Sive Morten
Special Consultant to the FPA
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Fundamentals
(Reuters) - The U.S. dollar was little changed against a basket of major currencies and hovered near more than five-month lows on Friday after traders grew less confident that stronger-than-expected U.S. economic data would alter the Federal Reserve's dovish course.
The dollar initially rebounded from recent losses after Labor Department data showed a jump in U.S. non-farm payrolls and average hourly earnings last month and a separate U.S. manufacturing report for March was better than expected.
That effect wore thin as the U.S. session continued, with traders growing skeptical that the data was enough to suggest a swifter pace of Fed rate hikes. Fed Chair Janet Yellen said on Tuesday that the central bank should proceed "cautiously" on raising rates.
"These reports don’t change the outlook significantly in terms of U.S. monetary policy," said Eric Viloria, currency strategist at Wells Fargo Securities in New York.
The euro weakened to $1.1335 following the U.S. jobs and manufacturing data after earlier hitting a 5-1/2-month high of $1.1437. The euro rebounded later in the session, however, and was last up 0.14 percent against the dollar at $1.1394.
The dollar also weakened against the yen and hit its lowest level in a week and a half at 111.61 yen.
"This is just giving an ongoing signal of underlying yen strength," said Alan Ruskin, global head of FX strategy at Deutsche Bank in New York, on the dollar's weakness against the Japanese currency.
Speculators slashed bullish bets on the U.S. dollar for a fourth straight week, with net longs falling to their lowest in nearly two years, according to Reuters calculations and data from the Commodity Futures Trading
Commission released on Friday.
The value of the dollar's net long position fell to $4.65 billion in the week ended March 29, from $5.91 billion the previous week. Dollar net longs came in below $10 billion for a seventh consecutive week.
In March, the dollar index fell 3.7 percent, its weakest monthly performance since April last year. The dollar has struggled as revised interest rate forecasts from the Federal Reserve, or the so-called "dot plots", released a few weeks ago showed just two rate increases in 2016.
In contrast, at the December meeting of the Federal Open Market Committee, the central bank projections showed at least four rate hikes this year. Even a strong U.S. jobs report for March released on Friday
was not expected to change the Fed's dovish view on the U.S. economy.
"The higher unemployment rate confirms that more improvements need to be seen before the Fed can pull the trigger on raising rates," said Kathy Lien, managing director of FX strategy at BK Asset Management in New York. "The increase in the jobless rate guarantees that rates will remain unchanged in April and unless the next two retail sales and/or earnings reports show big improvements, monetary policy will be held steady in June as well."
In other currencies, euro net shorts continued to decline, to their lowest in roughly a month in the latest week. Net euro shorts fell to 63,811 contracts from 66,053 the week before.
The Reuters calculation for the aggregate U.S. dollar position is derived from net positions of International Monetary Market speculators in the yen, euro, sterling, Swiss franc and Canadian and Australian dollars.
Today guys, we also talk on negative rates per se, how long they could be kept and what could happen. We've got nice article on this subject:
ARE NEGATIVE POLICY RATES LESS THAN NOTHING?
Ron Leven, PhD
(Ron Leven is the head of FX Pre-Trade and Economic Strategy at Thomson Reuters. Ron joined Thomson Reuters in January 2014 with over 25 years of FX investment strategy experience at both buy- and sell-side firms, most recently as head of FX derivatives strategy at Morgan Stanley. Ron earned a PhD in Economics from Rice University and is a Columbia University Adjunct Professor teaching courses on emerging market investments.)
The Bank of Japan (BoJ) announced in late January that they were joining the ranks of central banks with a negative policy rate. While their policy rate did indeed go negative, as is apparent in the chart below, the amount is a modest six basis points and only a small portion of bank current account balances are subject to this rates.
