Forex FOREX PRO WEEKLY, April 04 - 08, 2022

Sive Morten

Special Consultant to the FPA
Messages
16,092
Fundamentals

The NFP numbers that we've got on Friday was not too thrilling as they were mostly in a row with the expectations. Market reaction is carefully optimistic. Although numbers are good, unemployment are low, but everybody understand that "real" data is still ahead - April, but mostly May-June, when we start to get first fruits of new geopolitical reality and its impact on the US and EU economy.
Another thing that seems important to the market is combination of hawkish Fed policy, high inflation and reversed interest rate curve in the US. This week I see three different articles on this subject and we discuss them as well.

Market overview

The euro was down 0.8% at $1.1068, after hitting its highest since March 1 at $1.1184 earlier in the session as rising inflation in Europe stoked expectations of rate hikes. Preliminary data showed that German annual inflation rose to its highest level in more than 40 years in March as prices of natural gas and oil products soared. Spain's flash CPI data for March showed prices rising at their fastest since May 1985.

However, ECB President Christine Lagarde said food and energy prices should stop increasing, helping the euro zone avoid the combination of stagnant growth and high inflation feared by economists.

Inflation continued to surge across Europe's biggest economies this month while growth took a hit, leaving households poorer as they picked up the bill for soaring energy costs in the wake of Russia-US conflict in Ukraine. Price growth hit multi-decade highs in Italy, France, Germany and Spain in March, intensifying a policy dilemma for the European Central Bank, which needs to fight the price surge but must also avoid choking off already fading growth.

Spanish consumer prices rose 9.8% year-on-year in March, their fastest pace since May 1985 and a jump from 7.6% in February, flash data from the National Statistics Institute (INE) showed on Wednesday. Prime Minister Pedro Sanchez said more expensive electricity and fuel and non-processed food accounted for almost three-quarters of the overall CPI increase.

Lagarde said the inflation outlook was "fluid" as an ongoing war in Ukraine forced economists to constantly revise their economic forecasts. But she expected energy and food prices, which have scaled new highs since conflict started, to stabilise, albeit at high levels.

"We know you will see higher inflation this year, there is no question about that," Lagarde said. "But we are also seeing some of those factors that fuel inflation today, energy and food, that will stay high. But we don't forecast them - not predict - to continue to move higher and higher."

She acknowledged the euro zone was facing slower growth and higher inflation but still thought it could avoid "stagflation", which she defined as "a recession of the economy on a sustainable basis and inflation high and continuing to rise".

As inflation in the euro zone speeds up, top European Central Bank officials have insisted the rise is temporary, with ECB Chief Economist Philip Lane describing high inflation as an imported shock that will fade away over time.

"We would still diagnose that this essentially is an imported inflation shock, it's a supply shock," Lane said. "Most of this inflation will fade away."

The data, along with sky-high readings from Germany and Spain a day earlier, suggest that Friday's euro zone reading will be well above 7%, with three to four months still left before a likely peak, according to the ECB. While most of the surge is due to energy prices, Europe's labour market is also tighter than it has been for decades, suggesting that underlying price pressures are also starting to build and that wages will follow sooner or later. Euro zone unemployment fell to a record low 6.8% in February, separate data showed on Thursday, and a further drop is projected by the ECB.

"Given the rise in inflation is almost exclusively driven by the supply side, the higher inflation gets, the weaker economic growth will be," ABN Amro analysts said in a note to clients. Indeed, economic growth is likely to disappoint ECB projections," they added. "The ECB will probably balance these forces by tightening policy modestly."

ECB Vice President Luis de Guindos acknowledged the deterioration, saying on Thursday that the economy would barely grow in the first half of 2022.

"My impression is that growth in the first quarter of this year ... will be slightly positive, we'll have very low growth," de Guindos said. "In the second quarter of the year, my impression is that growth will be hovering (around) zero."

Markets are pricing in a combined 60 basis points of hikes this year in the ECB's deposit rate, now minus 0.50%, which would end a nearly decade long experiment with negative rates. But market analysts are more cautious and even the most conservative policymakers are not calling for rates to move into positive territory quickly, indicating a disconnect between market pricing and the ECB's own signals.

