment charging Trump with abusing the power of his office over the Ukraine scandal and obstructing House Democrats’ attempts to investigate him for it.
Trump is expected to become the third U.S. president to be impeached when the full Democratic-led House votes on the charges, likely next week, setting up a trial in the Republican-controlled Senate. Trump’s fellow Republicans have shown no signs of wanting to remove Trump from office.
In congressional hearings that have gripped Washington, Democrats accused the president of endangering the U.S. Constitution, jeopardizing national security and undermining the integrity of the 2020 election by asking Ukrainian President Volodymyr Zelenskiy in a July phone call to investigate Biden.
“Today is a solemn and sad day,” said Representative Jerrold Nadler, the judiciary committee’s Democratic chairman. “For the third time in a little over a century and a half, the House Judiciary Committee has voted articles of impeachment against the president.”
Republicans have defended Trump and accused Democrats of a politically motivated farce aimed at overturning his surprise 2016 presidential election victory.
“Impeachment is a hoax. It’s a sham,” Trump told reporters at the White House after the committee’s vote. “There was nothing done wrong. To use the power of impeachment for this nonsense is an embarrassment to this country.”
If impeached, Trump is due to go on trial in the Senate in January just as the 2020 presidential campaign, in which he is seeking re-election, picks up speed.
He said he thought Americans “are absolutely disgusted” with the process, but that it was benefiting him. “It’s a very sad thing for our country, but it seems to be good for me politically,” Trump said.
Biden, a former U.S. vice president, is a leading Democratic candidate to face Trump in the Nov. 3 election. Trump has alleged that Biden was involved in corruption in Ukraine and should be investigated there, but has offered no evidence. Biden has denied wrongdoing.
Currently guys, both US parties air each other dirty laundry, but potentially this comic precedent at first glance, could rise to impending size. It is not light and cares significant political risks especially in the light of coming elections.
Despite a lot of important events - we do not see big shift in investors position. Thus, CFTC data shows that net short position barely has changed on EUR and recent rally is not a result of portfolios adjusting but mostly some speculative activity. It means that we should be careful with target set and do not count by far on too extended objective points.
Source: cftc.gov
Charting by Investing.com
Technicals
Monthly
As we come gradually to the end of the year, let's take a look today at alternative scenario, which is potentially could be realized if positive shifts in EU economy will become stable and regular. In general, this month EU and Germany statistics in particular has shown few important positive surprises, which theoretically could be a sign of something greater. Although CFTC data doesn't show any changes in investors sentiment, technical picture still provides few bullish moments.
First is, October reversal month, of course. Despite that EUR still can't get started upside action - October candle is still valid and keeps its reversal features, as lows stand intact. If we track market mechanics here we should not be too surprised with slow motion. Take a look, since 2017 EUR was in strong downside rally, which has strong momentum and it appear to be retracement in relation to AB leg here. It is deep, because AB in turn, has become first upside reversal swing after outstanding collapse of 2013-2014.
Second issue that points on retracement feature as well is Yearly Pivot Support 1. This year it holds downside action. We know the major feature of pivot supports - it has to hold downside action if this is a retracement. This is particular what we have right now.
While fundamental EU environment still stands unclear, technical picture brings some bullish features. And if this scenario still will be realized - we could consider COP as nearest target at 1.2250.
Conversely - sudden drop below 1.09 area and YPS1 will unlock our bearish view and downside continuation back to 1.03 lows. We talked about it regularly in our researches.
Weekly
Here, on weekly we also take a look at longer-term picture and see how weekly chart corresponds to our idea on monthly one. Definitely, to support monthly scenario weekly chart has to form bullish reversal, and preferably by some clear pattern. Currently it seems that we should focus on reverse H&S pattern. Current AB-CD pattern has XOP around 1.1450 Fib resistance and potential neckline. Right arm should be formed later around 1.1150 area.
This anticipated pattern is also useful as we could make judgement on EUR direction by comparing how it matches to the H&S project. While it follows it - it keeps bullish scenario. But if something goes wrong - this will be clear signal that sentiment changes and EUR turns downside.
In shorter-term perspective we use the same AB-CD pattern and see how EUR will deal with strong 1.12 weekly/daily K-resistance area:
Daily
As we've said on Friday, market could go down due "Sell by fact" type of action from speculators. UK elections are done, "stage 1" agreement is announced - its time to book profit based on these events. Currently, on daily chart we see strong K-resistance area of 1.1208-1.1236. And here we could get some multiple pullbacks when EUR will take few attempts to break it up. First challenge already is done.
