Forex FOREX PRO WEEKLY, April 05 - 09, 2021

Sive Morten

Special Consultant to the FPA
Messages
14,512
Fundamentals

This week everybody mostly were watching for NFP release to understand whether it confirms common view on economy and that it stands in recovery. In general, NFP was positive, especially in private sector that definitely is positive sign. This keeps us aside from any drastic shifts in our long-term view lets us to keep it mostly intact.

Market's overview

The dollar began the week on a firm footing, inching toward a milestone peak against the euro on Monday, as a cautious market mood pushed investors to safety
while U.S. economic strength and a rapid vaccine rollout also added to the greenback's shine.

The common currency is headed for its worst month since mid-2019 as Europe's faltering vaccination programme runs into a wave of new infections, a bearish signal as positioning data shows investors remain heavily long euros.

"The euro has continued to fall ... even as long-term U.S. yields have lost some upward momentum," analysts at MUFG Bank said in a note. "It suggests euro weakness was driven more by concerns over the weakening outlook for growth in the eurozone in light of rising COVID cases."

Virus-driven caution also helped the dollar higher against the Australian dollar, New Zealand dollar and sterling and it rose against oil-liked currencies as the re-floating of the ship blocking the Suez Canal pushed crude prices down by about 1.5%. Concern in equity markets at the widening fallout from a wave of liquidations linked to investment fund Archegos Capital also put investors in a careful mindset.

This year's 76-basis-point rise in benchmark 10-year Treasury yields - as the U.S. economy rebounds - has been a large driver, as the better returns offer carry for investors who can borrow the yen and franc very cheaply.

"The U.S. is also being helped on its own by some pretty good economic data, fantastic rollout of vaccines, good pace of vaccination and (positive) stock markets," said Westpac currency analyst Imre Speizer. The domestic economy is doing better than expected and likely to be the case for the next few months, so that might
hold the U.S. dollar up and that's what's caused the Aussie, kiwi and emerging-market currencies to pullback in March."


U.S. jobless claims fell to a one-year low last week and President Joe Biden said he would double his vaccination goal, after surpassing 100 million shots 42 days ahead of schedule. In contrast, European inoculations have been hit by supply problems and safety concerns.

The prospect of tougher coronavirus curbs in France and Germany weighed on the short-term outlook for the European economy. France’s President Emmanuel Macron ordered the country into its third national lockdown and said schools would close for three weeks. The currency bloc also lags the United States in vaccination programmes.

Sentiment towards Europe received a boost however in morning trading when data showed euro zone monthly factory activity growth galloped at its fastest pace in the near 24-year history of a leading business survey.

“The eurozone manufacturing sector proved once again to remain resilient through the re-imposed wave of lockdowns”, commented Maddalena Martini, euro zone economist at Oxford Economics.

European Central Bank chief economist Philip Lane said the central bank would need to maintain copious support for the economy as a surge in euro zone inflation is driven by transient factors and the underlying trends remain weak.

“In a nutshell, the U.S. economy is much stronger and miles ahead in the immunization game compared to Europe’s and Japan’s, and this ultimately translates into the Fed normalizing policy years before the ECB or the BoJ,” said Marios Hadjikyriacos, a strategist at brokerage XM.

The euro’s woes have worsened as Europe’s faltering vaccination programme runs into a wave of new infections, even as positioning data showed investors remain heavily long euros, a bearish sign for investors. Much focus will remain on the virus situation in Europe and whether lockdowns can slow rising case numbers and also whether the slow pace of vaccinations can finally reach exit speed,” ING economists said in a daily note.

A break of 93.0 is just a matter of time," Westpac strategists wrote in a report. There’s few signs the DXY’s rally has run its course, opening the door to a test of the 2020 Q3 highs of 94.50 for a stretch target."

However, "the market is in danger of pricing in too much inflation risk," meaning "we see scope for the USD to soften in the months ahead," Rabobank report said.


Data showed U.S. consumer confidence soared this month to the highest since the start of the pandemic, supporting views that economic growth will accelerate in the coming months, driven by more fiscal stimulus and an improving public health situation.