ECB Chief Economist Philip Lane, among the doves on the rate-setting Governing Council, even cautioned on Thursday that the war could force the ECB to ease, rather than tighten policy.

"We should also be fully prepared to appropriately revise our monetary policy settings if the energy price shock and the Russia-US war were to result in a significant deterioration in macroeconomic prospects," Lane said in a speech, calling for readiness to either ease or tighten policy.

The caution is especially warranted as Germany, the biggest of the 19 euro zone economies, may already be skirting a recession and has started drawing up plans for rationing natural gas in case supplies from Russia are disrupted. Others added that even if high inflation hurts the consumer and weighs on growth, it is increasingly difficult for the ECB to play it down, so talk of rates hikes are bound to intensify.

"Even though high inflation is a drag on growth, the ECB likely has some pain threshold on the inflation data as well," JPMorgan's Greg Fuzesi said. The bigger the upside surprises on inflation, the smaller the bar for any improving news from Ukraine to intensify a debate on the interest rate outlook."

German annual inflation rose to its highest level in more than 40 years in March as prices of natural gas and oil products soared following Russia-US war in Ukraine, preliminary data showed on Wednesday. Consumer prices, harmonised to make them comparable with inflation data from other European Union countries (HICP), rose 7.6% on the year, a steep increase from 5.5% in February, the Federal Statistics Office said. The national consumer price index (CPI) rose 7.3% year-on-year after recording an inflation rate of 5.1% in February, as companies and service providers passed on the massive rise in energy prices to customers.

"Welcome back to the 1970s! At least as far as food, goods and energy prices are concerned," said Jens-Oliver Niklasch at Landesbank Baden-Wuerttemberg.

"The European Central Bank has no choice but to start tightening now," said KfW chief economist Fritzi Koehler-Geib in a view echoed by other experts, including Thomas Gitzel at VP Bank Group. If currency regulators stay relaxed, there is a risk that their later reaction will have to be all the more drastic. The U.S. Federal Reserve had this painful experience in the early 1980s," Gitzel said. The ECB's mantra that inflation rates would be back to the ECB's target level of 2% from next year no longer works. For the first time since it was founded, the ECB is in danger of losing its credibility."

"Until the risk of an energy crisis and considerable economic effects resulting from the Ukraine war have been banished, the ECB is likely to hesitate to make a clear commitment" on how to take action against inflation, said Antje Praefcke, forex analyst at Commerzbank. And as a result, it will also be a while before the euro can appreciate on a sustainable basis," she added.

"The rhino in the room has been unleashed and may now prove difficult to stop," Deutsche Bank Wealth Management Global CIO Christian Nolting said in a research note, adding consumer price inflation in the United States had breached the 7% threshold. Longer-term issues such as the shrinking workforce and the growing share of GDP generated by labour-intensive services are likely to remain and inflation is therefore unlikely to return to its pre-pandemic level in the years to come."

Nolting said the sanctions imposed on Russia were making supply chain problems worse while the oil and gas price shock could drive prices even higher.

"In the developed economies, already elevated inflation rates may now be driven even higher given the conflict-induced oil and gas price shock," he said. Sanctions as well as businesses halting their operations in Russia are exacerbating supply chain problems," he said. "Furthermore, shortages in platinum, palladium or even neon are hampering the manufacturing of intermediate products."

Economic growth in the United States will outstrip that of the euro zone in 2022 and 2023 because of the conflict in Ukraine and Europe's dependence on energy imports, Nolting said.

"We now expect U.S. growth to outstrip that of the euro zone in both 2022 and 2023 because of the euro zone's geographical proximity to the conflict zone and Europe's structural disadvantage as the world’s largest net importer of energy."

Russia's economy will contract 8% year on year in 2022, Deutsche Bank said, with zero growth in 2023. The United States will grow 3.4% in 2022 while the Eurozone will grow 2.8% and China by 4.5%, Deutsche said.

U.S. consumer spending barely rose in February as an increase in spending on services was offset by declining purchases of motor vehicles and other goods, while price pressures mounted, with annual inflation surging by the most since the early 1980s. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.2% last month. Data for January was revised higher to show outlays rebounding 2.7% instead of 2.1% as previously reported. Economists polled by Reuters had forecast consumer spending increasing 0.5%. When adjusted for inflation, consumer spending fell 0.4%.

A significant decline in COVID-19 infections boosted demand for services like dining out, hotel stays, recreation, air travel and healthcare. Services increased 0.9%, the most in seven months, after rising 0.7% in January. But spending on goods dropped 1.0% after surging 6.5% in the prior month. Consumers also cut back spending on food, household furnishings, recreational goods as well as clothing. Spending on gasoline increased at a $27.1 billion rate.

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The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, rose 0.4% after climbing 0.5% in January. The so-called core PCE price index jumped 5.4% year-on-year in February, the biggest gain since April 1983. The core PCE price index increased 5.2% in the 12 months through January.

Though inflation is eating into households' budgets, consumers are getting some cushioning from massive savings accumulated during the pandemic as well as rising wages amid a shortage of workers. Economists estimate consumers are sitting on about $2.3 trillion in excess savings.

"We expect a decent chunk of it is at the disposable of households should they wish to rely on it," said Shannon Seery, an economist at Wells Fargo in New York.

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Personal income rose 0.5% in February, with wages shooting up 0.8%. The saving rate climbed to 6.3% from 6.1% in January.

The dollar rose on Friday, helped by robust U.S. job growth numbers for March that firmed market expectations that the Federal Reserve will increase the pace of interest rate hikes in an effort to blunt rising inflation. The nonfarm payrolls report showed that 431,000 jobs were added last month, versus estimates of 490,000, while data for February job increases were revised higher. The unemployment rate dropped to 3.6%, lowest since February 2020.

Futures contracts tied to the Fed's policy rate fell after the jobs report, pointing to expectations that the Fed will hike by a half-a-percentage point at each of its next three meetings to deal a more decisive blow to price pressures.

"We still think that as much as inflation is set to intensify further in the Eurozone, the ECB is likely to wait it out this quarter to see how the bloc evolves with the shock emanating from the war in Ukraine, though we think the ECB is on borrowed time and will need to hike this year," analysts from TD Securities said in a note.

Counter view

Plague, war and inflation define the year so far - but faith in the U.S. dollar seems to have made it through the first three months. Thanks largely to a newly hawkish Federal Reserve and some yawning yield gaps in ferociously volatile bond markets, speculators have remained net long of dollars through the turbulent first quarter. It underscores an overwhelmingly bullish consensus for a stronger dollar among asset managers coming into 2022.

And yet positioning is as long on dollars at the end of the March as it was short on it exactly one year ago. And that bet went sour over the remainder of 2021 as the buck flew higher. There are more questions than answers as always - but a counterview to the consensus always catches the eye.

BNP Paribas' research team took a pace back from the frenetic news flow this month and sketched out a longer-term view of cross-border flows could spell trouble for the dollar ahead. Examining investor, corporate and reserve manager behaviour, they showed that since 2014 a key funding source for the yawning U.S. current account deficit - which has almost doubled to 3.6% gross domestic product since 2020 - has been foreign buying of U.S. bonds by euro zone investors.

Japanese funds remain the largest single national holder of U.S. Treasuries, but inflows over the past eight years originated mostly from euro zone - 61% of the $1.69 trillion rise in foreign exposure to U.S. fixed income over that time. The BNPP team argue that euro zone investors facing negative nominal yields at home over that period were drawn to unhedged dollar bond exposure. And those dynamics are now shifting.

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The dollar's history of peaking when the Fed starts raising rates and the prospect of European Central Bank "normalising" policy later this year change the picture.
And winding down the ECB's bond buying, as much as any rate rises themselves, play a key part. Their analysis outlined how negative supply of euro zone bonds net of redemptions and ECB bond buying leads to mechanical transfer of bonds to the central bank from private investors - who have then used the proceeds to invest in overseas assets.

But as the ECB pulls back from the market, they estimate there a net 174 billion of new euro zone bonds this year that will not hoovered up by the central bank - a positive net supply that brings us back to 2014 levels.

