FOREX PRO WEEKLY, August 13 - 17, 2018

Sive Morten

Special Consultant to the FPA
Messages
18,527
Fundamentals

Major event of last week is rising aggression of US in tariffs sphere. As D. Trump is tightening the screws - it has made an impact on FX market globally, but not only on FX one. Thus, US yields have dropped to 2.87% from ~ 3% level last week, indicating rising demand for safe haven assets.
All this stuff stands in agreement with our fundamental view on US dollar, its role on FX market in current period and its relation with other currencies. Approximately month ago we've explained why US drives the situation while EU takes backseat and drift in fairway of US external policy. In fact, EU now is dependent variable that has to response on US independent steps. EU could just response somehow but they couldn't steal thunder in this game.
While a lot of threats were posed in relation to Russia but all of them are limited in potential effect. Russia has very small trading turnover with US, major US debt already have been sold out, Russia currently totally self sufficient in food and essential goods and as country as people have already immunity and inhabit to any attempt of external pressure.Currency fluctuations barely impacts on life of population, as prices show no reaction to it.
Sanctions and political ultimatum could make impact if they are supported by force, but they are not. That's why they will be just ignored. As proverb says - "the dogs bark, but the caravans move on"
It is really wonder, that now sanctions make more impact on countries that are not the object to them. I'm speaking on EU. They are not under sanctions but they are scared of possible tariffs be transposed to them. When we have fear - there is panic and chaos on financial markets. They are scared by situation around Turkey. The reason for this process we've discussed last time, now it takes logical continuation, but it seems that EU does not understand what is going on. The face of the planet is changing but they think about bottom lines of their banking sheets. They should celebrate that Turkey - US relations worsen and seize this market from US, but they panic and worry what will happen....Indeed, fear blinds...Here what statements we have in media right now:

Reuters reports the euro sank to its lowest against the greenback in more than a year on Friday as a plunging Turkish lira sparked broad risk aversion, with investors worried about a contagion effect on European banks.
Turkey’s lira plummeted as much as 18 percent on Friday as worries about President Tayyip Erdogan’s influence over monetary policy and worsening U.S. relations snowballed into a market panic.

The euro was hurt after the Financial Times reported that the European Central Bank had concerns about banks in Spain, Italy and France and their exposure to Turkey’s woes.

Both currencies added to losses after U.S. President Donald Trump said he had authorized a doubling of tariffs on steel and aluminum imports from Turkey. “Our relations with Turkey are not good at this time!,” Trump said on Twitter.

Exposure to Turkey could affect European banks’ bottom lines “and could have a domino effect throughout Europe as people begin to pull out of those banks and into the U.S. That’s why we’ve seen a spike in the dollar,” said Gregan Anderson, macroeconomic strategist at brokerage Bulltick LLC.


“You’ve had a fairly sharp move lower in the euro and it’s broken through key technical levels as well,” said Richard Franulovich, head of FX strategy at Westpac Banking Corp in New York.

Erdogan earlier told Turks to exchange gold and hard currency into lira, framing the crisis as a “national battle” against economic enemies.

“He spoke today sounding very combative and defiant instead of possibly offering a bit of fig leaf to the U.S.,” said Franulovich.

Second victim of D. Trump activity will be China. We've talked many times already that US has advantage over China in tariffs piking and we think opposite opinion is wrong. Yes, on first glance it seems that China economy shows fast growth, big currency reserves etc. But this growth is faltering giant as it is based on US consumption. China applies short-term supportive fiscal measures that washed out reserves and in long-term perspective could have negative impact for economy. In long term confrontation, it will be defeated and now some worrying signs start to appear. Despite the visuality of strong army, China never use it to protect its national interests. The bright example is Libya. They have lost multi billions projects there by US invasion but haven't even try protect themselves and to turn situation in their favor. They just have eaten the dust and continue sell gruds to US. That's why we think that China never has the guts on open military conflict.
Fathom consulting already points on first negative signs of tariffs war impact for China.
Fathom’s measure of economic activity in China — the CMI — stood at 6.5% in June, unchanged from the revised May reading, but below both its recent peak and official GDP estimates. After months of waning momentum, this steadying may reflect China’s recent efforts to support the economy through monetary stimulus, a sign that it is again doubling down on its old growth model.
Faced with slowing growth and escalating trade tensions, we correctly predicted that China would also allow its currency to weaken, with a forecast of 6.8 against the US dollar by the end of 2018. Using that lever destabilised markets in 2015 — causing a sell-off of more than $1trillion of foreign exchange reserves by China’s Central Bank to offset the downward pressure on the renminbi. So it is of little surprise that the authorities are treading carefully, allowing the renminbi to depreciate, albeit not as abruptly, or indeed by as much as the offshore renminbi rate (which is not subject to the central bank’s trading band) implies.http://lipperalpha.financial.thomso...n-charts-china-prioritizes-short-term-growth/
Alpha-Now-China-foreign-exchange-reserves.jpg

However, this strategy only adds to China’s imbalances, storing up problems for the future. Moreover, it will undoubtedly aggravate President Trump who has repeatedly accused China of deliberately weakening its currency to boost exports. The latest trade data showed that the pace of export growth from China to the US remains in double digits. On the other hand, it favors some countries, with the Philippines, Cambodia, Japan and India all notable beneficiaries under China’s current growth strategy of doubling down.
Alpha-Now-China-trade-with-US.jpg


COT Report

Recent data shows that net long speculative position continue to deteriorates which points on bearish sentiment. This time open interest also shows growth for 6,652 contracts, and this points on new shorts opening.
upload_2018-8-11_13-36-21.png


Technicals
Monthly


So this week we have two major moments on monthly chart. First is, concern around May bullish grabber finally has been resolved as price has dropped below its lows. Second - market has reached YPP.

Now 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.

Now we should not make hasty conclusions just because price stands slightly below YPP. This is not breakout yet. In fact, monthly levels are not precise numbers, they are mostly ranges, which could be rather wide on daily chart. Price could fluctuate around monthly level with 150 or even 200 pips amplitude without real breakout.

Here we have additional hint though. 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. If this is really long-term bearish trend - EUR has good chances to proceed to YPS1.

But now we should focus on lower time frames, because first hints on strong level response should appear there.
eur_m_13_08_18.png


Weekly

Here we start to form our trading plan and there are a lot of details that we need to discuss. In fact, EUR on Friday has completed 1.27 butterfly and theoretically market has completed preliminary steps for upside reversal. But somehow I have gut feel that EUR will drift slightly lower. And also there are some technical reasons for that. First is - fast acceleration down, no signs of reaction to our daily targets. Second - US dollar index has passed 1.27 butterfly extension and tending to 1.618 one. Finally, EUR is not oversold on weekly chart and another 100 pips drop is possible. Whether market will keep chances on upside reversal after that? Why not. But as deeper market will drop below 1.13 as less chances will remain on upward action and appearing of our H&S pattern. Thus, 1.13 will be crucial level for this scenario and culmination point as I call it. In 1.13-1.14 area we need to watch for bullish reversal patterns on daily/intraday TF.

eur_w_13_08_18.png


Daily

Why we do not lose the hope of upside reversal even from 1.13? Although it could seem that this is too far from as YPP as major weekly support area. Well, mostly because of the daily price shape and due 1.618 ratio. Here guys, approximate plan that we will be watch for:
eur_d_13_08_18.png


Besides those reasons that we've mentioned above for another leg down, here we have another one - long nasty black candle that was holding price action for two months. Usually when market breaks it, it follows down for the length of this candle. And its length coincides with 1.618 butterfly target. 1.618, in turn is major ratio for H&S pattern - that's what particularly we will be watching for here. Pay attention that our perfect image shows AB=CD upside target leads us precisely to 1.20 area.

Also we have acceleration to 1.27 butterfly extension and inner XOP target, week shows tail close. Keeping in mind fundamental background of this action, drop for another 100 pips doesn't look like impossible.
1.13 level is also weekly oversold, so it seems that puzzle is collected.

These thoughts leads us to conclusion that in the beginning of the week, it is possible to search chances for short positions, while price stands above 1.13. Once major weekly/daily targets will be be hit - shorts should be closed and we will start watching for reason to go long...

Intraday

So, as we've decided, starting of the week is time to search bearish trades. Now EUR stands oversold on daily chart and has hit XOP target. While scalp traders could focus on DiNapoli "kiby" bullish trade, we're mostly focused on chances to go short again.
Thus, combination of daily XOP and Oversold should lead to some upside bounce on Monday and this could become excellent background for hourly B&B "Sell" trade. Most probable it will start somewhere around 1.1475-1.1480 of K-resistance and WPP area. It also will be very good, if it will take shape of "222" Sell pattern, although this is not necessary:
eur_1h_13_08_18.png


This trade could be the one that lead EUR right to 1.13 area but not to just minimal B&B target.

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 minor upside pullback first and continuation to 1.13 target second.


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.
 
