Sive Morten
Special Consultant to the FPA
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Greeting everybody,
as Gold market was closed on Friday, and we mostly have said everything earlier in our daily updates, today we will prepare brief look at another currency - NZD. Geopolitical tensions and financial processes in US make impact on NZD as well. We've discussed this yesterday in EUR weekly research.
COT Report
CFTC data shows very interesting dynamic in traders' position on NZD. Take a look that in the beginning of the year open interest was growing very strongly and net position has moved in positive area, i.e. become net long. As soon as it has happened we see very strong drop in open interest and position has turned to bearish again. It means that all longs that market have accumulated have been closed during the week. Now market shows strong bearish sentiment as open interest increases and net speculative position comes to it all-time low around -20K contracts in July 2015.
Here we bring recent Rabobank research on Diary Products, there is some interestin information, but to be honest, NZD, as other markets mostly is driven by other factors - strong geopolitical processes and games around USD strength:
Rabobank Dairy Quarterly Q1 2017: Butter Spreading, but Protein Failing to Lift
6 April 2017Copyright © 2017 Rabobank, All rights reserved.
There is hesitation in the market as the outlook for currency changes, production levels, and stocks fuels short-term volatility, according to the Rabobank Global Dairy Quarterly Q1 2017.
With butter prices continuing to trade at near-record levels, it’s tempting to talk of ‘market spreads’. "The spread between the elevated butter prices and skimmed milk powder prices—which continue to fall—has never been bigger and continues to widen, although it’s nearing its climax. As farmers slowly respond to higher farmgate prices, production will continue to rise, bringing more protein,” according to Kevin Bellamy, Rabobank Global Dairy Strategist. The market will again look to the European Commission to support European SMP prices—and therefore global dairy prices—as it now seems all but certain that intervention buying will be needed again in 2017. At some point in the year, the European Commission may find a destination for the aged stocks, which will ease the market overhang; however, any solution to reducing high public stocks will be difficult, as it will need to be non-market-distorting.
As forecast in Rabobank’s last Dairy Quarterly, milk production in the largest seven export regions fell sharply in 2H 2016, reaching a low point in October (-2.2%). At the time, the bank thought that the strengthening US dollar and strong domestic demand would create headwinds which would prevent the US—the only region with increasing milk supply—from filling the export gap. In the event, US exports were able to fill some of the supply gap. In fact, US exports were able to increase by a massive 25% in 2H 2016 vs. 2H 2015. EU exports also grew slightly YOY in 2H 2016, which meant that export surpluses from the largest seven exporters fell by 2.4% (ca. 2m tonnes) YOY: far less than originally expected. But this was more than sufficient to lead to a price rally, which raised prices of whole milk powder by 50% between June 2016 and the end of February 2017.
But as Rabobank anticipated as we move into 2017, the upward movement of prices has run its course, as milk production levels start to recover against still weak demand.
As the year progresses, Rabobank sees global butter prices remaining firm. They will be needed to maintain margins due to the persistent low value of skimmed milk, which is likely to remain weak, but stable, supported by limited stocks in Oceania and intervention buying in Europe. Cheese prices are also likely to remain stable, given the continued growth in export markets. WMP prices are also likely to remain stable for the rest of 2017, supported by limited suppliers and limited available stocks.
According to CME data, Milk prices are dropping since the start of 2017. This is the moment when NZD has turned south as well. You will see it in our analysis of daily chart - just compare them.
Technicals
Our discussion of this setup has started as soon as market has reached major 5/8 monthly Fib support @ monthly Oversold (not shown). Situation on NZD long-term picture was very contradictive. From one side we have thurst down and upside retracement from major Fib support, that takes the shape of bearish flag.
But, from the other one - NZD has moved above YPP, it has broken very strong weekly K-resistance and Agreement that happens very rare. Now we have more inputs to make a suggestion on reasons that pushed NZD higher and what to expect in nearest time. There were two major factors that pushed kiwi up - rally on diary products, and some uncertainy around Fed policy and coming elections in the middle of 2016 when Fed was in uncomfortable situation with their promise to hike rates 4 times, and every time they postponed this procedure. While RBNZ has done some unexpected hawkish steps in the same period and didn't cut rate when market has expected it.
Right now we have more clarity as on Fed policy perspectives as on technical picture. Although mothly chart keeps bullish trend still, but price starts to drop out of the flag pattern. NZD in turn was not able to break through major 3/8 Resistance level and out of the flag pattern, when it has made an attemtpt to. Besides, last upward action was not able even to reach the border of the flag pattern. Such action usually precedes downside breakout.