The dollar rose on Friday in thin trading, posting its third straight weekly gain, after data showed the world’s largest economy created more jobs than expected in March, suggesting it is on a steady path to recovery from the pandemic. Friday’s data showed U.S. nonfarm payrolls surged 916,000 jobs last month, the largest gain since last August. Data for February was revised higher to show 468,000 jobs created instead of the previously reported 379,000. Economists polled by Reuters had forecast payrolls increasing by 647,000 jobs in March.

“This takes away from the immediacy of having to pass the next $2.25 trillion worth of stimulus. You got 916,000 workers that were hired and the jobless rate is low. But it becomes harder and harder to convince people we got to go out spend another $2.25 trillion dollars. It takes the steam away from the fiscal policy but leaves right in the same monetary policy.”

“Service sector numbers were a big component of this report. In fact if you look at the report here and you look at the average hourly earnings, hourly earnings actually ticked down... And that’s because you’re bringing lower wage workers into the report. That’s good news, it’s the part of the economy we’ve been waiting to recover.”

“The hiring spree has officially started in the US and Wall Street knows that it will take several months of monstrous job gains to trigger the taper tantrum. The equity market party is in the early stages as the US will likely add between 500,000 and a million jobs over the next few months", OANDA said


The U.S. economy created the most jobs in seven months in March as more Americans got vaccinated and the government doled out additional pandemic relief money, marking the start of what could be the strongest economic performance this year in nearly four decades. All industries added jobs and many people rejoined the labor force. A measure of the economy’s ability to create employment also improved. But the road to full recovery remains long. The jobs deficit is still huge and more than four million Americans have been unemployed for over six months.

President Joe Biden welcomed the job growth spurt.

“The first two months of our administration has seen more new jobs created than the first two months of any administration in history,” Biden told reporters. “It’s a reflection of two things going on here, a new economic strategy focused on building from the bottom to the middle up, and one that puts government on the side of working people.

The strong gains could play into fears of the economy over heating, even as ample slack remains. The Federal Reserve has signaled it would maintain its ultra easy monetary policy stance for a while to allow complete healing.

“The economy is booming,” said Chris Low, chief economist at FHN Financial in New York. “If vaccines result in low enough COVID numbers to allow significant further service-sector reopening, the Fed will have to start discussing a taper, and update its guidance, before the end of this year.”

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As of Friday morning, the United States had administered 157.6 million doses of COVID-19 vaccines in the country and distributed 204.7 million doses, according to the U.S. Centers for Disease Control and Prevention. On Friday, the CDC said fully vaccinated people could safely travel at “low risk,” which could help accelerate the services industry recovery.

The Biden administration’s massive $1.9 trillion pandemic relief package approved in March is sending additional $1,400 checks to qualified households and fresh funding for businesses.

Economists expect job growth will average about 700,000 per month in the second and third quarters. That, combined with the fiscal stimulus and about $19 trillion in excess savings accumulated by households during the pandemic, is expected to unleash a powerful wave of pent-up demand.

First-quarter gross domestic product estimates are as high as an annualized rate of 10.0%. Growth this year could top 7%, which would be the fastest since 1984. The economy contracted 3.5% in 2020, the worst performance in 74 years.

Though average hourly earnings slipped 0.1% as the lower-wage leisure and hospitality industry dominated payroll growth, a proxy for take home pay increased 1.4%.
“The powerful tailwind of the reopening of economic activity appears to be gathering force,” said Michael Feroli, chief U.S. economist at JPMorgan in New York.

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The unemployment rate fell to 6.0% last month from 6.2% in February. The unemployment rate has been understated by people misclassifying themselves as being “employed but absent from work.” Without the misclassification, the unemployment rate would have been 6.4% in March. Even so, a broader measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, dropped to a one-year low of 10.7% after holding at 11.1% for two straight months.

The uneven pathway to recovery (By Fathom Consulting)

The first quarter of 2021 is almost over, leaving behind another round of challenging questions. Are the vaccines working? When will we get back to some sort of normality? What will recovery look like? How can we heal the economic scars COVID-19 inflicted? As at every quarter end, Fathom has conducted a rigorous analysis and prepared a forecast, which offers valuable insights to anyone deliberating questions like these.

