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European Forex Pro Weekly 2010-03-31

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Mar 31, 2010.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    EUROPEAN FOREX PROFESSIONAL WEEKLY
    Analysis and Signals
    March 31, 2010

    Fundamentals

    Although US macro data didn’t show a rising pace – it was in a row with expectations generally, but still it shows that the recovery is intact. Consumer confidence has shown 52.5 (expected 51.0), Michigan Sentiment 73.6 (expected 73.0), Existing Home sales 5.02M (expected 5.0M), Claims data – 442K (expected 450K). From the other side, we have seen downward revision of GDP (to 5.6%) very shallow Consumer income and spending.
    Nevertheless, the Fed’s rhetoric continues to suggest that they are working toward policy normalization. Bullard noted that the Fed must start to strategize asset sales and the fed fund futures have increased the probability that the Fed will tighten policy by 25bps in August to 26.3% from 16.4% one month go. Although I think that there will be no tightening till Q3 of 2010 and Fed will leave the accommodative policy in the near-term, the growing probability shows that market has some optimism in rate hiking perception.
    The Greece fiscal storm has calmed a bit – IMF, Germany and France have found agreement about the bailout method. Fiscal help will include both IMF loans and bilateral loans from EU members. Leading up to the decision, the divergence over the plan was great but eventually German’s Merkel and France’s Sarkozy got their way with IMF participation. The bilateral loans will be based on each country’s involvement in the ECB. This means that Germany and France will lend the lions share. The market has reacted negatively on IMF help involving. The last Western European country that received IMF help was the UK in 1976.
    During recent days the US Treasuries yield has grown significantly. I think that the main reasons for that are Healthcare reform, the growing budget deficit, and the recovery pace of US economy. Let’s discuss them step by step.
    The rumors and talks around healthcare reform did not started yesterday, but particularly during recent days (Obama’s speaking and his presence during voting in Congress, the voting itself) turns rumors into reality. The market is starting to assess the reform and its impact on the US budget. The 940B of dollars during 10 years is a solid sum. Besides, economists are expecting that deficit will reach 90% of GDP in 2020 due to pace of growth in debt also. While economic growth was uncertain and the labor market hasn’t shown any improvement the demand for US Treasuries was high as a safe haven asset and for the dollar, because of low rates and soft Fed policy. But now the situation has changed – we see that fiscal recovery is underway, Healthcare reform turns to reality, Greece problems has calmed down for near term, and the US deficit is almost the same as after WWII. The market is already negatively prices the credit quality of US – 10-year swap spread turns to negative. It means that market is pricing in a downgrade of US credit.
    So, some dollar supportive factors become weak (Greece situation) but higher yields and US economic data are still in play. Concerning the nearest NFP release – whispers about +300K still stay in market. But this is a big game of big guys. The previous rumors for Feb NFP was worse than expected, but NFP was released in a row.
    I think that a strong NFP is a last puzzle part that is necessary for USD growth in near term. If NFP will be released weak or worse than expected, we will see higher retracement. Besides, there are too many short positions on the market for now and this can trigger retracement in combination with weak NFP as well. Nevertheless, I leave intact my long-term expectations for EUR/USD.

    Résumé: The US economy continues to show signs of improvement. For now the basic expectation is that the Fed will tight rates to 0.5% in Q3. It will happen with solid probability if the current trend in macro data will continue. The healthcare reform can change the economic and fiscal landscape in the long term. For now it is too difficult to make forecasts, but some worrisome signs already exist.
    The situation in he EU is very complicated, and I think that it will not be fully resolved until the summer. Investors want to see debt maturity from Greece, how EU supportive programs will work and maturing of debt obligations from Spain and Italy in 2010. For now all this stuff has too much uncertainty and remains a Pandora’s Box rather than a clear plan of stabilization. This situation allows me to assume that EUR will stay under pressure and EUR/USD downtrend will hold. Possible long-term targets – is 1.28 and psychological 1.25 levels. But the movement may become a bit slower than before and we can see some retracement higher in mid-term if NFP is disappointing.


    Technical

    Quarterly (EURO FX all sessions CME futures)

    Today we will look at a bit larger picture first. I’ve prepared a Quarterly chart of EUR/USD. There are some interesting movements here. First, we have a down trend. The blue line on the chart is the lower bound of Oscillator predictor that shows us an oversold level of the market. There is no oversold yet, but the market is close to this. Very important thing – Agreement support that includes COP target at 1.2881 and 0.382 major support level at 1.3030. If we add to this quarterly oversold condition then we get a very strong support at 1.28-1.30 level. Also I’ve marked possible H&S pattern – it is skewed a bit, but possibly this is one. We have neck line precisely in the Agreement area. All this stuff makes me expect that we shouldn’t break the neck line at the first attempt. I expect retracement higher from 1.28-1.30 area. Taking into consideration that this is a quarter chart (the IIQ will start tomorrow) the market should stay above 1.28 till July 2010. In general, this is in a row with fundamental expectations – even NFP will release great – we see down move in April, but Fed still hold soft tighten policy and that can lead to consolidation in second half of April and May. Although market has penetrated 1.3030 support level – it didn’t close below it, so I think that it still works.

    Quarterly EUR/USD
    [​IMG]

    Monthly (EURO FX all sessions CME futures)

    Monthly #1 chart shows some additional detail to the quarterly graph – additional 0.618 support. So, we have monthly Confluence (although it a bit wide) and Agreement with COP=1.2881. Also we have Oversold level there and possible neck line of H&S pattern. So, the result is the same 1.28-1.30 is a very strong support, we have all rights to expect pullback from this somewhere around May.
    Monthly#2 chart shows another price swing. We have down trend no oversold yet. In fact, just one support stays for this price swing – 0.618 major support at 1.3402. Although market has reached 1.3266 already, it still does not close below it. Probably it will not happen in March, but in April, especially if NFP will be solid.

