Forex FOREX PRO WEEKLY, August 10 - 15, 2020

Sive Morten

Special Consultant to the FPA
Messages
13,800
Fundamentals

This week we've got few remarkable events, major of those NFP report and US Congress failure to agree new support plan for unemployed people. Particular latter event, by the way, has pushed Gold to the sky. Additionally we have some other events - changing CV19 situation, particularly in EU, rising of US-China tensions and some other.

News surfing
A dollar rebound faltered on Tuesday as political wrangling over a U.S. relief plan and a gloomy economic outlook weighed on the currency. After its worst month in a decade in July, the greenback started August on a firm note as some investors trimmed their short positions.

I think the eurozone recovery will be a lot faster than the U.S. recovery and that growth differential will continue to drive EUR/USD higher,” Marshall Gittler, head of investment research at BDSwiss, said in a note.

Despite a slowdown in new U.S. virus cases and encouraging factory data, investors are reserving judgement on whether a U.S. economy with 30 million people out of work can really lead the world’s recovery. Top White House officials and Democratic leaders in the U.S. Congress were due to try again on Tuesday to narrow gaping differences over a fifth major coronavirus-aid bill to help stimulate the economy. Days of closed-door negotiations have so far yielded few results, participants say.



“We’re still in a situation (worldwide) where the market wants to believe the recovery is on track but is still worried about the COVID situation,” said Bank of Singapore FX analyst Moh Siong Sim. “The fiscal wrangling in the U.S. is the next key test for risk sentiment, and if they manage to get a deal - which seems likely - that could be supportive of risk sentiment.”

Following positive readings in Chinese and European manufacturing surveys, the US ISM manufacturing index increased by 1.6 points to 54.2. The new orders sub-index rose by 5.1 points to 61.5, its highest reading since September 2018. We have previously pointed out the problem with diffusion surveys such as the PMIs and the ISM. Their reported levels are difficult to interpret, but there is little reason to doubt that increases are consistent with further improvement in underlying activity. That said, the experience of China suggests that manufacturing will outperform in the initial stages of recovery. Buying a fridge, for example, is much less susceptible to virus fears than many forms of services consumption.
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The U.S. dollar bounced on Friday after U.S. job growth for July helped ease some investor worries on the U.S. labor market, but the currency logged a seventh straight week of declines. The U.S. Labor Department’s report showed nonfarm payrolls increased by 1.76 million in July. While that was more than the 1.6 million economists surveyed by Reuters had forecast, it was still sharply lower than the record 4.8 million in June.

“The employment report allayed the market’s downside job fears, allowing the Dollar to rally broadly through the N.Y. session,” Ron Simpson, director of currency research at Action Economics in Tampa, Florida, wrote in a note following the data.

“One month’s survey isn’t going to be enough to meaningfully arrest the fall in the dollar,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.


U.S. employment growth slowed considerably in July, underscoring an urgent need for additional government aid as a resurgence of COVID-19 infections threatens to snuff out the nascent economic recovery.

“The jobs recovery is on very shaky ground and without seat belts for the unemployed provided by additional fiscal stimulus the economy could be in for a very bumpy ride,” said Chris Rupkey, chief economist at MUFG in New York. “There cannot be sustainable economic growth if the country has to carry on with the crushing weight of massive unemployment.”

Blacks continued to experience high unemployment. Racial inequality is a dominant theme in November’s election.

Economists believe July was probably the last month of employment gains related to the rehiring of workers after the reopening of businesses. A $600 weekly unemployment benefit supplement, which made up 20% of personal income, expired last Friday. Thousands of businesses have exhausted loans offered by the government to help with wages, which economists estimate saved around 1.3 million jobs at the program’s peak.

Bankruptcies are accelerating, especially in the retail sector. Coronavirus infections have soared across the country, forcing authorities in some of the worst-affected areas in the West and South to either shut down businesses again or pause reopenings, sending workers back home. The West and South account more than a third of the nation’s employment. Demand for services has been hardest hit by the respiratory illness.

The economy, which entered recession in February, suffered its biggest blow since the Great Depression in the second quarter, with gross domestic product dropping at its steepest pace in at least 73 years.



Job growth slowed across all sectors last month. The leisure and hospitality industry hired 592,000 workers, accounting for about a third of nonfarm payrolls. The bulk of the jobs were at restaurants and bars. Retail employment rose by 258,000 jobs, with almost half of the gain in clothing and accessories stores.

Professional and business services added 170,000 jobs, concentrated in the temporary help services.