A wealth of data from countries with advanced vaccination programmes gives evidence that existing COVID-19 vaccines prevent serious disease and reduce transmission. Although the threat of mutant variants remains, the focus is set to shift gradually towards when economies can reopen and the uncertainties and challenges of the recovery phase. Countries like the UK and the US that have made good progress with vaccinations will probably soon see an end to stay-home restrictions and renewed economic activity in many sectors. The European Union is lagging on the vaccination front so economic activity will likely recover a little later. Israel, on the other hand, is already open after its successful vaccine rollout.

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The reopening of economies does not however guarantee a smooth return to economic health. This has not been a normal recession, and it will not be a normal recovery, thanks in part to the substantial fiscal support put in place to mitigate the impact of the pandemic-related lockdowns. The next chart demonstrates one of the non-ordinary attributes of the recession: whilst consumption of services collapsed due to lockdowns, disposable income has soared — due to government subsidies and fewer options to spend.
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A major unknown is the extent to which households will dip into their excess savings over the coming months. Fathom considers different scenarios of how people might spend their excess savings, and how fiscal and monetary policy could evolve. One case is that people would rush to do the things that were previously banned, abruptly pushing the above chart’s dark blue line (consumption of services) upwards to align it with the other two lines, as per the historical norm.

An abrupt consumption ‘correction’ due to post-lockdown ‘pursuit of happiness’ along with loose monetary policy would place inflationary pressures on any recovery scenario. Indeed, inflation expectations have picked up for the UK and US, where the end of restrictions appears closer to hand than in the Euro area.

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The inflationary pressures in Fathom’s central recovery scenario would require central banks to unwind QE and tighten monetary policy. When that happens, or probably in the build-up, it will send shockwaves to capital markets, unsettling asset prices. This domino effect and its various implications are central to Fathom’s quarterly analysis and forecast. The simpler Fed model, which states that in equilibrium there is a positive lead-lag relationship between bond yield and equity earnings yield (inversed PE ratio), indicates the risks on the pathway to recovery. While bond yields are increasing, equity prices remain stable or even rise. This is because the market is currently pricing the stronger macro-cycle conditions and not inflation risks. But when inflation risks become more material and monetary policy seems about to change, equity prices will likely fall, for both the equity earnings yield and the bond yield to increase as the Fed model prescribes.

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COT Report

So, recent CFTC data just confirms existent trend and our worry about EU recovery performance, in comparison to the US and UK. GBP, by the way, shows opposite dynamic and increasing of net long position, while on EUR situation looks disastrously this week - 15K jump in open interest and 25K jump in short positions push net long position down again:

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Next week to watch

Financial policymakers from around the globe are preparing to convene -- virtually of course -- for the springtime meetings of the International Monetary Fund (IMF) and the World Bank. G20 nations’ finance chiefs meet too on April 7. The IMF will give a snapshot of the economic scars from the pandemic but it will also revise up forecasts for 2021 and 2022 growth. The meetings will discuss a $650 billion push to boost - and possibly reallocate - the IMF’s own currency, Special Drawing Rights, to support beleaguered economies.

The 400-foot Ever Given container ship, which ran aground in the Suez Canal on March 23, has been dislodged. But a queue of ships -- loaded ones headed for markets as well as empty ones returning to factories -- will take some days to clear. The overall fallout may last weeks. Containerized goods worth almost $10 billion traverse the Suez daily, so the delays add to pressures on supply chains already strained by roaring demand for electronics, clothing, factory equipment and commodities. Several global retailers were impacted, as well as auto firms’ just-in-time supply chains.