"But the FX market does not appear to price in this shift, which we think will support the euro," BNP Paribas told clients.

The return of positive yields on bonds that hold no currency risk for the euro zone's more conservative investors just underlines this. And euro bonds with positive yields now account for about 70% of all outstanding compared to less than 30% a year ago.

There are other reasons to be more negative on the dollar of course - such as a preference for currencies in commodity exporting economies that will ride the surge in energy, raw materials and food prices. Many investors are also now wary of some currency reserve managers diversifying away from dollars after G7 powers froze the overseas reserves of Russia's central bank.

Others think the Bank of Japan will eventually relent in its policy of capping long-term bond yields there - which pummelled the yen last month as the Fed tightened.

But long-term dollar bulls still seem confident. Stephen Jen of hedge fund Eurizon SLJ thinks the three gloomy horsemen of 2022 - COVID, war and inflation - will still play out well for the dollar over the rest of the year.

"What is interesting to me is that China's number one challenge is Covid; the U.S. number one challenge is inflation; and Europe's number one challenge is Ukraine-Russia," he wrote.
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Jen reckons the aggravated inflation picture will keep the Fed tightening through the year but also keep U.S. equities high as companies are able to pass on input prices in such a buoyant economy. By contrast China's COVID-19 hit will drag harder on its economy and require more policy easing there, he thinks. And the euro area and ECB will be held back by the demand effects of a Ukraine-related energy shock that it will feel the hardest.

If that's all to plays out on the exchanges, the consensus will need to prove more durable than it did last year.

As short-dated bond yields turned positive this week, euro zone bank shares gained almost 4%. Each ECB rate hike could add 10% to lenders' earnings-per-share, Secker estimates - and 20% in southern Europe.

But with euro zone rates expected to peak at just over 1% and no sign of hikes in Japan and Switzerland, unwinding could take years, especially as inflation-adjusted yields remain negative, unlike in emerging economies.

"We're not going to have a party and get out the champagne because yields are above zero," said Ludovic Colin, a senior portfolio manager at Swiss asset manager Vontobel. What we need to understand is where they are going, not where they are now."

To be continued....
 
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Sive Morten

Special Consultant to the FPA
Messages
16,092
US Yield curve flattening

The shape of the yield curve is a key metric investors watch as it impacts other asset prices, feeds through to banks' returns and has been an indicator of how the economy will fare. Recent moves have reflected investor worries over whether the Fed can tighten monetary policy to tame inflation without hurting economic growth.

A flattening curve can mean the opposite: investors expect rate hikes in the near term and have lost confidence in the economy's growth outlook.

Yields of short-term U.S. government debt have been rising quickly this year, reflecting expectations of a series of rate hikes by the U.S. Federal Reserve, while longer-dated government bond yields have moved at a slower pace amid concerns policy tightening may hurt the economy.

As a result, the shape of the Treasury yield curve has been generally flattening and in some cases inverting. Parts of the yield curve, namely five to 10 and three to 10 years, inverted last week.

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Meanwhile, the two-year/10-year yield curve has technical issues, and not everyone is convinced the flattening curve is telling the true story. They say the Fed's bond buying program of the last two years has resulted in an undervalued U.S. 10-year yield that will rise when the central bank starts shrinking its balance sheet, steepening the curve.

U.S. benchmark 10-year yields pushed above the 2.5% marker to 2.55% Monday , hitting their highest since April 2019. In February they topped the 2% level for the first time since 2019. While rate increases can be a weapon against inflation, they can also slow economic growth by increasing the cost of borrowing for everything from mortgages to car loans.

Aside from signals it may flash on the economy, the shape of the yield curve has ramifications for consumers and business.

When short-term rates increase, U.S. banks tend to raise their benchmark rates for a wide range of consumer and commercial loans, including small business loans and credit cards, making borrowing more expensive for consumers. Mortgage rates also rise.

When the yield curve steepens, banks are able to borrow money at lower interest rates and lend at higher interest rates. Conversely, when the curve is flatter they find their margins squeezed, which may deter lending.

