Sive Morten
Special Consultant to the FPA
- Messages
- 18,754
Monthly
The U.S. dollar was on track for its biggest daily loss against a basket of major currencies in over three weeks on Friday after the U.S. government's July employment report showed no signs of wage inflation, supporting a continued dovish stance from the Federal Reserve.
The Labor Department said U.S. nonfarm payrolls increased 209,000 last month, below economists' expectations for an increase of 233,000, while the unemployment rate unexpectedly rose to 6.2 percent. Data for May and June were revised to show a total of 15,000 more jobs created than previously reported.
Analysts said the increase in the labor force participation rate, to 62.9 percent from 62.8 percent, and roughly flat average hourly earnings growth were critical because they indicated a lack of wage inflation, which the Fed is closely monitoring as a potential signal of reduced slack in the economy. Increasing wage inflation could prompt the central bank to raise rates.
"Low wage growth may buy the Fed a bit more time," said Jens Nordvig, head of G10 FX strategy at Nomura Securities International. "It is the one good excuse they have left for not normalizing" monetary policy, he said. He added, however, that the dollar's "underlying strengthening trend" was "hardly in question."
The dollar had little reaction to The Institute for Supply Management reporting its index of national factory activity rose to 57.1 in July, holding its losses. The ISM reading was the highest since April 2011. Consumer sentiment for July, meanwhile, was slightly below expectations. Thomson Reuters/University of Michigan's final July reading on the overall index on consumer sentiment came in at 81.8, a touch below the 82.0 estimate.
"None of these numbers matter because Janet Yellen appears to not look at anything other than wage inflation, and she is looking at the wage inflation numbers that say everything is fine," said Axel Merk, president and chief investment officer of Palo Alto, California-based Merk Investments.
The yield on benchmark 10-year U.S. Treasury notes dipped to 2.51 percent, from 2.56 percent late Thursday.
So, guys, now we’ve got major data – what do you think about it? How this could impact on EUR/USD pair? But, first, take a look at recent CFTC data (funny, but months markings were given in Russian somehow
. They stands for April, May, June and July):
Open interest:
Longs:
Shorts:
This data o 29th of July- prior NFP release and it shows that Net short position becomes even greater and was supported corresponding grow in Open interest. Now relative short strength stands around 74%. This is not crucial yet, but close. Very often reversal comes around 80-82% of shorts. From one point of view we could say that now it probably has reduced, since people has reacted on more dovish data. At the same time – people were not able to miss this risk, that NFP could be reported worse than expected, but still they took more shorts on 29th, right?
Anyway, CFTC is just a brick in the wall and even not most important. Currently we see two major driving factors for EUR/USD pair. First one is slow inflation in US. Macroeconomy suggests that when economy comes out from recession into growth – the first stage is “desinflation growth”. Economy shows improvement without jump in inflation. May be right now we are entering in this stage, at least most analysts point on obvious improvements in US economy and there are no doubts about it (as we’ve read above - the dollar's "underlying strengthening trend" was "hardly in question.").
Combining these two moments makes me think that probably this is really first stage. Second stage will be “inflationary growth” – this is a period when Fed’s rate dancing will start. Since we have at least 8-12 months when rate will not change. It means that although USD will keep moderately bullish sentiment and will dominate over EUR, but this domination will not be absolute and fast.
At the same time, it seems that EUR will remain under pressure and we see some reasons for this. Even before Ukranian crisis EU has its own problems that press ECB keeps rate low and even apply clearly dovish rethoric. As EU has intiated sunctions against Russia (let’s leave politics aside) this will hurt trade balance and negatively impact on EU. This is not a joke - 400 Bln EUR of annual trade turnover. For example, just few hours ago I watch TV and Euronews translation from Poland. Russia has forbidden fruit import from Poland. But for Poland this is very negative moment since 50% of all exported fruits send to Russia. The same has been done with agriculture products, meat and milk products form Ukraine and Moldova due their integration and association in EU trading zone. On some products import fees were increased.
