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Forex FOREX PRO WEEKLY, April 15 - 19, 2019

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Apr 13, 2019.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals

    In general, this was good week for us. Although we didn't have any long-term setups, our tactical intraday scenarios have done well, mostly driven by external factors - ECB statement, US statistics and cross-border bank deal.

    The major volatility has come on Wed by ECB statement. For us, this statement has not become an eye-opener and just confirm our view on EU/US economy balance, where EU stands as dependable variable.Recent stats from Germany confirms this as well.

    European Central Bank President Mario Draghi underscored the risks facing the euro zone economy, reinforcing bets on possible further stimulus to prevent the region from slipping into recession.

    "The essence of Draghi's message is 'We are willing to look at all options, but we are not there yet'," said Boris Schlossberg, managing director of BK Asset Management in New York. "Incoming data continue to be weak, especially for the manufacturing sector ...

    The slower growth momentum is expected to extend into the current year," Draghi said at a press conference after a meeting where policy-makers left their easy policy unchanged.

    He also cited the risks from trade disputes to regional business activity after U.S. President Donald Trump threatened to impose tariffs on $11 billion worth of European Union goods.

    The dollar enjoyed a respite from recent selling as government data showed the biggest one-month jump in U.S. consumer prices in 14 months in March and it was also bolstered by the latest reading of the U.S. consumer price index.

    The U.S. government's broadest inflation gauge rose 0.4% in March, the biggest monthly increase since January 2018, while the CPI core rate, which excludes volatile food and energy prices, edged up 0.1%, falling short of the 0.2% gain forecast by analysts polled by Reuters.

    The somewhat mixed CPI report soothed worries about price growth fading, but did not dispel the view the Federal Reserve may lower key U.S. interest rates by early 2020, analysts said.

    U.S. producer prices increased by the most in five months in March, the Labor Department reported, with its producer price index for final demand rising 0.6 percent in March, lifted by a surge in the cost of gasoline. Despite the top line increase, underlying wholesale inflation was tame.

    Particular by these events our Wed H&S trade was completed. Next session we were going to go long on EUR and external factors again have made our day:

    The dollar hovered near two-week lows on Thursday as Federal Reserve minutes reinforced its recent dovish policy tilt while the pound held steady after European leaders extended the deadline for Britain to leave the union.

    U.S. central bankers also debated possible policy moves the Fed could make after it ends its balance sheet reduction programme by September, with some advocating purchases of U.S. Treasury securities at that point.

    “Some people say the minutes contained few surprises but a close look suggests the Fed is likely to become more dovish as time goes by,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

    Sterling showed no reaction after the EU delayed the deadline for Brexit for the second time in less than a month, in line with market expectations that Britain will not crash out of the bloc on Friday without a deal.

    Still, the decision did little to boost clarity on exactly how, when, or even if at all, the UK will leave the EU, is keeping the pound in check.

    “At least there won’t be a no-deal Brexit this month. But while I’m no expert on British politics, it seems difficult for the parliament to come to any agreement,” said Kazushige Kaida, head of forex at State Street Bank.

    “They just kicked the can down the road. Once the dust settles, I would expect to see selling in sterling,” he added.

    “Concern around Brexit and the ECB’s increasingly dovish stance is weighing on euro and sterling,” said Karl Schamotta, director of foreign exchange strategy and structured products at Cambridge Global Payments.


    The implied volatilities on the pound’s options plunged, with three-month volatilities falling to 8.325/8.825 percent, a level last seen in late August. It has slipped below the actual volatilities over the past three months, which stood at 9.17 percent on Thursday.

    Drop in volatility, guys, suggests rising inner tension and that big action stands right around the corner and hardly this action will be upward.

    The advantages for sterling, as well as UK and European equities, include the removal of a near-term, no-deal Brexit. But that is offset by the prospects of UK Prime Minister Theresa May’s replacement, a general election and the threat to the UK economy of prolonged uncertainty.

