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Forex FOREX PRO WEEKLY, April 22 - 26, 2019

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Apr 20, 2019.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals

    This time, guys, as we've promised in one of our videos, we take a look at GBP. We suggest that GBP stands at the edge of big events. The silence that we see right now on the market could be the one before the storm and looks illusory. And technical background that we see is yet more support this suggestion.

    First we start from the common thing - statistics of this week. It was positive, but what reaction market has shown?

    Sterling fell on Thursday as the dollar’s rally gathered momentum, with strong British retail sales data doing little to shake the currency out of a slumber following a six-month extension to Brexit.

    British shoppers ignored worries about an impending Brexit deadline and spent heavily in March, official data showed on Thursday, beating all forecasts in a Reuters poll of economists.

    Retail sales volumes in Britain surged by the most in nearly two-and-a-half years in annual terms, leaping by 6.7 percent.

    The Bank of England has signalled it will lift interest rates to stop inflationary pressures from building, but it is highly unlikely to act until Brexit is resolved.

    While Brexit has taken a back seat in recent trading sessions, it can still move the pound significantly.

    On Wednesday, a report in the Guardian newspaper that talks between the Labour opposition party and the ruling Conservatives to resolve a parliamentary deadlock over the terms of Brexit had stalled sent the pound tumbling. A spokesman for the Labour party denied that the talks had hit an impasse.

    “Such (British) data has been pushed into the backseat over recent months, quiet and insignificant, as markets focus instead on the drama of Brexit,” said Sebastien Clements, currency analyst at OFX.

    Wild swings in the pound subsided last week when European Union leaders granted Britain the Brexit delay to Oct. 31. The currency is now at its least volatile in years as investors await a breakthrough in Britain’s EU divorce process.

    Expectations for volatility in the British pound plummeted to their lowest levels in more than a year on Tuesday after European Union leaders and the British government last week announced Brexit would be delayed for up to six months.

    Those of you guys, who's familiar with VIX volatility index and V-DAX (EU analogue), knows that major movements happen downside and starts at lowest volatility. This happens by two reasons. Market grows slower than drops. This is because of human-being psyche - greed is a weaker sense compares to fear. Under Fear impact market drops much faster. This moment explains volatility. On rising market volatility is gradually decreasing, because upward action stands smooth and gradual, while on drop volatility shows fast spike and jump.
    It means that when volatility stands near the bottom and market is quiet - take a look at statistics, fundamental background. If it stands bearish - be prepared to huge drop on the market.

    In general business activity shows worse pace compares to last year. Here is an Reuters article that describes situation in details. We bring just few extractions here.

    But with Brexit on ice until as late as October 31 and the terms of the exit still to be agreed, fears are building that this could be one of the leanest years for the City since the aftermath of the 2008 financial crisis.

    The London Stock Exchange has had only one corporate listing in excess of 75 million pounds ($97.61 million) so far this year. Trading turnover on the London Stock Exchange in February and March was down a third from a year ago, and the lowest since August 2016.


    European investment banking fees - the biggest chunk of which are earned in London - were down 25 percent in the first quarter, according to Refinitiv. And there were just 11 new UK-based hedge funds launched in the first quarter, compared to 35 in the same quarter in 2018, data from Prequin shows.

    “There is going to be a long hiatus. Investors will need to see something far more positive in politics to be persuaded to move again,” Alastair Winter, economic adviser to Global Alliance Partners told Reuters.

    “I can’t see how Labour and Conservatives can agree a deal. They are playing games to avoid blame. And until they figure it out, the City will be left to just twist in the wind.”


    Recruitment firm Morgan McKinley’s latest London Employment Monitor, which tracks financial services hiring trends from January to March, showed vacancies and job seekers dropping 9 percent and 15 percent respectively year-on-year. The number of job vacancies and job seekers in the first quarter were half the level they were in 2017.

    “People are not setting up new funds, are not hiring, firing, they’re not doing new deals because they’re just waiting for what’s happening with Brexit,” he told Reuters. “We haven’t seen any panic-selling. There is resilience, and people have decided they need to just watch this play out,” one senior private banker said.

    European Commission President Jean-Claude Juncker made the comments in an interview with German newspaper FUNKE Mediengruppe, a week after EU leaders gave Britain six months more to exit the EU.

    “Nobody knows how Brexit will end. This is creating great uncertainty. There is still a fear that there will be a hard Brexit without any withdrawal treaty arrangements,” Juncker said, citing the long-term negative impact on Europe’s economy.

    Even though the extension to Oct. 31 offers little clarity on when, how or even if Brexit will happen, Britain should use the time wisely, he said.

    “I hope that the British will make use of this time and not waste it again. We cannot keep on putting off the withdrawal date indefinitely. The best solution would be for the British to adopt the Withdrawal Agreement during the extra time that has been agreed,” Juncker said.

    The withdrawal deal negotiated by Prime Minister Theresa May with the EU has been rejected three times by the British parliament.

    Indeed, UK had pretty enough time to accept Agreement and push it through Parliament. As it was said million of times, EU will not accept any more concessions, which means that till the October 31st, T. May will try to push through the same Agreement, no other Agreement will be achieved. And here we have the same reasonable doubt - as it was not able to happen already, what the chances that this time it will be successful?

    Now it is time to recall Fathom consulting analysis that they made on 1st of April, dedicated to Brexit and what will happen in its different cases. We already put some extractions from there in one of our weekly reports.
    Fathom has expected hard Brexit:

    "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 yet this is not reflected in currency markets. 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."


    Now it seems that this story is over, we have prolongation till the end of October, but it seems that it doesn't mean that hard Brexit becomes impossible due postponing. J.C. Juncker. gives the same hint - Agreement could fail and this will be infinite nightmare, the same hard Brexit scenario but in October.

    Also Fathom gives conclusion on UK sentiment, which is not very positive:

    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 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. There are likely to be shortages of essential items, (much) higher prices, and perhaps a severe economic contraction. In this environment, the UK government would, of course, seek to blame the EU for the failure of negotiations. But recent polls suggest it may fail in that endeavour.

    A no-deal Brexit that led to severe economic pain in the short term must raise the chances of a Labour victory in the next General Election, whether that comes in 2022 as scheduled, or whether, through a breakdown in support for Prime Minister May among sitting Conservative or DUP MPs, that comes much earlier, as betting odds suggest that it might. How might we characterise the consequences of a Labour government?

    If Jeremy Corbyn remains as Leader, and if both history and the stated concerns of Shadow Chancellor John McDonnell are anything to go by, a (very) sharp fall in the pound, accompanied by higher inflation and higher interest rates seems likely.

    COT Report

    It looks surprising, but recent CFTC data doesn't show rising of bearish sentiment. In fact, short speculative position has dropped slightly. But, we do not know yet, why this has happened. There are only two thoughts on this subject - either sentiment is changing indeed, or, it's just a closing of speculative hard brexit bearish positions. Somehow, I gravitate more to second idea.
    upload_2019-4-20_13-6-55.
    Source: cftc.gov
    Charting by Investing.com

    Taking it all together, even soft Brexit will trigger domestic and external financial processes that will make situation in UK economy complex. But, with hard Brexit scenario on the table, perspectives look even worse. And it is difficult to call overall situation cloudless and positive.

    Technicals
    Monthly


    On monthly chart we need to follow the sequence of the swing to understand where we're now. Action down to 1.21 was the CD leg of our major all-time pattern. Once COP extension has been hit, market turned to reasonable retracement and completed harmonic swing. We see that upside harmonic swing to 1.46 area is slower than downside drop.


    Now market is going down again. It could mean that CD leg continues and in long-term perspective, OP target could be completed. But this is too long-term perspective for us. We need something closer to use it as real target in day-by-day trading.


    Also I wouldn't talk on AB=CD upside action after major COP. COP is minor target and it is quite rare leads to deep retracement in shape of 2 legs.


    Overall price action shape lets us to suggest appearing of butterfly pattern, with first target around 1.1335. Another target is YPS1 that stands at 1.2440. Market already has tested Yearly Pivot, but failed upside continuation and dropped again below it. This is bearish sign.


    Finally, we have monthly bearish grabber that suggests drop below 1.24 area and supports idea of reaching YPS1 at least.
    gbp_m_22_04_18.

    Weekly

    On weekly chart we have tighter target as we have AB-CD pattern inside monthly butterfly pattern. Thus, COP target stands around 1.2170 area. It could be the one that market will follow as it stands around YPS1 and previous lows.