And this is just the first bell. Reducing of export for EU countries will mean also unemployment growth, reducing of trade balance, GDP and budget income. In current situation this is not good, especially for new members of EU that are more sensible to economic negative situations. Currently we do not see any hope that this sunction program will be lighted or closed soon. This is probably just beginning. Here I’m not saying that this is good for Russia. Russia also will be hurt, but this is quite another question, since Russia has no relation to EUR/USD pair.
We suggest that as response on EU sunctions Russia will try to strike back, but will choose an areas and goods that easily could be replaced by inner production or imported from other countries (Asia, LatAM). For example, fruits, vegetables, etc... And it will try to postpone as long as possible impact on strategical areas that couldn’t be replaced fast by domestic production – oil mining technoligies, any other high-tech... Here is really important and absolutely neccesary inner reason for that. This responding measures could give EU to feel what will happen if stronger sanctions will be applied. This is conservative and light pills to heal relations between countries. But this mutual impact, even in light food and utility goods sphere will be sufficient to hold EUR from stable growth or even from just stability.
All these facts make us think that EUR/USD will continue move south with moderate pace during the 8-12 months and even could accelearted when real menace of US rate hiking will appear if any positive shifts in EU economy will not come. Depending on how external political atmospehre will change – we will gradually adjust our view. May be Jackson Hole Meeting in late August will add some clarity on Fed policy.
This is just our view, but of cause we do not pretend on absolute opinion. If you have something to add or to argue – we would like to see you on forum.
Technical
Taking in consideration recent fundamental numbers and events, we can say that it is not even US hawkish policy presses on EUR, especially now, when we didn’t get any “hawkish policy” (looks like old “Ben” was right about Fed – it will keep rates longer than even most conservative analysts think). But EU presses on EUR by itself. Why? Fed statement was relatively dovish (plunge in US bonds yield confirms this as well), data was positive but without surprises (except, may be GDP) and EUR could have all chances to show great upward bounce, but EU starts to dig it’s own pit by sanctions. EU has not climbed out from the pit of 2008 yet and now is falling in another one.
Recent attempt to move higher was shy and not sufficient to break long-term picture. As a result we didn’t get bullish grabber at YPP and now have some really important technical issues.
First one is a trend shifting of cause – monthly trend has turned bearish.
Second – now market is not just piercing YPP but closed below it. If you will track overall action around YPP you will find, that market has tested it first right in January and made an attempt to move higher, but failed to reach YPR1 and now returned right back to it. This looks bearish, since if market pushed out from YPP and if it is really bullish – it should continue move up. If it does not do it, it means that this push was just reaction on support and now is gone. Moveing below YPP could mean its way to YPS1 at 1.3060 area.
Finally, recall our upward AB=CD (inside the wedge) – price has hit just 0.618 extension and CD leg is very flat. As market has hit it – downward retracement already has happened (low in red circle around 1.33). As market returns right back down again – it means that it has no power to continue move up with this AB=CD and probably will fail. The wedge itself has been broken down. Although this breakout still looks under question, but price has closed below it’s lower border. And market is not at oversold...
Still market stands in range since 2014. Thus, 1.33-1.3850 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 continue to move lower, this could be early sign of changing sentiment. Final confirmation will probably happen when price will move below 1.33 lows.
Weekly
Today we will take a look at weekly chart from perspective of big picture, since our shor-term target at 1.3380 was hit finally.
Big picture on weekly chart is also very intriguing. Here our suggestion on possible reversal around 1.3830 resistance is also confirmed by Butterfly “sell” pattern. And it is not done yet. Recall our analysis on previous week. First destination down was around 1.3520 – this was weekly K-support area. Market has passed through it without any normal bounce and through MPS1, YPP as well. It seems that next destination on weekly chart is 1.3220-1.3248 K-support, accompanied by weekly oversold. This action really could follow, because market also has formed reversal swing down. Take a look – current swing down is greater than previous swing up. This action usually points on two things – downward action will continue, but first – some retracement up will happen.