Despite the momentum, there are signs that the end of pandemic-era financial aid and inflation hovering at 40-year-highs, exacerbated by Russia-US conflict in Ukraine, are beginning to hurt the finances of lower-income Americans.

While people return to old spending habits - confidence about their prospects for meaningfully growing income over the next two years is at an eight-year-low, according to data from the University of Michigan, and economists say real incomes, a more specific measure of wealth, are cratering.

Goldman Sachs economic analyst Jason Briggs expects that real household income will only grow by 0.5% in 2022, and that income for the lowest-wage earners will decline this year because of inflation and the end of government assistance.

"The largest headwind to real spending growth in 2022 is very weak real income growth," Briggs wrote in a note to investors last week.

The New York Federal Reserve last week identified another possible reason for trouble on the horizon: 37 million federal student loan borrowers will have to start making payments again starting in May.

Payments on federal student loans have been suspended since March 2020 when the government temporarily placed these loans in administrative forbearance.

Meanwhile, the 10 million borrowers with private student loans who had to continue making payments "struggled with their debt," New York Fed research analysts wrote.

"The difficulties faced by these borrowers in managing their (private) student loans and other debts suggest that (federal student loan) borrowers will face rising delinquencies once forbearance ends and payments resume," New York Fed researchers wrote in a blog post.

There are different opinions on how representative and reliable 2/10 year yield spread. Here is one of them:

ANSHUL PRADHAN AND SAMUEL EARL, INTEREST RATE STRATEGISTS, BARCLAYS

“On the surface, a downward-sloping yield curve simply points to expectations of rate cuts by investors and does not indicate why. Investors might be worried about a recession and expect the Fed to cut rates. Alternatively, they could be expecting the Fed to cut rates in response to falling inflation. Both are plausible explanations, though history suggests the former is more likely.”

“Is this time different? We find the usual explanation of low term premium, due to factors such as the Fed's balance sheet, unsatisfactory...Investors are willing to accept a low term premium when they are worried about downside risks to growth, suggesting that the term premium also contains information about the outlook.”

CFTC Data

This week mostly shows general outflow from the EUR, as traders were closing as shorts as long positions, which makes recent rally not reliable, at least, not suitable to treat it as major bullish reversal, although open interest has increased slightly:

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Next week to watch

As the second quarter gets underway, the biggest question is when soaring inflation will finally peak.
Federal Reserve minutes and a Reserve Bank of Australia meeting will provide insights on rate setters' thinking. Resilience in stocks and Russia's rouble could be put to the test.

#1 Fed minutes

An inverted curve has a solid track record for predicting recessions, but how to interpret recent bond moves presents a conundrum for investors. After the Federal Reserve's March 16 meeting offered a glowing assessment of the economic outlook, stocks are taking the bond selloff in their stride.

On Wednesday, minutes of that Fed meeting should show how policymakers view the outlook. They've already flagged bigger rate hikes to tame inflation, which is at four-decade highs. Also key would be details on how quickly the Fed might reduce its $9 trillion balance sheet, a risk some believe markets are underestimating.

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#2 RBA meeting

Australia's central bank meanwhile meets on Tuesday and while a policy change isn't expected, the bank may go further in laying groundwork for a rate hike. Markets expect one around June.

#3 & 4 Earnings season and EU positive yields.

Starting of the earnings season on stock market. Analysts hope that as and when the dust settles, corporate earnings will still look okay, and that the dreaded "stagflation" scenario will be avoided. TINA, or There Is No Alternative, is still alive and well it seems. The next earnings season is approaching but if the Russia-US crisis does lead to a new Iron Curtain, it might get harder for stocks to defy gravity.

Yields across the bloc ended March with their biggest monthly surge in around a decade, on expectations the ECB will soon push its minus 0.5% depo rate to 0% and above.

That would be a key moment for negative-yielding debt, global volumes of which surged above $18 trillion in 2020. Savers, banks and pension funds should all benefit; risky corporate debt and emerging markets that gained from investors' "hunt for yield" may lose out.

But calling a trend change in these volatile times is not easy. Coming days could show if yield moves back above 0% are really durable.