Once price has moved above YPP - it wasn't able to reach YPR1. Now price even stands below trendline and mostly is supported by YPP. Previous rally in January now is totally vanished. This dynamic looks bearish. It is also supported by recent CFTC data that suggests massive closing of long positions.
Weekly
Although almost 3 months have passed since our last weekly research on NZD, but here picture has not changed too much. Trend is bearish here. In general if you compare previous drop and upside action - they have very different speed. Upward action was slower and more choppy, it seems that market feels heavy with upside action.
Recent action shows some important details. First is, price has broken both trend lines. Harmonic swing also has been broken. Now price stands below MPP, but it has reached rather strong support that includes MPS1, Fib level and YPP.
That's being said, major point to watch here is price action around support - whether we will get breakout or not. The most tricky point here - if breakout will not come soon, market could get the chance to form large butterfly "Sell" pattern and reach 0.78 Fib resistance area. That's why breakout moment is so important.
Daily
Those of you, guys, who follows us for a long time should remember our setup on daily NZD. First part of it has been completed - as our B&B "Sell" pattern has been completed. Second part was a bit longer-term and is based on initial AB-CD pattern and its 1.618 target that has not been hit yet , while price just hangs above it.
This target coincides with potential butterfly 1.27 extension and this is also area around MPS1. Next target is 100 pips lower and includes 1.618 butterfly and larger AB=CD extension:
Until market stands below 0.7075 top, it will keep valid butterfly pattern.
4-hour
On Intraday chart we should keep an eye on current upside retracement. It has started after NZD has hit 1.618 AB-CD extension.
As we mostly expect downward continuation, we do not want to get too high retracement. Now price stands at Fib resistance already, but it has formed multiple bullish patterns on top, that suggest some upside continuation. That's why, may be market will form butterfly "Sell" pattern and will reach 0.7020 area before downward reversal, we'll see. Other words, we need to keep an eye on reversal, and whether our idea on downside continuation will take place:
Conclusion:
Right now market stands at crucial point and depending on what will happen around will clear further perspectives of NZD. Overall fundamental and sentiment background stands not in favor of NZD.
In short-term perspective we will keep an eye on intraday reversal from 0.71 area and in general, whether our suggestion of downside continuation will come to life or not. In longer-term perspective - the crucial moment will be breakout (or survival) of 0.69 support area.
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.
as Gold market was closed on Friday, and we mostly have said everything earlier in our daily updates, today we will prepare brief look at another currency - NZD. Geopolitical tensions and financial processes in US make impact on NZD as well. We've discussed this yesterday in EUR weekly research.
COT Report
CFTC data shows very interesting dynamic in traders' position on NZD. Take a look that in the beginning of the year open interest was growing very strongly and net position has moved in positive area, i.e. become net long. As soon as it has happened we see very strong drop in open interest and position has turned to bearish again. It means that all longs that market have accumulated have been closed during the week. Now market shows strong bearish sentiment as open interest increases and net speculative position comes to it all-time low around -20K contracts in July 2015.
Here we bring recent Rabobank research on Diary Products, there is some interestin information, but to be honest, NZD, as other markets mostly is driven by other factors - strong geopolitical processes and games around USD strength:
Rabobank Dairy Quarterly Q1 2017: Butter Spreading, but Protein Failing to Lift
6 April 2017Copyright © 2017 Rabobank, All rights reserved.
There is hesitation in the market as the outlook for currency changes, production levels, and stocks fuels short-term volatility, according to the Rabobank Global Dairy Quarterly Q1 2017.
With butter prices continuing to trade at near-record levels, it’s tempting to talk of ‘market spreads’. "The spread between the elevated butter prices and skimmed milk powder prices—which continue to fall—has never been bigger and continues to widen, although it’s nearing its climax. As farmers slowly respond to higher farmgate prices, production will continue to rise, bringing more protein,” according to Kevin Bellamy, Rabobank Global Dairy Strategist. The market will again look to the European Commission to support European SMP prices—and therefore global dairy prices—as it now seems all but certain that intervention buying will be needed again in 2017. At some point in the year, the European Commission may find a destination for the aged stocks, which will ease the market overhang; however, any solution to reducing high public stocks will be difficult, as it will need to be non-market-distorting.