The BoJ has created three categories of current account bank deposits. The Basic Balance is the average 2015 balance and continues to earn a positive 0.1% annual rate. The Macro Add-On Balance is required reserves, special credit provisions and a still-to-be determined ratio of the Basic Balance; it receives a zero rate of interest. Only reserves beyond this, the Policy Rate Balance are subject to the negative interest rate which the BoJ stated is currently about 10% of the banks’ total current account balance holdings.
It is presumed that, as the BoJ injects reserves via quantitative ease (QE), the Policy Rate Balances will gradually rise and subject banks to the negative rate. But as the ratio for the Macro Balance remains undetermined, the BoJ has a lot of wiggle room as to the breadth of reserves that will ultimately be subject to this negative rate.
WHAT IS THE POINT OF NEGATIVE INTEREST RATES?
The main point of negative rates is to make it more painful for banks to hold funds on deposit with the central bank and instead deploy the funds in ways that will provide more stimuli for the economy. One anticipated avenue for banks is to push funds into foreign currency deposits where they are not subject to negative carry. The resulting currency weakness and increased trade competitiveness is one way negative interest rates can stimulate demand. In the case of Japan, though, things are not working out well on this front. As shown in the chart above, on the announcement of the headline negative rate, USDJPY spiked up testing JPY121 for the first time in over a month but the dollar’s strength was fleeting, and it has now sunk to its lowest level in over a year.
Arguably JPY strength can be attributed to the global decline in equity prices, but it still suggests that the ability for negative rates to generate currency weakness is neither strong nor reliable. The same message can be seen when looking at other countries that are now actively imposing negative policy rates. The chart below shows the profile for three other regions that have adopted negative policy rates: Switzerland, Sweden and the Euro area. Rates generally crossed the zero line for all three regions in the fourth quarter of 2014 or the first quarter of 2015 – i.e., just over a year ago. The central banks have pushed rates further negative on multiple occasions to levels that are much more significant than Japan’s headline negative six basis points. Has this generated meaningful currency weakness?
Based on performance of trade-weighted currency indices shown in the chart on the following page, negative rates appear to be, at best, a fleeting source of currency weakness. CHF surged early last year when the Swiss National Bank abandoned its effort to put a floor under EURCHF and it has held that strength ever since despite the steady move of Swiss rates into ever more negative territory. The experience in Sweden and the Euro area are reminiscent of Japan. In both cases currencies initially weakened as rates went negative but then gradually recovered. Both SEK and EUR are now close to pre-zero rate levels so there is little evidence that even persistent moves into negative territory provide stimulus via weaker currencies.
WHAT ABOUT DOMESTIC CREDIT CREATION?
Another, and generally more important, reason that lower interest rates can stimulate demand is through increased credit expansion. To avoid paying carrying cost on reserves, banks might become more aggressive on loaning funds out either through cutting rates or extending credit to lower quality borrowers. Indeed, if policy rates turned steeply negative it might make sense for banks to lend out money at a more modest negative rate to reduce the net loss – though this is not likely any time soon. The chart below suggests that negative rates have been even less successful at stimulating credit creation than at weakening exchange rates. An expanding credit environment should increase leverage in an economy which be manifest in broader monetary aggregates rising relative to base money. There is no evidence that the move to negative rates has created any pickup in credit creation. Indeed, the downtrends of the M3 vs. M1 ratios – or deleveraging – that emerged in the Euro-area and Sweden in 2012 have continued unabated into the fourth quarter of 2015. It seems that negative rates have yet to trigger any surge in credit creation.
JANET, DON’T GO THERE!
It is possible that as rates dip ever deeper into negative territory that they will eventually start having the desired result. But negative interest rates could well prove to be self-defeating. It is clearly the case that negative rates are bad news for the banking sector. Having to pay for the right to park funds at the central bank instead of earning a return is a cost to the banks which rises as rates go more negative. As shown in the chart on the following page, the impact of negative rates on bank profitability was recognized in the Japanese market. Bank stocks sold off sharply, relative to the general Nikkei decline, as the BoJ moved policy rates negative. Indeed, it was concern about impact on bank profitability that caused the BoJ to be conservative in phasing in the negative rate.