This situation tells that we could consider long entries at pullbacks with profit taking around K-resistance and/or keep some fraction of position with breakeven stop in anticipation of breakout. Game will be over when K-area will be broken or EUR drop below "C" point, erasing AB-CD pattern.
Intraday
Here we have first setup. Potentially we could get DiNapoli "Oops!" directional pattern, based on H&S background. Take a look that right under neckline we have K-support and COP Agreement area. Thus, H&S could fail and EUR could rally up from here. Thus, 1.11 is first level where we consider Long entry.
If, somehow H&S still will work - next area to watch for is OP Agreement around 1.1060.
Conclusion:
At the edge of the year, situation on financial markets become interesting as new perspectives are opening gradually. Despite that it is still very difficult to suggest how it will turn, the fact that we have not only one direction makes trading process interesting. What is really good in this situation that perspective is based on clear patterns that we could suggest right now and just track their performance. Patterns also make it easy to set targets and control the action to catch early signs of failure.
In short-term perspective we intend to follow the same patterns that we did this week.
So, this week is really tough guys, as a lot of important events have happened and a lot of significant news were released. Political events were so strong that even faded US Consumption statistics on Friday. Least effect has come from ECB statement as C. Lagarde just confirmed status quo and dovish policy in the future.
Week has started on a positive note to EUR as better-than-expected German economic sentiment survey boosted the common currency. ZEW research institute’s monthly index on economic morale among German investors showed the mood improved far more than forecast in December, with an unexpected rise in October exports boosting hopes for an upturn in Europe’s biggest economy.
“Germany’s ZEW expectation readings turned sharply positive possibly indicating a bottom is in place,” Edward Moya, senior market analyst at OANDA, said in a note.
“The current assessment remains deeply in negative territory but did improve and beat expectations,” he said.
The boost to the euro from the survey was unlikely to significantly change the euro’s direction against the greenback, John Doyle, vice president of dealing and trading, at Tempus Inc in Washington, said.
Next day, on Wed, Fed has released its statement. While investors widely expect that Fed probably will keep the same policy and comments on US economy perspective, the statement that rate should be steady through 2020 was a bit more dovish than market suggests.
The U.S. Federal Reserve on Wednesday held interest rates steady and signaled borrowing costs are likely to remain unchanged indefinitely, with moderate economic growth and low unemployment expected to continue through next year’s presidential election.
The decision left the benchmark overnight lending rate in its current target range between 1.50% and 1.75%.
“Our economic outlook remains a favorable one, despite global developments and ongoing risks,” Fed Chair Jerome Powell said in a news conference following the decision. “We believe monetary policy is well positioned to serve the American people by supporting continued economic growth, a strong job market and inflation near our 2% goal.”
Fed drops language from prior statement that ‘uncertainties about this outlook remain’ . Powell says the Fed is strongly committed to achieving symmetric inflation goal, Fed stands ready to adjust repo operations to keep federal funds rate in range and the Fed is open to potential repo market changes that do not threaten safety and soundness.
“The bar to a rate hike remains higher than the bar to lowering rates further, but overall you are looking at a Fed that is fairly confident about where the economy is headed and expects inflation to remain under pressure for a prolonged period of time,” said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.
The U.S. economy is doing well and looks set to stay that way next year, two top Federal Reserve policymakers said on Friday, remarks that suggest they are content to leave interest rates where they are.
“I think the economy is in a good place. U.S Federal Reserve Vice Chair Richard Clarida said in an interview with Fox Business Network, adding that the consumer has never been in better shape. “We have the strongest labor market in 50 years, we have low and stable inflation, we have solid growth and our baseline outlook for the economy is more of the same in 2020.”
Speaking to students and faculty earlier in the day at the Borough of Manhattan Community College, New York Fed President John Williams summed it up this way:
“The economy is performing about as well as we have seen in decades.”
Williams and Clarida work closely with Fed Chair Jerome Powell, who on Wednesday announced the U.S. central bank’s well-telegraphed decision to hold interest rates steady in a range of 1.5% to 1.75%, and signaled borrowing costs would remain there for the foreseeable future.
On Friday the world’s two largest economies announcing a Phase 1 agreement that reduces some U.S. tariffs in exchange for increased Chinese purchases of American farm goods.
