Sive Morten
Special Consultant to the FPA
- Messages
- 18,732
Monthly
As Reuters reports the safe-haven U.S. dollar edged higher on Friday, garnering support from a sell-off in equities around the world, as investors fretted about overstretched valuations. Global equities fell to two-week lows, triggered by selling on Wall Street on Thursday. Wall Street stocks continued their decline on Friday, spurring a broad risk-averse environment that led to sell-offs in higher-yielding and emerging market currencies.
"Bad news for the world is good news for the dollar," said Steven Englander, managing director and global head of G10 FX strategy at CitiFX in New York. "Once fears about the equity market intensified, they picked up a more conventional type of mode to buy the dollar." Not that the dollar has been the belle of the ball this year. In fact, the U.S. currency has so far lost 0.6 percent against a basket of currencies in 2014 despite a reduction in asset purchases by the Federal Reserve, a supposedly dollar-positive event. The greenback has also lost 2.5 percent against the yen since last Friday, weighed down by guidance from Federal Reserve officials that the U.S. central bank is nowhere near as close to raising base interest rates as markets had begun to believe.
That comes after two weeks of robust gains against the yen, and the clearest signal yet that European policymakers are on the verge of starting to print billions in extra euros, all of which had encouraged many to believe the dollar was ready to break out higher. That has yet to materialize, though, on a sustained basis. And for many, the dollar's gains on Friday could be temporary.
U.S. producer prices recorded their largest increase in nine months in March as the cost of food and services surged, pointing to some pockets of inflation at the factory gate. The seasonally adjusted producer price index for final demand increased 0.5 percent last month after slipping 0.1 percent in February. The euro was flat against the dollar at $1.3885, but it posted its largest weekly gain since September.
The argument at the start of this year was that a recovering U.S. economy and the steady tightening of monetary conditions that would result, while Japan and Europe lag, would see the dollar gain. Those backing that trade have been shaken out more than once already, however, leaving the market stuck in tight ranges since a burst of activity around an emerging sell-off in January. The Federal Reserve's minutes of its latest meeting released on Wednesday further added pressure to the dollar, because they seemed to push back expectations of the first interest rate hike to the second half of 2015 from the first quarter. But Jennifer Vail, head of fixed income research at U.S. Bank Wealth Management in Portland, Oregon, said the Fed's guidance hasn't really changed her expectations for the first interest rate hike, which is still mid-2015. On the Fed's minutes, "the important thing is to focus on minor words like 'some,' 'several,' and 'many,'" she said. "'Some' expressed concern that the way they have expressed polling may inadvertently tell the market that they're going to move faster than expected. But 'some' is only a couple," Vail added. "Then it talks about 'several' saying the economy is actually going to strengthen from here."
Technical
On monthly chart our major concern stands around breakout moment of 1.3830 Fib resistance and Agreement. That is also downward trendline. We see that market has challenged this level twice already, but still stands below it. In fact market stands in tight range since 2014. Thus, 1.33-1.3850 area is an area of “indecision”. While market stands inside of it we can talk about neither upward breakout nor downward reversal. At least, reversal identification could be done with yearly pivot – if market will move below it, this could be early sign of changing sentiment. But, as you can see, nothing among this issues have happened yet. The same has happened on previous week. Only 2 weeks ago we’ve disccused, as it was seemed, downward bounce out from 1.3850 level. But today we see that price has returned right back up to it.
Returning to discussion of Yearly Pivot - we’ve noted that upward bounce has started precisely from 1.3475 level. Now the major question stands as follows – whether this upward action is a confirmation of long-term bullish sentiment or just a respect of YPP first touch. Following the chart we see very useful combination for us – YPP stands very close to 1.33 – our invalidation point. And if market will move below YPP this will become bearish moment by itself.
Speaking about upward continuation, market mechanics does not allow price to show any deep retracement any more. Any move of this kind should be treated as market weakness and it will increase probability of reversal down. Take a look that as market has hit minor 0.618 AB-CD extension target right at rock hard resistance – Fib level and Agreement and former yearly PR1, it has shown reasonable bounce down to 1.33. As retracement after 0.618 target already has happened, it is unlogical and unreasonable to see another deep bounce and if it will happen - it will look suspicious.
So, speaking about monthly upside targets... If we will get finally real break through resistance, we have two major targets – AB=CD one around 1.44 and Yearly PR1 = 1.4205.
Thus, here we can make following conclusion – nothing drastical yet, market still coiling near resistance and we can continue to stick with working range for nearest perspective on monthly chart – an area between YPP=1.3475 and resistance around 1.3850. Monthly chart can’t give us direction yet and we need to find something else to trade on lower time frame charts.
Weekly
On passed week market has shown solid recovery. In fact, as we’ve seen on monthly chart, and on the weekly – if you will contract chart, we will get long-term wedge. Usually wedges are reversal or exhausting patterns, but sometimes they could be broken in unexpected direction. Anyway, any breakout usually accompanied by strong acceleration.