Government employment increased by 301,000. The model that the government uses to strip out seasonal fluctuations from the data normally anticipates education workers to drop off payrolls in July. This, however, happened earlier because of the pandemic, leading to a big gain in July.

The unemployment rate fell to 10.2% from 11.1% in June. It was again biased downward by people misclassifying themselves as being “employed but absent from work.” Without this error, the jobless rate would have been about 11.2%. About 62,000 people dropped out the labor force last month, contributing to the drop in the reported unemployment rate.

Joblessness fell across all demographic groups, but remained high for Blacks, with the unemployment rate dipping to 14.6% from 15.4% in June. The unemployment rate for Hispanics dropped to 12.9% from 14.5%. The jobless rate for whites declined 9.2% from 10.1%.

“The initial bounce from widespread re-openings is now behind us,” said Sarah House, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. “Further improvement will occur in fits and starts and depends on the course of the virus.”

Women, who have borne the brunt of the job losses because of child care issues, saw their unemployment rate fall to 10.5% from 11.2% mostly as they withdrew from the labor force.

“The U.S. economy was marked by intergenerational, racial, and gender inequality before the pandemic, and today’s report does nothing to alter that reality,” said Nicole Goldin,nonresident senior fellow at the Atlantic Council.

There were more part-time workers. The number of people on temporary layoff fell, but permanent job losers were little changed at 2.9 million. Average hourly earnings increased 0.2% in July after a drop of 1.3% in June. The workweek shortened to an average of 34.5 hours from 34.6 hours.

The dollar is at its most oversold level in over 40 years, investment bank Morgan Stanley said on Friday, adding it had now shifted from its dollar-bearish stance and turned “tactically neutral” on the U.S. currency.


Slowing employment growth challenges the U.S. stock market’s expectation of a V-shaped recovery. Economists see a U or W-shaped recovery.

So, the V, U or W?

The biggest threat to our (Fathom consulting) expectation for a V-shaped recovery, defined as GDP returning to its 2019 Q4 level by the middle of next year, is the virus. On that front, there was both good and bad news. Starting with the bad, daily new cases appear to be rising throughout Europe following fairly comprehensive economic reopenings implemented over the past couple of months. Over the past month the average number of daily cases has increased by double-digit rates or much more in many large economies. The increase in cases in many European countries during summer, when outdoor activities are much easier to accommodate, does not bode well for the months ahead. At the moment, cases, and their rates of growth, remain well below where they were in spring, and authorities have responded with targeted lockdowns of affected areas, both in Spain and in the UK. It is not clear why European systems to test, trace, and isolate so far appear to be much less effective in containing the virus than Korea’s, despite having had much more time to prepare. It cannot be ruled out that Korea’s more intrusive methods including enforced quarantine and access to spending data to track movement offer a competitive edge. More broadly, it raises questions about the feasibility of the vaunted goal of widespread reopening while containing the virus. Difficult choices may lie ahead.

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The better news is that there are also few that have suffered indefinite large outbreaks either. The number of new cases each day stateside has continued to ease, with populous states that suffered large outbreaks recently leading the decline (Arizona, California, Florida and Texas account for 29.6% of the US population). Hospitalisations and positivity rates have also dropped, suggesting that the improvement is real and not related to a lower number of tests. Friday’s employment report will shed light on how the rise in cases during July affected the recovery.

High-frequency data suggest spending was broadly stable on the month. Against that backdrop, dither and delay in Washington on further fiscal support appears foolhardy and offers a possible path from V to U or L.

US political fight
The Labor Department’s closely watched employment report on Friday came as Democratic leaders in Congress and top aides to President Donald Trump struggled to negotiate a fiscal package. Trump, who lags former Vice President Joe Biden, the presumptive Democratic Party nominee, in polls ahead of the Nov. 3 election, threatened to bypass Congress with an executive order.

U.S. President Donald Trump vowed to unilaterally suspend payroll taxes and extend expired coronavirus unemployment benefits after negotiations with congressional Democrats on a broad pandemic aid package collapsed on Friday. Trump told a news conference at his golf club in New Jersey that he will sign an executive order implementing these measures, suspending student loan repayments and rental housing evictions in coming days if no deal is reached. He said the payroll tax suspension — a move he has long called for but shunned by both parties in Congress — would be retroactive to July 1 and extend through the end of 2020, with a possible extension into next year if he is re-elected.

If Democrats continue to hold this critical relief hostage, I will act under my authority as president to get Americans the relief they need,” Trump said at the briefing, which took on the look of a campaign event.

