Sive Morten
Special Consultant to the FPA
- Messages
- 18,564
Hello, everybody
This is a starting research for next week (but look for daily updates). I remember about format and the FPA is working on this. But for current week I publish research with attachments. Sorry, if it is a bit uncomfortable for you.
Fundamentals
Looks like the situation on the markets calms gradually after panic and fast assets relocation.Fundamentals come on the first place. Fed is most hawkish now compares to ECB and BoJ. While probability of rising rates in September has contracted from 29.6% to 22.9% (based on Fed Fund futures rate) due to fears that pace of recovery in world economy can reduce, the currency market is a relative one, so the USD looks much more favorable then JPY or EUR. When ECB and BoJ pump cash into economy, the Fed thinks about reducing its balance of MBS, starting of issuing short term interest bills – in other words thinks about contraction money supply. If we add to all this stuff good US macro numbers (although employment is late-blooming a bit), the Fed position is much stronger. the EU austerity plan gives us more questions rather then answers, and when smoke around battlefield will roll away it will become clear that EUR will stay under pressure in foreseeable future. I expect a slow death of EUR and expect that it will reach our technical OP target around 1.15.
Next question is to China. The market will closely watch for development of the situation there. The main problem is a bubble in China's real estate market. Different actions from China's Central bank to chill out real estate market (prices are growing for 11-15% per month) can lead to slips in China’s economic growth and this in turn, to world economy. If China will start to raise rates – it will hit twice. First, it will press on credit and loans and appreciate the Yuan - that is bearish for USD. At the same time, PBOC promises that Yuan course should remain stable and try to apply different regulation to real estates. For example PBOC initiates a limitation that restricts households to buy more then one house a year. Prices have reduced about 9% due to this limit.
Concerning the EU crisis, I just want to note here that the bailout plan itself has many questions. I do not want to write here all of them because it will take too much space here and is not so important for our application. For example – how all sums will be funded, what will happen if one country will fail in providing its portion of reserve, how decisions will be made about debt purchasing of a particular country. These are just some of them… So, the point is that presence of these questions per se can lead to unpredictable turnings in hard time moments. We have to be careful because nothing is done yet.
Technical
Monthly
This is a monthly chart. Trend is bearish. Market has passed previous Fib support at 1.2577, although bar is not closed yet. The next Fib support is 1.2198 level. Also we at monthly oversold. Potentially, combination of Fib support and oversold gives us a directional “Stretch” signal. But, from tactical point of view I think that signs of retracement should appear when Stops below 1.2326 will be cleared out. I’ve told in recent two weeks that despite oversold the market should clear these stops, because this level is just as magnet. Now we are only 50 pips higher. So, I do not see any buy signals right now, at the same time we are at monthly oversold and I do not want any “sell and hold” positions. It means that until stops were hit I will take short term trades with bearish bias. Like those that I’ve described in previous week on Fri, 14 of May. When/If stops will be hit, I will be looking for potential Buy signals on a lower time frames. This can happen as soon as next week.
Weekly
This is a weekly chart. It will help us estimate a possible down move target. Here are two Fib supports and one of them 1.2022 coincides with weekly oversold 1.2044. So, here will be a solid support – Fib support, weekly and monthly oversold. Besides, stops should be cleared out already, if market will reach this area. 1.2129 is a Weekly Pivot support 1 by the way. So, 1.2022-1.22 will be very strong support and I expect that market should show any “Buy” signal somewhere in this area.
Daily
This is a daily chart. And there can be two scenarios at the beginning of the week. First scenario – if the market does not reach stops at 1.2330 and will make a shallow retracement up. In this case I’ll be searching for enter short. 1.2613 is a weekly Pivot point. As I said weekly pivots are traded by the market in 70% of cases. So, if on Monday market will test Pivot and close below – this will be a good sign to enter short. The second level of possible enter – 1.28-1.2815 area – daily Confluence resistance and Overbought.
Second scenario – the market will clear stops and then start to pull back. In this case will be better not to sell and wait for some time, may be short-term buy will be possible. Remember, our context is stops below 1.2330. If market will clear them our context for short trade will disappear, and we at monthly, weekly and daily oversold. Anyway, I think that current market is a trading market; it means that we have to say “No” any long-term positions. Short-term trades have a privilege for me now.
