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FOREX PRO WEEKLY #2, June 18-22, 2018

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Jun 17, 2018.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Greetings everybody,

    as CAD has hit predefined 1.32 target and completed our trading setup for this week, and gold market has dropped due recent Fed statement and is following to our trading plan and 1262 target - right now is more useful to take a look at JPY, because it comes to breakeven point and it will have fare-going consequences.

    Fundamentals

    JPY mostly is impacted by the same processes as other major currencies. Fed interest rate policy also has pushed yen lower, but there are two another topics that seem to be important. First is N. Korea denuclearisation process and second is US-China tariffs piking. Whether Japan wish or not but it is involved in this process. And it could be hurt twice. First - if Trump will initiate tariffs on Japan exported goods, cars in particular. Second - it could be hurt by China, that is treated Japan as US ally and already said that tariffs initiated will be applied not only against US but Japan as well...

    “Investors are worried that with the trade war escalating, today it’s better to sell out... and take profits,” said Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.
    The outbreak of a global trade war has been the most frequently cited “biggest tail risk” by investors this year in Bank of America Merrill Lynch’s monthly survey of global fund managers, on the back of ramped up protectionist rhetoric and measures by the U.S. administration.

    Speaking on China itself - it also starts to feel impact of tariffs turmoil. As Fathom consulting reports - China momentum indicator is slowing down:
    [​IMG]

    We see true economic growth in China continuing to weaken, averaging 5.7% in 2018. Investment only makes sense if there is some other source of aggregate demand that will ultimately mop up all that productive capacity. China needs to develop a source of final domestic demand — not investment but consumption — to absorb the growth in productive capacity to which it is already committed. However, China’s policymakers have not yet enacted the reforms which would be necessary to facilitate this shift.

    That's being said, as tariffs journey is just started - it is difficult to suggest where we go on this road, what scale of tariffs piking will be.

    "It is hard to say what impact a trade war would have on the dollar in the near term," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
    "Longer term, if these things escalate into an all-out trade war, which we are not quite there yet, that would certainly be a negative for the U.S. economy," he said.


    Demand for safe haven currencies will increase, if tariffs war will escalate. If Japan will not be hardly involved in trade war and not become a member of it - Yen should not hurt much or even could rise. Even now we see some demand for safe haven - US 10 year yield has dropped below 3% again, and yen has stopped rally on Friday as well.

    COT Report

    Reuters reports that peculators' net short dollar bets rose in the latest week, its second straight week of
    increases, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday.

    The value of the net short dollar positions, derived from net positions of International Monetary Market speculators in the yen, euro, British pound, Swiss franc and Canadian and Australian dollars, was $7.42 billion in the week to June 12. That compares with a net short position of $5.54 billion the previous week.

    Japanese Yen (Contracts of 12,500,000 yen)
    $0.391 billion

    12 Jun 2018 Prior week
    week
    Long 60,609 52,060
    Short 55,557 55,497
    Net 5,052 -3,437

    Technicals
    Monthly


    Technical picture is more interesting, because yen stands at very important point. Depending on price behavior we will get either strong long-term upside action due Monthly trading plan, or another few weeks of downward action.

    As we've mentioned previously , on this time frame we have a pattern of incredible scale, huge reverse H&S is forming here. As it usually happens - left side of H&S is a huge butterfly "Buy". Upside rally from the bottom of the right arm in 2015 was rather fast. Now yen stands in retracement of this upside action that already has started.

    Upside targets stand rather far - it could be as AB-CD pattern, based on H&S itself, or butterfly "Sell" pattern, based on right arm. All these targets stand above 130 level and not very interesting for us now. They just show the scale of undergoing processes - as in price as in time.

    What is really interesting is when and how market will turn up and when. In fact there are more than single scenario. I would say, that we have at least three of them. First is - immediate upside action and triangle breakout, turning to butterfly pattern. Second - downside action to the lower border of triangle first. Finally, third scenario is triangle downside breakout by large AB=CD with butterfly "Buy" shape of CD leg. In this case potential reversal point will stand around 93.50-94. area...

    Price action that we see right now mostly corresponds either to the first or second scenarios.
    jpy_m_18_06_18.

    Weekly

    This picture reminds us why current price level is important. Here market will choose from first and second scenarios mentioned above. Immediate upward continuation could mean that long-term bull trend is re-established and market starts long-term journey with monthly H&S.

    While downside reversal will postpone this moment and could give us chance to go long at well-prepared level - very important support area, where major upside reversal could start.

    102.80 is a strong support cluster on weekly chart. First is, this is lower border of monthly triangle. Second - we have large AB-CD pattern. Once it will be completed - we will get "222" Buy pattern here.
    Finally, CD leg of this pattern could take a shape of 3-Drive "Buy", as JPY keeps drive-to-drive extensions of this pattern very sharp.

