1. This site uses cookies. By continuing to use this site, you are agreeing to our use of cookies. Learn More.

Forex FOREX PRO WEEKLY, August 26 - 30, 2019

Discussion in 'Sive Morten- Currencies, Gold, Bitcoin Daily Video' started by Sive Morten, Aug 24, 2019.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Joined:
    Aug 28, 2009
    Messages:
    12,422
    Likes Received:
    17,640
    Fundamentals

    A lot of events have happened on this week and almost in all hot spheres - Fed policy, Brexit, tariffs etc. Most interesting, of course, is J. Powell statement. In fact, this week volatility on the market was totally due this statement. Almost the whole week markets were standing quiet.

    As Reuters reports - the dollar slipped from three-week highs against the euro and one-week peaks versus the yen on Friday after Federal Reserve Chair Jerome Powell set the stage for further interest rate cuts, leaning away from earlier comments by other Fed officials who said further easing was not necessary for now.

    Markets were divided on what they thought Powell would say at the Jackson Hole, Wyoming, symposium.
    Some expected he would announce a major stimulus measure to ease a deteriorating global economic outlook, while others believed he would downplay the chances of a September rate cut even though that has been fully priced in by investors.

    In his speech on Friday, Powell straddled the middle of both views, giving few clues as to what is to
    happen next at the September policy meeting. Powell said the U.S. economy is in a "favorable place" and the Fed will "act as appropriate" to keep the current economic expansion on track. The major points of Powell speech are as follows:

    U.S. economy is in a ‘favorable place,’ Fed will ‘act as appropriate’;
    Fed is working to sustain economy that faces ‘significant risks’;
    U.S. economy is close to both of Fed’s goals;
    Slowing global growth, trade policy uncertainty, muted inflation weigh on favorable outlook;
    Premise that healthy U.S. economy needed higher rates was generally borne out;
    Low inflation, not high inflation, is ‘problem of this era’.


    "I don't really know what the market was thinking would be delivered, but if you're betting on another two or three cuts, you wouldn't be dissuaded by this speech based on the headlines," said Richard Franulovich, head of FX strategy at Westpac in New York. "It doesn't look like he has leapfrogged expectations. I guess he's cementing an easing bias, and he's prepared to do more as needed," Franulovich added.

    Before Powell's speech, a chorus of Fed officials preached patience on Thursday and Friday. Cleveland Federal Reserve President Loretta Mester, who did not support last month's rate cut, told CNBC that if the economy continues to perform the way it has, the U.S. central bank "should keep things the way they are."
    Dallas Fed President Robert Kaplan, for his part, said he does not see July's easing as part of a rate-cutting cycle. On Thursday, Kansas City Fed President Esther George and Philadelphia Fed President Patrick Harker said the Fed currently does not need to further stimulate the economy.

    Those comments led some market participants to expect a less dovish tilt from Powell on Friday. Currency markets have in recent months been driven by a shift at global central banks to looser monetary policy as economic demand slows and trade disputes intensify. Money markets price in at least two U.S. rate cuts of 25 basis points this year.

    Here is you could read some comments on recent Powell statement. In general, not all investors think that this is the background for starting of long-term dovish cycle.

    For example, NELA RICHARDSON, INVESTMENT STRATEGIST, EDWARD JONES, ST. LOUIS tells:

    “Markets might confuse chair Powell’s comments of today with Draghi’s comments of a few years ago and misinterpret ‘act as appropriate’ with ‘do whatever it takes’. And that’s the risk.”

    “What I’ve read of the Powell speech has laid out a very dovish framework that may not be met, given what we are seeing in the economy, slight increases in inflation, stronger retail sales. The recent data, except for the manufacturing, don’t really support a strong, aggressive, do-whatever-it-takes monetary stance and yet that’s exactly what the markets are pricing in right now.”


    Although everybody sure that September cut is done, there is no assurance that two more are to come this year and Fed watch tool shows that probability of rate cut in October increased, while in December (for 3rd rate cut) is decreased, which means that mostly markets expect two rate cuts this year, including September one.
    upload_2019-8-24_12-18-11.
    Source: cmegroup.com

    Net EUR bearish speculative positions has dropped on Fed statement, but this decreased was not dramatic, which suggests weighted reaction of the market on JP speech:
    upload_2019-8-24_12-29-47.
    Source: cftc.gov
    Charting by Investing.com


    At the same time, we agree with opinion that USD bearish reaction was too strong as markets overestimated the dovishness of the Fed. We suggest that time for long-term rate cycles is gone. Now is the time for adjustment rate injections to make minor correction of economy course, as Powell said - the problem of nowadays is low inflation. And when rates are near zero, you should carefully use this resource of potential easing or tightening, as there are just few 0.25% steps in your magazine.