Daily
Trend is bearish here. Currently, as you understand, we’re mostly interested with tactical issue here. As we’ve suggested that downward action should continue, still, some bounce up after though and nervousness week could happen. Besides, we have pure technical reasons to suggest this. Thus, we have completed 1.618 butterfly “buy” pattern and Double Top target in the same area. On coming week MPP stands 10 pips higher than YPP. If any retracement will happen, we suggest that it could reach an area around 1.35-1.3535 range. This is normal from butterfly point of view and it could be re-testing of former support areas and YPP.
As you can see, some hint on upward bounce has appeared right around 1.3380. Here we could count, say, on DRPO “Buy” as triggering pattern, since thrust down is nice. Recall, that similar pattern we expect as on GBP as on some other pairs. And on Friday we already have got first close above 3x3 DMA…
4-hour
It is not much to comment yet on 4-hour chart. Trend has turned bullish and market has broken above channel range. Our “morning star” pattern has done well, but it has reached “at least” target already. Market has not formed yet reversal swing and this is neccesary condition of possible upward retracement. So, let’s wait for some clear reversal pattern that will let us to take scalp long position and ride on this possible daily bounce up.
1-hour
On hourly chart price has hit 1.618 of initial AB=CD pattern. Since we need reversal swing and it suggests some upward continuation, it would be nice if market will form some minor downward AB=CD to WPP and 3/8 Fib support and from this Agreement will continue move up to completed reversal swing. But what will happen in reality... Anyway, we just need some daily pattern that could support possible short-term long position. Ways, how this pattern could be formed are different.
Conclusion:
Around our “hot point” – 1.3380 area situation stands not in favor of EUR yet. Although recent data and events were not as strong as they could be – still, they are mostly supportive for USD. Another confirmation could come if market will move below 1.33 area.
In short-term perspective we count on possible bounce on daily chart as a result of tough and nervousness period and technical support. Right now we need patterns that could let us to take bet on this possible rally.
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.
The U.S. dollar was on track for its biggest daily loss against a basket of major currencies in over three weeks on Friday after the U.S. government's July employment report showed no signs of wage inflation, supporting a continued dovish stance from the Federal Reserve.
The Labor Department said U.S. nonfarm payrolls increased 209,000 last month, below economists' expectations for an increase of 233,000, while the unemployment rate unexpectedly rose to 6.2 percent. Data for May and June were revised to show a total of 15,000 more jobs created than previously reported.
Analysts said the increase in the labor force participation rate, to 62.9 percent from 62.8 percent, and roughly flat average hourly earnings growth were critical because they indicated a lack of wage inflation, which the Fed is closely monitoring as a potential signal of reduced slack in the economy. Increasing wage inflation could prompt the central bank to raise rates.
"Low wage growth may buy the Fed a bit more time," said Jens Nordvig, head of G10 FX strategy at Nomura Securities International. "It is the one good excuse they have left for not normalizing" monetary policy, he said. He added, however, that the dollar's "underlying strengthening trend" was "hardly in question."
The dollar had little reaction to The Institute for Supply Management reporting its index of national factory activity rose to 57.1 in July, holding its losses. The ISM reading was the highest since April 2011. Consumer sentiment for July, meanwhile, was slightly below expectations. Thomson Reuters/University of Michigan's final July reading on the overall index on consumer sentiment came in at 81.8, a touch below the 82.0 estimate.
"None of these numbers matter because Janet Yellen appears to not look at anything other than wage inflation, and she is looking at the wage inflation numbers that say everything is fine," said Axel Merk, president and chief investment officer of Palo Alto, California-based Merk Investments.
The yield on benchmark 10-year U.S. Treasury notes dipped to 2.51 percent, from 2.56 percent late Thursday.