And if bottlenecks build at other ports, cargo rates and container shortages may rise further. The Baltic dry index, which tracks dry goods freight rates is near 18-month highs while supramax freight costs -- vessels around 50,000 deadweight tonnes -- are approaching record highs. New Suez crisis adds to pandemic supply worries for European, U.S. retailers.
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China is set to release the Producer Price Index for March on April 9. January brought the first annual price gains in a year while February saw the fastest rises since 2018. With manufacturers swamped by orders and facing higher commodity input costs, upward pressures continue to build. China’s strong factory growth in March bolsters economic recovery-China’s Jan-Feb industrial profits surge in boost to economic recovery

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So, currently we have the gathering of transparent factors and we need just to take a look at the facts without particular description to understand situation in economy and nearest perspective. The hot topic right now is when starting point of upside cycle turns to inflationary growth. As mentioned above, economists expect circa 700K new monthly jobs within nearest 2-3 months. Comments from investors tell that additionally 2-3 mln jobs should have to make Fed to change opinion and start the taper tantrum process. This in turn, should make negative impact on stock market.
Meantime, we have few reasons that let us to suggest of intact of current trend. First is, wage inflation has dropped a bit recently, because of involving more people in areas with an income below average. Second - aggressive job growth reduces chances on new stimulus pack, which also should hold inflationary expectations within nearest few months. The major hazard right now is possible explosion in personal consumption. But, anyway, from the moment of unlock of personal savings till the moment when they will appear in inflation statistics there will be at least 2-3 months. Approximately the same 2-3 months should pass before EU will be able to stabilize vaccination process and get the first positive results.
Thus, within 2-3 months we suggest that USD upside trend holds and we need to unlock our bearish weekly scenario on EUR currency with action below 1.16 area.


Technical analysis stands in the post below...
 

Sive Morten

Special Consultant to the FPA
Messages
14,512
Technicals
Monthly

Technically, context remains bullish by far on monthly chart but EUR is coming to vital 1.16 area, and it seems that it is just a question of time when it will be hit and supposedly broken. Fundamental background stands negative for EUR, while technically March has tail close and not small range which also stands more in favor of downside continuation. While in reaching 1.16 level it is nothing criminal, but overall situation suggests that chances of breakout are significant and it means that downside retracement here should be more extended. We already explained how breakout destroys normal bullish market mechanics.

The reason for that is previous retracement that was reaction on COP target, now theoretically, EUR should stay in extension to next, OP target. If it turns to retracement, forms reversal swing and drops below 1.16 - this is bearish sign that should not happen at supposedly bullish market. Besides, 1.16 is YPP and drop below it also indicates sentiment shift.

Upside targets are based on the same AB-CD pattern and stand the same. EUR has to break 1.24-1.25 level to reach them.
eur_m_05_04_21.png


Weekly

As major level has been broken here - the only support that EUR has on this chart is oversold level. As last week as this week - it prevents market from disaster, forming minor daily upside reaction. At the same time EUR is gradually entering K-area range, starting from 1.1694.

As we're watching for large H&S pattern here, 1.16 is potentially the area of neckline, where EUR could start rising to form right arm. Thus, it is not good point for taking new short positions. Once XOP will be reached, we could start watching for bullish reversal patterns on daily and 4H charts:
eur_w_05_04_21.png


Daily

Here we need to mention the only new detail - formed bearish grabber. It makes twofold meaning for us. First is, it warns against new longs, at least until it is valid, second - it suggests downside continuation below recent lows, which means to XOP. That is what comes from the pattern itself.

At the same time - despite great NFP data, overall reaction was a bit soft. Maybe this is due to holiday, but It also might be due intraday bullish sentiment. We also have discussed on Friday higher possible retracement.

It means that it would be better to not take position right at the open of the week and wait for 1-2 sessions. Besides, Monday is the holiday in EU as well.
eur_d_05_04_21.png


Intraday

By looking at 4H chart - could we say that EUR has chances to rebound? Absolutely. Downside reaction is very slow, trend stands bullish and potentially we could get here upside grabber as well:
eur_4h_05_04_21.png


From that standpoint, it makes sense to keep an eye on 5/8 Fib support area. EUR has to hold it to keep short-term bullish context. Downside breakout of 1.1740 area and moving back to the lows cancels existed bullish scenario that we've discussed on Friday.

eur_1h_05_04_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,512
Morning everybody,

So, let's take a look on EUR again. Last thing that we've discussed in weekly report is 1.1740 support level (you could see it on the chart in previous post) and we said that EUR has to hold above it to keep short-term bullish context. This is also the level for scalp traders to make a decision on Long entry.