Earlier on Friday in Washington, Trump’s chief of staff, Mark Meadows, and Treasury Secretary Steven Mnuchin said there was no progress in negotiations at the Capitol with the two top Democrats in Congress, House Speaker Nancy Pelosi and Senate Democratic leader Chuck Schumer.

Democrats said they offered to reduce a proposed $3.4 trillion coronavirus aid package, which the House passed in May but the Senate ignored, by nearly one-third if Republicans would agree to more than double their $1 trillion counter-offer.

It was unclear how much any president could do by executive order. At his news conference, Schumer said the president could not order any new money spent - as that is the power of Congress - but could only defer costs until they were eventually paid. The U.S. Constitution gives Congress authority over federal spending, so Trump does not have the legal authority to issue executive orders determining how money should be spent on the coronavirus.

The White House at one point suggested $400 a week in federal benefits for the unemployed, but Democrats rejected it and have refused to do a separate deal, saying they wanted a comprehensive package that also included money for state and local governments and other matters. More than 300 U.S. mayors this week sent a letter to Trump requesting $250 billion in direct federal aid to cities across the country. U.S. state governors of both parties have asked Congress for another $500 billion.

On international arena the US-China tensions are keep going. The Trump administration unveiled bans on U.S. transactions with China’s ByteDance, owner of video-sharing app TikTok, and Tencent, operator of messenger app WeChat, which go into effect in 45 days.

“Asian technology names have been specifically hit overnight by the signing of executive orders against not just TikTok but also Tencent’s WeChat and this is generally overhanging global markets,” said Chris Bailey, European strategist at Raymond James.

CFTC Data

EUR this week sets the new all time high for net long position, beating previous level for addtional 30K contracts, reaching ~ 180K contracts net long positions level. Changes are really impressive. Open interest has jumped significantly on a background of massive new openings by speculators. Hedger add more short positions, expecting more upside action by EUR:
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Source: cftc.gov
Charting by Investing.com



Next week...
We will soon learn if the “buy everything” trade has legs.

The U.S. Congress’ dithering over approving more stimulus has pushed gold to record highs above $2,000 while U.S. Treasury yields have lurched lower. But equities too are riding high - clearly the powerful backstop of central bank stimulus is holding firm.

The rush for everything - risk as well as safety - has lingered. But positioning on most markets is stretched and such good news as there is, from earnings to vaccine trials, seems priced in. Upcoming data, election news plus Sino-U.S. trade talks might show the difficulties of having one’s cake and eating it.

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The U.S. election has yet to have much traction on markets, but that may change soon. Presumptive Democratic nominee Joe Biden will announce a running mate before the Aug. 17 Democratic convention. President Donald Trump meanwhile is intensifying his campaign against mail-in voting, which he says encourages fraud.

Some investors are moving to hedge portfolios against volatility around the Nov. 3 election. That shows up in futures on the Cboe Volatility Index, which shows a bump in expectations for market swings around then.

The implied volatility rise looks especially steep, given the VIX itself has eased to 5-month lows. The spread between August and October VIX futures is at 5.5 points, the widest since the contracts began trading.

The focus may be less on the outcome and more on possible delays in tallying results, due to the widespread use of mail ballots this year. Volatility and legal challenges remain risks.
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Finally, Bob Lighthizer and Liu He will have some catching up to do on Aug 15, when they dial into a video conference to review the U.S.-China trade deal.
The review coincides with deteriorating ties. Following Mike Pompeo's combative speech and tit-for-tat consulate closures, Chinese tech firms TikTok and Tencent are in Trump's crosshairs. A planned health secretary visit to Taiwan is raising Beijing's hackles. So far the markets remain confident in the trade relationship. But Beijing is behind on purchase targets for U.S. goods and its surplus with the United States rose by 10% last month.


The bottom line

In general, this is good sign, guys that everybody talks about US but not EU. While situation stands calm - it is always better. Still we have to be on guard. Despite technical factors that warn us about reaching of some limits by EUR - as on the chart as due CFTC report data, the major barrier is fundamental background. Recent jump stands due regular US situation worsen rather than some real positive breakouts in EU. With new CV19 warning signs from Spain and Italy and exhausting of US "bad" news, EUR could start falter. Besides, as we've said many times previously - EU and ECB has to take leading position but to not ride on the back of US difficulties. Once they will miss the moment - EUR rally could be smothered. Personally I were waiting for action from ECB every week, since 750 Bln historical adoption, but we had nothing since then. Thus, the EU and ECB action now should stand in focus. Without these efforts, long-term rally on EUR is doubtful.

Speaking on US situation - we should watch for any event as political, although it could not look so at first glance, such as the discussion of 600$ programme prolongation. This is not about common americans, guys, this is about President's run. Demoncrats try to suffocate any Trump's initiative to put him under people anger and accuse in all sins. So, J. Biden appears to be white and fluffy on election's day. This is really tough time for US and nation is separated while it should be united at the face of common hazard.


Technicals
Monthly


By taking in a longer-term, our view is mostly the same. Existed driving factors should provide long lasting effect on EUR. Even rough approximation suggests that market could reach 1.20-1.23 area. The same was mentioned by other analysts as well. Besides, large grabber ultimately suggests action above 1.26 in long-term perspective, although now it seems unbelievable. I'm not an expert in EW, and lets professionals correct me, but it looks like 3rd wave up has started which should become the major swing in upside tendency. Theoretically it should be significantly in excess of "2" wave's top @ 1.25. Price stands above YPR1 as well that indicates new upside trend but not retracement to existing bearish tendency. Monthly overbought area stands far from here and provides room for more upside action.

But that is for long-term perspective. In short-term we have few technical limitations. First is and the major one - overextended net long position on EUR. Market sets the new record of 180K contracts. Second - market meets monthly major 5/8 resistance level and something tells me that hardly it will be passed unsigned. It means that we should be prepared to the pullback, keeping long-term view intact.

The first week of August shows no big action and it seems that market indeed feels the barrier of the level. At the same time very fast action as of AB leg as current CD leg gives no doubts on upside continuation in medium-term perspective. As COP stands close - we should be aware of possible spike by some reason, but without immediate upside continuation.

eur_m_10_08_20.png


Weekly

The same conclusion we could make on weekly chart. This week doesn't change the overall picture as it is inside one. But here, major targets also stand slightly above the market. Due combination of Fib resistance and Overbought (that is DiNapoli bearish "Stretch" pattern by the way), we can't count on upside rally right now. But, some spikes could happen, just to complete as monthly COP as weekly targets. The doji shape of this week indicates rising doubts, indecision and some concern on short-term direction. So, the background for pullback this week looks slightly better.

eur_w_10_08_20.png


Daily

Here we do not consider yet too deep downside action, as oversold level lets market to drop only to 1.1550-1.1600 area. On Friday we've talked about DRPO "Sell" that price could drop is NFP will be more or less positive. Drop indeed has happened, but not too deep and we haven't got the close below 3x3 DMA. In general, I would say that if even we would get DRPO "Sell" LAL pattern in addition to weekly Stretch - overall risk still remains high for both trades as major targets stand relatively close, just around 1.20 area. It brings greater risk degree of failure to these patterns, especially to DRPO. Stretch could work later it doesn't have so strict failure conditions, besides it stands on the weekly, but DRPO now seems us more risky than usual.

eur_d_10_08_20.png


Intraday

As market finally has turned down, here we have obvious shape of Double Top pattern. This is significantly simplifies our task. Any "wrong moves" with Double Top should be treated as hints on upside continuation, or spike to major targets. Normal price action suggests drop to neckline and its following breakout. Any early upside reversals, back action to the top, etc. are signs of failure. We will be satisfied only with direct downside action and breakout of 1.1730 support and neckline. Thus, those who have shorts - could keep them with b/e stops, additionally it is possible to use Stop "Sell" orders below the neckline. Bulls should wait for 1.1630 support area where we could get first more or less suitable reason to buy.
eur_4h_10_08_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,800
Morning everybody,

So, on EUR we're keep going with our so called DRPO "Sell" look-alike setup that is rather tricky. Recall, that from one point of view we have strong resistance and weekly bearish Stretch pattern, but from the another one - untouched major targets around 1.2010. This situation is unstable and could lead to occasional spikes due some new releases or something like that. It means that we should be careful with position taking and control any hints on failure of the patterns that we consider:
eur_d_11_08_20.png


On 4H chart, as we've suggested, Double Top pattern is forming. Market now is coiling around its neckline. Potentially, if pattern works properly we should go to 1.1460 daily K-support area. Meantime, primary task is to get downside breakout. We could accept minor fluctuations around, but price should not show any deep retracements.
eur_4h_11_08_20.png


On 1H chart it is definitely should not move above 5/8 Fib level, because this is invalidation level for DRPO as well. And, in general, even 3/8 pullback here is unwelcome:
eur_1h_11_08_20.png


Thus, there two major options of position taking (if want to sell). First is wait minor pullback here, on 1H chart and sell with stops above 5/8 level. Second - use Sell "Stop" order right below the neckline. Both of these ways have their own pros. and cons. So, the final decision is up to you.
Bulls should do nothing and just wait for solid support to buy...
 