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The bottom line

Currently guys, we see that our hypothetical scenario, mentioned a month ago gradually is realizing. Obviously that market understanding of the conflict as local and temporal was wrong, while we've warned that this is for long term and triggers big and tectonic shifts in geopolitics and global economy. Now we see just minor hints on things that are still coming. They will come within 2-3 months in our opinion. But the ones that we see right now are not the fruits yet, this is just hints.
We warned that EU appears on the face of big challenge and economy in most negative scenario could drop in 50's. Now, as you could see in comments above - everybody starts talking about 70's already, but gas supply has not been cut yet.
In the US we stand at the border time, when statistics still reflects the past, but the future just is starting to break through and be reflected in numbers. With the big data such as unemployment, inflation and NFP everything seems good, although they stand for mid March by far. While, by taking a look at so-called "secondary" statistics we see drop in consumer confidence, spending, when people cut spending on most necessary things, such as food, clothing etc. Drop of households' wealth and rising expenses on serving student and mortgage loans seem like harbinger of difficult times. The reversed yield curve, although it is arguable, but anyway it reflects the sentiment - investors do not expect higher interest rates above 5-year term. You cold find multiple explanations for that but in general it means that they do not believe in new economy growth cycle. And it doesn't matter whether Fed will hurt recovery or it can't support the pace of rate hike.
Finally, in EU we also need to wait for 2-3, maybe 4 months before new economy reality catches up the statistics, although people, as final consumers and least protected social group, already feel it. Analysts tell that there are 3-4 months still until EU inflation peak. C. Lagarde suggestion that inflation should resolve itself looks naive. ECB now looks confused, seems that they absolutely do not know what to do. From that standpoint we agree with other analysts, who suggest that the US outperforms EU in nearest 2-3 years, and long-term US plan "you die today and I a bit later" keep going. Based on some data (provided by BoFa last week for example), it seems that the US has grabbed around 300-400 Bln. in 1.5 months. Our suggestion that the bulk of capital that the US could suck out from the EU stands around 1.5-1.7 Trln. It means that the outflow process should continue for 2-3 months more - right to the moment when EU inflation could peak by analysts opinion.
Through the period of capital relocation the US statistics should be disguised and look mostly OK as economy is financed externally. Thus, in the US we do not expect bad shifts until summer and by the same reason, the USD should outperform EUR. Rising interest rates in EU could bring some problems to the US as it is becoming a financial rival, which is not in the interests of the US. Thus, the US could take additional geopolitical/sanctions steps to put more burden on EU economy.

Technicals
Monthly

Here we do not have any changes by far. Monthly chart brings no surprises, at least from technical point of view. As we've suggested previously, 1.09 should provide support to the price as it includes YPS1 and long-term support line. Now price shows reasonable bounce out from this area. Still, the shape of AB-CD pattern shows CD leg acceleration and trend remains bearish. With the fundamental background that we've discussed above - we treat current action only as temporal pullback and keep valid the major target here around 1.04-1.0450 area.

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Weekly

Here I put EUR CME futures chart instead of FX Choice retail broker one. This is just an example, guys what drastic difference and conclusions you could make. Thus, FX Choice shows nothing interesting while CME futures clearly show bearish weekly grabber that changes everything in daily time frame analysis:
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Daily

Weekly grabber makes daily picture shines with absolutely different light. Although on Friday we already have discussed bearish setup in details, but weekly grabber suggests that it should be drop under 1.08 area. This makes us free on gambling about potential downside target of reversal bar and perfect engulfing pattern that we have here:
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Intraday

The entry process stands the same as we've talked about it. As price is coming to K-support area on 4H chart, the upward bounce should happen, which we intend to use for the short entry, as downside AB-CD pattern might be formed:
EUR_4h_04_04_22.png


Scalp traders also could try to trade upside bounce from support area. Thus, on 1H chart it supposedly should start once EUR hits the OP target:
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Sive Morten