    The same story here with pivots. Take a look that upward action was stopped by MPR1 and now price dropped below MPP. This price action tells that bearish trend is still intact and we should treat upside action just as retracement, at least by pivot points framework.

    But here is another interesting moment exist. Take a look that overall price action reminds reverse H&S pattern and what has happened with it? Right, it has failed to break the neckline. Besides, last upside effort mostly was erased by the drop. Weekly trend has turned bearish this week.
    gbp_w_22_04_18.

    Daily

    Daily picture shortly could be named as a "chart of 1.30". Indeed, everything depends on this level. Once it will be broken down collapse could take significant scale. This top could be classified differently. Here we could find as signs of H&S pattern as the signs of Double Top, which has even more extended downside target.

    If we would think on H&S pattern here, its OP target stands right at major 5/8 support around 1.2780. That's the level that we should focused on. Also this level coincides with very important low - this is the bottom of reverse weekly H&S. Drop below this level officially makes this pattern as "failure" one and supports overall bearish scenario.

    Don't be scared by existence of K-support here, guys. It was tested multiple times already and every next time upside reaction stands weaker than in previous one. This is like the ball that jumps out from the ground lower and lower.

    Next week we will get US GDP and other statistics that is promised to be better than expected (look for our 2nd weekly report tomorrow) this should make impact on markets across the board. Thus, chances on downside breakout looks high on next week. Oversold level stands around 1.28 area.

    gbp_d_22_04_18.

    Intraday

    In the beginning of the week we could keep an eye on this picture. Market could form butterfly pattern. Its 1.27 extension coincides with inner AB=CD pattern and stands around 1.2920 area. 1.618 extension coincides with daily Oversold level around 1.2840. Market already has dropped below COP target of AB-CD pattern.
    gbp_4h_22_04_18.

    On 1H chart we could watch for minor pullback to one of the resistance areas. Now it seems that market could form minor AB-CD pullback and '222" Sell pattern right around first Fib resistance level 1.3015:
    gbp_1h_22_04_18.

    Of course there are alternative ways to enter exists, for example using of stop "sell" order on breakout down, or take position after breakout has happened on some retracement. But the problem is we do not know how strong breakout will happen and whether any patterns will be formed there...

    Conclusion:
    GBP stands too quiet now. The pressure of inner political and financial factors grows and sentiment right now hardly could be treated as positive. Besides, coming important US statistics next week is expected to be positive which could become the last strike that put the stone out from the top, at least in short-term perspective. By our view, GBP stands very close to big action and now it seems that downside direction is more probable.

    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. Venelin

    Venelin Master Sergeant

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    VIX is also called "Fear index". Thanks for the good analysis, Sive!
     
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  3. monas123

    monas123 Recruit

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    thanks sir, my favorite pair
     
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  4. Deltoid88

    Deltoid88 Sergeant

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    Update on GBP. I see one more leg up constructed of 3 or 5 waves before major downside action could start.

    Daily chart:

    GBPUSDkDaily.

    4H chart:

    GBPUSDkH4.
    How to trade this?

    1st position, long entry in zone = 1.2980-1.30, TP zone = 1.3130-1.3225, SL zone = 1.29-1.2950
    2nd main position, sell entry in zone = 1.313-1.3225, TP zone < 1.25, SL1=1.3380, SL2=1.4377
     
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  5. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    Well, everything stands perfect by far. When market goes with our expectations we go with our trading plan.

    Yesterday was relatively quiet session as EU has taken the rest due lasting Easter holidays. Thus, on daily chart we have the same picture. The only thing that has happened - we've got another bullish grabber. In weekly report we already talked about it. This is tricky moment, that increases the risk, of course. Thus, if you do not like to trade when you have contradictive patterns - it would be better to stay aside for awhile and wait for clarity.
    eur_d_23_04_19.

    On 4H chart picture stands the same. Here our focus is on COP target at 1.1170 - right across daily lows. This is first downside destination point.
    eur_4h_23_04_19.

    On 1H chart our setup has worked perfect - EUR has formed excellent AB=CD retracement right to predefined Fib resistance level and creates an Agreement. In fact ,here we've got "222" Sell pattern.
    Those who have taken the short position - now could move stops to breakeven and minimize risk of daily grabbers.
    eur_1h_23_04_19.