    Monthly #1 EUR/USD
    [​IMG]

    Monthly #2 EUR/USD
    [​IMG]

    Weekly (EURO FX all sessions CME futures)

    Looks like market has some pressure that makes a down move continuation more difficult. It couldn’t close below 1.3400 on the previous week and stays above it for now. So, it needs some catalyst to go down further. Still, we have a bearish trend and no oversold. That means that targets are the same - XOP=1.3074 and COP=1.3112. These targets just above 1.2880-1.3030 monthly support. I think that they can be reached during April (especially with solid NFP).

    Weekly EUR/USD
    [​IMG]

    Daily & 4-Hour (EURO FX all sessions CME futures)

    We should look at the Daily and 4-hour charts together, because they add to each other. On daily after thrust move of A-B, market has reached oversold and has shown a reversal upwards move. This lets us to calculate target COP=1.3196 for now. This target will be intact until market will not move higher than C point at 1.3538. Daily and 4-hour trends are bearish, but 60 min trend (not shown) is bullish (by the way – there is an excellent Wash & Rinse example of 1.34 on 60-min chart).
    Let’s look at the 4-Hour chart – we see something that looks like reverse H&S, but the most interesting are two areas - 1.3530-1.3560 and 1.3590-1.3610. The first area is agreement and Confluence area, besides, 4-hour oversold condition is here. The second area also in Agreement of XOP=1.3592 and Confluence resistance 1.3603-1.3610. If the market will break through the first area – the daily and 4-hour trends will turn bullish. So, I will expect some penetration of 1.3530 level, and watch for unconfirmed daily trend changing. If it will happen, we can prepare ourselves for a down move with stops just above second Confluence resistance (somewhere around 1.3630 area). If the market will pass through 1.3530 area then this context should be canceled and we will have to watch for further development.

    Daily EUR/USD
    [​IMG]

    4 Hour EUR/USD
    [​IMG]

    Trade possibilities (1):

    Monthly

    The nearest long-term target is COP=1.2880. I expect that we will see retracement higher from 1.28-1.30 area in IIQ.

    Weekly

    We have a down trend, no oversold conditions. Although the market has renewed lows, it does not pass through 1.3400 level yet. Weekly nearest target is 1.3074-1.3112 area. They can be reached during April, especially with solid NFP release.

    Daily

    Watch for signs of weakness around 1.3530-1.3550 level during today and tomorrow. If daily chart will show penetration of 1.3530 today but close below it – the short position will be possible with s/l just above 1.3630 area and COP target=1.3200. If market will pass through 1.3530, I’ll be watching for further development of situation.



    Current European Forex Professional Weekly Signal - Forex Peace Army Forum


    (1) “Trade possibilities” are not detailed trade signals with specific entries and exits. They are expectations about possible moves of the market during the week based on market analysis.


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    General Notice: Information has been obtained from sources believed to be reliable, but the author does not warrant its completeness or accuracy. Opinions and estimates constitute author’s judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipients of this report must make their own independent decisions regarding any securities or financial instruments mentioned herein.
     
  2. D. Moser

    D. Moser Private

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    IIQ?

    Dear Sive,

    Coud you please define "IIQ" in the monthly trade section:

    "The nearest long-term target is COP=1.2880. I expect that we will see retracement higher from 1.28-1.30 area in IIQ."

    I couldn't readily find a definition for this reference. Thank you!
     
  3. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Hello, D. Moser,
    It's quite simple. IIQ means Second Quarter, April-June time frame ;)

    Sive.
     
  4. Sentinel

    Sentinel Sergeant

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    You mean this one?
     

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  5. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Hm, well
    Yes, but this W&R, that I've talked about is on the bottom of the circle.
     
  6. Sentinel

    Sentinel Sergeant

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    NFP

    ADP figure came -23 which is worse than expected (+40 expected)

    NFP expectations are as follows :

    briefing.com : 75K Consensus : 184K
    forexfactory.com - Expected: 185K

    Sive,

    How do you think the market will react if NFP comes positive (jobs created first time in a row) but worse than 185K expectation?
     
    #6 Sentinel, Apr 2, 2010
    Last edited: Apr 2, 2010
  7. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Well, I think that market needs surprise for dollar strenghten in near term (I've marked it in research).
    So, If NFP will be worse, but not too worse, I expect huge volatility first, and then drift higher on EUR/USD during some days.

    Technically there is some confirmation to that - look at weekly, we have Completed Elliot 5-wave pattern and W&R of major 0.618 support. The weekly trend will remain bearish, till 1.3720 area (due to MACDP)
    Daily trend already turns bullish.
    Very interesting 1.3608-1.3620 confluence support - there overbought, 1.3655 - OP, and 25x5 resistance.
     

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  8. steve sanchez

    steve sanchez Recruit

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    Alpha

    How much knowledge does one need to learn .
     
  9. Sentinel

    Sentinel Sergeant

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    Hi Sive,

    I know that DiNapoli prefers more long periods for Double Repo analysis but here is the 30m chart for Gold this morning. A Possible Double RePo even though the thrust is not perfect? Looks like the market having difficulty penetrating 1127 level and several W&R's there.
     

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    #9 Sentinel, Apr 5, 2010
    Last edited: Apr 5, 2010
  10. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Hi, Sentinel
    For me it's not a DRPO, it's not even a LAL.
    Poor thrust (even at all)
    too deep retracement after first penetration
    Besides, even, if you would like to trade it - it worked out already, OP has been reached...
    But, you can track it, possibly it will turn to triangle...
     
    #10 Sive Morten, Apr 5, 2010
    Last edited: Apr 5, 2010

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