“Any resolution of that uncertainty, assuming it’s a good deal, is obviously a positive for the economic outlook,” Clarida said. He added, though, that trade was just a number of risks the Fed will monitor.
“This is obviously a negotiation; it looks like it’s going in a positive direction,” Clarida said. “But ... global developments more broadly have been something we’ve been monitoring. You’ve had a global slowdown this year, emerging markets have been slowing down, there are muted inflation pressures. So it’s not just any one thing that we are focusing on.”
Williams, for his part, said he expects the U.S. economy to grow about 2% annually over the next couple of years.
Indeed by CME FedWatch Tool the first hint of possible rate change relates only to September 2020:
Finally on Friday we've got two major events of this week - UK election results and announcement of US/China trade deal.
The dollar edged lower against a basket of currencies on Friday as news of an initial China-U.S. trade deal and an election victory for Britain’s Brexit-backing Conservative Party appeared to clear the fog on the global investment horizon, hurting safe-haven demand for the greenback.
The United States and China cooled their trade war, announcing a “Phase one” agreement that reduces some U.S. tariffs in exchange for increased Chinese purchases of American farm products and other goods.
The United States would suspend tariffs on Chinese goods due to take effect on Sunday, and reduce others, officials said. A deal is expected to be signed the first week of January in Washington by principal negotiators.
The long-awaited deal could dial down tensions between the United States and China and provide some relief to investors, who have been buffeted for months by worries that a full-blown trade war would pressure global economic growth.
“The market was flooded with many headlines this morning and some were contradictory, but overall we believed this weekend’s tariffs would probably be delayed or canceled, so the end result is not too surprising,” said John Doyle, vice president for dealing and trading at Tempus Inc in Washington.
Beijing has agreed to import at least $200 billion in additional U.S. goods and services over the next two years on top of the amount it purchased in 2017, the top U.S. trade negotiator said here Friday. If the purchases are made, they would represent a huge jump in U.S. exports to China. China bought $130 billion in U.S. goods in 2017, before the trade war began, and $56 billion in services, U.S. Bureau of Economic Analysis data show.
“We have agreed to a very large Phase One Deal with China,” U.S. President Donald Trump tweeted Friday morning. Officials in China have “agreed to many structural changes and massive purchases of Agricultural Product, Energy, and Manufactured Goods, plus much more,” he said.
At a news conference in Beijing, Chinese officials said the two sides had agreed on the text of a deal, but offered no specific details on the amount of U.S. goods China had agreed to buy.
U.S. markets have gyrated on rumors and leaks about the trade deal in recent months, but were muted on Friday on news it had been agreed.
The agreement was announced as the U.S. House Judiciary Committee voted to charge Trump with abuse of power and obstruction during an impeachment inquiry. It also followed closely on the heels of a deal with the U.S. Congress paving the way for passage of a new North American trade agreement.
Beijing has committed to buying $32 billion more in farm products over the next two years, or about $16 billion a year, U.S. Trade Representative Robert Lighthizer told reporters at the White House, on top of a baseline of $24 billion in Chinese purchases in 2017. In addition, Beijing said it would make a big effort to spend an additional $5 billion a year.
“To me it’s an enormously important first step in our relationship,” Lighthizer said. “This is China taking real commitments to do real things in a reasonable period of time, that’s enforceable.”
He said China would be free to buy things when “it’s the perfect time in the market to buy things.”
China will import more U.S. wheat, corn, and rice, China’s vice agricultural minister said on Friday, without elaborating.
China has not been a major buyer of U.S. corn, wheat or rice in the past - though in recent years it has been the No. 3 or 4 buyer of one particular variety of wheat, U.S. spring wheat used for blending. China was a top 5 buyer of U.S. corn from 2011 to 2014 but has not been a major buyer since.
Soybeans made up half of China’s agricultural purchases in 2017. Demand has since cratered because the pig herds that eat it have been reduced by African swine fever, however.
Lighthizer said China also agreed to buy more U.S. manufactured goods, energy and services, but provided no details. He said the agreement included specific targets for those broad areas that would be published later, and specific targets for specific products that would remain classified.
The U.S. has agreed to suspend tariffs on $160 billion in Chinese-made cell phones, laptop computers and other consumer goods due to go into effect on Dec. 15, Trump said on Twitter. USTR said existing tariffs on $120 billion of other goods such as smart speakers and Bluetooth headphones would be cut to 7.5%.