    On Friday our upside EUR target has been completed as the euro gained in a move dealers said may have be driven by anticipated currency demand arising from a Japanese bank’s plans to purchase a German multi-billion dollar aviation finance business.

    Markets are often quiet in the hours before European trade opens and thin liquidity has in recent months caused sudden jolts or “flash crashes” in major currencies including the Swiss franc.

    But the heavily-traded euro-dollar currency pair, with a daily turnover of over $1 trillion, has recently traded in a narrow range at a time when volatility in foreign exchange markets is at a multi-year low, said Elisabeth Andreae, an FX strategist at Commerzbank.

    “It is remarkable that particularly in this market environment we see jumps even in EUR-USD typically during Asian trading times. This morning we saw a move from $1.1260 to $1.1290 in one fell swoop,” she said.

    Dealers said speculators were buying the euro in response to reports on Mitsubishi UFJ Financial Group’s planned purchase of the aviation financing business of Germany’s DZ Bank. As of June last year, the portfolio of that business stood at 5.6 billion euros.

    The transaction was announced on March 1 and MUFG said the transaction was expected to close after June.

    Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo expected the common currency to hold on to its gains.

    “It is not really a surprise that the euro is capable of reacting quickly to potentially positive factors, given the fundamentals surrounding the euro zone economy are showing signs of improvement.”

    “The euro was well-supported in the Asian session on Japanese demand on the crosses but the euro has also looked quite ‘cheap’ in broader terms in recent weeks and still looks – in our opinion – a relative bargain around the 1.12 area,” Shaun Osborne, chief FX strategist at Scotiabank in Toronto, said in a note.

    Investors’ appetite for riskier currencies got a boost after Chinese data showed exports rebounded last month, helping offset weaker imports, and reports of another reduction in Germany’s growth forecasts, analysts said.


    Data from Europe was encouraging. Euro zone industrial output declined by less than expected in February.

    U.S. stocks climbed back to near record highs on Friday after the largest U.S. bank, JPMorgan Chase & Co, soothed worries that the first-quarter earnings season would pour cold water on Wall Street’s big rally back from last year’s slump.

    “It’s a party-like atmosphere for markets. Good news from China and U.S. earnings off to an auspicious start,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

    “This has safe-havens on their back foot, that’s why the dollar is underperforming,” he said.


    COT Report

    Despite positive action that we saw on EUR by the end of the week, net speculation position on EUR remains bearish and was increased slightly this week. This mostly stands in agreement with our expectation - we're waiting for some upside continuation on EUR (Due DRPO "Sell" pattern on dollar index), but treat this action just as a retracement, which coming downward turn later:

    upload_2019-4-13_12-43-12.
    source: CFTC.gov
    Charting by Investing.com

    As Brexit still stands on the table, here and there we start to hear some hints on possible other "exits" that could happen soon, such as Grexit, Frexit etc. Fathom analysis tells that chances are very small for that now.

    Markets see low risk of euro default amid election uncertainty
    by Fathom consulting

    Fathom’s proprietary indicators gauge the market-implied likelihood of euro area sovereign defaults. There were broad-based declines in the indicators in March and, for most countries, they remain low by historical standards. This is despite a weaker growth environment and indications that some governments may seek to loosen fiscal policy. Political risk, a major driver of uncertainty during the heyday of the euro area debt crisis, also appears diminished in 2019 ― with little reaction in the default indicators to news concerning national parliamentary elections scheduled in Spain, Portugal, Greece, Finland and Belgium. Indeed, Fathom’s proprietary euro exit indicators are now below 10% for all countries, suggesting that investors do not expect these elections to seriously call into question membership of the euro.

    [​IMG]


    That's being said guys, despite positive recent week for EUR and fast recovering after ECB statement, situation remains tricky. Major bearish long-term sentiment around EUR has not disappeared. This is the signal to us to not to be too fascinating with recent rally. The turn down scenario in perspective of 1-2 weeks still is on the table.