    To finalize Fed topic, there is another event has happened and comes from D. Trump side. U.S. President Donald Trump sharply criticized Federal Reserve Chairman Jerome Powell on Friday and said he wouldn’t try to stop the chief U.S. central banker if he offered to resign.

    Trump, departing the White House to travel to the G7 summit in France, told reporters, “I’m not happy with Jay Powell.”

    His comments continued a war of words against Powell that, along with retaliatory tariffs imposed on U.S. goods by China, helped trigger a sharp drop on Friday in the U.S. stock market.

    “I don’t think he’s doing a good job at all,” Trump told reporters as he left the White House shortly before midnight on Friday.

    “I don’t think he’s much of a chess player, but I’ve got him so, you know, that’s what I have,” added the president, who earlier questioned on Twitter who was “our bigger enemy,” Powell or Chinese leader Xi Jinping.

    Asked if he wanted Powell to resign, Trump replied: “Do I want him to resign? Let me put it this way, if he did I wouldn’t stop him.”

    We agree with our forum member who said that hardly D. Trump will take this unprecedented step and fire JP just with few months prior elections, but when head of the country and head of Central Bank have no agreement brings nothing good to the national interests.

    Recent USD drop probably was due not only JP statement but new hype around US-Sino tariffs. D. Trump on Friday lashed back at a new round of Chinese tariffs by heaping an additional 5% duty on some $550 billion in targeted Chinese goods in the latest tit-for-tat trade war escalation by the world’s two largest economies.

    Trump’s move, announced on Twitter, came hours after China unveiled retaliatory tariffs on $75 billion worth of U.S. goods, prompting the president earlier in the day to demand U.S. companies move their operations out of China.

    The intensifying U.S.-China trade war stoked market fears that the global economy will tip into recession, sending U.S. stocks into a tailspin. U.S. Treasury yields also declined as investors sought safe-haven assets, and crude oil, targeted for the first time by Chinese tariffs, fell sharply.

    Trump’s tariff response was announced after markets closed on Friday, leaving potentially more damage for next week. “Sadly, past Administrations have allowed China to get so far ahead of Fair and Balanced Trade that it has become a great burden to the American Taxpayer,” Trump said on Twitter. “As President, I can no longer allow this to happen!”

    He said the United States would raise its existing tariffs on $250 billion worth of Chinese imports to 30% from the current 25% beginning on Oct. 1, the 70th anniversary of the founding of the communist People’s Republic of China.

    At the same time, Trump announced an increase in planned tariffs on the remaining $300 billion worth of Chinese goods to 15% from 10%. The United States will begin imposing those tariffs on some products starting Sept. 1, but tariffs on about half of those goods have been delayed until Dec. 15.

    “All of this adds to uncertainty in terms of geopolitics,” said Fran Rodilosso, head of fixed income portfolio management at VanEck in New York. “Obviously, the uncertainty is with regard to global growth and that has been everyone’s chief concern.”

    Speaking on Brexit situation, German Chancellor Angela Merkel’s comments on Thursday that a solution to the Irish border question could be found before Oct. 31, the deadline for Britain to leave the EU, triggered the pound’s biggest one-day rise against the dollar since May. Against the euro, sterling gained the most in five months.

    But many analysts said the reaction to Merkel’s comments reflected market positioning rather than any confidence Britain and the EU would be able to renegotiate their agreement to avoid a no-deal Brexit.

    “The market is very short and that is naturally going to make the market very sensitive to any news (that makes them think) ... have we got this wrong?,” said Jane Foley, a strategist at Rabobank.

    “I’ve not read an awful lot into these moves,” she said, adding that thin summer liquidity had exacerbated this week’s volatility.


    Kamal Sharma, G10 forex strategist at Bank of America Merrill Lynch, said the market had “over-interpreted” Merkel’s comments. BAML took off its last remaining sterling position before the move on Thursday, and Sharma said the bank prefers to trade sterling volatility instead because “the range of (Brexit) options and possibilities are quite big”.

    Many banks have raised their forecasts for a no-deal exit since Johnson took office, although analysts say that the consensus among most banks is that Britain will still avoid a no-deal Brexit.

    That may be changing, however. Barclays economists this week said a no-deal Brexit was now “the most likely outcome” and “our new working assumption”.

    They also said that the British government’s tactics, including by undermining potential negotiations with the EU, had increased the risk Brussels did not grant an extension to Brexit if London requested one.