A statement issued by USTR on Friday said that the United States would leave in place 25% tariffs on $250 billion worth of Chinese goods.
China has also agreed to suspend retaliatory tariffs, targeting goods ranging from corn and wheat to U.S. made vehicles and auto parts, that were due to take effect Dec. 15.
“Some have been burned in the past for believing there was true progress, only to be disappointed,” Tempus’ Doyle said.
While Trump announced that “phase two” trade talks would start immediately, Beijing made it clear that moving to the next stage of the trade negotiations would depend on implementing phase one first. While markets cheered the December rally, few expect the trade deal rollercoaster ride to be quite over yet.
Sterling was well-supported day as investors rushed to unwind bets on a weaker pound after a resounding election victory for Prime Minister Boris Johnson’s Conservative Party. Johnson’s win will allow him to end three years of political paralysis and take Britain out of the European Union in an orderly manner in a matter of weeks. We saw some profit taking on recent rally by "Sell on fact" speculators, which seems to be a short-term retracement, while in longer perspective GBP keeps positive mood. The contraction of net short position by recent CFTC reports also supports this view.
A thumping election win for Prime Minister Boris Johnson has raised hopes that 3-1/2 years of Brexit-fuelled chaos will finally end. Expectations that he may swing slightly nearer the centre of his Conservative Party, sidelining the fiercest eurosceptics, and ease the path towards a free-trade deal with the European Union have sent sterling and British shares surging.
Yet there are signs of caution, with sterling stalling around $1.35. Further gains will hinge on Johnson’s new cabinet, how the global growth and trade war backdrop pans out and what the Bank of England might do.
At the central bank’s Dec. 19 meeting, markets will watch for any shifts in its views on inflation, the UK economy and the interest rate outlook for 2020. While policymakers have skewed dovish of late amid a torrent of dismal data and sub-target inflation, the election result - and a hoped-for growth recovery - have seen money markets halve the probability of an end-2020 cut to 25%. Without more clarity, investors might just be wary of chasing sterling much higher.
First clues as to whether euro zone powerhouse Germany can avoid a fourth quarter recession emerge on Monday when advance PMI readings for November are released globally.
The economic activity surveys, a key barometer of economic health, come after Citi’s economic surprise index showed euro zone economic data beating consensus expectations at the fastest pace since February 2018. The latest surprise was a 1.2% rise in German exports in October, defying forecasts of a contraction.
Hopes are high that exports and private consumption, which helped Germany skirt recession, will hold up. Last month’s PMI data showed manufacturing remained in deep contraction across the bloc.
A Reuters poll showed expectations of a modestly higher 46.0 manufacturing reading in the euro zone but that’s still far below the 50-mark which separates growth from contraction. Services, which have held up better so far, are expected to grow modestly from November, at 52.0.
Final topic that was standing in the shadow of big events this week is President's impeachment. Democrats in the U.S. House of Representatives on Friday took Republican President Donald Trump to the brink of impeachment by approving two charges against him over his efforts to pressure Ukraine to investigate Democratic political rival Joe Biden.
A divided House Judiciary Committee voted 23-17 along party lines to approve articles of impeachment charging Trump with abusing the power of his office over the Ukraine scandal and obstructing House Democrats’ attempts to investigate him for it.
Trump is expected to become the third U.S. president to be impeached when the full Democratic-led House votes on the charges, likely next week, setting up a trial in the Republican-controlled Senate. Trump’s fellow Republicans have shown no signs of wanting to remove Trump from office.
In congressional hearings that have gripped Washington, Democrats accused the president of endangering the U.S. Constitution, jeopardizing national security and undermining the integrity of the 2020 election by asking Ukrainian President Volodymyr Zelenskiy in a July phone call to investigate Biden.
“Today is a solemn and sad day,” said Representative Jerrold Nadler, the judiciary committee’s Democratic chairman. “For the third time in a little over a century and a half, the House Judiciary Committee has voted articles of impeachment against the president.”
Republicans have defended Trump and accused Democrats of a politically motivated farce aimed at overturning his surprise 2016 presidential election victory.
“Impeachment is a hoax. It’s a sham,” Trump told reporters at the White House after the committee’s vote. “There was nothing done wrong. To use the power of impeachment for this nonsense is an embarrassment to this country.”