Excellent work as always. .
Thank you very much sive sir. .
I need help from you..
Can you please share the OB OS area of Gbpusd on daily weekly monthly are. .
I will be very thankful ...
stay blessed keep flying ...
 
Fundamentals

Major event of last week is rising aggression of US in tariffs sphere. As D. Trump is tightening the screws - it has made an impact on FX market globally, but not only on FX one. Thus, US yields have dropped to 2.87% from ~ 3% level last week, indicating rising demand for safe haven assets.
All this stuff stands in agreement with our fundamental view on US dollar, its role on FX market in current period and its relation with other currencies. Approximately month ago we've explained why US drives the situation while EU takes backseat and drift in fairway of US external policy. In fact, EU now is dependent variable that has to response on US independent steps. EU could just response somehow but they couldn't steal thunder in this game.
While a lot of threats were posed in relation to Russia but all of them are limited in potential effect. Russia has very small trading turnover with US, major US debt already have been sold out, Russia currently totally self sufficient in food and essential goods and as country as people have already immunity and inhabit to any attempt of external pressure.Currency fluctuations barely impacts on life of population, as prices show no reaction to it.
Sanctions and political ultimatum could make impact if they are supported by force, but they are not. That's why they will be just ignored. As proverb says - "the dogs bark, but the caravans move on"
It is really wonder, that now sanctions make more impact on countries that are not the object to them. I'm speaking on EU. They are not under sanctions but they are scared of possible tariffs be transposed to them. When we have fear - there is panic and chaos on financial markets. They are scared by situation around Turkey. The reason for this process we've discussed last time, now it takes logical continuation, but it seems that EU does not understand what is going on. The face of the planet is changing but they think about bottom lines of their banking sheets. They should celebrate that Turkey - US relations worsen and seize this market from US, but they panic and worry what will happen....Indeed, fear blinds...Here what statements we have in media right now:

Reuters reports the euro sank to its lowest against the greenback in more than a year on Friday as a plunging Turkish lira sparked broad risk aversion, with investors worried about a contagion effect on European banks.
Turkey’s lira plummeted as much as 18 percent on Friday as worries about President Tayyip Erdogan’s influence over monetary policy and worsening U.S. relations snowballed into a market panic.

The euro was hurt after the Financial Times reported that the European Central Bank had concerns about banks in Spain, Italy and France and their exposure to Turkey’s woes.

Both currencies added to losses after U.S. President Donald Trump said he had authorized a doubling of tariffs on steel and aluminum imports from Turkey. “Our relations with Turkey are not good at this time!,” Trump said on Twitter.

Exposure to Turkey could affect European banks’ bottom lines “and could have a domino effect throughout Europe as people begin to pull out of those banks and into the U.S. That’s why we’ve seen a spike in the dollar,” said Gregan Anderson, macroeconomic strategist at brokerage Bulltick LLC.


“You’ve had a fairly sharp move lower in the euro and it’s broken through key technical levels as well,” said Richard Franulovich, head of FX strategy at Westpac Banking Corp in New York.

Erdogan earlier told Turks to exchange gold and hard currency into lira, framing the crisis as a “national battle” against economic enemies.

“He spoke today sounding very combative and defiant instead of possibly offering a bit of fig leaf to the U.S.,” said Franulovich.

Second victim of D. Trump activity will be China. We've talked many times already that US has advantage over China in tariffs piking and we think opposite opinion is wrong. Yes, on first glance it seems that China economy shows fast growth, big currency reserves etc. But this growth is faltering giant as it is based on US consumption. China applies short-term supportive fiscal measures that washed out reserves and in long-term perspective could have negative impact for economy. In long term confrontation, it will be defeated and now some worrying signs start to appear. Despite the visuality of strong army, China never use it to protect its national interests. The bright example is Libya. They have lost multi billions projects there by US invasion but haven't even try protect themselves and to turn situation in their favor. They just have eaten the dust and continue sell gruds to US. That's why we think that China never has the guts on open military conflict.
Fathom consulting already points on first negative signs of tariffs war impact for China.
Fathom’s measure of economic activity in China — the CMI — stood at 6.5% in June, unchanged from the revised May reading, but below both its recent peak and official GDP estimates. After months of waning momentum, this steadying may reflect China’s recent efforts to support the economy through monetary stimulus, a sign that it is again doubling down on its old growth model.
Faced with slowing growth and escalating trade tensions, we correctly predicted that China would also allow its currency to weaken, with a forecast of 6.8 against the US dollar by the end of 2018. Using that lever destabilised markets in 2015 — causing a sell-off of more than $1trillion of foreign exchange reserves by China’s Central Bank to offset the downward pressure on the renminbi. So it is of little surprise that the authorities are treading carefully, allowing the renminbi to depreciate, albeit not as abruptly, or indeed by as much as the offshore renminbi rate (which is not subject to the central bank’s trading band) implies.
Alpha-Now-China-foreign-exchange-reserves.jpg