So, guys, now we’ve got major data – what do you think about it? How this could impact on EUR/USD pair? But, first, take a look at recent CFTC data (funny, but months markings were given in Russian somehow
. They stands for April, May, June and July):Open interest:
This data o 29th of July- prior NFP release and it shows that Net short position becomes even greater and was supported corresponding grow in Open interest. Now relative short strength stands around 74%. This is not crucial yet, but close. Very often reversal comes around 80-82% of shorts. From one point of view we could say that now it probably has reduced, since people has reacted on more dovish data. At the same time – people were not able to miss this risk, that NFP could be reported worse than expected, but still they took more shorts on 29th, right?
Anyway, CFTC is just a brick in the wall and even not most important. Currently we see two major driving factors for EUR/USD pair. First one is slow inflation in US. Macroeconomy suggests that when economy comes out from recession into growth – the first stage is “desinflation growth”. Economy shows improvement without jump in inflation. May be right now we are entering in this stage, at least most analysts point on obvious improvements in US economy and there are no doubts about it (as we’ve read above - the dollar's "underlying strengthening trend" was "hardly in question.").
Combining these two moments makes me think that probably this is really first stage. Second stage will be “inflationary growth” – this is a period when Fed’s rate dancing will start. Since we have at least 8-12 months when rate will not change. It means that although USD will keep moderately bullish sentiment and will dominate over EUR, but this domination will not be absolute and fast.
At the same time, it seems that EUR will remain under pressure and we see some reasons for this. Even before Ukranian crisis EU has its own problems that press ECB keeps rate low and even apply clearly dovish rethoric. As EU has intiated sunctions against Russia (let’s leave politics aside) this will hurt trade balance and negatively impact on EU. This is not a joke - 400 Bln EUR of annual trade turnover. For example, just few hours ago I watch TV and Euronews translation from Poland. Russia has forbidden fruit import from Poland. But for Poland this is very negative moment since 50% of all exported fruits send to Russia. The same has been done with agriculture products, meat and milk products form Ukraine and Moldova due their integration and association in EU trading zone. On some products import fees were increased.
And this is just the first bell. Reducing of export for EU countries will mean also unemployment growth, reducing of trade balance, GDP and budget income. In current situation this is not good, especially for new members of EU that are more sensible to economic negative situations. Currently we do not see any hope that this sunction program will be lighted or closed soon. This is probably just beginning. Here I’m not saying that this is good for Russia. Russia also will be hurt, but this is quite another question, since Russia has no relation to EUR/USD pair.
We suggest that as response on EU sunctions Russia will try to strike back, but will choose an areas and goods that easily could be replaced by inner production or imported from other countries (Asia, LatAM). For example, fruits, vegetables, etc... And it will try to postpone as long as possible impact on strategical areas that couldn’t be replaced fast by domestic production – oil mining technoligies, any other high-tech... Here is really important and absolutely neccesary inner reason for that. This responding measures could give EU to feel what will happen if stronger sanctions will be applied. This is conservative and light pills to heal relations between countries. But this mutual impact, even in light food and utility goods sphere will be sufficient to hold EUR from stable growth or even from just stability.
All these facts make us think that EUR/USD will continue move south with moderate pace during the 8-12 months and even could accelearted when real menace of US rate hiking will appear if any positive shifts in EU economy will not come. Depending on how external political atmospehre will change – we will gradually adjust our view. May be Jackson Hole Meeting in late August will add some clarity on Fed policy.
This is just our view, but of cause we do not pretend on absolute opinion. If you have something to add or to argue – we would like to see you on forum.
Technical
Taking in consideration recent fundamental numbers and events, we can say that it is not even US hawkish policy presses on EUR, especially now, when we didn’t get any “hawkish policy” (looks like old “Ben” was right about Fed – it will keep rates longer than even most conservative analysts think). But EU presses on EUR by itself. Why? Fed statement was relatively dovish (plunge in US bonds yield confirms this as well), data was positive but without surprises (except, may be GDP) and EUR could have all chances to show great upward bounce, but EU starts to dig it’s own pit by sanctions. EU has not climbed out from the pit of 2008 yet and now is falling in another one.
