Forex FOREX PRO WEEKLY, August 01 - 05, 2022

Sive Morten

Special Consultant to the FPA
Messages
18,800
Fundamentals
This week, guys we've got a lot of important stuff, starting with corporate earnings reports as in EU as in the US, and up to the Fed statement and GDP numbers. As already few days have passed since then, it is interesting to watch on reaction from J. Powell, J. Biden and J. Yellen - "triple-J" :cool: . And, normally, comments should be different. But, those sentiment that stand with their statements promises nothing good. Second moment is the structure of the data, as in EU as in the US.

In the Powell's speech, guys, I would pay attention to the following important moments:
  • The growth of consumer spending has slowed significantly.
  • Investments in fixed assets of the business seem to have declined in the 2nd quarter.
  • Wage growth is growing.
  • Job growth is slower, but still steady.
  • Another unusually large increase may be appropriate at the next meeting
  • It will probably be appropriate to slow down the pace of increases as rates become more restrictive
The last two points we've discussed above - and they totally confirm what chart shows - another 0.75% rate change in September and that's all.

Well, on job situation we already talked previously - initial claims are stubbornly rising with the good pace and soon we will see the rising of unemployment. Wage growth we also have discussed - the real (inflation adjusted) wages have dropped. We disagree that job market is strong. More and more companies announces hiring slow:
Amazon Shrinks Staff by 100,000, Joining Netflix and Google in Hiring Slowdown

Other statements - slowdown of consumer spending and investments in fixed assets were made right before GDP report and have become a prophecy. WIth the GDP numbers it is important what particular components give negative numbers. This lets you to understand whether current drop is temporal or it is fundamental.

1659172621417.png

As J. Powell said - Inventory investments give most valuable decrease. Nobody increases inventories, expecting drop in consumer demand. Now let's take a look at details. In the structure of GDP change for the 2nd quarter, consumer spending made a positive contribution of 0.7 percentage points, where demand for goods fell by 1.08 percentage points, while demand for services increased by 1.78 percentage points, domestic private investment made a negative contribution to GDP at 2.73 percentage points, where investment in fixed assets minus 0.72 percentage points, and the change in stocks "-2.01%" .

What's wrong with the US GDP report? Domestic investments, especially investments in fixed assets, went into a collapse. Consumer spending, which forms 70% of US GDP, is slowing sharply, with retail demand for goods going into a sharp decline, and aggregate consumer demand is stabilizing services.

Since all stimulus are switched off (by far), credit conditions are deteriorating, wage and income growth are dropping in real terms, consumer sentiment is at lowest level in 50 years – therefore, a collapse in spending is inevitable, as well as in investments, which will drag US GDP to the "bottom". The crisis has begun. This explains why investing in inventory are going down.

The nationwide GDP deflator, which takes into account price changes across all economic entities, is growing by 7.5% YoY in the second quarter of 2022 compared to 6.8% in Q1 2022, 5.9% in Q4 2021 and 4% a year ago.

A noticeable acceleration of price growth is recorded, where the price impulse (the rate of price change) is the strongest since 1Q 1975. It is not only the rate of price change that matters, but how quickly these rates change. If inflation rises by 6-8%, but this growth has been consistent for many years, the economy adapts. However, if there is a rapid change from near–zero prices to record prices in 40 years, this is an inflationary shock!

In two years, there was the most rapid transition of prices to a new dimension by 6.8 percentage points – such a speed was only once in the history of the United States – in the mid-70s.

Finally, solid contribution comes from Export of hydrocarbons as the US is burning its national reserves, sending fuel and LNG to Europe. If we would take a look at GDP numbers without export - it should be around "-1.5-1.7%" which corresponds to IQ numbers when the US haven't become yet the major exporter.

With this baggage on the back, we have extreme situation in Real Estate market:
1659173485043.png


And structural disbalance in the US economy when healthy correlation of interest rates and Manufacturing is breaking. This has happened previously in 70's Stagflation stage:
1659173593700.png


Another important moment here is authorities reaction on real situation in the economy. The inadequacy of the perception of the reality of the Fed and the US Treasury is an attempt to manipulate public opinion, like the stories about "temporary inflation". Economic laws work regardless of the insane statements of politicians.

The discussion in the United States about whether it can be considered as a recession or not is very interesting. And mostly because such a way of questioning has little relation to the core of the crisis. It more sense in discussion of whether the economic downturn began in September 2021 or November. But this discussion is under way and the reason is not find theoretical truth or explain people what we have now. This real reasons are political.

This discussion makes sense only on the eve of the November elections and it has a purely political meaning. But as they discuss not the real problems and how indeed to find the solution, but absolutely scholastic and unrelated to reality trash talks suggest complete helplessness of both monetary and financial authorities, economic experts in the United States. This means that the crisis will develop according to the most negative scenario, because without understanding the current processes, it is possible to take reasonable measures to minimize its consequences only occasionally.

Now speaking on recent EU GDP and inflation numbers. Once again - we have to take a look at background and conclusions why EU GDP stands positive at least, while it is negative in the EU? Whether situation in EU is better than in the US? Hardly this is possible, buy why we have better numbers? Eurostat reports that there is no crisis in the EU. Indeed we have 0.6% IIQ GDP data and 4.0% on YoY basis:

1659257354011.png


But we have to take in consideration that this growth has been achieved in relation to depressed economy when Europe was under impact of multiple COVID lockdowns, and current numbers shows growth of 4% particular to those, depressed numbers. This is just different starting point. Take a look at the chart above - if we take as starting point the lows of IIQ 2022, we could say that GDP has grown for 12%, but in reality it is near zero if we compare it to pre-Covid area.

The more representable data is the progress of the economy in relation to December 2019. For all Eurozone countries, growth is only 1.5% in 2.5 years .France - 0.8%, Germany - 0.9%, Italy -1%, Spain - 2.5%. Germany and Spain have not been able to get out of the COVID crisis, and hardly they will, taking in consideration current circumstances.

Despite unprecedented fiscal and monetary support from ECB, which was several times higher than in 2009, the COVID crisis has not been fully and confidently defeated. So, economy performance is balancing at the edge between plus and minus of 2019 levels.

Given the leading indicators, including the expectations of business and population, plans for purchases and investment activity, there are all signs of an impending crisis. Therefore, this was the last growth of the European economy. Now inflationary spreading, debt crisis, energy costs will impact in the second half of 2022.

Thus, we could say that this is just "old" data, which doesn't reflect the modern processes by far.

The same we could say on Inflation. Yes, it is record high again around 8.9%.
1659261174939.png


But the problem is not in Energy and Food, or better to say not only with these two. Take a look that inflation in other goods and services is growing year over year.

The overall price growth excluding energy (goods + services) is accelerating every month (YoY) – 4.1% in April, 4.6% in May, 4.9% in June and 5.4% in July. It is 0.3-0.4% per month!

Prices behave similarly, if we exclude both energy and food: 3.5% starting in April, then 3.8%, 3.7%, and 4% in July 2022, respectively. Prices for services are accelerating as well. A year ago services grew by 0.9% yoy, in April - 3.3% , now it is 3.7% .

The increase in prices for non-energy products is also accelerating every month(YoY): 3.8% from April, then 4.2%, 4.3% and 4.5% in July. From 2014 to 2021, prices for this group of goods grew by an average of 0.3% YoY! They never exceeded 2%. At the beginning of the Eurozone creation they grew by 1.7%, and at the end of 2007 the growth was 1.5%. That's all.

Therefore, the current record price increase is not a problem of energy, raw materials and food. Expenses are spreading throughout the whole economy, so the price increase becomes stable, systemic. More and more countries are exceeding 10% price growth.

Conclusion

As you could see, recent week has become very important and not because of the numbers but because of evidence of policy as ECB as the Fed. ECB has announced TPI, which is obviously another shape of QE, let's to be honest with ourselves, despite how they call and describe it. Fed makes the visuality that they execute the QT, but they are not. Second, we have ~$1 Trln quasi-QE in the US in the way of J. Biden programmes. Besides, Fed has 600 Bln reserve on the US Treasury deposit and one more rate hike until the end of the year (following from J. Powell comments). Thus, both Central Banks declare own defeating in inflation fighting.

Fed still has higher rate, and probably it will push it to 3.0% by the end of the year. Economical situation will deteriorate further in the EU, closer to the cold time with possible rising of social unrests as well, while in the US Democrats, as usual, will try to support the image and visuality of prosperity before November elections. Thus, it makes overall situation to advance in favor of the US Dollar in long-term. Since the USD advantage decreases now, market needs to adjust an expectations, as parity level have included more hawkish Fed policy. At the same time, EU problems are disguised a bit by positive GDP numbers that will change later, in IIIQ. This makes us think that our long-term target of 0.9 on EUR/USD should be reached, but further dollar growth is not obvious any more.

P.S. Take a look at today Gold Fundamental report as well, because it provides interesting forecast of the next Fed steps, and explanation why we think that only one more rate change follows.

Technicals
Monthly

Long-term picture on EUR remains bearish, MACD stands bearish as well. July has closed in the middle of the range as market now needs time to adjust expectations based on information that we've discussed above.

Technically, to give even minor bullish hints, EUR has to climb above 1.10 area. Until price is flirting below OP target - situation remains clearly bearish, as it could be treated as the way to XOP. Without strong technical support levels market could change the direction only by big shift in fundamentals. And recent pullback is mostly the fruit of fundamentals change rather than technicals factors.

With the drop below OP, it is the only direction to XOP, as market enters new extension mode. Our major target that we could calculate is 0.9, nearest local target is 0.9750, which is 1.27 butterfly extension. Downside action shows good thrust and appearing of B&B "Sell" here is definitely welcome.

As we've suggested, downside action probably should slowdown a bit, and EUR could show higher pullback, but recent changes are not enough to break the downside trend as advantage still stands on the US side.
eur_m_01_08_22.png


Weekly

Weekly picture brings no additional information by far. Trend remains bearish, recent week is inside one. Next supposed upside target is 1.0446-1.0460 K-resistance area:
eur_w_01_08_22.png


Daily

Daily chart also brings no new patterns. Trend stands bullish here. We have Overbought level around the same 1.04 area and weekly K-resistance, that in general confirms our suggestion:
eur_d_01_08_22.png


Intraday

While market is trying to keep upside performance, we intend to follow it. Bears now nothing to do - either wait when AB-CD will be done, or fails. Now neither former nor latter has happened yet. For tactical upside trading, we probably could use "C" point as invalidation one and totally rely on CD leg to consider position taking:
eur_4h_01_08_22.png


Situation is interesting for the bears as well - in the case of inability of upside progress and "C" lows breakout, EUR could form the downside butterfly. Meantime, EUR has completed our Friday setup - hits minor 1H OP and pullback to 5/8 support in a way of ab=cd retracement. If you've got position there - very good. If not, here is how it could be used. In fact, this gives us an advantage. For the bullish market it means OP downside retracement is over and EUR should keep going higher. This in turn, gives another option for position taking - to focus only on most recent upside swing and watch for minor pullback for position taking with the stops below 1.014 lows.

Bullish market has to not break it down. If this happens then EUR is not bullish, and upside continuation start looking suspicious.
eur_1h_01_08_22.png
 
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Morning everybody,

Here are few issues that we have to discussed. First is, grandma is flying to Taiwan. And this is not a jokes, guys, this is serious, stakes are high. Any side who retreats looses the face on geopolitical arena. As landing is expected around 14:30 CET, volatility could rise and dollar could start rising if game will out of the control. Trump warned in its tweeter - situation around Taiwan will become worse. So, what if nobody is bluffing?

Second - I congrats, you, guys. We were waiting not too long to get confirmation of our fundamental suggestion -
Bloomberg - US Treasury Lifts Quarterly Borrowing Estimate to $444 Billion
The Treasury’s debt managers now expect to borrow $444 billion in the July-through-September period, compared with the original estimate of $182 billion. The Treasury left unchanged its cash-balance estimate for the end of September, at $650 billion. That stockpile is currently around $597 billion.

So, they try to keep Treasury deposit intact by issuing new debt, and use its cashflow to start finally QT. But who will by it? I suspect that they will spend its deposit to buy these bonds, guys. Whatever it will be, this is minor detail. The major think is - printing machine is working again.

Speaking on short-term EUR performance, we have some tactical bearish signs. On daily chart price is coiling around the same resistance, by far:
eur_d_02_08_22.png


On 4H chart this is COP target that has triggered downside pullback. Currently it is nothing criminal around it - but be aware of grandma's landing, as price performance here might be very nervous.
eur_4h_02_08_22.png


Another short-term bearish signs we have on 1H chart. First is W&R on the top. Second - inability of the market to keep moving to XOP target. Thus, local AB-CD here is under question. With all these stuff in mind, I wouldn't hurry up with new long position and as initial scenario - wait for K-support. Because W&R and fast drop could become a sign of Double Top here. And around K-area we could see what to do next.
eur_1h_02_08_22.png
 
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Morning everybody,

Thanks God we've escaped front collusion yesterday. But anyway hardly overall situation becomes more stable now, mutual relations of US and China are becoming worse and worse. Usually China is a long-term player, some response will follow.

Now, in short-term EUR is going lower as we've suggested recently. But with the recent action, we've got bearish reversal bar on daily chart. It means either deeper retracement or even direct downside continuation. Bad sign for the bulls anyway.
eur_d_03_08_22.png


Despite that market stands at predefined K-support, here we have few moments that are vitally important. First is - too deep drop after just COP target. Second - we can't treat this drop as more extended downside ab-cd pullback, because COP top is above "B" point. Existence of the bearish divergence suggests reaching of the bottom, at least, between the top. Thus, overall combination looks negative for the bulls, and works in favor of downside continuation:
eur_4h_03_08_22.png


On 1H chart we have very steep AB-CD. Price hits OP making Agreement with K-support area, showing technical bounce. But, due to daily reversal bar - we should get larger downside AB-CD pattern. For example, if we get here deeper upside retracement to 1.02-1.0210 area.
eur_1h_03_08_22.png


Thus, in current circumstances we suggest no longs by far. Pullback to 1.02 area might be interesting for short-entry. In a case of direct downside breakout (without pullback to 1.02) we're watching for XOP target @1.0118, which is also 50% Fib support. But, in this case chances on upside reversal become phantom.
 
Morning everybody,

So, EUR accurately has completed recent trading plan, showing deeper pullback and mostly completed intraday XOP target that we've discussed. On daily chart picture still looks bearish - reversal bar and high wave doji, showing waiting time or indecision sentiment:
eur_d_04_08_22.png


On 4H chart we also have few bearish moments - deep and fast pullback after just COP target and divergence:
eur_4h_04_08_22.png


The pullback on 1H out from XOP also doesn't look impressive yet. Thus, we do not exclude that EUR could try to move higher, but daily reversal bar weights more than the action that we see here. Potentially we have bigger scale AB-CD that could lead price to the 5/8 Fib support.

It means that we have a bit not sufficient bullish context. So, to consider long entry we need to get clear bullish patterns. For example - either reverse H&S or 3-Drive "Buy", or any other. Until we get it, bullish context remains weak:
eur_1h_04_08_22.png
 
Morning everybody,

So, with recent upside action there are more bullish signs appear and no new bearish ones. In current circumstances we are tending more to idea of upside continuation rather than reversal, although NFP report could bring some surprises.

Still, based on weekly claims data that are rising for 9-10 weeks in a row and rumors on companies hiring freezing, negative surprise in NFP doesn't look like fantastic. I wouldn't surprise if even unemployment rate tick up to 3.7% today.

Technically, price has broken high wave doji up. As a result, reversal bar has become a part of the bullish "Morning star" pattern.
eur_d_05_08_22.png


If we're correct in our view, 4H AB=CD pattern could be formed. Although formally bearish setup is not cancelled totally. Divergence stands in place as well:
eur_4h_05_08_22.png


Another reason why we're on favor of upside action is recent performance. H&S has been formed, but not harmonic, right arm is very fast, although its depth is OK, and upside action is fast as well, CD leg has solid pace. This is not good for larger downside "CD" leg, right? If we speak about daily reversal bar and downside AB=CD pattern.

All these things makes us stand on the bullish side. For position taking you could watch for two nearest support areas, including 1.02 K-support. 1.0290 XOP is just a nearest H&S target. Potentially, market could go higher.

eur_1h_05_08_22.png


If you still consider taking the short-position, your stop should be above daily reversal bar. Maybe you could invent something with Stop type orders, in a case of better NFP...
 
Looking at this setup on USDCAD before the news today.

Downside move from 1.46xx to 1.20xx now and an OP retracement just above 0.382 FIB.

Screenshot 2022-08-05 at 13.09.15.png


Rejection of channel breakout after the OP and return back inside of it. Also slow price action inside the channel and last OP to the upside with price and time harmony.

Screenshot 2022-08-05 at 13.10.00.png

Now looking for the completion of this OP on Daily and 4H time frame, although it is a reversal swing both on M and W chart as well as on D after the OP was hit.

Screenshot 2022-08-05 at 13.10.15.png


Risking 45 pips on this trade, might try another time if this fails at the XOP just below the first FIB confluence area.

Screenshot 2022-08-05 at 13.11.17.png


Also closely watching USOIL at the OP to 0.618 FIB for minor patterns on the intraday chart to go long.
Screenshot 2022-08-05 at 13.22.22.png
 
It is not ALWAYS that I agree with you, Master Sive.
I did not trust the upswing yesterday of the EURUSD and stayed on course with many shorts.
Got rewarded ENORMOUSLY with those positions, as can be seen on the H1 what has happened.

Sometimes it is SO CLEAR to understand the manipulation that goes on by the Big Boys.

Looking forward to your weekly analysis tomorrow, have a SUPER weekend.
 
It is not ALWAYS that I agree with you, Master Sive.
I did not trust the upswing yesterday of the EURUSD and stayed on course with many shorts.
Got rewarded ENORMOUSLY with those positions, as can be seen on the H1 what has happened.

Sometimes it is SO CLEAR to understand the manipulation that goes on by the Big Boys.

Looking forward to your weekly analysis tomorrow, have a SUPER weekend.
Hi Freddy - and this is proper way. Everybody has to have own head on the shoulders, as all of us do mistakes. You show how correctly to deal with any information - look, think, analyze and make your own decision.
By the way - this is the reason why I do not like to deal with big reports....
 
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