    It means that 103 area, roughly, is the major one to keep an eye on. If, yen will break it down, this will significantly increase chances on further drop, at least to 93-94 level, according to monthly analysis and "222' here could turn to butterfly.

    That's being said - we're mostly interested in what will happen in red circle, whether yen will turn down or not.

    jpy_w_18_06_18.

    Daily

    Initially, when we just have started discussion of this scenario, we were watching for H&S pattern on daily chart, as market was and is at strong resistance area. Since then, the shape of the chart has changed and it doesn't correspond to H&S any more.

    In fact, the only bearish pattern that still could be formed here is "222" Sell. Here I draw classical AB=CD "222" Sell pattern, but legs could be slightly different. Why we do not talk about butterfly "Sell"? Well it is probable too, but butterfly will destroy the harmony of swings on weekly chart. As you can see yen stands at the point where all harmonic swings are completed already. And butterfly will skew this harmony.

    So, let's first been watching for "222" Sell. We will keep in mind butterfly as "last hope" for bears here...
    jpy_d_18_06_18.

    Intraday

    On 4H time frame market starts to show signs of exhausting of upside action. Price clearly starts to form a wedge shape. If you add MACD here you'll see first signs of bearish divergence as well.

    At the same time, there is pretty much room till the final wedge point and we have two bullish grabbers, which suggests some upside continuation above 111 area.

    Daily OP target also coincides with weekly PR1. So, it seems that JPY will show some upside continuation on Mon-Tue before downside reversal, which should start somewhere around 111.30.

    Upside breakout of previous tops on daily chart will be weaker scenario for bears. In this case, time to "last hope" will come, which is butterfly "Sell". But this upside breakout could mean the failure of overall bearish scenario as well.

    jpy_4h_18_06_18.

    Conclusion:

    Long-term JPY chart has so big pattern which makes it to be interesting only from theoretical point of view. Now we're mostly focused on process of upside reversal and where it could happen. Currently we have a suggestion that it could be around 103 area. But to make it real - yen indeed has to turn down on coming week.
    Opposite price action and breakout of 111.40 top could mean that upside action already has started, without action to 103 first.


    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.
     
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  2. RahmanSL

    RahmanSL Major

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    Interesting and fascinating analysis on USD/JPY Sive ;)....hmmm...but I find it very interesting on that bit about:
    "First is N. Korea denuclearisation process and second is US-China tariffs piking. Whether Japan wish or not but it is involved in this process. And it could be hurt twice. First - if Trump will initiate tariffs on Japan exported goods, cars in particular. Second - it could be hurt by China, that is treated Japan as US ally and already said that tariffs initiated will be applied not only against US but Japan as well..."

    Yes, Japan is in a very award situation and being caught between the two biggest economy which has became: Dame if they (Japan) do, and dame if they (Japan) don't. And I am very sure that Japan would rather be left alone to quietly sell their products to the world.

    For me personally, I will stay on the sideline on USD/JPY because there are just too many uncertainties on how the trade wars between the US & China will play out :D

    All the best and thanks again on your foresight and analysis.

    Cheers!
     
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  3. Sive Morten

    Sive Morten Special Consultant to the FPA

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    You're wise, as always, my friend Rahman ;)

    Indeed, situation is really interesting, but scale... it's too large, swings that could follow are huge.
    To trade this, it is really big money needed.
     
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  4. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Good morning,

    As JPY starts dropping and everything stands OK with our trading plan - let's update our view on Gold. In general, gold market has confirmed our doubts and has dropped further. Right now it stands at intermediate target of daily gap, OS and MPS1. But our major destination point here is 1262 XOP:
    gold_d_19_06_18.

    On 4hour chart market was not able to break 1310 area and just has completed our last week scenario with minor AB=CD pattern inside the butterfly and collapsed then.
    To be absolutely correct - we can't treat this action as butterfly, because last spike before plunge was higher than left wing's top, but on gold market this happens very often, while price mostly is followed to pattern's targets anyway. So, here we have the same - 1.27 extension is completed.
    At the same time, taking in consideration the speed of dropping, gold should proceed to 1.618:
    gold_4h_19_06_18.

    Before this will happen, some minor upside retracement probably should happen. AB=CD target already has been completed, but gold could reach strong resistsance cluster of 1290 before downward continuation. Anyway "222" Sell shape should be formed:
    gold_1h_19_06_18.
    That's being said, its not time yet to go long on daily chart. Intraday traders could watch for 1290 area for taking short position.
     
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  5. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Greetings everybody,

    on gold market situation stands very similar to EUR. After yesterday's drop, price mostly stands in the range of previous session. Now gold gradually is entering in wide weekly K-support area of 1266-1270. As our major target stands at 1262 and creates Agreement with the same area, it will be rather strong support. So, as soon as target will be hit, we should not surprise if we will see meaningful upside retracement within few weeks up from here:
    gold_d_20_06_18.