There are two major moments to discuss. Thus, if we will take a look at AB=CD upward pattern itself – it has much slower CD leg, mostly due long period standing right below 1.3850 resistance. When market has flat CD leg even at 0.618 target this tells about it’s weakness. Second is – we have bearish butterfly. This pattern has minimum target at 3/8 Fib support of all butterfly action and it stands around 1.35 K-support area and Yearly Pivot, right? Previously we’ve made suggestion that market could show some respect and bounce up as reaction on current support area, but after that some downward continuation should follow. This puts us to major question – whether current move up means bearish failure, or this is just temporal retracement up and we will get some bigger AB=CD down right to 1.35 area? Because if no retracement down will follow, this could tell us that weekly butterfly has failed and this lead us to serious conclusions, that we can go to next long-term upside target.
Daily
Trend here obviously is bullish. During whole week market stands with great upward recovery. Our 3 Drive pattern has led EUR to better results that we’ve discussed initially. I know that it is difficult to discuss possible reversal down when you see such strong upward action. But until chances for deeper retracement down exists – we will keep an eye on this possibility. Unfortunately market does not give us any chance yet to take more or less long-term position based on daily chart. Before any possession for 1.35 we need to get some exhausting of upward action, may be some patterns.
Here I just have drawn what could happen if we will get it – some AB=CD down probably. On Friday market has formed high wave doji that could mean either indecision and exhausting of foundation for recent upward rally or reaching of overbought level. Thus, as you can see, situation on EUR is not very fascinating and thrilling. More needs to wait rather than act.
4-hour
All that we could do right in the beginning of the week and until we’re waiting for clarification on daily is to pay attention to 4-hour chart. As we’ve said that price has formed high wave pattern on daily right near overbought area – here you can see that this pattern takes the shape confirmed DRPO “Sell” pattern. So, we have thrust up, close below 3x3 DMA (green line), close above and close below. This relatively rare 3-period DRPO pattern, when closing above, below above stand side by side. So, our trading plan on EUR for coming week is relatively simple. Let’s not gamble with market’s intention on higher time frame – let’s it decide by itself, while meantime we will keep an eye on clear DRPO pattern here, on 4-hour chart.
Conclusion:
While price stands in 1.33-1.38 area we can’t speak either on upward or downward breakout. Market continues to coiling inside of this range. Although we’ve seen solid upward recovery on recent week but currently this is insufficient to speak about long-term upward continuation.
Thus, until major question stands unclear – what will follow after rally up, we will focus on intraday confirmed DRPO “Sell” pattern that clear enough for dealing with it. Other words, when you have unclear situation on higher time frames, all that you can do is to trade some short-term, fast, but clear setups and patterns. That is precisely what we intend to do.
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.
As Reuters reports the safe-haven U.S. dollar edged higher on Friday, garnering support from a sell-off in equities around the world, as investors fretted about overstretched valuations. Global equities fell to two-week lows, triggered by selling on Wall Street on Thursday. Wall Street stocks continued their decline on Friday, spurring a broad risk-averse environment that led to sell-offs in higher-yielding and emerging market currencies.
"Bad news for the world is good news for the dollar," said Steven Englander, managing director and global head of G10 FX strategy at CitiFX in New York. "Once fears about the equity market intensified, they picked up a more conventional type of mode to buy the dollar." Not that the dollar has been the belle of the ball this year. In fact, the U.S. currency has so far lost 0.6 percent against a basket of currencies in 2014 despite a reduction in asset purchases by the Federal Reserve, a supposedly dollar-positive event. The greenback has also lost 2.5 percent against the yen since last Friday, weighed down by guidance from Federal Reserve officials that the U.S. central bank is nowhere near as close to raising base interest rates as markets had begun to believe.
That comes after two weeks of robust gains against the yen, and the clearest signal yet that European policymakers are on the verge of starting to print billions in extra euros, all of which had encouraged many to believe the dollar was ready to break out higher. That has yet to materialize, though, on a sustained basis. And for many, the dollar's gains on Friday could be temporary.
U.S. producer prices recorded their largest increase in nine months in March as the cost of food and services surged, pointing to some pockets of inflation at the factory gate. The seasonally adjusted producer price index for final demand increased 0.5 percent last month after slipping 0.1 percent in February. The euro was flat against the dollar at $1.3885, but it posted its largest weekly gain since September.
The argument at the start of this year was that a recovering U.S. economy and the steady tightening of monetary conditions that would result, while Japan and Europe lag, would see the dollar gain. Those backing that trade have been shaken out more than once already, however, leaving the market stuck in tight ranges since a burst of activity around an emerging sell-off in January. The Federal Reserve's minutes of its latest meeting released on Wednesday further added pressure to the dollar, because they seemed to push back expectations of the first interest rate hike to the second half of 2015 from the first quarter. But Jennifer Vail, head of fixed income research at U.S. Bank Wealth Management in Portland, Oregon, said the Fed's guidance hasn't really changed her expectations for the first interest rate hike, which is still mid-2015. On the Fed's minutes, "the important thing is to focus on minor words like 'some,' 'several,' and 'many,'" she said. "'Some' expressed concern that the way they have expressed polling may inadvertently tell the market that they're going to move faster than expected. But 'some' is only a couple," Vail added. "Then it talks about 'several' saying the economy is actually going to strengthen from here."