However, this strategy only adds to China’s imbalances, storing up problems for the future. Moreover, it will undoubtedly aggravate President Trump who has repeatedly accused China of deliberately weakening its currency to boost exports. The latest trade data showed that the pace of export growth from China to the US remains in double digits. On the other hand, it favors some countries, with the Philippines, Cambodia, Japan and India all notable beneficiaries under China’s current growth strategy of doubling down.
Alpha-Now-China-trade-with-US.jpg


COT Report

Recent data shows that net long speculative position continue to deteriorates which points on bearish sentiment. This time open interest also shows growth for 6,652 contracts, and this points on new shorts opening.
View attachment 38754

Technicals
Monthly


So this week we have two major moments on monthly chart. First is, concern around May bullish grabber finally has been resolved as price has dropped below its lows. Second - market has reached YPP.

Now 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.

Now we should not make hasty conclusions just because price stands slightly below YPP. This is not breakout yet. In fact, monthly levels are not precise numbers, they are mostly ranges, which could be rather wide on daily chart. Price could fluctuate around monthly level with 150 or even 200 pips amplitude without real breakout.

Here we have additional hint though. 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. If this is really long-term bearish trend - EUR has good chances to proceed to YPS1.

But now we should focus on lower time frames, because first hints on strong level response should appear there.
View attachment 38755

Weekly

Here we start to form our trading plan and there are a lot of details that we need to discuss. In fact, EUR on Friday has completed 1.27 butterfly and theoretically market has completed preliminary steps for upside reversal. But somehow I have gut feel that EUR will drift slightly lower. And also there are some technical reasons for that. First is - fast acceleration down, no signs of reaction to our daily targets. Second - US dollar index has passed 1.27 butterfly extension and tending to 1.618 one. Finally, EUR is not oversold on weekly chart and another 100 pips drop is possible. Whether market will keep chances on upside reversal after that? Why not. But as deeper market will drop below 1.13 as less chances will remain on upward action and appearing of our H&S pattern. Thus, 1.13 will be crucial level for this scenario and culmination point as I call it. In 1.13-1.14 area we need to watch for bullish reversal patterns on daily/intraday TF.

View attachment 38756

Daily

Why we do not lose the hope of upside reversal even from 1.13? Although it could seem that this is too far from as YPP as major weekly support area. Well, mostly because of the daily price shape and due 1.618 ratio. Here guys, approximate plan that we will be watch for:
View attachment 38757

Besides those reasons that we've mentioned above for another leg down, here we have another one - long nasty black candle that was holding price action for two months. Usually when market breaks it, it follows down for the length of this candle. And its length coincides with 1.618 butterfly target. 1.618, in turn is major ratio for H&S pattern - that's what particularly we will be watching for here. Pay attention that our perfect image shows AB=CD upside target leads us precisely to 1.20 area.

Also we have acceleration to 1.27 butterfly extension and inner XOP target, week shows tail close. Keeping in mind fundamental background of this action, drop for another 100 pips doesn't look like impossible.
1.13 level is also weekly oversold, so it seems that puzzle is collected.

These thoughts leads us to conclusion that in the beginning of the week, it is possible to search chances for short positions, while price stands above 1.13. Once major weekly/daily targets will be be hit - shorts should be closed and we will start watching for reason to go long...

Intraday

So, as we've decided, starting of the week is time to search bearish trades. Now EUR stands oversold on daily chart and has hit XOP target. While scalp traders could focus on DiNapoli "kiby" bullish trade, we're mostly focused on chances to go short again.
Thus, combination of daily XOP and Oversold should lead to some upside bounce on Monday and this could become excellent background for hourly B&B "Sell" trade. Most probable it will start somewhere around 1.1475-1.1480 of K-resistance and WPP area. It also will be very good, if it will take shape of "222" Sell pattern, although this is not necessary:
View attachment 38758

This trade could be the one that lead EUR right to 1.13 area but not to just minimal B&B target.

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 minor upside pullback first and continuation to 1.13 target second.


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.

Great report Sive - i enjoy your fundamental perspectives, we are lucky to have you in our midst.
 
What a nervous price behavior during this Asian session. The spotlight will come on Turkey the moment Europe comes online.
 
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