And, there is an even more adverse potential of negative interest rates. Again, the main intent of negative rates is to incentive banks to lower lending rates and, hence, stimulate credit creation. But banks may instead pass on the cost of negative rates to depositors in the form of various checking account fees. The big risk is that depositors could respond to these fees by withdrawing funds and shifting to cash. Ironically, negative rates could well spark credit contraction.
Despite the limitations and risks of negative interest rates, central banks continue to consider this as a viable policy. Apparently the Fed too is considering this as a hypothetical – the most recent bank stress test exercise included a scenario with negative Treasury Bill rates. The temptation for negative rates is that many central banks’ traditional tools have been exhausted and so there is a grasp for alternatives. But reality is not always symmetric and just because negative rates are possible does not mean they are a valid policy option.
ECB Provides our Point on Negative Interest Rate Policy
Above we have focused on how negative policy rates are likely to be limited as a source of market stimulus. We believe they have to be substantially negative before they are going to materially affect spending and borrowing behavior. And negative rates of the required magnitude will be difficult to achieve without both threatening bank solvency and a consumer flight to cash – indeed, the BoJ’s negative rate announcement sparked record household purchases of safes! The ECB cut interest rates further into negative territory last week but they are still only around -0.5%. EUR took a nose dive on the announcement but quickly reversed course when ECB head Draghi indicated that further cuts were not being contemplated. EUR is now stronger than when the cut was announced and 2-year deposit rates are modestly higher. It is hard to see where the stimulus is going to come from.
Now let's take a look at recent CFTC data, although we've mentioned already above that USD long positions have contracted significantly. COT report shows moderately bullish picture. Net short position on EUR has contracted again, price has raised slightly but open interest mostly stands flat. It means that traders have closed large amount of short-position twice - in January and in mid March. Still they do not hurry to take more longs.
Still, if you will take a look at historical EUR CFTC chart, you'll see that this has happened every time, when EUR was turning to upside action. Average upside retracement takes ~ 15-20 points. It means that as our action has started from ~1.05, our probable destination stands around 1.20-1.25 and should finish as soon as EUR net position will turn to positive numbers. But this conclusion is based only on CFTC historical chart:
Technical
Monthly
On monthly chart we have two major issues. First one is DRPO "Buy" LAL pattern. I would say that this DRPO is perfect, but there is some mess with closes above 3x3 DMA has happened. The point is we've got formal confirmation in August 2008, there was second close above 3x3 DMA, but this has happened before real second bottom of DRPO has happened. In August we've talked about this moment and said that this is not DRPO by this reason. Real 2nd bottom has come in Nov-Dec. Close above 3x3 DMA last month is a real confirmation of DRPO "Buy", but as a result we've got some kind of triple REPO, that's why I mostly call it as DRPO "Buy" Look-alike (LAL).
Still, this pattern has all chances to work, thrust down looks perfect. Market has reached solid support area. If you will take a look at whole monthly chart - you'll see that this is lower border of downward channel and all-time 5/8 Fib support. Here EUR has formed Butterfly "buy". Thus, if even this butterfly will not trigger upside reversal - market still should show upside retracement.
Second thing, that seems important is Yearly Pivot. Take a look that on February EUR has made an attempt to close above it but failed. On March we see second challenge and it was successful. Pivot framework suggests that next target is Yearly Pivot Resistance 1 @ 1.1831. At the same time this is 3/8 Fib resistance, 1.20-1.22 is monthly overbought and DRPO target. Trend is bullish here.
So, taking in consideration new inputs on Fed policy, CFTC report and technical picture - let's focus at first destination and will not look too far. Monthly chart tells that this area could be met. Besides, 1.18-1.19 is reasonable upside retracement for monthly butterfly.
