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Forex FOREX PRO WEEKLY, April 08 - 12, 2019

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Apr 6, 2019.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals

    This week we have two groups of events that drove the markets. They are statistics as in EU as in US and Brexit discussion in UK.

    Statistics was mixed this week. Europe data supports our worryings on EU economy perspectives. The euro dipped on Thursday as weak German economic data and a report that Italy would slash its growth forecasts prompted fears about weakening growth in the region.

    German industrial orders fell by the sharpest rate in more than two years in February as they were hit by a slump in foreign demand, compounding worries that Europe’s largest economy had a weak start to the year.

    “I’m a little bit surprised we didn’t get more reaction on the back of the German factory orders data, which really suggests that we’re not seeing a significant pickup in the industrial sector after a pretty soft second half to last year,” said Shaun Osborne, chief FX strategist at Scotiabank in Toronto.

    Sentiment at major exporting countries including Germany, South Korea and China has been deteriorating, Osborne said.

    “I have to wonder if there isn’t an underlying concern here that reflects worries about where global trade is going on the back of the tariff discussions, or if it’s perhaps more of a sign that there is a more meaningful slowdown in the global economy just around the corner,” Osborne said.

    Reuters also reported that Italy this month will probably cut its 2019 economic growth forecast to 0.3 percent or 0.4 percent and raise the budget deficit target to around 2.3 percent of gross domestic product.

    Investors are focussed on trade discussions between the United States and China on the hope that an agreement will remove headwinds to global growth.

    U.S. President Donald Trump said on Thursday that trade talks with China were going well and he would only accept a “great” deal as negotiators hammered out differences ahead of a meeting between Trump and China’s vice premier later in the day. Trade talks between the U.S. and China are also in focus as investors hope a deal between the countries may remove some global headwinds to growth.

    U.S. President Donald Trump said on Thursday the United States and China were close to a trade deal that could be announced within four weeks, while warning Beijing that it would be difficult to allow trade to continue without a pact.

    On Friday, we've got NFP report. Reaction was mixed by the reason that we've talked about many times. US Jobs market is highly saturated as it creates 150K new jobs on average per month for last 2+ years. The capacity of the market is contracting as well as unemployment. This is the reason why we need to pay more attention not to NFP numbers per se but wage growth, which is inflation indicator. Particularly wage grown has decreased, while NFP data at all was better than expected.

    Nonfarm payrolls rose by 196,000 jobs last month. Data for February was revised modestly up to show payrolls rising by 33,000 jobs instead of the previously reported 20,000. February job gains were the smallest since September 2017.

    Wage gains also slowed in March and more people dropped out of the labour force. Average hourly earnings increased by four cents, or 0.1 percent in March after jumping 0.4 percent in February.

    “It’s a pretty mixed report. The headline was a little bit better than expected, February was revised up slightly, but obviously the average hourly earnings was a big disappointment,” said Win Thin, global head of currency strategy at Brown Brothers Harriman in New York.

    Reaction in the dollar was relatively muted, and swung between small gains and losses. The dollar index against a basket of six major currencies was last down 0.06% on the day at 97.256.

    Investors are focussed on data for further clues about Federal Reserve policy after the U.S. central bank stunned markets in March by abandoning projections for any interest rate hikes this year.

    “The takeaway for me is that it basically means steady as she goes,” said Thin.

    “The thought of any rate cuts this year seems premature, but at the same time the lack of any wage pressures argues against any hikes. So we’re in the limbo again where the Fed is waiting and seeing,” he said.

    Now we turn to Brexit topic. It comes to culmination, because no new decision from UK parliament should launch hard way by the end of coming week, on 12th of April. I'm not big expect in UK politics and prefer to listen what real professionals could say, especially if they are UK domestic company. Let's take a look what Fathom consulting thinks.

    In new article, dedicated to Brexit topic and UK business sentiment they point two major things. UK sentiment is deteriorating and this trend probably will continue, especially in the case of hard Brexit. Second - they suggest that hard Brexit now is more probable way.

    Here is some most interesting extractions from report:

    Fathom’s UK Economic Sentiment Indicator (ESI) declined for the seventh month in a row in February, sinking to just 0.1%. The fall in confidence among UK firms and households since last summer has been broad-based, with all but two of the thirteen components heading south. Heightened uncertainty about both the timing and the nature of the UK’s departure from the European Union, captured by our ESI, has already had a measurable impact on economic activity, particularly affecting business investment. Indeed, we estimate that it has added some 300 basis points to the required return to investment projects, which makes it just as contractionary as a 300 basis point policy tightening.