    So, what conclusions we could make on long-term perspective? Jerome Powell has confirmed the good pace of US economy, but mentioned some risks. This in general, confirms our opinion that there is no dire need in rate cut. The same thing was said by Fed representatives of regional Banks - Kansas City and Philadelphia. But, in this case - why they will still cut the rates? We see the only reason for that to support existing economy pace as longer as possible. They try slightly to relief interest rate burden to economy, but not too much to not stimulate strong inflation, and let economy keep the course. They try to neutralize possible negative effects that yet to come in advance.

    This means two things to long-term perspective. First is, any upside bounce on EUR will be temporal and downside EUR/USD trend will continue, especially if more demand to safe haven assets will come. But volatility also will grow as dovish steps will increase the pullbacks on EUR/USD.

    Second, this rate cut injections should keep US economy pace at good level and keep positive statistics, which will be second supportive driving factor to USD against EUR in long-term.

    Combining these two issues, and coming EU/UK Brexit turmoil in October suggests that we should treat any upside pullback on weekly/monthly EUR/USD time frames as potential chance to go short. This tendency probably will hold until Fed will keep this strategy, or until situation in US economy will change drastically.

    Technicals
    Monthly


    Taking in consideration everything that we've said above - the long-term technical situation is yet to become interesting as investors are just starting the reaction on Fed strategy. The analysis shows that there are no clear understanding yet as investors think situation in cycles torn between dovish cycle or not-yet-starting dovish cycle. In reality, situation stands different as no cycle on horizon.

    August performance has no significant impact on monthly picture. July shows USD appreciation with tail close. After breakout of major 5/8 Fib support, price still stands below it, without any attention to revanchist sentiments of dovish policy followers.

    We still have a kind of bearish engulfing pattern here. In longer-term view, take a look that EUR stands for a long time below upper border of rectangle, while normally, bullish market has to jump up after re-testing it. Dropping back inside rectangle and standing there, although near the border, is a sign of weakness. August performance as minor upside bounce and drop back to the lows also stands in favor of bearish sentiment.

    Nearest downside target stands around 1.0950 - YPS1.
    eur_m_26_08_19.

    Weekly

    Volatility has dropped significantly on the market, so that we actually were not needed monthly/weekly for few months. On coming week as well, major trading process probably will stand on daily and intraday charts.

    Here we could say that JP comments postpone potential downside breakout and EUR keeps it position inside the channel, which makes possible deeper upside reaction on COP target inside the channel. This is first scenario that we consider for coming week.

    Second scenario also is based on bearish engulfing pattern, that we've discussed last week and potentially it could form downside butterfly on daily chart. But we turn to this setup only if we will see the failure of the first one.

    eur_w_26_08_19.

    Daily

    So, following to ideas on weekly chart, here we could get mutually exclusive setups. First one you could see on the chart. Due to existed upside impulse, set by Fed and Trump on Sino tariffs comments, market has formed reversal session, which itself suggests at least minor upside continuation. Potentially, we could get upside AB=CD pattern - either 1.0 or 0.618 (we will see), and "222" Sell setup. According to this setup we should keep an eye on some minor intraday retracement to go long against reversal session's lows.

    Second scenario will be triggered, if EUR will stop upside action and drop below the "R" lows. This drop cancels upside AB=CD pattern and triggers weekly bearish engulfing, which could take the shape of downside butterfly. But Fed background makes this scenario as not highly probable, at least on coming week:
    eur_d_26_08_19.

    Intraday

    The first upside potential target is COP at ~1.1190:
    eur_4h_26_08_19.

    For position taking we do not need a lot of information - just recent upside swing, and 1.1010-1.1014 area in particular. This is a combination of Fib level, Pivot point, natural support area and trend line (which agrees with 50% support that is not shown here).
    eur_1h_26_08_19.

    So, let's focus first on this setup and see how market will play it.

    Conclusion:

    The new information on Fed policy does't change our long-term bearish view as the policy doesn't suggest real dovish interest rate cycle, which could be interpreted as coming recession but mostly as accommodative, supportive policy to US economy. Although rate cuts will trigger upside reactions on EUR/USD and increase volatility they should not break the major downside tendency as rate cuts aimed on US economy pace support at current levels but not struggle with recession.


    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.
     
  2. FreddyFX

    FreddyFX Sergeant

    Joined:
    Oct 3, 2007
    Messages:
    352
    Likes Received:
    144
    I think Donald the Clown is damaging more issues in the world than helping and as long as this tit-for-tat with China continues, the FED decisions will have no real impact, whatever they decide.
     
    luckyanand12, kureja and Sive Morten like this.
  3. Sive Morten

    Sive Morten Special Consultant to the FPA

    Joined:
    Aug 28, 2009
    Messages:
    12,422
    Likes Received:
    17,640
    Freddy, this story reminds me the question - what is the first, the egg or the chicken. Here is the same stuff. What's the first - Trump's tariffs and Fed reaction on them, or Fed reaction which is anticipated to coming new Trump's tricks.
     
