FOREX PRO WEEKLY 17-21 August 2015

[Sive Morten]

Fundamentals


Reuters dollar inched up on Friday against a basket of currencies on encouraging data on U.S. producer prices and industrial output, while the euro ended a good week on a weak note even as the Greek parliament approved a new bailout agreement.

The greenback stabilized after weakening earlier this week when China devalued its currency, roiling global financial markets and stoking worries about the world's No. 2 economy.

"We have seen a stability in the dollar in the past few days. The data continue to show improvement," Eric Viloria, currency strategist at Wells Fargo Securities in New York.

The dollar index was up almost 0.1 percent on the day at 96.670, finishing the week with a 1 percent loss, its steepest decline in nine weeks.

In July, U.S. producer prices increased for a third straight month, and factory production rose at its strongest pace in eight months, the U.S. government said. Those figures were mitigated by a surprise deterioration in the University of Michigan's index on U.S. consumer sentiment in early August.

Friday's economic readings kept in play bets the Fed will increase rates by year-end.

The euro rose earlier Friday as investors unwound euro-funded carry trades in the yuan and other emerging market currencies, which were hit hard by the yuan devaluation on Tuesday. The euro also got a boost from the Greek government's approval of a deal with creditors.

But the dollar recovered on the latest U.S. data, and the euro was down 0.3 percent at $1.1110, paring its weekly gain against the greenback to 1.3 percent.

On Friday, the People's Bank of China set the yuan midpoint at 6.3975 yuan to the dollar, slightly stronger than Thursday but marking a record weekly loss of 2.9 percent against the dollar.

In response to the market turmoil, Beijing sought to allay fears that a cheaper yuan could trigger a "currency war," or a race among the world's biggest economies to cheapen their own currencies to keep their exports competitive.

Some analysts said China would resume devaluation, perhaps at a slower pace, in the coming months.

"A 2 to 3 percent drop (in the yuan) is not enough. They obviously have problems with its economy," said Jose Wynne, currency strategist at Barclays in New York.


Speculators boosted bullish bets on the U.S. dollar to their highest since the third week of April, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.

The value of the dollar's net long position rose to $37.19 billion in the week ended Aug. 11, from 32.77 billion in the previous week. But this is on all futures positions.

Particular on EUR situation has not changed since last week. Total interest has contracted slightly again, but this contraction has happened due almost equal contraction of shorts and longs positions. All speculative positions still stands around 70% and keeps door open as for rally as for drop. That’s being said CFTC data mostly flat.


Open Interest:

Longs:

Shorts:

Technicals

Monthly

Despite sentiment CFTC data that shows no shifts yet, we just can’t miss or ignore some signs on technical charts and it seems that they could be early bells of coming changes. Still, we see them mostly on lower charts by far. Here, on monthly picture currently we have just one new issue – possible second close above 3x3 DMA. Yes, there are 2+ weeks till the end of August still, but right now EUR stands above 3x3 and if it will close above it by the end of the month – this one will be second close. At the same time it is very difficult to treat this shape as DRPO “Buy” because we do not have any signs of bears’ capitulation, we do not have two recognizable bottoms that typical for DRPO pattern. This make a bit difficult to rely on this setup as on pure DRPO. Still, we have assistance from lower time frame charts as well and there we could get additional information on perspectives of EUR.

Trend is still bearish here. Based on character of recent activity on the market – recent 3-4 months are definitely a retracement, but it could develop differently

As we have estimated previously 1.05 is 1.27 extension of huge upside swing in 2005-2008 that also has created large & wide butterfly pattern. Recent action does not quite look like normal butterfly wing, but extension is valid and 1.05 is precisely 1.27 ratio. At the same time we have here another supportive targets, as most recent AB=CD, oversold and 1.27 of recent butterfly.

April has closed and confirmed nicely looking bullish engulfing pattern, although market still can’t trigger it, but it is still valid. We know that most probable target of this pattern is length of the bars counted upside. This will give us approximately 3/8 Fib resistance 1.1810 area. This retracement should be mostly tactical. We continue to expect downward continuation in long-term perspective.

