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European Forex Professional Weekly 2009-11-25

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Nov 25, 2009.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    EUROPEAN FOREX PROFESSIONAL WEEKLY
    Analysis and Signals
    November 25, 2009


    Fundamentals

    There was not much information that can add some new colors to the current picture. First, Existing Home sales released a bit higher (6.1 Mln.) than expected (5.7 Mln.) but this fact didn’t add much optimism to investors. First, as you should remember, new home starts data was very soft. Although foreclosed homes are being cleaned up, too many existing homes for sale still is a concern. Existing single family home supply probably needs to drop another million units to be bullish for the home building industry and seriously firm up prices. Great existing homes inventory pressures the building industry, because supply is too big and there is not enough demand for new homes for now. Besides, poor income growth and still tight financing are creating a headwind to demand. That’s why I think that investors will look at existing home inventories first, and then on sales numbers, and we should not expect significant growth in new homes sales until the current existing homes supply will be cleaned up.
    GDP was revised downward yesterday (to 2.8% from 3.5%). This fact was not a surprise. Due to this revision, US Treasuries yields had declined significantly. This fact is very suitable for our view on whole situation in the US economy. Investors' reaction was shallow, with no strong moves on FOREX. I think that the reasons are twofold. First, GDP has showed growth. That means that economy s still on the way to recovery, the carry trade is justified and data has not changed general picture much. Besides, Thanksgiving is near, so there is no much will to change a lot.
    Concerning the pace of the economic recovery, there was much rhetoric from officials. On the Fed rhetoric front, Bullard suggested that the Fed should look into keeping the supportive programs open (there is an expectation that these programs will continue through Q1 2010). Chicago Fed President Evan’s statement added insult to injury as the governor stated he believed that the Fed would be on hold until late 2010. So, current expectations are that the Fed will begin raising rates as early as Q3 2010 (look at the graph).

    [​IMG]

    At the first look, the situation in EU is much better. The November PMIs for France, Germany and the Euro-Zone all increased sequentially though France’s manufacturing survey fell slightly below expectations. Additionally, the hawkish rhetoric from ECB President Trichet from last Friday continued to resonate with the markets. The central bank head noted that the bank will withdraw some financial support measures as a precursor to eventual interest rate increases. The bank will first proceed by tightening requirements for “asset backed” securities that banks use as collateral for the low-interest loans. This decision sent a message to the market that the ECB is in exit mode. Nevertheless, there is a great probability that ECB will be on hold till Q1 2011. I think that investors undervalue the risks of Eastern Europe’s countries in the EU that is definitely a Pandora's box for the EU economy. The debt levels of Europe’s periphery are growing. Last week, the Greek central bank warned Greek banks from borrowing any more from the ECB as debt levels are approaching unmanageable levels. The debt levels will exacerbate the already syncopated recovery in the Euro-Zone. The ECB will face a very difficult decision if the periphery continues to deteriorate and the stronger parts of Europe recover and experience inflation. Beyond Greece, Hungary’s debt levels are expected to hit 75% of GDP according to the European Commission. These issues can become a serious barrier on the way to recovery.

    Résumé: fundamentally the USD is weak and now I do not see any long-term strong factors that can reverse this process. As I said in previous research, I do not believe the current stock market, we are too bullish currently, and this fact does not correspond with macro data. So, maybe we can see some retracement on EUR/USD lower due to reassessment of the current situation and ending of finance year. Besides, the EUR/USD is under 1.50 resistance, and trying to break it. But the longer the pair is under this level the more short-term players will appear on the sell side and the probability of a upward break is reduced.

    Basic macroeconomic issues:

    1. Investors basically pay attention only to the nearest perspective. Since FED rate tightening is too blurring, we should not to expect meaningful USD strengthening until next year (or till first signs of a rate hike possibility);
    2. USD will become stronger when investors see these signs, so the expectations concerning EUR/USD rates parity will change;
    3. We can expect growth in the USD, if the possibility of second leg of recession will grow, and if investors will have large borrowing positions in USD;
    4. EU economic recovery will have a time lag about 1-2 quarters compared to the US recovering;
    5. When EU rate hike expectations will appear, the dollar will turn to weakeness;
    6. We can see temporary USD strengthening from time to time due some technical movements (risk aversion, stocks buying etc) until the first signs of a rate hike possibility appear.
    7. The primary US economic data that will be under scrutiny are personal credit, spending, wages and employment, inflation. This is a final segment in the chain, and it’s very important.

    Technical

    Monthly (EURO FX all sessions CME futures)

    As we’ve estimated, overbought level for November is in the 1.5474 area. So, to continue an upward move, we need to break the previous maximum at 1.5065. The nearest target on the monthly chart if it will happen – 1.6270-1.6280 area.
    There are many stops just above all times high, so if they will be touched, the pair will fly higher very fast.

    [​IMG]

    Weekly (EURO FX all sessions CME futures)

    On the weekly chart there are two important movements. First there is a strong price pressure – look at MACD and price moving. MACD shows a downtrend, but the price goes up. Technically this is a sign of strong up move. Second, a calculation of Fib expansions gives us 2 targets OP=1.5196 and XOP=1.6098.

    [​IMG]

    [​IMG]

    Daily (EURO FX all sessions CME futures)

    For the last week, the EUR/USD was very choppy. I’ve posted in last research that the pair should reach 1.4783 level of agreement, but it didn’t go lower than 1.4797 and has reversed up. So, for now the trend is bullish, we do not see any overbought. Besides, for the nearest couple of days the market will be very thin, and that can help in stops licking by market-makers. The nearest target, based on daily is 1.5210-1.5220 area. But the main movement is a 1.5065 break. If it will happen – we definitely will be much higher. The weekly situation is in favor of this scenario. And market didn’t retrace much after 1.5048 level. So, I think that we can break through 1.5065.

