Sive Morten
Special Consultant to the FPA
- Messages
- 18,673
Fundamentals
Major political (and following economical) processes that we've discussed previously stand underway. The major vector that we see now is US moving to isolation and attempt to change as political as economical relations that were standing for decades. Mostly it is needed to re-start domestic production and make import goods expensive. It is needed to return employment market to Americans and get more independence for imported goods. That's what D. Trump is doing right now. As US has exceptional role in world finance - these processes make strong impact on financial markets and could lead sometime to extremely negative moments, at least in short-term. We keep our major scenario intact and expect further US dollar appreciation as US will use its dominant role to press on so-called partners in EU and across the world, including Asia region.
Speaking on last week events, dollar has stopped its appreciation a bit, because market was too overextended down. Once some breath taking pause appears - market takes it. As Reuters reports - dollar fell against a basket of peers on Friday, retreating from a 13-month high hit earlier this week, on lower demand for the safe-haven greenback and some profit-taking, as worries about trade tensions between Washington and Beijing eased.
“You had the dollar bought aggressively over the past few months when investors were risk-averse and were seeking safety in the greenback,” said Kathy Lien, managing director of FX strategy at BK Asset Management in New York. “Investors are covering shorts into the last two weeks of summer and unwinding positions,” she said.
Now, despite temporal relief, and some articles in media on easing of tensions between US and China, US and Turkey - we have very bright picture of the end of Germany stock market. We put it on forum last week. In two words - DAX is forming huge H&S pattern on monthly chart after completion of all time XOP. This is bad sign and it perfectly corresponds to problems that definitely will appear in EU because former relations are breaking - as with US as with UK. Such events can't pass without any effect. That's why I suggest the worse things still stand ahead.
New snapshot from Fathom consulting on perspective of interest rate change by ECB brings nothing good. They suggest that first rate could happen not earlier than in 3rd Q of 2019 and another one only in 1Q of 2020:
Fathom’s Macroeconomic Policy Indicator (FMPI) weights together both fiscal and monetary policy to give an overall measure of the degree of macroeconomic stimulus in any given economy.
The degree of monetary policy looseness across the euro area is already substantial and will remain so while interest rates are on hold. In terms of when we will see the first interest rate rise, the ECB’s Governing Council explicitly stated in its accompanying statement to the June meeting that rates would be on hold until “at least through the summer of 2019”.
As a result, we have pushed back our rate hike expectations from two 25 basis point increases in 2019 to one in the third quarter of 2019, with another in the first quarter of 2020.
While the ECB is planning to tighten monetary policy, Italy is considering loosening fiscal policy. The ruling coalition has signalled that it has bold spending plans — a move which has spooked investors, unleashing a fresh wave of volatility in Italy’s bond market. Italy has also reportedly held talks with the ECB to discuss the country’s ongoing debt crisis, and fixed income investors have not taken the news well. The yield on Italy’s ten-year government bond has again broken through the 3% mark, the highest level since the formation of the coalition in June.
The upshot of all of this will probably be higher growth and inflation in the short term. Italy is already one of the most indebted countries in the currency bloc, and the solution to too much debt is rarely more debt.
COT Report
Recent CFTC data also shows negative dynamic for EUR - net speculative position has turned bearish on a background of growing Open interest. It means that new shorts were opened. So bearish sentiment still stands on the market.
Technicals
Monthly
Last week market has reached yearly Pivot and we said that this is more the range rather than precise number. Now we see that price feels some gravitation around it and it will be particular interesting and important what reaction price will show on it. This is major 50% Support area as well.
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.
While EUR just has reached this area, it needs some time to generate response on it. it means that we need to be patient and wait for patterns or setups that could clarify long-term action.
Weekly
It looks like our last week suggestion that EUR has good chances to touch 1.13 was correct. Now it's the first sign of reaction we see on major support area. As market just has hit this area, we do not have something special on weekly chart, because no patterns have been formed yet. Still, the one thing is important here - 1.13 lows. This is crucial area, because EUR has done all preliminary steps for bullish reversal. If no reversal will follow - EUR will drop to next major support around 1.08 area.
Daily
The same story on the daily. As first part of our journey is completed - and half of our H&S pattern stands in place, now is major concern whether we will get the second half. Now it is not much to do on daily chart directly. Our major activity will stand on intraday charts as during last week. Starting point is not bad, Friday close was rather positive and mostly has completed our intraday setup that we were following within 3 sessions:
Intraday
On 4H chart market forms some important setups. In fact, it stands in AB=CD upside action and now price is flirting around K-resistance area. Upside action is an upside reversal swing, which means that as soon as AB-CD pattern will be completed - 5/8 reversal is very probable. That's what we will be watching for on next week.
On hourly chart we see that our XOP target was perfectly completed on Friday. In general, this setup was in favor of those who have taken long position right at the bottom at "A" point, when hourly butterfly "Buy" was done. Now 1.618 Butterfly extension almost coincides with 4H AB-CD target. But market shows fast acceleration right to it. It means that we could get more extended CD leg. Anyway, as we mostly wait for retracement, it's not as important where it will start, the only thing that matters is its appearing per se.
If our suggestion will be correct - 1.1355-1.1360 is the area that we should keep an eye on for second chance to go long.
Conclusion:
Currently there are no shifts in our long-term view. Mostly we're focused on upside bounce from major monthly support area
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.