Despite whether upside retracement will happen or not our next long-term target stands the same – parity as 1.618 completion point of recent butterfly. Currently we should treat possible bounce up, even to 1.18 area, only as retracement within bear trend. But may be it fully will be triggered only after the fact of rate hike next month.

Weekly

Last week market finally has triggered multiple grabbers that were formed previously. So, our suggestion last week that not quite natural reaction on good NFP data will have important consequences was confirmed. Now market has met first resistance on a way up that is MPR1.

Minimum target that market should reach based on grabbers is former highs around 1.1450 level. If we suggest possible upside AB=CD then our monthly scenario with B&B pattern @ 1.18 does not look as impossible as previously.

Recent upside action makes situation a bit tricky. Thus, on monthly chart we’ve said that it will be difficult to treat recent action as DRPO, because we do not see clear bottoms. At the same time, market to create this bottom will have to drop back to 1.08 lows. In this case it will destroy grabbers. But grabbers could be patterns that will trigger upside action to 1.18. As you can see it will be difficult to build-in grabbers in DRPO shape. Of cause, market could form just AB=CD up based on engulfing pattern and do not form any DRPO. Still, one way exists how grabbers could be combined with DRPO. Say, if market will hit 1.1450 grabbers’ target and then drop to 1.08-1.09 area, then second bottom of DRPO will be formed and market could turn to upside action… But which one scenario will prevail, who knows. Currently it is impossible to say definitely. That’s why since right now we have just grabbers as clear patterns, we will continue to trade them and later we will see what to do next.

Our invalidation point is still 1.08 lows, target by far is still at 1.1450

Daily

Picture barely has changed since Friday. After market has reached strong resistance around 1.12 – Agreement and MPR1, other time we have spent in attempts to estimate the end of downward retracement, where we could take long position again. Day by day we’re getting more and more information that makes overall picture clearer. But mostly this happens on intraday charts. Here, on daily, we can’t say much. Retracement could be any depth from 3/8-5/8 Fib levels and will not mean that upside action is over. Here we just could say that MPP stands in an area of 50% Fib support that is favorite level for EUR currently. Taking into consideration that AB-CD itself is not steep, it mostly reminds some kind of Double Bottom, it makes possible relatively deep retracement to 50% Fib support.

 

[Sive Morten]

4-Hour

On 4-hour chart trend has turned bearish and we see that EUR is forming pennant consolidation. It tells that retracement will be either very small or deep, because any retracement here will depend on whether market will follow pennant or break it. If EUR will hold inside the pattern, then it will keep wide number of scenarios but all of them will have upside direction. For example, it could continue with daily AB-CD directly, or, form small upside butterfly etc.

But if market will not hold inside pennant and break it down, then, probably it will have great chances to reach 1.10 area. This will be solid support cluster, including MPP, trend line, major 50% support and minor 5/8 Fib support area. Now we need just make conclusion on chances that market will hold inside the triangle.

1-Hour

Now we need to look at market mechanics of Friday’s action. We’ve discussed this AB-CD right in the beginning but right now have some additional details. First of all take a look, that CD leg is still a bit faster than AB. EUR has reached minor 0.618 target of AB-CD pattern. But take a look at reaction. Candle #1 is the moment when market has touched the target, #2 is upside respect on it and retracement. But take a look this upside bounce has not got any continuation. By 3rd candle (#3) market mostly has erased upside action. It means that reaching of minor target has not led to upside reversal. This looks even better on 4-hour chart. Since AB=CD target stands outside of pennant, market mechanics here suggests that chances on bearish breakout of pennant are greater. Hence, we could come to conclusion that deeper retracement, may be to 1.10 area is more probable and we should not hurry with taking long position. Let’s see what we will get in reality.

Conclusion:


Despite strong bearish background and fundamentals market shows signs of possible upside retracement, initially to 1.1450, potentially to 1.18 area. Still, this retracement will be mostly tactical and not break long-term bearish trend and our expectation of parity by far.

In short-term perspective our major patterns are weekly grabbers. As upside action already has started, we will continue to work with it. Right now our task is to estimate correct moment for second long entry. Our analysis suggests that 1.10 area is the one that we’re looking for.



The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.

 

[Sive Morten]

Good morning,

The dollar edged higher on Tuesday, as focus shifted back to the prospect of the U.S. Federal Reserve raising interest rates amid receding concerns that last week's devaluation of China's yuan could spark a global currency war.

China's central bank has since tempered the yuan's slide, soothing anxiety of a further sharp devaluation - a scenario markets feared could stoke worldwide disinflation and lead to a global currency war.

The relative calmness in yuan trading has allowed markets to refocus on when the Fed could begin raising interest rates.

"As long as China doesn't continue to aggressively devalue the Chinese yuan, we will see it in the next six months and the U.S. dollar will be stronger," said Jeffrey Halley, FX trader for Saxo Capital Markets in Singapore, referring to when the Fed might start raising interest rates.

The dollar showed resilience even after a New York Federal Reserve survey released on Monday showed manufacturing activity in New York state plunged in August to its weakest level since 2009.

"The New York Federal Reserve data was not a positive one but employment and prices remain the key points towards a potential rate hike," said Shinichiro Kadota, chief Japan FX strategist at Barclays in Tokyo.

"The focus remains on the Fed, including what it might or might not do in the wake of China's yuan move," Kadota added.

The Australian dollar eased 0.2 percent to $0.7361 , but held comfortably above a six-year low of $0.7217 set last week when the yuan's plunge churned currency markets.

So, retracement on EUR is continuing and we come closer and closer to our possible entry point. Daily trend stands bullish and it should remain bullish, if even market will show deep retracement (Based on MACDP indicator). As we've discussed in weekly research - daily picture tells only that prefferable destination of retracement is 1.10 area around MPP and 50% Fib support. But we need more details

Then we've paid attention to pennant pattern on 4-hour chart and said that either EUR will stay inside and retracement will over or, if it will break it down - we should be ready for deeper action. Hourly analysis of market mechanics has suggested that bearish breakout is more probable and this has happened:

Right now we see that market has moved through first 3/8 Fib support and is forming downward AB=CD pattern. Hourly chart right now shows a bit blur picture. At first glance market has hit AB=CD target, but reaction on this event is not bullish - upside bounce is shy and lazy. Market looks heavy. AB=CD target also coincides with 1.27 extension of BC leg. EUR has dropped below WPP:

Also market shows some signs of bearish dynamic pressure since trend stands slightly bullish, but price action does not show any upside acceleration. This tells that market could continue move lower, but where?
1.618 AB-CD target stands around 1.0975. Although it creates Agreement with 5/8 Fib support, it seems a bit too deep action. At the same time 1.618 extension of BC leg coincides with major 50% Fib support and MPP. We suggest that better is to look for 1.1010 area but stop would be better to place below 1.618 AB-CD target.
This analysis will be valid, until we will not get miserable plunge down. If action will hold gradual as it stands now then, we will keep intention to take long position around 1.1010 area.

 

[Sive Morten]

Good morning,

Australian dollar sagged on Wednesday as weakness in Chinese equities amplified concerns over slowing growth in China, while sterling held firm after a pick up in UK inflation kept prospects of a Bank of England rate hike in play.

Moves among major currencies were mild, however, as investors awaited U.S. inflation data and the minutes of the Federal Reserve's July meeting due later in the day for clues on when the Fed will start raising interest rates.

"There doesn't seem to be any striking factors. There is probably some short-covering ahead of the events coming up tonight," said a trader for a Japanese bank in Singapore, referring to the euro's rise versus the dollar.

Economists polled by Reuters forecast U.S. consumer prices rose 0.2 percent in July from a month earlier, a shade less than 0.3 percent in June.

"Another uptick in the U.S. Consumer Price Index may spark a sell-off in EUR/USD as market participants ramp up bets for a Fed rate hike at the September 17 interest rate decision," said David Song, currency analyst at DailyFX.

"However, the renewed decline in oil prices may drag on the CPI, and a dismal print may undermine the Fed's ability to achieve the 2 percent target for price growth amid the disinflation environment across the major industrialized economies."

Sterling held steady at $1.5669 . It had set a seven-week high of $1.5717 on Tuesday after UK inflation data bolstered bets that the Bank of England will raise interest rates in coming months.

Data on Tuesday showed British consumer prices rose in July and core inflation hit a five-month high, prompting investors to bet on the BOE moving slightly faster than previously expected once it starts raising interest rates.

"Further upside surprises in core inflation prints (in particular services inflation) are likely to make the hawkish members more comfortable in pulling the trigger for voting for a hike," Credit Suisse analysts wrote in a note to clients.

Let's continue to talk on EUR. Our last suggestion on deeper retracement has been confirmed and market almost has hit 1.1010 area. So today our major task is to find out what we have right now. Is recent upside action reversal or not yet.
Today we will not need daily chart. If you still have taken long position already - you could move your stop to breakeven. Shortly speaking we do not exclude chances on W&R of recent lows. on 4-hour chart it looks like market is showing uspide action, but at the same time it has not quite reached 1.1010 major Fib support level and we could get bearish grabber. These are two major objects that we have to keep an eye on today:

But more important for us is hourly picture. Why we think that another leg down is possible? Mostly because we have no signs that could prove the opposite think. Thus, market neither has formed reversal pattern nor broken lower highs-lower lows tendency. And this gives the clear answer what we need for taking long position - either reversal pattern (butterfly, 3-Drive, Double bottom etc.) or reversal swing, i.e. breaking the tendency of lower highs.
Since today we will get CPI data and FOMC minutes, very probable that we will get something in few hours.

 

[Sive Morten]

Good morning,

Reuters reports U.S. dollar was on the defensive against the euro and yen on Thursday, having pulled back sharply after Federal Reserve meeting minutes suggested policymakers were in no hurry to raise interest rates.

Fed officials widely agreed last month the economy was nearing a point where rates should move higher, but were worried lagging inflation and a weak global economy posed risks too big to commit to "liftoff."

raders expecting a September rise subsequently sold the dollar, pushing it to a three-week low of 123.68 yen in overnight trade from a high of 124.47. It was last at 123.935.

The probability of a September hike is now 45 percent from about 50 percent towards the end of July, according to the Chicago Mercantile Exchange's Fedwatch.

"The minutes already reflected concern held by policymakers that inflation was not rising as desired even before the recent financial market turmoil," said Monex senior strategist Masafumi Yamamoto in Tokyo.

"The minutes have not factored in falling oil prices and events in China that have taken centre stage since the meeting in July. It would not be surprising if policymakers are even more dovish now in light of these events."

Investors will be able to gauge policymakers' latest thinking when San Francisco Fed President John Williams speaks in Indonesia later in the global day.

"Williams is a centrist and voter and as he is speaking in Asia, may address concerns around developments in China delaying Fed liftoff," wrote Westpac senior currency strategist Sean Callow in Sydney.

In contrast to the dollar, sterling continued to draw support on firmer expectations the Bank of England would raise rates as early as next year.

Higher-than-expected core inflation in Britain along with outgoing policymaker David Miles saying a rate hike would come "pretty soon" supported the pound.

The dollar's broad decline cushioned commodity currencies like the Canadian and Australian dollars, which had come under pressure earlier as oil prices plumbed fresh six-and-a-half-year lows and on persistent worries about China's slowing economy.

The Canadian dollar rose to C$1.3109 per dollar after hitting a low of C$1.3180 overnight.

The Australian dollar rebounded from a one-week low of $0.7312 to as high as $0.7373, but was cut short by a drop in Chinese stocks.

The Aussie, often used as a liquid proxy of China trades, stood little changed at $0.7347.

It touched a six-year low of $0.7217 last week after China devalued its currency, sharpening concern about the health of the world's second-largest economy.

So guys, once again fundamental data has shifted markets and given them new impulse. As CAD has shown important shifts, its time to update our view. On EUR, as you can see, our analysis has started to work.
So, CAD... On Loonie we think that retracement is over and market should continue move up to the 1.34 major target with short-term pause around 1.33. It is very nice coincidence of butterfly target on daily chart and big monthly AB=CD. So AB-CD will be finalized by reversal pattern. Sounds promising...