Recent attempt to move higher was shy and not sufficient to break long-term picture. As a result we didn’t get bullish grabber at YPP and now have some really important technical issues.
First one is a trend shifting of cause – monthly trend has turned bearish.
Second – now market is not just piercing YPP but closed below it. If you will track overall action around YPP you will find, that market has tested it first right in January and made an attempt to move higher, but failed to reach YPR1 and now returned right back to it. This looks bearish, since if market pushed out from YPP and if it is really bullish – it should continue move up. If it does not do it, it means that this push was just reaction on support and now is gone. Moveing below YPP could mean its way to YPS1 at 1.3060 area.
Finally, recall our upward AB=CD (inside the wedge) – price has hit just 0.618 extension and CD leg is very flat. As market has hit it – downward retracement already has happened (low in red circle around 1.33). As market returns right back down again – it means that it has no power to continue move up with this AB=CD and probably will fail. The wedge itself has been broken down. Although this breakout still looks under question, but price has closed below it’s lower border. And market is not at oversold...
Still market stands in range since 2014. Thus, 1.33-1.3850 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 continue to move lower, this could be early sign of changing sentiment. Final confirmation will probably happen when price will move below 1.33 lows.
Weekly
Today we will take a look at weekly chart from perspective of big picture, since our shor-term target at 1.3380 was hit finally.
Big picture on weekly chart is also very intriguing. Here our suggestion on possible reversal around 1.3830 resistance is also confirmed by Butterfly “sell” pattern. And it is not done yet. Recall our analysis on previous week. First destination down was around 1.3520 – this was weekly K-support area. Market has passed through it without any normal bounce and through MPS1, YPP as well. It seems that next destination on weekly chart is 1.3220-1.3248 K-support, accompanied by weekly oversold. This action really could follow, because market also has formed reversal swing down. Take a look – current swing down is greater than previous swing up. This action usually points on two things – downward action will continue, but first – some retracement up will happen.
Daily
Trend is bearish here. Currently, as you understand, we’re mostly interested with tactical issue here. As we’ve suggested that downward action should continue, still, some bounce up after though and nervousness week could happen. Besides, we have pure technical reasons to suggest this. Thus, we have completed 1.618 butterfly “buy” pattern and Double Top target in the same area. On coming week MPP stands 10 pips higher than YPP. If any retracement will happen, we suggest that it could reach an area around 1.35-1.3535 range. This is normal from butterfly point of view and it could be re-testing of former support areas and YPP.
As you can see, some hint on upward bounce has appeared right around 1.3380. Here we could count, say, on DRPO “Buy” as triggering pattern, since thrust down is nice. Recall, that similar pattern we expect as on GBP as on some other pairs. And on Friday we already have got first close above 3x3 DMA…
4-hour
It is not much to comment yet on 4-hour chart. Trend has turned bullish and market has broken above channel range. Our “morning star” pattern has done well, but it has reached “at least” target already. Market has not formed yet reversal swing and this is neccesary condition of possible upward retracement. So, let’s wait for some clear reversal pattern that will let us to take scalp long position and ride on this possible daily bounce up.
1-hour
On hourly chart price has hit 1.618 of initial AB=CD pattern. Since we need reversal swing and it suggests some upward continuation, it would be nice if market will form some minor downward AB=CD to WPP and 3/8 Fib support and from this Agreement will continue move up to completed reversal swing. But what will happen in reality... Anyway, we just need some daily pattern that could support possible short-term long position. Ways, how this pattern could be formed are different.
Conclusion:
Around our “hot point” – 1.3380 area situation stands not in favor of EUR yet. Although recent data and events were not as strong as they could be – still, they are mostly supportive for USD. Another confirmation could come if market will move below 1.33 area.
In short-term perspective we count on possible bounce on daily chart as a result of tough and nervousness period and technical support. Right now we need patterns that could let us to take bet on this possible rally.
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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