Weekly
This chart represents opposite picture. Once we've discussed this pattern that mostly is based on 1.08 downward breakout. Although currently phantom chances still remain on this butterfly, since price still stands below 1.1850 top, but these chances significantly decreased as market has turned to upside action again.
Another pattern that you could recognize here is Double Bottom with neckline around 1.1550-1.1580. Theoretical target of DB is around 1.25. Most interesting thing is what will happen around neckline, since here we have weekly overbought, MPR1. This area we will use as potential target of next week.
Still, situation will not be clarified absolutely until market will not break 1.18-1.19 area. If this will happen - this will open large bullish perspectives on EUR, while standing in 1.05-1.16 range will keep uncertainty. As longer market will fluctuate inside this range as weaker chances will be on upside breakout.
Daily
Trend is bullish on daily time-frame. As market has moved above recent top and completed daily bullish grabber target, we could return back to discussion of our AB-CD pattern. Next 1.618 target stands at ~ 1.1625.
Still, this point is above overbought and next week we will deal mostly with 1.1530 target. This is 1.27 butterfly extension, daily overbought and Monthly PP.
As we've said - reaction on NFP data will be muted, if even it will be positive. Precisely this has happened. Despite positive numbers, wage growth etc, EUR was able to hold above broken top. As a result on Friday we've got high wave pattern that mostly indicates indecision. In short term perspective it will be important what extreme point of high wave will be taken out.
4-hour
Well, here market has not quite reached 1.0 AB-CD extension for few pips. Thus, meaningful retracement hardly will happen, until market will touched 1.1450 area.
Then most important will be the depth of retracement. It will be perfect if retracement down will hold above WPP and broken daily top. This will keep short-term bullish sentiment and chances on continuation to 1.1530 area.
Conclusion:
Currently perspectives on EUR mostly blur. It could be that market stands at big shifts due Fed policy change, but it is difficult right now to foresee real perspectives of this step. Right now we stand mostly in the beginning, when market tries to price-out previous, more hawkish policy.
In short-term we expect that this "price-out" will last a bit more and we will see 1.1450 and then 1.1530 areas.
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.
(Reuters) - The U.S. dollar was little changed against a basket of major currencies and hovered near more than five-month lows on Friday after traders grew less confident that stronger-than-expected U.S. economic data would alter the Federal Reserve's dovish course.
The dollar initially rebounded from recent losses after Labor Department data showed a jump in U.S. non-farm payrolls and average hourly earnings last month and a separate U.S. manufacturing report for March was better than expected.
That effect wore thin as the U.S. session continued, with traders growing skeptical that the data was enough to suggest a swifter pace of Fed rate hikes. Fed Chair Janet Yellen said on Tuesday that the central bank should proceed "cautiously" on raising rates.
"These reports don’t change the outlook significantly in terms of U.S. monetary policy," said Eric Viloria, currency strategist at Wells Fargo Securities in New York.
The euro weakened to $1.1335 following the U.S. jobs and manufacturing data after earlier hitting a 5-1/2-month high of $1.1437. The euro rebounded later in the session, however, and was last up 0.14 percent against the dollar at $1.1394.
The dollar also weakened against the yen and hit its lowest level in a week and a half at 111.61 yen.
"This is just giving an ongoing signal of underlying yen strength," said Alan Ruskin, global head of FX strategy at Deutsche Bank in New York, on the dollar's weakness against the Japanese currency.
Speculators slashed bullish bets on the U.S. dollar for a fourth straight week, with net longs falling to their lowest in nearly two years, according to Reuters calculations and data from the Commodity Futures Trading
Commission released on Friday.
The value of the dollar's net long position fell to $4.65 billion in the week ended March 29, from $5.91 billion the previous week. Dollar net longs came in below $10 billion for a seventh consecutive week.
In March, the dollar index fell 3.7 percent, its weakest monthly performance since April last year. The dollar has struggled as revised interest rate forecasts from the Federal Reserve, or the so-called "dot plots", released a few weeks ago showed just two rate increases in 2016.
In contrast, at the December meeting of the Federal Open Market Committee, the central bank projections showed at least four rate hikes this year. Even a strong U.S. jobs report for March released on Friday
was not expected to change the Fed's dovish view on the U.S. economy.
"The higher unemployment rate confirms that more improvements need to be seen before the Fed can pull the trigger on raising rates," said Kathy Lien, managing director of FX strategy at BK Asset Management in New York. "The increase in the jobless rate guarantees that rates will remain unchanged in April and unless the next two retail sales and/or earnings reports show big improvements, monetary policy will be held steady in June as well."
In other currencies, euro net shorts continued to decline, to their lowest in roughly a month in the latest week. Net euro shorts fell to 63,811 contracts from 66,053 the week before.
The Reuters calculation for the aggregate U.S. dollar position is derived from net positions of International Monetary Market speculators in the yen, euro, sterling, Swiss franc and Canadian and Australian dollars.
Today guys, we also talk on negative rates per se, how long they could be kept and what could happen. We've got nice article on this subject:
ARE NEGATIVE POLICY RATES LESS THAN NOTHING?
Ron Leven, PhD
(Ron Leven is the head of FX Pre-Trade and Economic Strategy at Thomson Reuters. Ron joined Thomson Reuters in January 2014 with over 25 years of FX investment strategy experience at both buy- and sell-side firms, most recently as head of FX derivatives strategy at Morgan Stanley. Ron earned a PhD in Economics from Rice University and is a Columbia University Adjunct Professor teaching courses on emerging market investments.)
The Bank of Japan (BoJ) announced in late January that they were joining the ranks of central banks with a negative policy rate. While their policy rate did indeed go negative, as is apparent in the chart below, the amount is a modest six basis points and only a small portion of bank current account balances are subject to this rates.
The BoJ has created three categories of current account bank deposits. The Basic Balance is the average 2015 balance and continues to earn a positive 0.1% annual rate. The Macro Add-On Balance is required reserves, special credit provisions and a still-to-be determined ratio of the Basic Balance; it receives a zero rate of interest. Only reserves beyond this, the Policy Rate Balance are subject to the negative interest rate which the BoJ stated is currently about 10% of the banks’ total current account balance holdings.
It is presumed that, as the BoJ injects reserves via quantitative ease (QE), the Policy Rate Balances will gradually rise and subject banks to the negative rate. But as the ratio for the Macro Balance remains undetermined, the BoJ has a lot of wiggle room as to the breadth of reserves that will ultimately be subject to this negative rate.
WHAT IS THE POINT OF NEGATIVE INTEREST RATES?
The main point of negative rates is to make it more painful for banks to hold funds on deposit with the central bank and instead deploy the funds in ways that will provide more stimuli for the economy. One anticipated avenue for banks is to push funds into foreign currency deposits where they are not subject to negative carry. The resulting currency weakness and increased trade competitiveness is one way negative interest rates can stimulate demand. In the case of Japan, though, things are not working out well on this front. As shown in the chart above, on the announcement of the headline negative rate, USDJPY spiked up testing JPY121 for the first time in over a month but the dollar’s strength was fleeting, and it has now sunk to its lowest level in over a year.
Arguably JPY strength can be attributed to the global decline in equity prices, but it still suggests that the ability for negative rates to generate currency weakness is neither strong nor reliable. The same message can be seen when looking at other countries that are now actively imposing negative policy rates. The chart below shows the profile for three other regions that have adopted negative policy rates: Switzerland, Sweden and the Euro area. Rates generally crossed the zero line for all three regions in the fourth quarter of 2014 or the first quarter of 2015 – i.e., just over a year ago. The central banks have pushed rates further negative on multiple occasions to levels that are much more significant than Japan’s headline negative six basis points. Has this generated meaningful currency weakness?
Based on performance of trade-weighted currency indices shown in the chart on the following page, negative rates appear to be, at best, a fleeting source of currency weakness. CHF surged early last year when the Swiss National Bank abandoned its effort to put a floor under EURCHF and it has held that strength ever since despite the steady move of Swiss rates into ever more negative territory. The experience in Sweden and the Euro area are reminiscent of Japan. In both cases currencies initially weakened as rates went negative but then gradually recovered. Both SEK and EUR are now close to pre-zero rate levels so there is little evidence that even persistent moves into negative territory provide stimulus via weaker currencies.
WHAT ABOUT DOMESTIC CREDIT CREATION?
Another, and generally more important, reason that lower interest rates can stimulate demand is through increased credit expansion. To avoid paying carrying cost on reserves, banks might become more aggressive on loaning funds out either through cutting rates or extending credit to lower quality borrowers. Indeed, if policy rates turned steeply negative it might make sense for banks to lend out money at a more modest negative rate to reduce the net loss – though this is not likely any time soon. The chart below suggests that negative rates have been even less successful at stimulating credit creation than at weakening exchange rates. An expanding credit environment should increase leverage in an economy which be manifest in broader monetary aggregates rising relative to base money. There is no evidence that the move to negative rates has created any pickup in credit creation. Indeed, the downtrends of the M3 vs. M1 ratios – or deleveraging – that emerged in the Euro-area and Sweden in 2012 have continued unabated into the fourth quarter of 2015. It seems that negative rates have yet to trigger any surge in credit creation.
JANET, DON’T GO THERE!
It is possible that as rates dip ever deeper into negative territory that they will eventually start having the desired result. But negative interest rates could well prove to be self-defeating. It is clearly the case that negative rates are bad news for the banking sector. Having to pay for the right to park funds at the central bank instead of earning a return is a cost to the banks which rises as rates go more negative. As shown in the chart on the following page, the impact of negative rates on bank profitability was recognized in the Japanese market. Bank stocks sold off sharply, relative to the general Nikkei decline, as the BoJ moved policy rates negative. Indeed, it was concern about impact on bank profitability that caused the BoJ to be conservative in phasing in the negative rate.
And, there is an even more adverse potential of negative interest rates. Again, the main intent of negative rates is to incentive banks to lower lending rates and, hence, stimulate credit creation. But banks may instead pass on the cost of negative rates to depositors in the form of various checking account fees. The big risk is that depositors could respond to these fees by withdrawing funds and shifting to cash. Ironically, negative rates could well spark credit contraction.
Despite the limitations and risks of negative interest rates, central banks continue to consider this as a viable policy. Apparently the Fed too is considering this as a hypothetical – the most recent bank stress test exercise included a scenario with negative Treasury Bill rates. The temptation for negative rates is that many central banks’ traditional tools have been exhausted and so there is a grasp for alternatives. But reality is not always symmetric and just because negative rates are possible does not mean they are a valid policy option.
ECB Provides our Point on Negative Interest Rate Policy
Above we have focused on how negative policy rates are likely to be limited as a source of market stimulus. We believe they have to be substantially negative before they are going to materially affect spending and borrowing behavior. And negative rates of the required magnitude will be difficult to achieve without both threatening bank solvency and a consumer flight to cash – indeed, the BoJ’s negative rate announcement sparked record household purchases of safes! The ECB cut interest rates further into negative territory last week but they are still only around -0.5%. EUR took a nose dive on the announcement but quickly reversed course when ECB head Draghi indicated that further cuts were not being contemplated. EUR is now stronger than when the cut was announced and 2-year deposit rates are modestly higher. It is hard to see where the stimulus is going to come from.
Now let's take a look at recent CFTC data, although we've mentioned already above that USD long positions have contracted significantly. COT report shows moderately bullish picture. Net short position on EUR has contracted again, price has raised slightly but open interest mostly stands flat. It means that traders have closed large amount of short-position twice - in January and in mid March. Still they do not hurry to take more longs.