This is a starting research for next week (but look for daily updates). I remember about format and the FPA is working on this. But for current week I publish research with attachments. Sorry, if it is a bit uncomfortable for you.
Fundamentals
Looks like the situation on the markets calms gradually after panic and fast assets relocation.Fundamentals come on the first place. Fed is most hawkish now compares to ECB and BoJ. While probability of rising rates in September has contracted from 29.6% to 22.9% (based on Fed Fund futures rate) due to fears that pace of recovery in world economy can reduce, the currency market is a relative one, so the USD looks much more favorable then JPY or EUR. When ECB and BoJ pump cash into economy, the Fed thinks about reducing its balance of MBS, starting of issuing short term interest bills – in other words thinks about contraction money supply. If we add to all this stuff good US macro numbers (although employment is late-blooming a bit), the Fed position is much stronger. the EU austerity plan gives us more questions rather then answers, and when smoke around battlefield will roll away it will become clear that EUR will stay under pressure in foreseeable future. I expect a slow death of EUR and expect that it will reach our technical OP target around 1.15.
Next question is to China. The market will closely watch for development of the situation there. The main problem is a bubble in China's real estate market. Different actions from China's Central bank to chill out real estate market (prices are growing for 11-15% per month) can lead to slips in China’s economic growth and this in turn, to world economy. If China will start to raise rates – it will hit twice. First, it will press on credit and loans and appreciate the Yuan - that is bearish for USD. At the same time, PBOC promises that Yuan course should remain stable and try to apply different regulation to real estates. For example PBOC initiates a limitation that restricts households to buy more then one house a year. Prices have reduced about 9% due to this limit.
Concerning the EU crisis, I just want to note here that the bailout plan itself has many questions. I do not want to write here all of them because it will take too much space here and is not so important for our application. For example – how all sums will be funded, what will happen if one country will fail in providing its portion of reserve, how decisions will be made about debt purchasing of a particular country. These are just some of them… So, the point is that presence of these questions per se can lead to unpredictable turnings in hard time moments. We have to be careful because nothing is done yet.
Technical
Monthly
This is a monthly chart. Trend is bearish. Market has passed previous Fib support at 1.2577, although bar is not closed yet. The next Fib support is 1.2198 level. Also we at monthly oversold. Potentially, combination of Fib support and oversold gives us a directional “Stretch” signal. But, from tactical point of view I think that signs of retracement should appear when Stops below 1.2326 will be cleared out. I’ve told in recent two weeks that despite oversold the market should clear these stops, because this level is just as magnet. Now we are only 50 pips higher. So, I do not see any buy signals right now, at the same time we are at monthly oversold and I do not want any “sell and hold” positions. It means that until stops were hit I will take short term trades with bearish bias. Like those that I’ve described in previous week on Fri, 14 of May. When/If stops will be hit, I will be looking for potential Buy signals on a lower time frames. This can happen as soon as next week.
Weekly
This is a weekly chart. It will help us estimate a possible down move target. Here are two Fib supports and one of them 1.2022 coincides with weekly oversold 1.2044. So, here will be a solid support – Fib support, weekly and monthly oversold. Besides, stops should be cleared out already, if market will reach this area. 1.2129 is a Weekly Pivot support 1 by the way. So, 1.2022-1.22 will be very strong support and I expect that market should show any “Buy” signal somewhere in this area.
Daily
This is a daily chart. And there can be two scenarios at the beginning of the week. First scenario – if the market does not reach stops at 1.2330 and will make a shallow retracement up. In this case I’ll be searching for enter short. 1.2613 is a weekly Pivot point. As I said weekly pivots are traded by the market in 70% of cases. So, if on Monday market will test Pivot and close below – this will be a good sign to enter short. The second level of possible enter – 1.28-1.2815 area – daily Confluence resistance and Overbought.
Second scenario – the market will clear stops and then start to pull back. In this case will be better not to sell and wait for some time, may be short-term buy will be possible. Remember, our context is stops below 1.2330. If market will clear them our context for short trade will disappear, and we at monthly, weekly and daily oversold. Anyway, I think that current market is a trading market; it means that we have to say “No” any long-term positions. Short-term trades have a privilege for me now.
Sive
Attachments
Last edited: