FOREX PRO WEEKLY #2, July 16-20, 2018

Sive Morten

Special Consultant to the FPA
Messages
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Fundamentals

In a second weekly report we will take a look at GBP again. EU now is like a boiling pot and UK stands in a center of global attention. Fundamental economy data stands depressed in UK, households have significant debt burden, while savings of citizens are dropping. This significantly reduces upside potential of UK economy.
Besides, there is not much time till the final moment of divorce with EU and, of course T. May wants to make soft Brexit to keep economy relationship and free trading space for GB. At the same time, politically it stands in very difficult situation.
Everybody understands that UK will stay with the US as politically as economically and in the US sphere of influence. T. May understands this as well. D. Trump demands hard Brexit with breaking of free trading space, making them as between isolated countries. And this puts T. May in very tricky situation. She has to look for compromise with D. Trump somehow but simultaneously UK needs to make Brexit as soft as possible. T.May has to make choice as soon as possible. Because this indecisive standing will just have negative impact as on EU-UK as on US-UK relationship.
At the same time, UK now stands in a kind of political incompetence - Ministers are coming and going, there are visible tensions in Parliament, and T. May is not a M. Thatcher. In a moment when T. May needs maximum support and nation consolidation - he meets only critics and barriers.
Putin will meet Trump tomorrow. Definitely there will be speech on mutual interests in Europe. Compares to Germany, UK has no significant trade turnover with Russia and UK can't replace its major trade partner (I mean US) with somebody else, as Germany could change the course of export and compensate US trade loses by increasing turnover with Asia, Middle East and Russia. GB can't do this. It means that Putin easily will give UK to D. Trump and its sphere of influence on exchange with tighter relations with core EU (Germany, France, Italy etc.)

All these moments makes us keep valid our long-term bearish view on perspectives of GBP. Similar thoughts among investors we could find in recent Reuters article:

Sterling rebounded from the day’s lows on Friday after U.S. President Donald Trump said he looked forward to finalising a post-Brexit trade deal with Britain, though a firm greenback and trade tensions weighed on the British currency.

Trump said on Friday he looked forward to finalising a trade deal with Britain after it had left the European Union, marking an abrupt change from a newspaper interview when he said Prime Minister Theresa May’s Brexit strategy would kill such an agreement.

“The move lower in sterling on a no U.S. trade deal looks to have been factored out as it now appears to be back on the table,” said Neil Jones, Mizuho’s head of hedge fund currency sales in London.

Trump’s comments follow a series of resignations from May’s government over her strategy and also complaints from financial firms over its provisions for the sector after Britain leaves the European Union in March.

May’s government outlined its proposals to retain the closest possible trade relations with the bloc, although there was one major shift — the government abandoned plans for close ties for Britain’s huge financial services industry.

Markets are concerned that the EU will demand more concessions from Britain before agreeing to a Brexit deal, spelling months of more political uncertainty.

“Sterling looks to be still a buy on dips around 1.30 levels but with all this news on the political front, investors are wary of taking aggressive positions until some clarity emerges,” said Georgette Boele, a senior FX strategist at ABN Amro Bank in Amsterdam.

Positioning indicators are more favourable towards sterling, as long bets have been whittled down in recent days with overall net positions mildly bearish on sterling.

ING strategists said the much-awaited Brexit white paper published on Thursday had not quite solved the UK’s future trading relationship, and markets would be waiting to see if the EU can work with latest proposals.


There are also some interesting details in Fathom consulting researches. First is dedicated to economy sentiment in May, and it has increased. Fathom suggests that this is temporal divergence and public sentiment will converge to industry sentiment.
Chart-Of-The-Week-UK-Economic-Sentiment-Indicator-25MAY2018.jpg


Unwinding much of the recent softness, the vast majority of survey respondents were more confident than at any point over the last few months. But both households and businesses continue to report being more confident in their personal prospects than those of the economy, with the former significantly so. Related to this, there has been a marked deviation between survey-based measures of economic activity and hard data for much of the past year. Nevertheless, we expect that gap to close, with sentiment falling toward official measures of growth.

Second article is dedicated to UK migration. Occasionally or not, but as Brexit was announced UK meets negative migration which has correlation with GDP. Brexit is not finished yet, but GB already stands under impact of indirect factors, now we mean social ones.

The model provides some key findings in relation to the UK, where migration has slowed substantially since the result of the Brexit referendum was announced. Interestingly, the Brexit vote does not appear to have had any direct significant impact on net migration. Instead, the model finds that 95% of the reduction in net migration into the UK since the Brexit vote was as a result of economic factors — namely the slowdown in UK growth relative to the EU average.

18_07_06_Alpha_Now-UK-net-migration-from-the-EU-and-GDP-growth.jpg


However, the deterioration in the UK’s economic performance is not entirely unrelated to country’s decision to leave the EU, especially given the uncertain outlook for business. Indeed, the outlook for growth could easily have deteriorated further, had UK consumers not substantially reduced their levels of saving.

Nick-UK-household-savings-ratio.jpg


But, just as Fathom’s model predicts lower net migration into the UK, it is equally adept at predicting higher migration into countries such as Luxembourg where GDP per capita is significantly above the EU average. And, it can also be repurposed for a number of other exercises.

COT Report

CFTC data shows that GBP net speculative position has turned negative agressively. In our last weekly report, dedicated to GBP, position was near zero level. Now it has dropped significantly and it is still far from record lows around -110K.
upload_2018-7-15_13-59-33.png


As Reuters reports, Speculators increased net long U.S. dollar bets this week to their largest level since March last year, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday.

The value of the net long dollar position was $16.41 billion in the week ended July 10, up from $13.16 billion the previous week. Speculators were net long dollars for a fourth consecutive week, after being net short for 48 straight weeks.

The dollar continued to outperform other currencies, bolstered by interest rate hike expectations and global trade tension, with the United States seen as having the upper hand in the event of an all-out trade war with its economic partners. Since hitting a more than three-year low against a basket of six major currencies in February, the dollar has gained nearly 8 percent.

U.S. inflation is likely to creep higher due to an expected increase in the price of goods arising from higher tariffs on imports.

Technicals
Monthly


July doesn't bring something special to overall monthly picture, because in fact, it stands inside to June one. And all our talks on monthly technical situation are still valid. The only thing that we could add today - is price flirting with MACDP line. There are still two weeks till the end of the July, but it could be grabber, right?

Long term charts mostly stand in relation to fundamental processes rather some technical short-term issues. From this point of view GBP action on monthly chart absolutely corresponds to our view on UK economy and its perspectives. Right now we will focus only on nearest target of 1.30, but we remind you our long tong all-time AB=CD OP target around 0.95. Recent bottom of 1.22 is, actually, COP target.

It is difficult to talk definitely guys, but in my opinion most undervalued factor for UK is flaw in its relation with EU as economical as political. Now, when US steps in in this conversation, situation has become even more difficult.
EU is turning East right now to huge new markets and economical possibilities - Iran, Middle East, Asia and Russia, of course. This is alternative to UK market, especially when UK turns up its nose at EU. At the same time, UK is an island, it strongly depends on its closest neighbor - EU. Not only in terms of mutual trading, but also in terms of goods logistic. If this flaw will start to wide - 0.95 of GBP/USD could become a reality.

Speaking on technical issues, our suggestion that GBP hardly will break through 1.40 area was correct. This was strong resistance, top of harmonic swing and at 1.40 long positions were highly saturated.

Cable has failed to break through Yearly Pivot resistance 1. This fact tells, that current upside action is just a retracement within long-term bear trend.
gbp_m_16_07_18.png


Weekly

Weekly chart almost has not changed as 3 weeks has passed. After major K-support was broken, price has reached minor support area of 5/8 Fib level and MPS1. GBP has tested MPP in the beginning of the June but failed to pass through it. Here we mostly watch for the same pattern as on EUR - potential H&S.

GBP has stopped here mostly due completion of our Double Top target but not due minor support. If upward bounce will happen - it could reach 1.36 area to keep harmonic the shape of H&S pattern.

Whether this bounce up will happen or not we should understand by patterns on daily chart and how price will respect it. Since weekly support is not a kind of strong one, and price is not at Oversold, the background of possible rally doesn't look undoubtful.

In general, price performance here looks a bit heavy. Cable can't get started upward action.
gbp_w_16_07_18.png


Daily

Bullish scenario here guys, is hang by a single thread. It is valid until GBP stands above 1.3050 lows. As you can see our last prediction that market has to dive lower to 1.3048 level was correct. Indeed upward action has started right from YPP. Although price is choppy, but GBP keeps chances to proceed action higher.

Here, on daily we mostly will be watch for wide H&S pattern. Now we stand on a road to neckline around 1.3450. Market has not bad chances to do this. Friday performance was positive and we've got bullish grabber. Thus, we have bullish short-term sentiment, and we will keep in mind final 1.36 target until market stands above 1.3050 lows and keeps valid H&S shape:
gbp_d_16_07_18.png


Intraday

GBP is one of our favorite currencies recently, because it provides us very good trading setups. Recall 3-Drive "Buy" that we've traded and H&S on hourly chart last week, just to name some.