Major political (and following economical) processes that we've discussed previously stand underway. The major vector that we see now is US moving to isolation and attempt to change as political as economical relations that were standing for decades. Mostly it is needed to re-start domestic production and make import goods expensive. It is needed to return employment market to Americans and get more independence for imported goods. That's what D. Trump is doing right now. As US has exceptional role in world finance - these processes make strong impact on financial markets and could lead sometime to extremely negative moments, at least in short-term. We keep our major scenario intact and expect further US dollar appreciation as US will use its dominant role to press on so-called partners in EU and across the world, including Asia region.
Speaking on last week events, dollar has stopped its appreciation a bit, because market was too overextended down. Once some breath taking pause appears - market takes it. As Reuters reports - dollar fell against a basket of peers on Friday, retreating from a 13-month high hit earlier this week, on lower demand for the safe-haven greenback and some profit-taking, as worries about trade tensions between Washington and Beijing eased.
“You had the dollar bought aggressively over the past few months when investors were risk-averse and were seeking safety in the greenback,” said Kathy Lien, managing director of FX strategy at BK Asset Management in New York. “Investors are covering shorts into the last two weeks of summer and unwinding positions,” she said.
Now, despite temporal relief, and some articles in media on easing of tensions between US and China, US and Turkey - we have very bright picture of the end of Germany stock market. We put it on forum last week. In two words - DAX is forming huge H&S pattern on monthly chart after completion of all time XOP. This is bad sign and it perfectly corresponds to problems that definitely will appear in EU because former relations are breaking - as with US as with UK. Such events can't pass without any effect. That's why I suggest the worse things still stand ahead.
New snapshot from Fathom consulting on perspective of interest rate change by ECB brings nothing good. They suggest that first rate could happen not earlier than in 3rd Q of 2019 and another one only in 1Q of 2020:
Fathom’s Macroeconomic Policy Indicator (FMPI) weights together both fiscal and monetary policy to give an overall measure of the degree of macroeconomic stimulus in any given economy.
The degree of monetary policy looseness across the euro area is already substantial and will remain so while interest rates are on hold. In terms of when we will see the first interest rate rise, the ECB’s Governing Council explicitly stated in its accompanying statement to the June meeting that rates would be on hold until “at least through the summer of 2019”.
As a result, we have pushed back our rate hike expectations from two 25 basis point increases in 2019 to one in the third quarter of 2019, with another in the first quarter of 2020.
While the ECB is planning to tighten monetary policy, Italy is considering loosening fiscal policy. The ruling coalition has signalled that it has bold spending plans — a move which has spooked investors, unleashing a fresh wave of volatility in Italy’s bond market. Italy has also reportedly held talks with the ECB to discuss the country’s ongoing debt crisis, and fixed income investors have not taken the news well. The yield on Italy’s ten-year government bond has again broken through the 3% mark, the highest level since the formation of the coalition in June.
The upshot of all of this will probably be higher growth and inflation in the short term. Italy is already one of the most indebted countries in the currency bloc, and the solution to too much debt is rarely more debt.
COT Report
Recent CFTC data also shows negative dynamic for EUR - net speculative position has turned bearish on a background of growing Open interest. It means that new shorts were opened. So bearish sentiment still stands on the market.
Technicals
Monthly
Last week market has reached yearly Pivot and we said that this is more the range rather than precise number. Now we see that price feels some gravitation around it and it will be particular interesting and important what reaction price will show on it. This is major 50% Support area as well.
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.
While EUR just has reached this area, it needs some time to generate response on it. it means that we need to be patient and wait for patterns or setups that could clarify long-term action.
Weekly
It looks like our last week suggestion that EUR has good chances to touch 1.13 was correct. Now it's the first sign of reaction we see on major support area. As market just has hit this area, we do not have something special on weekly chart, because no patterns have been formed yet. Still, the one thing is important here - 1.13 lows. This is crucial area, because EUR has done all preliminary steps for bullish reversal. If no reversal will follow - EUR will drop to next major support around 1.08 area.
Daily
The same story on the daily. As first part of our journey is completed - and half of our H&S pattern stands in place, now is major concern whether we will get the second half. Now it is not much to do on daily chart directly. Our major activity will stand on intraday charts as during last week. Starting point is not bad, Friday close was rather positive and mostly has completed our intraday setup that we were following within 3 sessions:
Intraday
On 4H chart market forms some important setups. In fact, it stands in AB=CD upside action and now price is flirting around K-resistance area. Upside action is an upside reversal swing, which means that as soon as AB-CD pattern will be completed - 5/8 reversal is very probable. That's what we will be watching for on next week.
On hourly chart we see that our XOP target was perfectly completed on Friday. In general, this setup was in favor of those who have taken long position right at the bottom at "A" point, when hourly butterfly "Buy" was done. Now 1.618 Butterfly extension almost coincides with 4H AB-CD target. But market shows fast acceleration right to it. It means that we could get more extended CD leg. Anyway, as we mostly wait for retracement, it's not as important where it will start, the only thing that matters is its appearing per se.
If our suggestion will be correct - 1.1355-1.1360 is the area that we should keep an eye on for second chance to go long.
Conclusion:
Currently there are no shifts in our long-term view. Mostly we're focused on upside bounce from major monthly support area
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.