Now we will try to explain our position, why we think that CAD has chances to continue upward action. But first, take a look at 4-hour picture. Daily 1.27 Butterfly has coincided with minor butterfly here. And now we think that CAD is forming another butterfly pattern. It is intereting that this most recent butterfly has 1.618 extension also around 1.34 area. And 4-hour chart also shows why CAD could make pause in upward action around 1.33 - both butterflies have target around MPP and right around 1.33. Also it will be daily overbought:

On hourly chart we see nothing more but Gartley "222" Buy pattern. It's AB=CD part tells that this move down is not a continuation of first leg and we will not get big AB=CD down, but it is just minor retracement from started upside action. Yesterday, market also has formed upside reversal swing. This issues give confidence with possible further upside continuation. So CAD is entering in last stage of long-term bullish motion (I mean USD/CAD of cause, but not CAD itself).

 

[Sive Morten]

Good morning,

Reuters reports today the Australian dollar tumbled on Friday after a private survey showed that China's factory sector shrank at its fastest pace in 6-1/2 years, adding to worries that the world's second-largest economy may be slowing sharply.

The preliminary Caixin/Markit China Manufacturing Purchasing Managers' Index (PMI) stood at 47.1 in August, well below a Reuters poll median of 47.7 and the worst reading since March 2009.

The euro is likely to stay firm if global equities weaken further, said Jesper Bargmann, head of trading for Nordea Bank in Singapore.

"The driver is the global stock markets. This is a sign of risk aversion and with the euro being one of the preferred funding currencies at the moment, people are paring back their short euro positions," Bargmann said.

Growing doubts as to whether the U.S. Federal Reserve will be able to raise interest rates next month as once expected, have weighed on the dollar and helped to support the euro.

Traders are now quickly pricing out a September hike after minutes from the last Fed policy meeting provided no definitive indication.

They suspect the fall in commodity prices and many emerging economy assets and concerns about a slowdown in China are all making the Fed's plan to gradually raise rates more difficult.

"The market's focus is now shifting to emerging markets and the Chinese economy. I think the dollar is oversold in the near term. But if the Chinese data is weak, we could see more risk-off trades," said Kyosuke Suzuki, director of forex at Societe Generale.

So on EUR market has shown solid rally yesterday that agrees with our medium-term analysis and multiple bullish grabbers that we have on weekly chart. Our medium-term target here is 1.1450 highs. Still, today is Friday and market has completed some targets so retracement now becomes very probable. Overall situation also looks a bit tricky. You just can't miss the shape of 3-Drive pattern on daily chart. And at the same time EUR shows bullish signs - moving above MPR1 and major 5/8 Fib levels.

My personal opinion is that 3-Drive hardly will work completely. Yes it could trigger some retracement, but hardly EUR will return back to 1.10 area. Take a look at 4-hour chart. Every next upside action was stronger than previous one. But this confronts with logic of reversal pattern and increases chances on it's failure.

Still, as we have 3-Drive hazard we need to find such way of entry to minimize possible losses. And it seems that using of most recent thrust up is not bad idea. Say, we could wait for B&B "Buy" and take long position. If 3-Drive still will work - this should happen, after 3-Drive will be completed and we will get chance to move stop to breakeven. But if there will not be any 3-Drive, market will turn to upside action and we will get perfect entry point.
B&B on 4-hour chart could take shape of DRPO "Sell" on hourly chart:

 

[ochills]

Good day Commander in pips,
Your analysis is absolutely priceless. Commander I must say your detail analysis by also applying MARKET MECHANICS give your follower an in-dept reasons or reason that make U decide on market direction. Your analysis drive one big point home to all readers that it not just about ones edge or set up but it is absolutely about PRICE ACTIONS and IN-ACTIONS. Like you will always say in the Forex Military school Price Is the KING.

Thanks Commander, My Mentor.

 

[Venelin]

Hi guys! In the begining of next week I will be watching euro 8h. chart for a potential DRPO sell with target 50% ( and there looking to buy) or DRPO failure and continuation up with the pennant pattern. Here is 8h. EUR/USD chart :

 

[stelore]

Good morning Commander,
super analysis, but I missed limit order at 1.1010 for few pips tonight..........

I hope we'll get another occasion!!!

 

[stelore]

Hello Sive,
sorry, I have a little question:
when you say "On EUR, as you can see, our analysis has started to work." you mean for sure that EUR made a new high.....
Next thing to do is now wait for a retracement down, am I right?

Thanks a lot