Still, if you will take a look at historical EUR CFTC chart, you'll see that this has happened every time, when EUR was turning to upside action. Average upside retracement takes ~ 15-20 points. It means that as our action has started from ~1.05, our probable destination stands around 1.20-1.25 and should finish as soon as EUR net position will turn to positive numbers. But this conclusion is based only on CFTC historical chart:
Technical
Monthly
On monthly chart we have two major issues. First one is DRPO "Buy" LAL pattern. I would say that this DRPO is perfect, but there is some mess with closes above 3x3 DMA has happened. The point is we've got formal confirmation in August 2008, there was second close above 3x3 DMA, but this has happened before real second bottom of DRPO has happened. In August we've talked about this moment and said that this is not DRPO by this reason. Real 2nd bottom has come in Nov-Dec. Close above 3x3 DMA last month is a real confirmation of DRPO "Buy", but as a result we've got some kind of triple REPO, that's why I mostly call it as DRPO "Buy" Look-alike (LAL).
Still, this pattern has all chances to work, thrust down looks perfect. Market has reached solid support area. If you will take a look at whole monthly chart - you'll see that this is lower border of downward channel and all-time 5/8 Fib support. Here EUR has formed Butterfly "buy". Thus, if even this butterfly will not trigger upside reversal - market still should show upside retracement.
Second thing, that seems important is Yearly Pivot. Take a look that on February EUR has made an attempt to close above it but failed. On March we see second challenge and it was successful. Pivot framework suggests that next target is Yearly Pivot Resistance 1 @ 1.1831. At the same time this is 3/8 Fib resistance, 1.20-1.22 is monthly overbought and DRPO target. Trend is bullish here.
So, taking in consideration new inputs on Fed policy, CFTC report and technical picture - let's focus at first destination and will not look too far. Monthly chart tells that this area could be met. Besides, 1.18-1.19 is reasonable upside retracement for monthly butterfly.
Weekly
This chart represents opposite picture. Once we've discussed this pattern that mostly is based on 1.08 downward breakout. Although currently phantom chances still remain on this butterfly, since price still stands below 1.1850 top, but these chances significantly decreased as market has turned to upside action again.
Another pattern that you could recognize here is Double Bottom with neckline around 1.1550-1.1580. Theoretical target of DB is around 1.25. Most interesting thing is what will happen around neckline, since here we have weekly overbought, MPR1. This area we will use as potential target of next week.
Still, situation will not be clarified absolutely until market will not break 1.18-1.19 area. If this will happen - this will open large bullish perspectives on EUR, while standing in 1.05-1.16 range will keep uncertainty. As longer market will fluctuate inside this range as weaker chances will be on upside breakout.
Daily
Trend is bullish on daily time-frame. As market has moved above recent top and completed daily bullish grabber target, we could return back to discussion of our AB-CD pattern. Next 1.618 target stands at ~ 1.1625.
Still, this point is above overbought and next week we will deal mostly with 1.1530 target. This is 1.27 butterfly extension, daily overbought and Monthly PP.
As we've said - reaction on NFP data will be muted, if even it will be positive. Precisely this has happened. Despite positive numbers, wage growth etc, EUR was able to hold above broken top. As a result on Friday we've got high wave pattern that mostly indicates indecision. In short term perspective it will be important what extreme point of high wave will be taken out.
4-hour
Well, here market has not quite reached 1.0 AB-CD extension for few pips. Thus, meaningful retracement hardly will happen, until market will touched 1.1450 area.
Then most important will be the depth of retracement. It will be perfect if retracement down will hold above WPP and broken daily top. This will keep short-term bullish sentiment and chances on continuation to 1.1530 area.
Conclusion:
Currently perspectives on EUR mostly blur. It could be that market stands at big shifts due Fed policy change, but it is difficult right now to foresee real perspectives of this step. Right now we stand mostly in the beginning, when market tries to price-out previous, more hawkish policy.
In short-term we expect that this "price-out" will last a bit more and we will see 1.1450 and then 1.1530 areas.
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.