Technical
On monthly chart our major concern stands around breakout moment of 1.3830 Fib resistance and Agreement. That is also downward trendline. We see that market has challenged this level twice already, but still stands below it. In fact market stands in tight range since 2014. Thus, 1.33-1.3850 area is an area of “indecision”. While market stands inside of it we can talk about neither upward breakout nor downward reversal. At least, reversal identification could be done with yearly pivot – if market will move below it, this could be early sign of changing sentiment. But, as you can see, nothing among this issues have happened yet. The same has happened on previous week. Only 2 weeks ago we’ve disccused, as it was seemed, downward bounce out from 1.3850 level. But today we see that price has returned right back up to it.
Returning to discussion of Yearly Pivot - we’ve noted that upward bounce has started precisely from 1.3475 level. Now the major question stands as follows – whether this upward action is a confirmation of long-term bullish sentiment or just a respect of YPP first touch. Following the chart we see very useful combination for us – YPP stands very close to 1.33 – our invalidation point. And if market will move below YPP this will become bearish moment by itself.
Speaking about upward continuation, market mechanics does not allow price to show any deep retracement any more. Any move of this kind should be treated as market weakness and it will increase probability of reversal down. Take a look that as market has hit minor 0.618 AB-CD extension target right at rock hard resistance – Fib level and Agreement and former yearly PR1, it has shown reasonable bounce down to 1.33. As retracement after 0.618 target already has happened, it is unlogical and unreasonable to see another deep bounce and if it will happen - it will look suspicious.
So, speaking about monthly upside targets... If we will get finally real break through resistance, we have two major targets – AB=CD one around 1.44 and Yearly PR1 = 1.4205.
Thus, here we can make following conclusion – nothing drastical yet, market still coiling near resistance and we can continue to stick with working range for nearest perspective on monthly chart – an area between YPP=1.3475 and resistance around 1.3850. Monthly chart can’t give us direction yet and we need to find something else to trade on lower time frame charts.
Weekly
On passed week market has shown solid recovery. In fact, as we’ve seen on monthly chart, and on the weekly – if you will contract chart, we will get long-term wedge. Usually wedges are reversal or exhausting patterns, but sometimes they could be broken in unexpected direction. Anyway, any breakout usually accompanied by strong acceleration.
There are two major moments to discuss. Thus, if we will take a look at AB=CD upward pattern itself – it has much slower CD leg, mostly due long period standing right below 1.3850 resistance. When market has flat CD leg even at 0.618 target this tells about it’s weakness. Second is – we have bearish butterfly. This pattern has minimum target at 3/8 Fib support of all butterfly action and it stands around 1.35 K-support area and Yearly Pivot, right? Previously we’ve made suggestion that market could show some respect and bounce up as reaction on current support area, but after that some downward continuation should follow. This puts us to major question – whether current move up means bearish failure, or this is just temporal retracement up and we will get some bigger AB=CD down right to 1.35 area? Because if no retracement down will follow, this could tell us that weekly butterfly has failed and this lead us to serious conclusions, that we can go to next long-term upside target.
Daily
Trend here obviously is bullish. During whole week market stands with great upward recovery. Our 3 Drive pattern has led EUR to better results that we’ve discussed initially. I know that it is difficult to discuss possible reversal down when you see such strong upward action. But until chances for deeper retracement down exists – we will keep an eye on this possibility. Unfortunately market does not give us any chance yet to take more or less long-term position based on daily chart. Before any possession for 1.35 we need to get some exhausting of upward action, may be some patterns.
Here I just have drawn what could happen if we will get it – some AB=CD down probably. On Friday market has formed high wave doji that could mean either indecision and exhausting of foundation for recent upward rally or reaching of overbought level. Thus, as you can see, situation on EUR is not very fascinating and thrilling. More needs to wait rather than act.
4-hour
All that we could do right in the beginning of the week and until we’re waiting for clarification on daily is to pay attention to 4-hour chart. As we’ve said that price has formed high wave pattern on daily right near overbought area – here you can see that this pattern takes the shape confirmed DRPO “Sell” pattern. So, we have thrust up, close below 3x3 DMA (green line), close above and close below. This relatively rare 3-period DRPO pattern, when closing above, below above stand side by side. So, our trading plan on EUR for coming week is relatively simple. Let’s not gamble with market’s intention on higher time frame – let’s it decide by itself, while meantime we will keep an eye on clear DRPO pattern here, on 4-hour chart.
Conclusion:
While price stands in 1.33-1.38 area we can’t speak either on upward or downward breakout. Market continues to coiling inside of this range. Although we’ve seen solid upward recovery on recent week but currently this is insufficient to speak about long-term upward continuation.
Thus, until major question stands unclear – what will follow after rally up, we will focus on intraday confirmed DRPO “Sell” pattern that clear enough for dealing with it. Other words, when you have unclear situation on higher time frames, all that you can do is to trade some short-term, fast, but clear setups and patterns. That is precisely what we intend to do.
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.