    Technicals
    Monthly


    Price action this week mostly was going upward and EUR stands inside the range of recent drop. Thus, this action makes no impact on monthly and weekly time frames, where we keep our view with no changes.

    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. It seems that market goes up with the latter by far.

    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. UK probably will try to finish Brexit as soon as possible to not take part in EU elections.

    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_15_04_19.

    Weekly

    Here is again - nothing to comment yet. 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.

    The only new issue that we've got is bearish grabber. But, market stands so choppy that it is difficult to use this pattern as context for the trade. Definitely it is not sufficient for position taking.
    eur_w_15_04_19.
    Even Dollar Index weekly chart is more informative for us. There, at least, we have uncompleted major COP target, which suggests upside continuation (on DXY) and downward turn on EUR again someday:
    upload_2019-4-13_13-6-24.

    Daily

    So, on Friday EUR perfectly hit our 1.1318 target and 50% Fib resistance level Agreement. Trend stands bullish here, market is not at overbought and EUR has no technical barriers to proceed higher.

    Besides, we still have DRPO "Sell" pattern on DXY daily chart, which has not reached the minimal target yet:
    upload_2019-4-13_13-11-55.
    Potentially it keeps door open for upside continuation on EUR. At the same time, we has to recall that net short position on EUR have been increased. It could mean that recent rally widely was used for short entry and longs covering by speculators.

    Keeping all this stuff in mind, we suggest pullback in the beginning of the week. Technically major target is hit. Once it starts, we will see how it goes and get more information on direction.
    eur_d_15_04_19.

    Intraday

    4H chart shows perfect bearish engulfing pattern right at major Agreement resistance. Black candle of engulfing pattern is also a reversal one. Thus, chances on AB-CD drop on 1H chart looks good.
    eur_4h_15_04_19.

    But perspectives of the drop could differ. Thus, definitely market has to reach first support area of 1.1285 Fib level, combined with WPP and MPP in a way of AB=CD action. Next support stands around major trend line and K-levels of 1.1265-1.1270, but it is not the fact that EUR will reach it. Finally, downside breakout stands absolutely unclear yet.
    eur_1h_15_04_19.

    In current circumstances we see only single trading plan that could be applied here. First step is to go short on minor upside retracement, which should be "BC" leg of AB-CD pattern. When market hits OP target, somewhere around 1.1285 support area - take 50% profit and move stops to breakeven on the rest. And just watch what will happen next... But this is only for intraday traders. Daily traders should wait for retracement as market stands at Agreement resistance and do nothing.

    Conclusion:
    Despite good performance last week and completion of our both setups, we should keep in mind overall bearish sentiment of the market. It puts the shadow on upside perspectives of the EUR. As we expect technical retracement right on Monday - later we need to monitor how it will go, and apply trading plan that provides safety priority over return.


    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. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    Yesterday and today EUR shows limited trading range and our trading plan that we've discussed in weekend still stands the same. Daily chart keeps bullish context and we have valid DPRO "Sell" setup on Dollar index, thus, there are chances still exist on upward continuation.

    At the same time, on Friday EUR has completed our major target - 50% resistance and Agreement area. This is the reason why we've suggested some pullback and called to not go long immediately and wait for better price level at some valuable support area.
    eur_d_16_04_19.

    Now we see first reaction on major resistance on 4H chart. Instead of more directional drop, we see mostly a kind of sideways action. Usually when market goes sideways instead of typical retracement action, it tells about strength and should be treated as bullish sign. Still, we do not cancel yet the idea of retracement as triangle is still forming:
    eur_4h_16_04_19.

    Downside action on 1H chart indeed has started by "222" Sell pattern, although it has happened from slightly higher levels. Support levels stand the same as in weekly report.