Special Consultant to the FPA
Messages
16,092
Morning everybody,

So, it seems that bearish sentiment even stronger than we've suggested in weekly report. The intraday K-area has been broken without respect, and now bulls actually have the last chance to change situation, although, with the background that we have, I have big doubts that it happens.
Nevertheless, on daily chart price starts flirting with MACD, so, let's see whether we get the bullish grabber here:
EUR_d_05_04_22.png


On 4H chart you could see disrespected K-area, and now market is coming to major 1.0950 support level. As we have not bad thrusting action, scalp traders could consider bullish setups around support, maybe DRPO or B&B patterns might be formed around:
EUR_4h_05_04_22.png


On 1H chart minor DRPO "Buy" is already stand in place, market hits XOP target that we've discussed as well already:
EUR_1h_05_04_22.png


That's being said, daily traders wait for the bounce to consider short entry, while scalp traders could think about bullish positions around current support area with stops somewhere below 5/8 Fib support and 1.1940 area.
 

Sive Morten

Special Consultant to the FPA
Messages
16,092
Morning guys,

So, all illusions are swept off and we see our long-term view in action. It seems that EUR is re-establishing downside monthly trend. Although weekly grabber points on 1.08 lows, monthly next target is 1.04-1.05. Our conclusion is based as on deteriorating fundamental background as on technical market performance.

First, is UST yields jump to 2.6% yesterday, despite overbought at all time frames. Dollar Index stands above the high already (where EUR is still going). EUR intraday performance shows no pullbacks at all and disrespect any support areas. All these moments make us think that we're on the downside road again.
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It is difficult to suggest where we could get the pullback for short entry, as EUR, when it on the trend, shows very small retracements. But, it seems that reaching of daily OSold area could trigger some bounce.

On 4H chart we have the same thrust but no patterns around. So, B&B "Sell" here could be very welcome:
EUR_4h_06_04_22.png


On 1H chart we probably should treat as luck if we get pullback to 1.0935 at least. Existence of K-area slightly higher and previous lows makes this area comfortable to consider the short entry
EUR_1h_06_04_22.png
 

Sive Morten

Special Consultant to the FPA
Messages
16,092
Morning guys,

The pause that we've discussed yesterday now happens, and EUR turns to some retracement after few days of collapse. Price is not at oversold now and not at some support area, which makes pause in general fragile and doesn't let us to count on more or less solid pullback. Actually we think that it might be the chance to realize strategy that we've discussed yesterday:
EUR_d_07_04_22.png


The moment that still could confuse you is a kind of DRPO "Buy" setup on 4H chart. Indeed, by the shape it looks OK, but if we take the view inside, it becomes evident that this is not the DRPO. DRPO suggests sharp change over market control and inability of the bears to push it lower. DRPO always fast and suggests strong swings in both direction.
EUR_4h_07_04_22.png


But, if you take a look at 1H chart - you see nothing of that kind. Very slow and lazy action, market barely has power to climb higher. This is not the way how DRPO usually behaves. This makes us to treat current action only as some AB-CD type retracement and lets us to keep our yesterday's setup - consider short entry around 1.0940 with stops above XOP and K-area. As usual you could enter in few ways - at once, split position, or just wait for XOP with fewer chances to get the position. But this is very personal, so, if you would like to sell, in general, choose the way that you like more:
EUR_1h_07_04_22.png
 

Sive Morten

Special Consultant to the FPA
Messages
16,092
Morning guys,

So, it seems that we've correctly suggested weak retracement recently. Now we see pressure from all sides - interest rates at 2.66%, dollar index is rising, as well as real interest rates. It makes us think that drop below 1.08 lows is just a question of time. Beside, EUR is not at some support or oversold area. Thus, if you have taken short position recently, manage risk and keep it:
EUR_d_08_04_22.png


On 4H chart, as we said - DRPO has failed, as we had suspicions on its reliability due to lack of proper price action. As a result, we have "Failure" pattern which is bearish. Market is trying to turn in sideways action, which seems hardly possible now, still...
EUR_4h_08_04_22.png


...if something still happens, some pullback, it could take the shape of H&S, although chances seem low for that. That's why we suggest to not take any longs with it, but if still somehow pullback happens - try to use it for short entry:
EUR_1h_08_04_22.png
 
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