    [​IMG]

    4-Hour (EURO FX all sessions CME futures)

    Well, 4-hour trend is bullish, the nearest target COP=1.5061 is just under 1.5062 high. What do you think; will it be a great temptation to touch the stops? But if we will look at situation widely, what will we see… The market didn’t reach the previous high and retraced lower just to the nearest 0.618 Fib support. So it means that market is preparing to break still. If not, it should have had a much deeper retracement. So, I think there is a much probability that a break (if it will happen at all) will take place on thin market – from today evening till Friday morning. At least, we should reach 1.5061.

    [​IMG]

    Trade EUR/USD possibilities (1):

    Fundamentals are still not in favor of the USD. In the long-term, an upward move should continue. But for the nearest 1-2 months we can see a technical retracement if investors reassess the current economic situation and begin to run into quality.
    I think that the weekly situation is bullish, prices show a great pressure and not even a sign of retracement. On the daily chart the situation was very choppy during last week, but the market showed minimum retracement from the previous high. It means that prices consolidate for break. Daily and 4 Hour trends turn bullish, there is no sign of an overbought level. The sweet stops are very near, and soon the market will be thin. So, I think that there is a solid probability to go to 1.52. Besides strong resistance on the equity market is about 1155-1160 by S&P500, so I think it should reach it before possible retracement, and the EUR/USD has a possibility for an upside move from that point of view also.

    Anyway the best way to enter – wait for a break. It is safer to enter at the retracement after the break rather than now. Before the break, the market will be more volatile. Besides, if the break will not hold at all it will save you from potential looses. I even do not mention the fact that you can easily catch the stop during under 1.5065 fluctuations.



    (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. Ricex

    Ricex Sergeant

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    Thank you for that great piece of analysis, makes a lot of sense.

    I too was looking at recent EUR/USD consolidation as a precursor. My guess came down on the side of more weak dollar, even though we were looking at 1.50 close-up I just couldn't see a top there at the present time.

    Thanks again, much appreciated.
     
  3. tadinda

    tadinda Private, 1st Class

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    Hi Sive,

    Great Analysis once again.
    Sive, I am still struggling on the formula to obtain the Overboiught Value which you calculated in your previous analysis of around 1.54.

    Can you please supply me the formula and the parameters which you are using.

    Sorry mate but have been at it for two weeks now and am still getting funny numbers.

    Thanks again.

    Ernest
     
  4. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Hello, Ernest,
    well, It quite simple to do.
    Look:
    Let's mark the sum of previous 6 close as "S", our overbought price as "X".
    Then extreme oscillator number D (that is known) should be equal "X-(S+X)/7
    D=X-(S+X)/7, then 7D=7X-S-X, then X=(7D+S)/6
    There are a numbers:
    Six previous monthly closes: 1.4718;1.4637;1.4331;1.4256;1.4035;1.4156
    So the sum is 8.6133
    The extreme DOSC level is about 0.0937 So, X=(0.0937*7+8.6133)/6=1.5449

    Hope it helps,
    Sive
     
  5. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Gentlemen,
    It's very interesting situation on the market now. EUR/USD couldn't hold above 1.5065 and pulled back. It looks like it was just stop haunting, and market washed and rinsed previous high level.
    So, it makes move to 1.4620 with great probability. Besides, look at the S&P that is what I've talked about...
     

    Attached Files:

  6. tadinda

    tadinda Private, 1st Class

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    THanks Sive,

    That is what I have been doing. So my data may not be so good.
    I am also presuming that I can use the same equation to calculate the Day OB and OS prices as well.

    Once again thanks.

    Ernest
     
  7. Sentinel

    Sentinel Sergeant

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    Railroad Track

    Looks like a RailRoad Track directional indicator has occured according to DiNapoli. Isn't it? I am planning to sharply sell at 0,382 retracement around 1,4950 as advised.
     
  8. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Well, for me it Wash and rinse rather than RRT. Besides, it has touched 1.4827 already (OP), RRT target has been achieved. For RRT there should not be any price action from the left side.
     
    #8 Sive Morten, Nov 27, 2009
    Last edited: Nov 28, 2009
  9. arrautxa

    arrautxa Recruit

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    I need help with the OB/OS formula posted on 11/27/09 by Sive

    Thanks Sive for your analysis.
    On your post 11/27/2009 you posted the formula bellow. Would you be so kind as to explain where did you get de DOSC level from? Probably is a dumb question but I really want to understand how to calculate the OB/OS formula.Do you also use it to calculate daily OB / OS as well?
    Thanks in advance
    Bill

    Let's mark the sum of previous 6 close as "S", our overbought price as "X".
    Then extreme oscillator number D (that is known) should be equal "X-(S+X)/7
    D=X-(S+X)/7, then 7D=7X-S-X, then X=(7D+S)/6
    There are a numbers:
    Six previous monthly closes: 1.4718;1.4637;1.4331;1.4256;1.4035;1.4156
    So the sum is 8.6133
    The extreme DOSC level is about 0.0937 So, X=(0.0937*7+8.6133)/6=1.5449
     
  10. Sive Morten

    Sive Morten Special Consultant to the FPA

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    HI, Bill
    DOSC level is a difference between "Close" and 7-period-SMA. So, you use about 130-140 periods and find the max and min of DOSC. That is an Overbought and Oversold numbers of OSCILLATOR. And then, you calculate price for this numbers of Oscillator, as I've posted.
    You can check any of my analysis - DOSC is always on the charts (Blue line).
    DOSC or OSC is included in CQG.

    Sive
     

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