Sive Morten
Special Consultant to the FPA
- Messages
- 18,754
Monthly
The dollar rose to its highest in more than 11 months against a basket of currencies on Friday after Federal Reserve Chair Janet Yellen came out more balanced than expected on her views about the U.S. economy and monetary policy in remarks to central bankers.
The speech by Yellen, a policy 'dove', to an annual gathering of central bankers in Jackson Hole, Wyoming, cited persistent labor market slack but noted faster recovery in the sector could accelerate the timing of a Fed interest rate hike. Yellen acknowledged slack in the U.S. jobs market as she called for a "pragmatic" approach to monetary policy to allow officials room to evaluate data without committing to a pre-determined rate path. But at the same time, she said that if the labor market recovered more quickly than anticipated, the Fed may have to raise rates sooner and faster than expected.
"If progress in the labor market continues to be more rapid than anticipated by the Committee or if inflation moves up more rapidly than anticipated, resulting in faster convergence toward our dual objectives, then increases in the federal funds rate target could come sooner than the Committee currently expects and could be more rapid thereafter," Yellen said.
"It was very evident that the Fed’s dovish tone is starting to wane," said Christopher Vecchio, currency analyst at FXCM-owned DailyFX.com. "The vague yet important notation made by Yellen was that interest rate hikes could be coming sooner than market participants currently expect, especially if the labor market begins to progress faster. Overall, this provoked an updraft in ... the dollar."
The euro, meanwhile, stayed weak against the dollar after European Central Bank President Mario Draghi told the Jackson Hole gathering that the bank is ready to adjust monetary policy further to alleviate a sluggish euro zone economy.
For Joe Manimbo, senior market analyst at Western Union Business Solutions, Yellen seemed less concerned about low wage growth. "Low wages are seen as an obstacle to an early Fed rate hike so any less concern on that front would be supportive of the rate debate," Manimbo said.
Now let’s take a look at CFTC data again. Brief look points on increase in all data – Open interest, Longs and shorts:
Open interest:
Longs:
Shorts:
Currently our ratio of short positions is: 198830/(198830+56072)=78,00%. It has remained at the same level as week before, although all numbers have increased. When ratio approaches 80-82% this becomes significant, because it means that almost all speculators stand short and nobody can sell more to support trend down. Market turns after that. Right now we see that some investors add to shorts, others enter long. It could mean that we will not get reversal yet, but just some retracement. Since we do not see reducing of shorts. When retracement will come to an end – there we will take a look at CFTC data again.
Still this is mostly tactical issue. In long term perspective our suggestion that EUR will stay under pressure for long time. Initially we’ve made this suggestion in November 2011. Do you remember this quarterly chart of US Dollar Index? This analysis still suggests further USD growth.
Currently first driving factor is US economy improvement. 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.
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 as Draghi confirms this, and we see some reasons for this as well. 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 this will hurt trade balance and negatively impact on EU. At the same time this is just small part of goods that Russia could forbid potentially and recent data on GDP of Germany, France, Italy shows slightly worse that expected numbers. Other words, mutual sanctions do not assume improvement in economy.
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 and that were hurted stronger in 2008.
Currently we do not see any hope that this sunction program will be lighted or closed soon. Mostly because EU de jure is independent country, but de facto is a colony of US. May be it sounds curious, but when you have 70+ US military bases accross the country and when you make poor economical and geopolitical decisions and hurt your own interests and people only two possible conclusions could be made. You’re either stupid and bad governor or you are not free to rule situation. And US with Russia under curtain tensions is a journey for long-long time I suspect...
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). But this mutual impact, even in food and utility goods sphere will be sufficient to hold EUR from stable growth or even from just stability. We will not be surprised if we even get strikes in agriculture countries against central EU government, for example such as Greece. Greece just has passed the way of painful period of debt restructuring, that has hurt whole social sphere by sequestering knife. And now they can’t earn money from their own economy due sunctions with all following consequences, such as unemployment.
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.
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
As market moves lower and lower it becomes more and more difficult to count on possible rebound and continue to treat current action just as “shy piercing of Yearly Pivot”. On passed week we’ve got two significant events on monthly chart as addition to monthly trend shifting on previous week.
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. Moving below YPP could mean its way to YPS1 at 1.3060 area – and this is probably our next big target here.
Second issue stands around 1.33 area that we treat as very important due market mechanics around this level. 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 and on recent week market has closed below 1.33 that has very important meaning for us. It means that price has left area of indecision and now we should be dedicated to Yearly Pivot Support 1 level 1.3060 as next target.
Weekly
Long term charts are most clear and useful on EUR right now. 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. As we’ve said on previous week:“We do not see any reasons for market to stop except, may be 0.618 target of AB-CD at ~1.34 area (not shown), since EUR is not at support and oversold. Even if minor bounce will happen, price probably will continue action to AB-CD target and Agreement around K-support area. Thus our weekly destination point is 1.3225 area”, - and this has happened.
Another confirmation that current move down is mostly a new bear trend but not a retracement is reversal swing. Recent swing down is greater than previous swing up. Another indicator that we will watch till the end of August is MPS1. Now price stands right at it.
Thus, market has reached very strong support area – weekly K-support, AB=CD target that creates and Agreement. We should be ready for a bounce up, that could last for some weeks. Logic suggests possible re-testing of YPP. Hint on possible bounce also comes from CFTC data as we’ve seen above.
Another interesting observation here is YPS1 coincides with weekly oversold and... 50% support level. And we know that EUR likes 50% levels, right?
Daily
Daily trend is bearish as well. Daily picture does not give us any clear patterns, but still it shows very important information. Particularly speaking it tells that currently is not the time to enter short. As addition to weekly Agreement and K-support, we see that price also stands at daily oversold and MPS1 and personally I wouldn’t sell here. The most difficult task right now is to estimate possible upside target of retracement. Minimum target probably stands at 1.3405 area – in the middle of Oscillator Predictor bands. As we also have here bullish “Stretch” pattern – 1.3405 is its minimum target. Still, It seems that reaction on weekly K-support should be a bit more visible and solid. Thus, our next target is daily K-resistance around 1.3515, accompanied by MPP and daily overbought. Also it coincides with our previous assumption of re-testing broken YPP at 1.3475. So, next target will be an area around 1.3475-1.3500.
4-hour
This time frame shows how this bounce up could start. We’ve briefly spoken on this pattern on Friday and now we have more signs to discuss here. Yes, this could be DRPO “Buy”. It’s shape right now looks perfect with matching all neccesary conditions. First is thrust – perfect. Second – during first penetration of 3x3 DMA market has not reached 3/8 Fib resistance level and this is good. It means that all shorts are still there and steam still in pot. Third – bottoms are very clear and sizable. And finally take a look at recent strong black candle – that is what we’re speaking about every time. When DRPO is forming, we would like to see last assault by bears to push market lower. And when they will fail – trap will clapped. That is what we will monitor on Monday, as well as second close above 3x3 to get confirmation of the pattern.
By the way, confirmation has not bad chances to come, since we have a bullish grabber here that suggests move above recent top and this definitely higher than 3x3 DMA right now...
Conclusion:
Monthly chart has given us very important information on recent week that lets us think that EUR could reach YPS1 around 1.3060 area soon.
Meantime, short-term picture shows that market oversold and stands at strong support. Thus, on coming week some bounce up is possible with minimum target around 1.3405, but action to 1.3475-1.35 is also possible due some reasons that we’ve mentioned in research.
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 dollar rose to its highest in more than 11 months against a basket of currencies on Friday after Federal Reserve Chair Janet Yellen came out more balanced than expected on her views about the U.S. economy and monetary policy in remarks to central bankers.
The speech by Yellen, a policy 'dove', to an annual gathering of central bankers in Jackson Hole, Wyoming, cited persistent labor market slack but noted faster recovery in the sector could accelerate the timing of a Fed interest rate hike. Yellen acknowledged slack in the U.S. jobs market as she called for a "pragmatic" approach to monetary policy to allow officials room to evaluate data without committing to a pre-determined rate path. But at the same time, she said that if the labor market recovered more quickly than anticipated, the Fed may have to raise rates sooner and faster than expected.
"If progress in the labor market continues to be more rapid than anticipated by the Committee or if inflation moves up more rapidly than anticipated, resulting in faster convergence toward our dual objectives, then increases in the federal funds rate target could come sooner than the Committee currently expects and could be more rapid thereafter," Yellen said.
"It was very evident that the Fed’s dovish tone is starting to wane," said Christopher Vecchio, currency analyst at FXCM-owned DailyFX.com. "The vague yet important notation made by Yellen was that interest rate hikes could be coming sooner than market participants currently expect, especially if the labor market begins to progress faster. Overall, this provoked an updraft in ... the dollar."
The euro, meanwhile, stayed weak against the dollar after European Central Bank President Mario Draghi told the Jackson Hole gathering that the bank is ready to adjust monetary policy further to alleviate a sluggish euro zone economy.
For Joe Manimbo, senior market analyst at Western Union Business Solutions, Yellen seemed less concerned about low wage growth. "Low wages are seen as an obstacle to an early Fed rate hike so any less concern on that front would be supportive of the rate debate," Manimbo said.
Now let’s take a look at CFTC data again. Brief look points on increase in all data – Open interest, Longs and shorts:
Open interest:
Currently our ratio of short positions is: 198830/(198830+56072)=78,00%. It has remained at the same level as week before, although all numbers have increased. When ratio approaches 80-82% this becomes significant, because it means that almost all speculators stand short and nobody can sell more to support trend down. Market turns after that. Right now we see that some investors add to shorts, others enter long. It could mean that we will not get reversal yet, but just some retracement. Since we do not see reducing of shorts. When retracement will come to an end – there we will take a look at CFTC data again.