    If you have missed this entry point and want to go short - keep an eye on most recent drop, minor ab=cd upside retracement could happen and form another puny "222" Sell". this also could be the chance... Risk will be minimal as stop should be placed above recent OP top and Fib level.
     
  6. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    In two words - EUR and DXY gravitate to the lows (tops). Yesterday's drop erased stop grabbers. On daily chart it is big space till the oversold level. Nearest extension stands at 1.11 - butterfly target and MPS1.
    eur_d_24_04_19.

    On 4H chart we're watching for closer target COP @ 1.1167. Take a look that it stands slightly below daily lows and this is faded COP, as we use as "A" point not absolute top. In fact, ultimate COP stands even lower. Thus, existing of COP below the lows significantly reduce chances that lows survive.
    eur_4h_24_04_19.

    On 1H chart market has dropped to another, minor COP (not shown) which agrees with WPS1 and now turns to upside bounce. To be honest, I'm not sure that we definitely will get AB=CD upward action right to K-resistance, but if we will, this could be good area for short entry as it provides good chances to move stops to breakeven very fast. At least minor downside action here should happen. Of course, we count on something greater, but I talk about position taking process.

    And all eye on Friday's US GDP release, guys...
    eur_1h_24_04_19.
     
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  7. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    We're going with our trading plan. Yesterday EUR has broken important 1.1170 lows. By looking at daily chart, we have few important moments. First is, as breakout has happened, price has not returned right back up. It means that this is not fake breakout, nor stop hunting action and W&R. This is real breakout, as price after drop stands quiet below the lows.

    As EUR is not at oversold on daily and major weekly level of 1.1185 has been broken, now it will be easier to proceed right to 1.11 target - our butterfly and MPS1. Dollar index also has not hit COP yet and should proceed higher. US GDP on Friday could become a catalysts of this process:
    eur_d_25_04_19.

    The reason why market stops right here you can see on 4H chart. Actually we have another one, minor butterfly and EUR hits 1.27 target. Our COP extension also is completed. As market was moving with downside acceleration, here we could count on minor pullback but then downside action should continue.

    It is interesting that 1.618 target of 4H butterfly coincides with major daily one - at the same 1.11 area.
    eur_4h_25_04_19.

    On 1H chart we have cascade of Fib levels to calculate possible upside bounce. As market is not at oversold and action was really fast, it seems that pullback should not be too deep. Somewhere to re-test broken lows. K-resistance around 1.1190 looks suitable.
    eur_1h_25_04_19.

    Thus, our trading plan suggests minor relief today with upside bounce somewhere to 1.1180-1.12 area and downside continuation on Friday. We do not expect reaching of major target 1.11
     
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  8. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    So we're gradually coming to culmination - GDP report. Although consensus stands aroud 1.8-2.0%, we've pointed in our report that GDP has good chances to show 2.3-2.4%. There are two reasons for that. In IQ there was good data on P. consumption, retail sales and even trade balance. This is around 80% of GDP. Second, indirectly J. Bullard hints that worse data is a temporal moment, data will improve and already is improving.

    If puzzle will form as we want - we will get long-term bear trend continuation on EUR.

    Now, price stands slightly above 1.11 target on daily chart, next one is 1.10, but at 1.1050 we have daily oversold:
    eur_d_26_04_19.

    On 4H chart, as we've pointed yesterday, 1.618 extension coincides with 1.27 of daily pattern right at the same 1.11 area. At 1.1050 we have OP target. It means that it is high probability that we should get the floor today around 1.10-1.1050, if, of course GDP will show positive surprise:
    eur_4h_26_04_19.

    Speaking about upside bounce, guys, is a tricky moment. Market is too close to the target, not at support or oversold yet. Yesterday EUR hasn't shown even minor 30% retracement. Here, on 1H chart we have AB-CD in progress. It shows two points - OP @1.1160 and XOP 1.1185 K-resistance. At the same time, here we could see signs of bearish dynamic pressure - market forms lower tops while trend stands bullish. It means that we could get downside breakout instead of retracement, as it was yesterday.

    And, speaking in general, you should think twice before taking short position right now. In this case you dive in madness action with GDP release and big volatility. That could be costly. Bulls should wait for GDP release. Negative surprise trigger daily butterfly as bullish reversal pattern and it could be used as background...
    eur_1h_26_04_19.
     

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