    It seems that our suggestion was correct and gold has dropped a bit more. Indeed, initial downside action was fast and usually market proceeds to 1.618 target. It should be reached in nearest time probably:
    gold_4h_20_06_18.

    On 1H gold has dropped as soon as it has completed AB=CD retracement and even has shown no attempt to reach XOP strong resistance area. Now there are two ways of continuation could be formed. First is - another "222" Sell, if price will form AB=CD upside retracement, or - butterfly "Buy" as its extension also stands in 1266 area:
    gold_1h_20_06_18.

    that's being said - mostly we have the same scenario as yesterday. Daily traders should wait for reaching of major support and completion of big bullish reversal patterns, while intraday traders could try to catch another bearish continuation patterns.
     
  6. RahmanSL

    RahmanSL Major

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    Me wise as always?...hehehe....the road along my forex journey are littered with burned out trading accounts :(
    But thanks for saying so Sive

    Well looks for this week the USD likes the view from up high looking down on the Yen :D
    ahhhh...GOLD....love that metal but I have not been trading that for last few years despite getting "warning" from some hot-shot Analyst shouting "USD5000 gold is coming any day now" for the past 7-8 years now;)

    All the best Sive!

    P/S I would most welcome your thoughts on the EUR/TRY...Turkey's election this Sunday is expected to move that high interest currency (TRY) especially if President Tayyip Erdogan win the election (expected to be rigged election) and strengthen his influence on monetary policy.
    Erdogan, a self-described "enemy of interest rates", wants lower borrowing costs to fuel credit growth and expansion ahead of June elections. Investors fear the economy is overheating and want substantial rate increases to tame inflation.
    Yup and as can be expected, I have been trading this pair (mainly for the high daily swap on short positions) for a number of weeks now and is considering exiting all my opened trades before end of trading week in case of volatility caused by Turkey's election.
    It could be highly profitable for me if I am on the right side of the trades, BUT I think I should not take the risk!
     
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  7. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Ok Rahman, as we do not have something new on our majors, let's take a look at Lira.

    Daily picture suggests upward action, most probable to 5.7 area - XOP target and daily OB. The reason why I do not take in consideration butterfly scenario is because of weekly OB. May be butterfly will be formed, but hardly it will happen on next week. So, reaching of just XOP seems as most probable scenario.
    I think that Erdogan will win elections, no doubts, this in turn will support previous view on currency and it will remind weak compares to EUR, so upward continuation looks logical from this point of view as well. Besides, we expect to get EUR rally soon, who knows, may be this moment will coincide with elections...
    try_d_21_06_18.

    On 4H chart we have clear sign of bullish dynamic pressure which suggests upside breakout of consolidation.
    try_4h_21_06_18.

    So, taking it all together, it seems that most probable destination within a week is 5.7 XOP target.
     
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  8. RahmanSL

    RahmanSL Major

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    WOW Sive thank you so very much for taking the time to do an analysis on TRY. I very much appreciate that my friend!:)

    I see your technical analysis basically concurred with market's view that the Lira (TRY), after this Sundays probably rigged Turkish election to put Erdogan back into power, will indeed shoot for the moon as it did last month way up to the 5.76 levels.
    Luckily for me I have the opportunity to close-out most of my opened positions in profits (together with pretty good accumulated positive swaps) and is now left with 3 very small short positions which I shall "try" to leave opened through the weekend to see what happens after the election on Monday/next week.

    I think the better option for me is to close out all positions before market closing for this week and to wait to retake the shorts at the 5.7 levels.
    I need to keep an eye on that expected EUR rally before jumping in blindly.

    You are the best Sive!
     
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  9. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Greetings everybody,

    So now we see bullish signs on many majors - EUR, AUD and today I would like to take a look at GBP. You probably remember that we have long-term bearish view on GBP due fundamental background and Brexit problems, but in short-term cable could follow to major tendency and show solid upward bounce. In fact, if you will take a look at weekly chart - you'll see there the same potential pattern as on EUR, which is H&S.

    Thus, cable could start forming right arm of this pattern and now all preliminary steps have been done for this.
    Our Double Top pattern target has been completed just yesterday and on daily chart we have DRPO "Buy" :
    gbp_d_22_06_18.

    On 4H chart DRPO takes the shape of butterfly "Buy". Here we could talk about 1.3740 target - common destination of DRPO and former neckline of Double Top. Besides, this level harmonic to the top of left arm on weekly chart.
    Shorter-term target is 1.3470 - which could become a neckline of reverse H&S on daily, if, of course, upside action will happen.
    gbp_4h_22_06_18.

    That's being said, for those who would like to go short - be patient and wait at least till 1.3740 area, while bull traders could try to catch minor retracement on intraday charts, or wait when reverse H&S on daily time frame really will be formed.
     
  10. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Rahman,
    We've missed a bit on TRY. We predict Erdogan victory but it seems that he doesn't like low interest rate as you've suggested ;)
     

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