Still this is mostly tactical issue. In long term perspective our suggestion that EUR will stay under pressure for long time. Initially we’ve made this suggestion in November 2011. Do you remember this quarterly chart of US Dollar Index? This analysis still suggests further USD growth.
Currently first driving factor is US economy improvement. 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.
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 as Draghi confirms this, and we see some reasons for this as well. 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 this will hurt trade balance and negatively impact on EU. At the same time this is just small part of goods that Russia could forbid potentially and recent data on GDP of Germany, France, Italy shows slightly worse that expected numbers. Other words, mutual sanctions do not assume improvement in economy.
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 and that were hurted stronger in 2008.
Currently we do not see any hope that this sunction program will be lighted or closed soon. Mostly because EU de jure is independent country, but de facto is a colony of US. May be it sounds curious, but when you have 70+ US military bases accross the country and when you make poor economical and geopolitical decisions and hurt your own interests and people only two possible conclusions could be made. You’re either stupid and bad governor or you are not free to rule situation. And US with Russia under curtain tensions is a journey for long-long time I suspect...
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). But this mutual impact, even in food and utility goods sphere will be sufficient to hold EUR from stable growth or even from just stability. We will not be surprised if we even get strikes in agriculture countries against central EU government, for example such as Greece. Greece just has passed the way of painful period of debt restructuring, that has hurt whole social sphere by sequestering knife. And now they can’t earn money from their own economy due sunctions with all following consequences, such as unemployment.
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.
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
As market moves lower and lower it becomes more and more difficult to count on possible rebound and continue to treat current action just as “shy piercing of Yearly Pivot”. On passed week we’ve got two significant events on monthly chart as addition to monthly trend shifting on previous week.
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. Moving below YPP could mean its way to YPS1 at 1.3060 area – and this is probably our next big target here.
Second issue stands around 1.33 area that we treat as very important due market mechanics around this level. 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 and on recent week market has closed below 1.33 that has very important meaning for us. It means that price has left area of indecision and now we should be dedicated to Yearly Pivot Support 1 level 1.3060 as next target.
Weekly
Long term charts are most clear and useful on EUR right now. 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. As we’ve said on previous week:“We do not see any reasons for market to stop except, may be 0.618 target of AB-CD at ~1.34 area (not shown), since EUR is not at support and oversold. Even if minor bounce will happen, price probably will continue action to AB-CD target and Agreement around K-support area. Thus our weekly destination point is 1.3225 area”, - and this has happened.
Another confirmation that current move down is mostly a new bear trend but not a retracement is reversal swing. Recent swing down is greater than previous swing up. Another indicator that we will watch till the end of August is MPS1. Now price stands right at it.
Thus, market has reached very strong support area – weekly K-support, AB=CD target that creates and Agreement. We should be ready for a bounce up, that could last for some weeks. Logic suggests possible re-testing of YPP. Hint on possible bounce also comes from CFTC data as we’ve seen above.
Another interesting observation here is YPS1 coincides with weekly oversold and... 50% support level. And we know that EUR likes 50% levels, right?
Daily
Daily trend is bearish as well. Daily picture does not give us any clear patterns, but still it shows very important information. Particularly speaking it tells that currently is not the time to enter short. As addition to weekly Agreement and K-support, we see that price also stands at daily oversold and MPS1 and personally I wouldn’t sell here. The most difficult task right now is to estimate possible upside target of retracement. Minimum target probably stands at 1.3405 area – in the middle of Oscillator Predictor bands. As we also have here bullish “Stretch” pattern – 1.3405 is its minimum target. Still, It seems that reaction on weekly K-support should be a bit more visible and solid. Thus, our next target is daily K-resistance around 1.3515, accompanied by MPP and daily overbought. Also it coincides with our previous assumption of re-testing broken YPP at 1.3475. So, next target will be an area around 1.3475-1.3500.
4-hour
This time frame shows how this bounce up could start. We’ve briefly spoken on this pattern on Friday and now we have more signs to discuss here. Yes, this could be DRPO “Buy”. It’s shape right now looks perfect with matching all neccesary conditions. First is thrust – perfect. Second – during first penetration of 3x3 DMA market has not reached 3/8 Fib resistance level and this is good. It means that all shorts are still there and steam still in pot. Third – bottoms are very clear and sizable. And finally take a look at recent strong black candle – that is what we’re speaking about every time. When DRPO is forming, we would like to see last assault by bears to push market lower. And when they will fail – trap will clapped. That is what we will monitor on Monday, as well as second close above 3x3 to get confirmation of the pattern.
By the way, confirmation has not bad chances to come, since we have a bullish grabber here that suggests move above recent top and this definitely higher than 3x3 DMA right now...
Conclusion:
Monthly chart has given us very important information on recent week that lets us think that EUR could reach YPS1 around 1.3060 area soon.
Meantime, short-term picture shows that market oversold and stands at strong support. Thus, on coming week some bounce up is possible with minimum target around 1.3405, but action to 1.3475-1.35 is also possible due some reasons that we’ve mentioned in research.
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.