    Here we need to keep an eye on price action inside the triangle. Once EUR doesn't reach the upside border - this could mean that downside breakout still will happen and we could get meaningful retracement to one of our support areas. First is around WPP and MPP, second is K-support around trend line and 1.1265 area.
    eur_1h_16_04_19.

    That's being said, for intraday traders - if you have taken short position yesterday, you could keep it, just tight stop to breakeven. For daily traders plan is the same - wait for retracement (until it is possible) for better entry prices.
     
  3. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    EUR keeps bullish sentiment well. In fact, our retracement plan has been completed perfectly, but psychologically it was difficult to take position there. As first drop to the entry point was too fast, while second one erased upside rally and it was seemed that market still could reach K-support area on 1H chart.

    On daily chart we mostly have the same picture:
    eur_d_17_04_19.

    On 4H chart now we turn to larger targets as our initial AB-CD XOP target already has been done last week. Now we have new OP at 1.1330 area and XOP around 1.14:
    eur_4h_17_04_19.

    As you can see on 1H chart - our support has been hit quite accurately and market rallied then. But as we've said - it was not simple to catch this action if you didn't have sleeping orders. But, it seems that current action reminds the one that was on Friday last week - reverse H&S.

    So, if we've missed long entry yesterday, today we could get another chance when right arm's bottom will be formed:
    eur_1h_17_04_19.
     
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  4. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning everybody,

    We're keep going with our trading plan. Daily charts stands the same - trend is bullish, no overbought and we're still aimed on 1.1330 first, and may be on 1.14 a bit later, depending on price behvior.
    eur_d_18_04_19.

    Still, not everything stands cloudless. On 4H chart yesterday we've got bearish grabber that puts the shadow on upside perspective. Although it is still a question whether it will work or not, but, it makes overall situation tricky. Rest of the technical picture forms nice bullish setup, but grabber adds some risk:
    eur_4h_18_04_19.

    Yesterday our plan suggested taking a long position based on reverse H&S pattern, right at the bottom of the right arm. And setup has done perfect. The problem is with 4H grabber. In fact, if it will work - it erases H&S here, could turn it, say, to Double top and EUR could drop to 5/8 support area.
    That's a background that we have today. Decision is not simple to take.
    eur_1h_18_04_19.

    Thus, you could bet on the grabber, if you're bearish, on reverse H&S if your're not. Or, just stay aside for awhile, if you're conservative trader. Solution is always exist...
     
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  5. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning everybody,

    Today's Good Friday, guys, so market probably will be thin. Yesterday's collapse has changed daily context into bearish. Although it was not absolutely suprising because we were waiting downside reversal (based On dollar index reverse H&S pattern), but we thought that it should happen from a higher levels (again, based on DXY DRPO "Sell" pattern).

    Recent drop could get fargoing concequenses. In fact, we've got failure DRPO "Sell" on Dollar index, which means upside directional pattern. Combining this situation with uncompleted major weekly COP that we talk about every weekened - means that EUR 1.11 lows hardly will hold in perspective of few weeks.

    It means that we need to appoint new downside targets. On daily chart it could be 1.10 level of butterfly pattern:
    eur_d_19_04_19.

    On 4H chart we have closer destination - COP of inner AB-CD, which stands around 1.1170 level. Yesterday we warned about bearish grabber here. As a result, indeed, EUR has formed double top pattern here and already completed its target around 5/8 support level. Also price has erased upside AB=CD pattern.

    eur_4h_19_04_19.

    Now we need to watch for upside pullback. It should not be too high as downside action just has started and market is not at oversold. Now it seems that most probable area is 1.1255-1.1260:
    eur_1h_19_04_19.
     
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  6. pratik19476

    pratik19476 Recruit

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    is it possible eur/usd can form bullish stop grabber in daily chart ?
     

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  7. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Yes, it is possible, but you need to take a look at overall context. Grabber is just a pattern, but major context, environment tells about perspective of this pattern.
     

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