FOREX PRO WEEKLY, August 06 - 10, 2018

Sive Morten

Special Consultant to the FPA
Messages
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Fundamentals

Last week mostly were driven by economy factors, such as NFP and BoE meeting. Things that we've seen have not changed our long term view and mostly stand in the trend of our analysis. Also we keep tracking important political events that are decisive for the world. May be they do not make impact immediately on financial markets but this could happen soon.
Let's first take a look briefly at crucial political moments. Mostly there are two of them. Chilling of US-Turkey relations and shift in strategic balance of Russia-Japan military dialog.
Last year we've talked about NATO and that it could be reorganized from global to narrower organization. Everybody told that this is an absurd, but now we hear the first bell. Turkey is the second largest military force in NATO. Since they bought Russian C-400 system, some problems appear in their relation with US. Actually we saw that this has become earlier, in 2016 during Turkey's coup.
Some political analysts suggest that US stands beyond Turkey's mutiny in 2017 and attempt of Erdogan elimination. Rocket hit of russian Su-24 in Syria was not sanctioned by Erdogan and was an attempt to set him up to break relations with Russia. Diametric course changing by Turkey hints that rumors of Russian help with mutiny crush are probably true.
Now we see the chain of events - Russian plane hit, when it didn't help - mutiny in Turkey and attempt of Erdogan elimination, Russia helped with information and warned Erdogan on mutiny coming, Russia-Turkey trade relations renewed, Turkey joins Russia-Iran coalition in Syria and struggle with pro-US Kurds forces, Turkey buys S-400, US stops delivery of F-35 to Turkey, US puts sanctions on Turkey as response on arrest of US pastor, Turkey puts tariffs on US export, US now intends to apply mirror tariffs on Turkey goods:
1. Russian plane shot down in Syria
2. Russia 'warned Erdogan about coup' moments before assassination attempt
3. Iran, Russia and Turkey plan Syria's future as Trump seeks an exit
4. Turkey buys Russian S-400.
5. US bans F-35 supply to Turkey
6. Donald Trump Imposes Sanctions on Turkey Over Pastor
7. Turkey vows response to US sanctions imposed over jailed pastor
Why I'm talking about this stuff? Actually we're not very interested in political squabbles, what impact on financial market will follow? Result is simple. As US steps out from major NATO ally, it means that it changes priorities in the region. Turkey has crucial geographical position for US air forces in region and could provide major support to NATO as its member as well. Recent piking tells that US denies some strategical operations that previously were on the table, until situation drastically has changed in Syria. D. Trump tending to save money and significantly decrease military expenses. Middle east, at least Syria hardly will stay as primary direction for US.
Previously we've said that Putin-Trump agreements will be shaped as natural processes and will be supported massive media information. Turkey is an excellent example of virtual reality. In fact mass media events differ from real ones and cover them with thick coat of noise.
On a surface we see jailed pastor but under curtain stands changing of US role in the region. Trump can't just leave region, it will be treated as shame and chicken. But now he saves the face and also money of US taxpayers as now he could say in Senate - what could I do, Turkey puts sanctions... And he's right because US steps were approved the same Senate and Congress when they put sanctions first and this is their fault. Thus, let's find the solution by themselves.
That's being said - D. Trump is an excellent president. Economy is growing, unemployment is dropping, Asian and EU rivals jammed by tariffs and open way for domestic production, taxpayers' money are saving and streaming to serve to US citizens by gradual closing of unnecessary global domination ambitions and contracting of political expenses across the world. This should add value to USD in long-term perspective.

Second issue - Russian-Japan conversation on US MDP. This is big event.
Japan, Russia at odds over Tokyo's missile defense plan
Previously we just couldn't imagine this topic for conversation, but now it comes true. Although this is just first step and it is difficult to suggest what decisions will follow to this step. Japan struggle with economy stagnation for decades, and we do not exclude that Russian offer stands in economical sphere.

Now let's turn to economy. There is everything clear with NFP. Yes it was smaller than previous number, but this was widely expected. Besides, even few months ago we've mentioned that labour market is highly saturated and decreasing of NFP numbers will not mean that employment is dropping. In fact, markets mostly have shown positive reaction on data, besides, wage growth has shown expected 2.7% annually. This is good number to support Fed policy. So, currently there are no doubts on strong position of US dollar yet.

U.S. nonfarm payrolls increased by 157,000 jobs last month, more than the roughly 120,000 per month needed to keep up with growth in the working-age population. Economists polled by Reuters had forecast an increase of 190,000.
Data, however, also showed a drop in the unemployment rate suggesting that the labour market was tightening.
“The main narrative hasn’t changed. The overall report was solid, and still supports the Fed going with two rate hikes later in the year,” said Alfonso Esparza, senior currency analyst at OANDA in Toronto.



What i'm really want to discuss today is recent BoE rate increase. It seems that this topic keeps big long-term chances for trading as MPC view on UK economy contradicts to reality and Fathom consulting view in particular. Why I think that it doesn't match to reality is because of market reaction. No positive shift in GBP value has happened when rate was increased. Besides, Bank of England Governor Mark Carney said there was an “uncomfortably high” risk of Britain leaving the European Union without a deal.
Comments from Fathom clarify this even better:
The MPC made two key assumptions: that there would be a smooth adjustment following the UK’s exit from the EU next March; and that the household saving rate would remain close to its all-time low.
Both assumptions are highly questionable: a smooth adjustment after Brexit is an unlikely outcome, although the MPC probably cannot say that; and the household saving rate is likely to increase, given current economic uncertainty, and pressures on lenders from the Bank of England to reduce the supply of credit.

For-MrB-UK-household-saving-rate.jpg

We see the UK economy expanding by around 1% this year, and by around ½% next year, with inflation correspondingly weaker than the MPC forecast, and with Bank Rate on hold for the foreseeable future. Within 24 hours of the MPC’s announcement, sterling was almost a cent lower against the US dollar. It appears that, like us, investors are far from convinced by the MPC’s rosy assessment of the UK economic outlook.

So, it means that we should continue to keep an eye on GBP, because when central bank makes inconvenient conclusions on its own economy, this is really subject to work with.

As a bottom line - US keeps strong and active position in both spheres - as political as economical, which stands in a row with our long-term view of EUR/USD relation. D. Trump now is restructuring US political priorities and shift them to areas that are strategically important for US, cutting all others and saving money for his country. In long-term perspective this should make big positive effect and support dollar. I will not be surprised if within few years US economy will turn to budget surplus. US now is taking advantage role while EU are stuck in domestic political squabbles and loosing moment to take part in distribution of new possibilities.

COT Report

Recent report doesn't show big shifts in speculative position. Mostly it stands slightly positive and mostly has not changed in a few recent weeks. Partially, it could be explained by narrow trading range which mostly indicates indecision. But situation could change very soon.

upload_2018-8-4_15-8-26.png



Also guys, take a look that EUR yearly historical volatility stands near record lows. It means that some strong action could start relatively soon:
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Technicals
Monthly


July has become an inside month and made no impact on monthly picture. In fact, we have bearish pennant here, which ultimately could lead to downside breakout, but, while market stands relatively close to major weekly support area, we keep on the table scenario with 1.20-1.21 upside bounce first.

For two recent weeks market stands in tight daily triangle consolidation. But we see that volatility is rising because of political comments and events, and it is rising right around major technical level, while trading range stands the same. This usually leads to strong action in one or other direction.

As trading range is narrowing - it means that market turns to some consolidation around major support of YPP and Weekly K-support area.

Since we have bearish view on EUR in a perspectives of 6-12 months, major concern stands not around direction, but around manner of price action. Particularly speaking - whether we will get our 1.20 bounce before turning south or, EUR will continue down immediately.

Position of grabber also looks interesting, because it contradicts to other inputs. Grabber suggests action above 1.26, but this scenario doesn't agree with ECB policy and investors sentiment that we see from COT report. Since they are mutually exceptive scenarios - one of them should fail. Now there are some signs that confirms this view as monthly bullish grabber stands close to failure.

Also, long-term price behavior stands bearish. Reversal down has happened after completion of harmonic swing and around YPR1. The fact that EUR has failed to break through YPR1 tells that upside rally from 1.03 to 1.26 was just a retracement within larger bear trend. Now it is particularly interesting how EUR will behave around YPP. Drop below it will open road to YPS1 at ~1.09 which corresponds to our fundamental 1.10 target.
eur_m_06_08_18.png


Weekly

Here is our long-term view with potential H&S pattern.

As we've mentioned few times that market looks too heavy for right arm starting point. Second half of H&S pattern is the territory where bulls are gradually taking control. But right now we do not see it. Although large H&S picture stands intact - our major concern was about the pattern that could trigger upside action to right shoulder's top.

Last week we've got weekly bearish grabber here and it means that chances on large daily butterfly "Buy" have increased. Besides, our 1.1450 major Fib level has not been tested. It means that major upside reversal to 1.20 (if it will ever happen, of course), still stands ahead in perspective of 2-4 weeks probably.

This scenario has got more support now as we've got another grabber this week. Chances on upside rally really exists as we see some signs of temporal weakness on dollar index (watch the video) and this makes us keep this scenario on the table by far.

eur_w_06_08_18.png


Daily

On Friday market just partially has completed our expectation. Although it has moved slightly lower but hasn't quite reached 1.1530 OP target. In fact, price has stopped on a lows of our nasty black candle that keeps the range of 2-month price action. As we have weekly patterns that suggest drop below 1.15 lows, our task is to search chances for short entry on intraday charts, or keep already existed shorts.
eur_d_06_08_18.png


Intraday

On hourly chart it is unclear yet what particular pattern could be formed and what shape retracement will take, but on 4H chart it might DRPO "Buy"... Anyway, as our major daily target has not been hit yet - downward action should continue and DRPO could provide good opportunity for selling, once it will be completed.
Intraday traders could try to trade DRPO separately, but, as our major direction is down, mostly we're watching for chances to sell into...
eur_4H_06_08_18.png


Conclusion:

Our long-term view mostly stands the same. We expect continuation of dollar strength in foreseeable future.
Although chances exist on direct downside breakout of 1.1450 area, while market stands close to it, we keep on the table scenario with upside 1.20-1.21 retracement first.

On coming week we expect completing of daily targets and weekly grabbers with downward breakout of 1.15 lows.


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.
 
Morning, guys

let's take a look at EUR again. EUR behaves perfect from technical point of view. Very predictable action recently, which is good. Thus, on daily chart our 1.1530 target has been hit on Friday and price is turning now to reasonable response.

Still, we think it is too early to talk about major upside reversal by two reasons. First is, we do not have clear bulilsh reversal pattern and market has not reached major weekly support of 1.1450-1.1480. Second - what we should to do with two bearish weekly grabbers? They are still valid and will be vaid until market either will drop below 1.15 or will move above 1.1750. Thus, let's treat current upside action as retracement by far.

On daily chart we have now "222" Buy. Usually, minimal target of this pattern is 30% of AB-CD action, so, circa 1.16-1.1625:
eur_d_07_08_18.png


On 4H chart we also have completed butterfly, which also suggests 3/8 bounce up. This is probably around K-resistance area. Unfortunately here we can't talk about B&B "Sell" as market already stands in 3rd candle above 3x3 DMA, but hardly it will reach 1.1615 area. Thus, DRPO "Buy" is more probable. As bearish momentum here is rather strong, now we should wait for deep downside retracement, close below 3x3 DMA. DRPO could become the pattern that will trigger upside bounce:
eur_4h_07_08_18.png


1H chart also shows reaching of XOP target - another AB-CD pattern, inner to butterfly. Here we could get "222" Sell right from 1.1580 3/8 Fib resistance and precisely this pattern could trigger deep retracement that we're talking about.
eur_1h_07_08_18.png


That's being said - daily traders do nothing and wait when upside bounce will be over. Intraday traders could think about long position with ~1.1625 target, but first, we need to get clear bullish pattern. Now we do not have it yet.
 
Morning everybody,

EUR still stands in upside response to daily AB-CD pattern completion point and yesterday it has hit the target that we've specified - 3/8 Fib resistance and WPP around1.1625 area. This is absolutely normal reaction. Still, as we have uncompleted weekly bearish grabbers, It makes me look at current rally with suspicions.
Besides, if you compare EUR rally with other currencies - you will not see anything of this kind, so EUR reaction is a bit overextended, so we have a kind of cross market divergence. Even Dollar index doesn't show this kind of action. So our drop to 1.1450-1.1480 still stands on the table, I suppose and now we should be careful to any bearish patterns on intraday charts:
eur_d_08_08_18.png


On 4-hour chart EUR has hit major 3/8 Fib resistance and WPP. So, rally could be over somewhere around.
Unfortunately yesterday we haven't got as B&B as DRPO trades, but EUR keeps B&B-like setup as it has strong downside momentum and first upside retracement. Sooner rather than later deep retracement or, even downside continuation should happen:
eur_4h_08_08_18.png


On 1H EUR has completed XOP target. It is interesting to take a look at hourly DXY chart. There H&S pattern is yet to start, while here, on EUR it is almost completed. Besides, DXY has weekly grabbers as well, which could lead to H&S failure. This combination makes not attractive any long position taking here, on EUR. Now, I think we could watch for either H&S or, "222" Sell here, on 1H:
eur_1h_08_08_18.png
 
Concerning DRPO Buy 4Hr, I had the first close above 3x3 last Friday and the second close above was Yesterday, however the number of candles between the closes looks extended to be perfect.
 
Good morning,

The cross market bearish divergence that we've identified recently was a good help to us. Upside action has stopped and now it could turn to either downside continuation back to 1.15 or, at least to deep 1.1560 retracement on intraday charts. My opinion is that first scenario is more probable than second one.
eur_d_09_08_18.png


Indeed, once EUR has hit major resistance and formed tweezers on top - reversal has started. Yesterday we've talked about it, but later in the session we've got huge bearish engulfing pattern. Also we've talked about B&B-like momentum trade that now stands in progress:
eur_4h_09_08_18.png


Here is our minimum target - 1.1560 Agreement with OP and completion of momentum trade. But, I suggest that this will be temporal stop. Dollar Idex shows very irrational action concerning H&S pattern, which suggests its failure and price moving above recent top. Here is could happen the same. Although we have "222" Buy here, but downward action now stands strong. XOP target stands below recent lows.
eur_1h_09_08_18.png


Thus, if you have shorts - keep them. While market still stands on the road to OP - it is relatively safe to jump in on minor 5-min retracement and then move stop to breakeven, because OP should be met with high odds.

I suggest this is not good time to go long. But if you still will make an attempt - it would be better to do from major 5/8 support, move stop to breakeven as soon as possible and take very fast profit - do not marry any possition.
 
Good morning,

So, guys, this week trading plan mostly is completed. Recent plunge has broken 1.15 lows and now market stands few pips from XOP and butterfly targets. Weekly grabbers are completed and price is inside weekly K-support right now. So, if you're keeping shorts - this is the moment to think about profit taking or make any action to protect it.
eur_d_10_08_18.png


Today we do not need intraday charts, actually, because there is nothing done yet there - only big straight black line down. Our yesterday trading plan - to take short position until market has not reached OP was successful. It was relatively safe trade as market also was standing in bearish momentum trade (a kind of B&B "Sell") and chances on deep retracement was very high. But, in result it has become a collapse instead of retracement which is good.
On hourly chart, the one pattern that we could keep an eye on is B&B "Sell". But mostly we focus on next week to see how market will response strong weekly support area...
 
Nice drop this morning. I missed the drop since I was chicken out the shorts yesterdays when London close(1.1572) was unable to close below 1.1554. Bears have 9hr to go and to defend and hold the close or it will be a strong rejection after the 50% fib( 1.1446) has been hit.
 
Yes, I know this feeling, gggrrrrr.
The phone company was supposed to switch to fiber optic and something went wrong and I was without internet for a number of hours.

Oh well, wishing ALL a super weekend !!!
 
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