    [​IMG]

    "The two most likely outcomes now appear to be either that the UK asks for a long extension, in order to negotiate perhaps a softer form of Brexit (a request that may or may not be granted), or that the UK leaves without a deal on 12 April. To our way of thinking, the risk of a ‘no-deal’ departure is higher now than it has ever been, entering for the first time the realms of ‘too close to call’.

    And then Fathom makes forecast that is most valuable for us - how it should impact GBP currency.

    It is almost universally acknowledged, by ‘Leavers’ and ‘Remainers’ alike, that life in the UK would be difficult in the immediate aftermath of a ‘no-deal’ Brexit. There are likely to be shortages of essential items, (much) higher prices, and perhaps a severe economic contraction.

    GBPUSD has proved to be one of the best indicators of investor sentiment towards the negotiations, moving higher when the news flow favours a soft Brexit, and vice versa. Yet the currency has traded in the range $1.30 to $1.33 through most of March, and the pound is stronger at the time of writing than it was at the start of the year.

    The prospect of ‘no deal’ is not adequately reflected in current pricing, in our view, and neither are the potential consequences. It is almost universally acknowledged, by ‘Leavers’ and ‘Remainers’ alike, that life in the UK would be difficult in the immediate aftermath of a ‘no-deal’ Brexit.

    To our way of thinking, a no-deal Brexit would weaken the pound, but by simultaneously raising the likelihood of a Labour government, it would also raise inflation expectations and with that gilt yields.

    This information guys, again, creates thrilling trading setup, that is based not on technical factors. This kind of setups appear very rare. Last time it was on UK Parliament elections when we took the bet on T. May defeat and GBP has dropped in one day for 150-200 pips. At the same time, this type of trades care significant risk, because opposite action also will be very strong if no hard Brexit will happen. Thus, we call you first is to think whether you indeed want to take part in it, second - contract your trading volume twice of your ordinary lot.

    COT Report

    It seems it makes sense to take a look not only on EUR but on GBP positions as well. On EUR sentiment stands bearish as investors have increased net short positions this week. This stands in a row with our technical view that provides more bearish signs as we've talked about it this week and previous week as well:
    upload_2019-4-6_12-18-20.
    Source: cftc.gov
    Charting by Investing.com

    On GBP we do not see so big changes yet - net short position has increased by just for 1K contracts. It means very important thing - investors are not ready for hard Brexit way and still treat this perspective as less probable. But at the same it means that action could be very strong if it becomes a reality.
    upload_2019-4-6_12-20-17.

    Source: cftc.gov
    Charting by Investing.com

    Technicals
    Monthly


    On technical side we have minimal changes. Just take a look at the April trading range here and it becomes clear - it makes no impact on monthly picture. Here we need volatility and new direction that EUR just can't provide by far.

    As we said previously we're watching either downside breakout and start action to 1.08 and later to 1.03 or ability of the EUR to hold above 1.12 and turning up. Market stands at support area around major 5/8 Fib level. In case of upside action, YPP will be important target , because, as a rule, market tends to touch YPP through the year. But after recent events chances on rally stand phantom.

    As Fathom consulting expects first rate change by Fed in June, but market is not ready for this step (as wee see from Fed watch tool by CME) - this is the first moment when EUR could show big action. By our view this could happen somewhere in the summer. Of course, recent news and market sentiment hardly agree with this now, but situation changes rapidly and this scenario is not erased totally yet. Brexit saga also could add some fuel to the fire and we could get strong action even on next week.

    As we said this many times previously - indirect technical factors point on market's weakness, at least in long-term perspectives, as EUR can't jump out from strong support within more than 5-6 months and just lays upon it. Trend stands bearish here.

    Monthly situation shortly could be described as indecision with light gravitation to the downside. In fact, long standing around Yearly Pivot last year confirms things that we've discussed above. MACD trend stands bearish here.
    Thus we keep valid our downside COP target around 1.03 by far.

    Just by using of common sense, guys, in nowadays it is difficult to expect something positive as in global economy as in politics. Hence, any bad new triggers demand for safe haven assets and US dollar. Following simple logic odds stand in favor of downside trend rather than sharp upside reversal.

    So, although on technical picture we see just light and indirect signs of EUR weakness, political background stands negative. This is the major reason why I do not believe in resurrection of bull trend on EUR in this year.
    eur_m_08_04_19.

    Weekly

    As last week, this time frame is least informative among the others as nothing happens here. Market stands in the same consolidation, providing just minimal changes. Since price stands long-term here already, the exit probably should be strong and fast:
    eur_w_08_04_19.