Sive Morten

Special Consultant to the FPA
Messages
13,800
Morning guys,

EUR keeps situation tricky as we've explained yesterday, but our fragile bearish context still holds. On daily chart there is nothing new, 3x3 DMA accurately envelops price action, which is good:
eur_d_12_08_20.png


On 4H chart we have the same Double Top pattern, nothing new here is well and we're mostly interested in 1H chart situation:
eur_4h_12_08_20.png


Here, on 1H we have "moment of truth". The point is that EUR has no choice but to move down, if it is really has bearish context. Take a look, once market has hit XOP - upside bounce has happened. This is what we've discussed yesterday. Bounce was OK as it has not exceeded 3/8 Fib level. Now price stands below XOP. It means that we're in new larger AB=CD with targets that stand significantly lower. If, somehow price turns up again, moving above 3/8 and higher - it means that bearish context is broken and we should be ready for the spike that we've talked about yesterday. Major targets are still around 1.20... So, if you have shorts already - think about moving stops to breakeven:
eur_1h_12_08_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,800
Morning guys,

So, EUR is gradually cancelling bearish setup that we've discussed. Few times we were able to go short, some downside action has happened, but this was not the same what we've counted on. Mostly we're out at breakeven stop orders. As market is moving higher, on daily chart price action starts to remind the flag consolidation. As I said yesterday - no upside pullbacks should happen. If any - be prepared for upside continuation. Maybe not this week, but in the beginning of next one, EUR has all chances to hit major monthly target around 1.20 area:
eur_d_13_08_20.png


On 4H chart we could see absolutely irrational reaction on neckline:
eur_4h_13_08_20.png


On 1H chart market now is challenging the 5/8 Fib level. Recall that monthly level has the same price value and it was challenging few times already. The breakout of this level here and return back in consolidation at the top should become final confirmation of our suggestion that EUR is going higher.
Thus, currently we do not see any good bearish background any more:
eur_1h_13_08_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,800
Morning guys,

It is just few things that we could discuss now. Market stands flat, in some indecision. Not only EUR, but all currencies - GBP, AUD as well. As we do not have good strong patterns now, we discuss minor ones on intraday charts and general price action.

On daily chart EUR definitely doesn't want to go lower but it can't go higher due weekly overbought as well. Let's see, maybe today's Retail Sales release breath some life in current action. Despite overbought, the space till the top is open, and EUR freely could fluctuate there:
eur_d_14_08_20.png


On 4H chart we can't speak right now as on H&S as on D. Top as no of these patterns is forming. The only thing that could play the role today is bullish divergence and potential bullish grabber. If grabber will be formed, we could suggest price return back to the top, somewhere to 1.1880 area:
eur_4h_14_08_20.png


1H chart just shows that market could go a bit lower before potential reversal, as we have here few minor grabbers, suggesting deeper retracement:
eur_1h_14_08_20.png


Thus, keep an eye on the grabber and Retail Sales release. Currently the intraday setups is all that we could focus on...
 

S.chakrabortty2011

Private, 1st Class
Messages
59
Hi, I apologies for asking but i am having difficulty to understand bullish and bearish grabber pattern. can anyone kindly explain on how this two pattern works? thanks in advance?
 

Sive Morten

Special Consultant to the FPA
Messages
13,800
Hi, I apologies for asking but i am having difficulty to understand bullish and bearish grabber pattern. can anyone kindly explain on how this two pattern works? thanks in advance?
Hi mate,
This is from DiNapoli trading tools... In fact, this is failure MACD trend change. We use special indicator to identify this pattern - MACD Predictor. You can see on the chart above - the red line. It shows the price at which MACD lines should cross. Thus, when price breaks through this red line it means that MACD has changed the trend direction.
Hence, when price breaks the MACDP line at some bar but doesn't confirm this by bar's closing, it means that no trend change has happened and this particular bar calls as Stop grabber. Theoretically it suggests action with existing trend till the previous top or bottom, depending on direction. On a chart above you can see bearish grabber - trend was bearish (price stands under the red line) and price has tried to turn it bullish but failed.
 
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