  4. luckyanand12

    luckyanand12 Private, 1st Class

    Joined:
    Jun 7, 2011
    Messages:
    26
    Likes Received:
    9
    Thanks Sive for this detailed fundamental and technical analysis. I will stay tuned with you for daily videos. I am waiting for my buy limit to get triggered at 30% retracement of 'whole swing up' on 1H.
     
  5. minimax

    minimax 2nd Lieutenant

    Joined:
    Dec 2, 2010
    Messages:
    1,263
    Likes Received:
    155
    I think this would be just bottom of A wave....
     

    Attached Files:

  6. FreddyFX

    FreddyFX Sergeant

    Joined:
    Oct 3, 2007
    Messages:
    352
    Likes Received:
    144
    Let me say this.
    I think a world leader needs to be an example for many and do his best to be knowledgable, but lying and cheating people will eventually cut his troat.

    Meanwhile I am making killer trades on the EURUSD, lol.
     
    Sive Morten and minimax like this.
  7. minimax

    minimax 2nd Lieutenant

    Joined:
    Dec 2, 2010
    Messages:
    1,263
    Likes Received:
    155
    Hehe, about killer trades - I expect no more than 1.1127 before down for more than 20 pips.
     
  8. Sive Morten

    Sive Morten Special Consultant to the FPA

    Joined:
    Aug 28, 2009
    Messages:
    12,422
    Likes Received:
    17,640
    Morning everybody,

    Let's keep up with EUR. Now we still consider upside scenario as it is still valid, although EUR stands at crucial level. Bearish scenario with daily butterfly is also on the table, but it is not time yet to launch it.

    On daily, as JP has set good upside momentum, trend stands bullish and hold recent drop and EUR has formed bullish reversal session - we still hope that at least some upside continuation will happen. Here, on daily we draw AB=CD with 1.1265 target, but it also could be smaller COP extension. Setup on daily chart will be valid until "R" lows hold.
    eur_d_27_08_19.

    On 4H chart you could see our COP target:
    eur_4h_27_08_19.

    And now is the most interesting stuff, why we said that EUR stands at vital area. On 1H chart EUR has reached downside XOP, 5/8 Fib support and natural support/resistance zone. This is more than enough to support bullish market and push it higher. If this will not happen - this will lead to negative consequences and add big points to bears. First is, market will break last strong support area, second - erase Friday's rally, and, finally drop back to former consolidation. In this case 1.10 lows breakout will be just the question of time.
    eur_1h_27_08_19.

    So, those who have longs - try to move stops to breakeven as soon as possible and control market performance there. Bears - wait for breakout of this support area before taking any position.
     
  9. ED SCHAFFER

    ED SCHAFFER Private, 1st Class

    Joined:
    Dec 30, 2008
    Messages:
    62
    Likes Received:
    88
    I really like the way Sive finished this article with clear cut instructions to BOTH BULLS & BEARS as to what to do. This is most beneficial to novice traders who may be just getting started in Forex trading & who are "learning the ropes" as they go. A good article all around for all levels of traders..
     
    Sive Morten likes this.
  10. Sive Morten

    Sive Morten Special Consultant to the FPA

    Joined:
    Aug 28, 2009
    Messages:
    12,422
    Likes Received:
    17,640
    Morning guys,

    EUR behaves tricky as it has failed our initial bullish test to hold above major intraday support. This is negative thing, of course, but is not the disaster yet.

    If you take a look at recent price action on daily - you'll see that EUR very often in recent 1-2 months shows deep retracement (to 78.6-88% minor Fib levels) especially after important data release of Fed statement. This doesn't let us to take position right now, but we still could keep an eye on this ability as well.

    In general, the fact that EUR after supportive Fed statement turns down again indicates, that market doesn't treat Fed statement as bearish to USD. As emotional spike is done - demand for USD returns on the market. This is what we've discussed in our recent weekly report.
    eur_d_28_08_19.

    So, what we could do in current situation. As EUR has failed bullish test and lost the chance to start growing painlessly, now we have no choice but wait for the patterns, whatever they will be - bullish or bearish. Entry without patterns, in situation when EUR has dropped through major support area could be rather expensive journey. In general, on 1H chart we see that support exists by long shadows, but still EUR is tending lower. It seems, that today it would be better to monitor price action in 78.6-88% Fib support area and see whether EUR will keep the tendency of deep retracement, may be some patterns will be formed either.
    eur_1h_28_08_19.
     
    chalo, Bonati, ED SCHAFFER and 4 others like this.

Share This Page