Now, again - if you take careful look at daily picture, you will see that the head of the pattern is smaller H&S one. Right arm already has been formed and it has become bullish grabber. This pattern has special importance for GBP. First is, as isolated trading setup, because intraday traders could take longs against grabber's lows with 1.3415 OP target.
Second is, it will be test for quality. If minor H&S will fail - it will destroy large H&S as well and we should forget about 1.36 target in this case.
gbp_4h_16_07_18.png


Even on 1H chart we have reverse H&S shape. To take long position we should wait for 3/8 retracement, at least. Also take a look guys, this could be a B&B "Buy" Setup, which provides very comfortable entry conditions...
gbp_1h_16_07_18.png


Conclusion:

GB now is involving in multiple processes as political as economical. Financially, UK economy now stands in a difficult period. This gives a lot of uncertainty even in nearest future, including BoE policy. Currently we have bearish view on GBP and despite possible upside relief within few weeks - we suggest that cable will become weaker within longer period.

In short-term perspective, our trading range stands between 1.30-1.36 area. This is the range of weekly H&S pattern. On coming week we mostly will deal with first stage of this process - initial moment of upward reversal.


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.
 
Greetings,

Let's continue discussion of our GBP trading plan. In weekend we've estimated that GBP could climb higher, at least it has clear bullish pattern and clear invalidation point - this is grabber's low. As long as market stands above it - it keeps chances on upside action.

Besides the grabber we have two reverse H&S pattern. The big one stands on daily and smaller one stands on 4H chart:
gbp_d_17_07_18.png


As soon as we've estimated all this stuff, our major concern was how to entry on the market. And first idea was B&B "Buy" on 1H.
Now we see that B&B has worked nice, but upside action is limited by just minor B&B target. GBP right now doesn't show upside continuation.
It makes us think that we will get another chance to go long with better levels around Agreement of 5/8 support and AB=CD retracement target. This also will give us "222" Buy" pattern:
gbp_1h_17_07_18.png
 
Morning guys,

Fed chairman Powell has made the day yesterday - fragile bullish setups on EUR, GBP and other dollar related currencies have been crushed. Gold is not an exception. On daily chart price stands below 1235 lows (as we've suggested) which means that downside action should continue. Our major target here is still 1210-1215 Agreement:
gold_d_18_07_18.png


Meantime minor relief is possible here, because gold also has completed our AB=CD target and butterfly on 4H chart:
gold_4h_18_07_18.png


At the same time, while major daily target stands untouched, upside bounce hardly will be significant. Now we think that it will be either minor 1230 or, 1236 - re-testing of broken lows and touching of 1H K-resistance area:
gold_1h_18_07_18.png
 
Greetings everybody,

So, yesterday we've updated our Gold view, and today (Lolly is right), we need to take a look at GBP. Besides, it has failed our bullish test that we've disccused in weekend.

Indeed, as GBP has dropped due Powell's comments, it has erased bullish grabber and all chances for both H&S patterns that could be formed here in the beginning of the week. In means that GBP is moving lower. Next major support stands on weekly chart. This is 5/8 Fib level at ~1.2880. So, between current level and Fib support market has relatively free space.

Now we could watch for butterfly on daily, which has the same 1.618 extension target of 1.2850:
gbp_d_19_07_18.png


On 4H chart we have inner AB=CD. OP target has been reached recently, but CD leg shows strong acceleration and increase chances on reaching XOP - it stands in the same area at 1.2870:
gbp_4h_19_07_18.png


As OP has been hit, some upside bounce could happen. We do not have B&B here, but we could get either "222" Sell or even DRPO "Buy" on hourly chart. Still this is not very important, because any upside bounce should be treated as chance to go short with 1.2850-1.2880 target.
gbp_1h_19_07_18.png
 
Greetings everybody,

Gold has hit our 1210 target, while we do not see something really on GBP, let's try to find something else. For example is JPY...

On weekly JPY price has hit major 5/8 Fib resistance level and this should become important moment for daily/intraday price action. At least we could count on some pullback:
jpy_w_20_07_18.png


Meantime daily JPY mostly has completed bearish butterfly, which also suggests some downside action, at least 30% retracement of butterfly's body:
jpy_d_20_07_18.png


Our attention mostly stands on hourly chart - here the top of daily butterfly is taking a shape of H&S pattern. As usual, we're watching for right arm shape which could become a "222" Sell pattern. In this case it will be harmonic to the left arm either.
Minimum target of this pattern in this case will be 111.70. Potentially it could be deeper, just because of weekly resistance.
jpy_1h_20_07_18.png
 
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