So, as we can see - EUR has formed perfect AB-CD retracement and right arm has pushed price to the target of H&S pattern. Now as H&S AB-CD as our initial AB-CD XOP targets are hit.
eur_1h_06_04_21.png


Still, we suggest that EUR should move slightly higher. On daily chart harmonic swing points on pullback to 1.1855 area:
eur_d_06_04_21.png


On 4H chart we see strong acceleration on CD leg and potentially we could get bullish reversal candle within few hours. If we correct with our suggestion - EUR should reach 1.1860 XOP target around K-resistance area, which potentially is attractive to for short position taking. That's what we intend to focus on:
eur_4h_06_04_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,512
Greetings everybody,

So, let's keep going with our trading plan. Recent upside action to XOP on 4H chart is completed. Despite good upside tempo, it would be better to not fascinating too much as major downside XOP around 1.16 is still here, and previous retracement showed already that it might be sharp reversal despite good intraday performance.
On daily chart price has completed harmonic swing as well.
eur_d_07_04_21.png


On 4H chart price still stands around major resistance area. Here bulls and bears have quite different tasks. Bulls have to protect existed position, if they intend to hold it more. While bears should be patient and wait for market reaction, because currently it is unclear as price just has reached it, and we do not see yet any patterns:
eur_4h_07_04_21.png


For the long position protection - it is needed to tight stop, but it would be better to do not right to minor consolidation but right below broken K-area. Very often happens that bullish market re-test broken K-area and then continue upward action. From that stand point - hiding stop just below it is a good decision.
eur_1h_07_04_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,512
Morning everybody,

Let's take a look at GBP today, as it completed perfectly two short-term setups that we've discussed. The major thing that we have on GBP is daily/weekly triangle pattern, that mostly stands in favor of upward action in medium-term perspective. Although 1.35 K-support area looks sweet and hopefully we will see GBP there at some time, currently market still has chances to turn up immediately. Besides, as you could see - we could get bullish grabber today as well:
gbp_d_08_04_21.png


What I would like to say is - do not marry any position right now. Downside was a good trade, and it is real temptation to keep position till OP. But in current situation it would be better at least to tight stops and/or book result, at least partially.

On 4H chart you could see that GBP is re-testing broken wedge line. Here we could speak on downside continuation only if price returns back inside the wedge and takes out the previous lows. Until it happens - it is risky to take new short positions.
gbp_4h_08_04_21.png


Also don't be deceived but possible drop to 1.37 area. First is because it will be above wedge line anyway, second - because of XOP target and H&S trade here. Market could hit XOP but it doesn't mean the break of bullish context, or some downside breakout. In general, I would say that 1.37 might become an area for long entry, depending on what patterns will be around.
gbp_1h_08_04_21.png


So, right now we need a bit more clarity on direction to make a decision. The only evident setup is daily 1.35 area, but GBP is not there yet.
 

Sive Morten

Special Consultant to the FPA
Messages
14,512
Morning everybody,

So, GBP hits our XOP target on 4H chart and today we keep an eye on reaction, whether cable will be able to keep bullish context.

On EUR - I would like to remain that DXY has uncompleted monthly 87.40 target, and now on EUR the shape of reverse H&S is becoming more evident. It becomes our major scenario.
eur_d_09_04_21.png


Neckline supposedly should be around 1950 area of K-resistance:
eur_4h_09_04_21.png


On 1H chart, since upside swings were relatively strong - we suggest that 3-Drive "Sell" pattern might be formed, with potential reversal point precisely around 1950:
eur_1h_09_04_21.png


So, If you still keep long position - think about result protection.
 

RahmanSL

Major
Messages
2,763
Morning everybody,

So, GBP hits our XOP target on 4H chart and today we keep an eye on reaction, whether cable will be able to keep bullish context.

On EUR - I would like to remain that DXY has uncompleted monthly 87.40 target, and now on EUR the shape of reverse H&S is becoming more evident. It becomes our major scenario.
View attachment 63696

Neckline supposedly should be around 1950 area of K-resistance:
View attachment 63697

On 1H chart, since upside swings were relatively strong - we suggest that 3-Drive "Sell" pattern might be formed, with potential reversal point precisely around 1950:
View attachment 63698

So, If you still keep long position - think about result protection.
Very good analysis Sive
Cheers and all the best!
 
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