As forecast in Rabobank’s last Dairy Quarterly, milk production in the largest seven export regions fell sharply in 2H 2016, reaching a low point in October (-2.2%). At the time, the bank thought that the strengthening US dollar and strong domestic demand would create headwinds which would prevent the US—the only region with increasing milk supply—from filling the export gap. In the event, US exports were able to fill some of the supply gap. In fact, US exports were able to increase by a massive 25% in 2H 2016 vs. 2H 2015. EU exports also grew slightly YOY in 2H 2016, which meant that export surpluses from the largest seven exporters fell by 2.4% (ca. 2m tonnes) YOY: far less than originally expected. But this was more than sufficient to lead to a price rally, which raised prices of whole milk powder by 50% between June 2016 and the end of February 2017.
But as Rabobank anticipated as we move into 2017, the upward movement of prices has run its course, as milk production levels start to recover against still weak demand.
As the year progresses, Rabobank sees global butter prices remaining firm. They will be needed to maintain margins due to the persistent low value of skimmed milk, which is likely to remain weak, but stable, supported by limited stocks in Oceania and intervention buying in Europe. Cheese prices are also likely to remain stable, given the continued growth in export markets. WMP prices are also likely to remain stable for the rest of 2017, supported by limited suppliers and limited available stocks.
According to CME data, Milk prices are dropping since the start of 2017. This is the moment when NZD has turned south as well. You will see it in our analysis of daily chart - just compare them.
Technicals
Our discussion of this setup has started as soon as market has reached major 5/8 monthly Fib support @ monthly Oversold (not shown). Situation on NZD long-term picture was very contradictive. From one side we have thurst down and upside retracement from major Fib support, that takes the shape of bearish flag.
But, from the other one - NZD has moved above YPP, it has broken very strong weekly K-resistance and Agreement that happens very rare. Now we have more inputs to make a suggestion on reasons that pushed NZD higher and what to expect in nearest time. There were two major factors that pushed kiwi up - rally on diary products, and some uncertainy around Fed policy and coming elections in the middle of 2016 when Fed was in uncomfortable situation with their promise to hike rates 4 times, and every time they postponed this procedure. While RBNZ has done some unexpected hawkish steps in the same period and didn't cut rate when market has expected it.
Right now we have more clarity as on Fed policy perspectives as on technical picture. Although mothly chart keeps bullish trend still, but price starts to drop out of the flag pattern. NZD in turn was not able to break through major 3/8 Resistance level and out of the flag pattern, when it has made an attemtpt to. Besides, last upward action was not able even to reach the border of the flag pattern. Such action usually precedes downside breakout.
Once price has moved above YPP - it wasn't able to reach YPR1. Now price even stands below trendline and mostly is supported by YPP. Previous rally in January now is totally vanished. This dynamic looks bearish. It is also supported by recent CFTC data that suggests massive closing of long positions.
Weekly
Although almost 3 months have passed since our last weekly research on NZD, but here picture has not changed too much. Trend is bearish here. In general if you compare previous drop and upside action - they have very different speed. Upward action was slower and more choppy, it seems that market feels heavy with upside action.
Recent action shows some important details. First is, price has broken both trend lines. Harmonic swing also has been broken. Now price stands below MPP, but it has reached rather strong support that includes MPS1, Fib level and YPP.
That's being said, major point to watch here is price action around support - whether we will get breakout or not. The most tricky point here - if breakout will not come soon, market could get the chance to form large butterfly "Sell" pattern and reach 0.78 Fib resistance area. That's why breakout moment is so important.
Daily
Those of you, guys, who follows us for a long time should remember our setup on daily NZD. First part of it has been completed - as our B&B "Sell" pattern has been completed. Second part was a bit longer-term and is based on initial AB-CD pattern and its 1.618 target that has not been hit yet , while price just hangs above it.
This target coincides with potential butterfly 1.27 extension and this is also area around MPS1. Next target is 100 pips lower and includes 1.618 butterfly and larger AB=CD extension:
Until market stands below 0.7075 top, it will keep valid butterfly pattern.
4-hour
On Intraday chart we should keep an eye on current upside retracement. It has started after NZD has hit 1.618 AB-CD extension.
As we mostly expect downward continuation, we do not want to get too high retracement. Now price stands at Fib resistance already, but it has formed multiple bullish patterns on top, that suggest some upside continuation. That's why, may be market will form butterfly "Sell" pattern and will reach 0.7020 area before downward reversal, we'll see. Other words, we need to keep an eye on reversal, and whether our idea on downside continuation will take place:
Conclusion:
Right now market stands at crucial point and depending on what will happen around will clear further perspectives of NZD. Overall fundamental and sentiment background stands not in favor of NZD.
In short-term perspective we will keep an eye on intraday reversal from 0.71 area and in general, whether our suggestion of downside continuation will come to life or not. In longer-term perspective - the crucial moment will be breakout (or survival) of 0.69 support area.
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.