If impeached, Trump is due to go on trial in the Senate in January just as the 2020 presidential campaign, in which he is seeking re-election, picks up speed.
He said he thought Americans “are absolutely disgusted” with the process, but that it was benefiting him. “It’s a very sad thing for our country, but it seems to be good for me politically,” Trump said.
Biden, a former U.S. vice president, is a leading Democratic candidate to face Trump in the Nov. 3 election. Trump has alleged that Biden was involved in corruption in Ukraine and should be investigated there, but has offered no evidence. Biden has denied wrongdoing.
Currently guys, both US parties air each other dirty laundry, but potentially this comic precedent at first glance, could rise to impending size. It is not light and cares significant political risks especially in the light of coming elections.
Despite a lot of important events - we do not see big shift in investors position. Thus, CFTC data shows that net short position barely has changed on EUR and recent rally is not a result of portfolios adjusting but mostly some speculative activity. It means that we should be careful with target set and do not count by far on too extended objective points.
Source: cftc.gov
Charting by Investing.com
Technicals
Monthly
As we come gradually to the end of the year, let's take a look today at alternative scenario, which is potentially could be realized if positive shifts in EU economy will become stable and regular. In general, this month EU and Germany statistics in particular has shown few important positive surprises, which theoretically could be a sign of something greater. Although CFTC data doesn't show any changes in investors sentiment, technical picture still provides few bullish moments.
First is, October reversal month, of course. Despite that EUR still can't get started upside action - October candle is still valid and keeps its reversal features, as lows stand intact. If we track market mechanics here we should not be too surprised with slow motion. Take a look, since 2017 EUR was in strong downside rally, which has strong momentum and it appear to be retracement in relation to AB leg here. It is deep, because AB in turn, has become first upside reversal swing after outstanding collapse of 2013-2014.
Second issue that points on retracement feature as well is Yearly Pivot Support 1. This year it holds downside action. We know the major feature of pivot supports - it has to hold downside action if this is a retracement. This is particular what we have right now.
While fundamental EU environment still stands unclear, technical picture brings some bullish features. And if this scenario still will be realized - we could consider COP as nearest target at 1.2250.
Conversely - sudden drop below 1.09 area and YPS1 will unlock our bearish view and downside continuation back to 1.03 lows. We talked about it regularly in our researches.
Weekly
Here, on weekly we also take a look at longer-term picture and see how weekly chart corresponds to our idea on monthly one. Definitely, to support monthly scenario weekly chart has to form bullish reversal, and preferably by some clear pattern. Currently it seems that we should focus on reverse H&S pattern. Current AB-CD pattern has XOP around 1.1450 Fib resistance and potential neckline. Right arm should be formed later around 1.1150 area.
This anticipated pattern is also useful as we could make judgement on EUR direction by comparing how it matches to the H&S project. While it follows it - it keeps bullish scenario. But if something goes wrong - this will be clear signal that sentiment changes and EUR turns downside.
In shorter-term perspective we use the same AB-CD pattern and see how EUR will deal with strong 1.12 weekly/daily K-resistance area:
Daily
As we've said on Friday, market could go down due "Sell by fact" type of action from speculators. UK elections are done, "stage 1" agreement is announced - its time to book profit based on these events. Currently, on daily chart we see strong K-resistance area of 1.1208-1.1236. And here we could get some multiple pullbacks when EUR will take few attempts to break it up. First challenge already is done.
This situation tells that we could consider long entries at pullbacks with profit taking around K-resistance and/or keep some fraction of position with breakeven stop in anticipation of breakout. Game will be over when K-area will be broken or EUR drop below "C" point, erasing AB-CD pattern.
Intraday
Here we have first setup. Potentially we could get DiNapoli "Oops!" directional pattern, based on H&S background. Take a look that right under neckline we have K-support and COP Agreement area. Thus, H&S could fail and EUR could rally up from here. Thus, 1.11 is first level where we consider Long entry.
If, somehow H&S still will work - next area to watch for is OP Agreement around 1.1060.
Conclusion:
At the edge of the year, situation on financial markets become interesting as new perspectives are opening gradually. Despite that it is still very difficult to suggest how it will turn, the fact that we have not only one direction makes trading process interesting. What is really good in this situation that perspective is based on clear patterns that we could suggest right now and just track their performance. Patterns also make it easy to set targets and control the action to catch early signs of failure.
In short-term perspective we intend to follow the same patterns that we did this week.