    On weekly time frame we prefer to use Dollar Index chart. It still keeps traders on tenterhooks and holds upside scenario because of major COP has not been hit. Some signs of bullish dynamic pressure also are present here. Thus, this puts bearish shadow on weekly EUR as well:

    upload_2019-4-6_13-20-9.

    Daily

    Here we do not want to repeat things that we talked though the week about AB-CD pattern and OP target, let' better focus on price action of this week. What does it tell us? First is, probably we have to forget about B&B setup as market drops back below 3x3 DMA. Second is - take a look on price action around previous lows (in red circle) - EUR was not able to break it up, and all attempts to close above it has failed.

    Now let' recall our second pattern here - DRPO "Buy". Is it still possible? Well, by letter - yes, in reality - no.
    DRPO suggests strong reversal action and sentiment shift of the market. Sentiment analysis tells that no shift exits and traders even have increased shorts. Price action also doesn't show any reversal. It means that DRPO could happen only by external driving factor - politics, economy but not inner EUR/USD technical action. The price action that we saw this week mostly suggests downside breakout, because we have tight consolidation right near the major weekly lows.
    eur_d_08_04_19.

    Intraday

    Here is the pattern that we've traded through the week. Our entry at 5/8 Fib support before NFP release, at the bottom of the right arm has done well, but now the coming perspective of this pattern is more interesting.

    As you can see neither price action of right shoulder nor reaction on neckline corresponds to normal action of H&S. It means that pattern probably will fail next week. Technically, this will happen as soon as price drops below 1.12 area. It seems that we should be ready to drop back to 1.1175 lows and possible challenge later in this week. Currently we do not see any chances for bullish context by far.

    eur_1h_08_04_19.

    Conclusion:
    Price action of this week shows weakness, fundamental data and sentiment also stands not in favor of EUR. On coming week we should be ready for possible challenge of 1.1170 daily lows. Second issue that we have to keep an eye on is Brexit saga and 12th of April hard way scenario.


    The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
     
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  2. Joh

    Joh Sergeant Major

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  3. Joh

    Joh Sergeant Major

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    In this ever changing Forex World the 'no deal Brexit deal' seems to be off the the agenda for now, as P M.May and the house of Commons ( according to FFnews ) have just voted/passed a Law to stop/avoid a No Deal Exit on April 12th. - They may now get a 2nd Referendum. But need to cross conversation with opposition yet.

    Sive where does this leave the GBP?.
     
    #3 Joh, Apr 9, 2019
    Last edited: Apr 9, 2019
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  4. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Hi Joh,
    I'm not dare to make any forecasts. ;) IMO hardly we will get 2nd referendum, because in this case why do not have 3rd, 4th and etc. Most probable is just a postponing of exit indeed. No reaction on GBP by far...
    But, this probably should cancel any furious action on Friday that we've discussed and that Fathom talked about.
     
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  5. RahmanSL

    RahmanSL Major

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    Hi Sive....fantastic analysis as always and..as mentioned many times...though I am not as active here as I used to be I always come here to read your weekly analysis & daily updates.

    Okay...I have been short trading exclusively the GBP/USD pair for some weeks now and so...understandably so...have been following Brexit with much interest.

    Three(3) possibility on the EU Summit on Brexit which I found on FXSTREET :

    1) The base case : The EU forces a long extension and GBP/USD rallies hard on hopes Brexit will never happen. They did that last time, which was back on March 21st. They may go for a 9-12 month extension that may be cut short in case the UK approves the Withdrawal Agreement. Such a move could cause some internal rupture in the UK, but in the short term, there's an upside in the GBP.

    2) Short extension, limited rise: If the EU leaders adapt to May's wishes and find a way for a short extension, GBP/USD may rise on the agreement, but still struggle on uncertainty. It may be a temporary relief that could fade with every passing day.

    3) Hard Brexit, hard crash: This is still the default option. It takes one stubborn EU leader to say No and veto the extension. In this case, the UK crashes out of the EU and GBP/USD crashes with it.

    I have adopted a "wait-and-see" trading strategy ...i.e. will trade as news unfold which.. in my opinion... will likely dictate the direction of the GBP/USD.


    Cheers and happy trading!
     
  6. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    There are few interesting things have been formed on EUR. First is - price was able to hold above 1.12 area. It means that bullish scenario is still valid. According to our weekly report, now bears has to wait until either 1.1180 breakout or - completion of upside action.

    On daily chart we've got neither B&B nor DRPO pattern, although currently price action stands closer to B&B.
    But, if you take a look at Dollar index then we easy could recognize DRPO "Sell" price action. It means that upside retracement on EUR also could be stronger and above 1.1284 Fib level:
    eur_d_09_04_19.

    At the same time, DRPO "Sell" on DXY could become a part of reverse H&S pattern at top that agrees with our longer-term view, that upside action here is not done yet. It means that on EUR, downside reversal and challenge of 1.1180 lows also should follow a bit later.
    dxy_d_09_04_19.

    Meantime, on 4H chart market keeps valid H&S pattern and OP almost is done. But, taking in consideration possible DRPO on dollar index we should not ignore XOP. It forms agreement with major 50% resistance level around 1.1315:
    eur_4h_09_04_19.

    Here is our trading plan for today. First is minor upside leg and completion of butterfly as OP has not been hit yet. As OP creates Agreement with K-resistance, it is logical to expect some bounce, somewhere to K-support around 1.1240, or even tighter. After that we will watch for upside continuation to XOP...
    eur_1h_09_04_19.
     
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  7. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,


    Everything stands well by far and goes with our trading plan. Just to remind you, our major setup is DRPO "Sell" on Dollar Index, which suggests more dollar weakness and it could let EUR to climb higher, somewhere to major 5/8 Fib resistance level on daily chart. Right now market stands at major 3/8 level and MPP:
    eur_d_10_04_19.


    As we've suggested, market has to hit OP target first. This was the first step in our trading plan and this has happened. Although we keep on the table XOP target as well, EUR stands at resistance and Agreement. Thus some downside reaction could follow. It is not necessary to be the prohet to recognize H&S pattern here. This is the key to today's session:
    eur_4h_10_04_19.

    Logic is simple - top of the right arm is a key. If EUR breaks it up and comes back to the head - no retracement will happen and be prepared to upside continuation. Normal price behavior, forming of H&S and downside turn makes possible AB=CD retracement back to 1.1240-1.1245 area, as we've suggested yesterday.
    eur_1h_10_04_19.
     
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  8. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Hi Rahman, great insight, thanks.
    Fathom consulting suggests hard way... But Parliament already has approved postponing.
    So, it seems now that it should be either 1st or 2nd scenario, with 1st has more odds to happen. Now EU votes on Brexit postpone within a 1 year. But what term they will approve, it is still a question. GBP shows no reaction by far.
     
  9. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    It was really dramatic action yesterday, with a lot of traps and pits from due ECB statement, but all in all - our trading plan surprisingly has worked perfect. Another question of course, was anybody able to execute it precisely? Personally, I wasn't ;)

    But let's go step by step. In video, I give detailed view on yesterday's action (it is too large to write it here).

    Whatever we call daily setup, let it be B&B "Sell" LAL, it has worked as market has shown the retracement that we were expected to get. Now, as price returns right back up, despite negative ECB statement, EUR keeps bullish scenario and chances on action to XOP, at least.
    eur_d_11_04_19.

    On dollar index yesterday's spike accurately is enveloped by 3x3 DMA, keeping DRPO "Sell" valid. It means that our bullish setup on EUR is valid as well:
    dxy_d_11_04_19.

    On 4H chart, despite negative ECB outlook, after spike down, EUR returns right back up to previous levels. This is bullish sign and tells that reaction on OP target is over and market is ready for next upside leg. Next target is 1.1315 Agreement resistance:
    eur_4h_11_04_19.

    As you can see drop was precisely to our K-support, but, personally I was not brave enough to take long position there. If you also chickened, we will watch for another setup here. Take a look that market is forming reverse H&S at top. Hence, our attention will be on 1.1250 retracement, and "222" Buy pattern. Once EUR hits right arm's bottom - we could step in. Of course, if bullish view corresponds to your opinion on market
    eur_1h_11_04_19.

    I speak on yesterday H&S pattern trade in video, discover some interesting details in relation to Dollar index.
    Also, guys, yesterday I've traded EUR/USD futures on Russian (Spb) exchange. I was surprised by pretty nice conditions, 1 pip spread, good liquidity and just 1000 USD notion value of contract. So, having just 2-3K USD on your account, you could easily trade 5-10 contracts and forget about scam tricks from retail brokers... Yes, it is not 24/7 and there are some fees exists, but this is cents...
    At least I continue my meeting with this exchange... Personally I'm also interesting with bonds of different maturities, which provides 8+% annual return (with inflation around 4-4.5%). Among Emerging markets, this is probably best offer.
     
  10. JOELIBOK

    JOELIBOK Private

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    Hello Sive, Thank you for your superb analysis and insights on EUR/USD. I will like to know more about EUR/USD futures and how one can participate? I will greatly appreciate more info.
     

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