Sive Morten
Special Consultant to the FPA
- Messages
- 18,639
Fundamentals
Its not a secret that market was waiting JP comments by the end of the week and results of Wyoming meeting. That's why price action through the whole week mostly was preliminary and tight. In fact it is nothing to discuss until Friday. The result was more or less predictable (at least for us) as we've spent a lot of time on analysis and come to conclusion that due multiple fundamental reasons Fed will wait. As tapering partially was priced-in, the statement has triggered upward action on dollar rivals and risky assets. All this stuff sounds good but the logical question is - what's next?
Market overview
The dollar slid on Friday after Federal Reserve Chair Jerome Powell indicated in a highly anticipated speech that the U.S. central bank could start tapering its massive support to the economy could start by year's end, which was not as fast as many in the market had assumed.
Powell said there had been clear progress toward maximum employment and he believed that if the U.S. economy improved as anticipated, "it could be appropriate to start reducing the pace of asset purchases this year."
In remarks to the annual Jackson Hole economic conference, Powell indicated the Fed will remain cautious in any eventual decision to raise interest rates as it tries to nurse the economy to full employment, saying he wants to avoid chasing “transitory” inflation and potentially discouraging job growth in the process - a defense in effect of the new approach to Fed policy he introduced a year ago.
On the separate and potentially imminent decision by the U.S. central bank to begin reducing its $120 billion in monthly purchases of U.S. Treasuries and mortgage-backed securities, Powell said he agreed with the majority of his colleagues that if job growth continues it “could be appropriate... this year.”
The weeks since the Fed’s policy meeting in July “brought more progress” towards repairing the jobs market, Powell said, with nearly a million positions added and continued progress expected. But it also coincided with “the further spread of the Delta variant” of the coronavirus, Powell noted, raising risks that would need to be evaluated as the debate over the bond-buying “taper” continues ahead of the Fed’s Sept. 21-22 policy meeting.
In the days before Powell’s speech, several Fed regional bank presidents said they were eager to get a taper underway, and to reduce the asset purchases fast, with some arguing the shift was needed to prepare for interest rate increases that may be needed sooner than expected.
Data released earlier on Friday showed inflation continuing to rise. The personal consumption expenditures (PCE) price index, a key inflation gauge watched by the Fed, was up 4.2% in the 12 months through July, the third straight month it has been at least double the central bank’s 2% target.
We will be carefully assessing incoming data and the evolving risks,” he said, signaling that Fed discussions about exactly when to reduce the bond-buying program not only remain unresolved, but must be squared against the health and economic risks posed by the highly contagious Delta variant.
Powell’s remarks offered a broad road map of where the U.S. central bank stands as it moves away from policies rolled out to counteract the pandemic’s economic shock, while also accounting for the fact that the health crisis has not passed, and that millions of Americans remain out of work as a result of it.
Expectations for continued job growth are in part based on reopened schools, eased childcare constraints, and a steady return to consumer spending on close-contact activities - developments that may be influenced by the worsening outbreak.
Fed officials “expect to see continued strong job creation. And we will be learning more about the Delta variant’s effects,” Powell said in his speech. “For now, I believe that policy is well positioned; as always, we are prepared to adjust.”
The next major decision, of when to raise the benchmark overnight interest rate from the current near-zero level, will be subject to a “substantially more stringent test,” Powell said, that satisfies Fed officials that the economy has reached maximum employment and inflation is sustainably at the 2% target.
While the current fast pace of price increases is “a cause for concern,” Powell said it would also be damaging if the Fed jumped the gun with a premature decision to hike rates.
“We have much ground to cover to reach maximum employment, and time will tell whether we have reached 2 percent inflation on a sustainable basis,” Powell said. “If a central bank tightens policy in response to factors that turn out to be temporary ... the ill-timed policy move unnecessarily slows hiring and other economic activity and pushes inflation lower than desired. Today, with substantial slack remaining in the labor market and the pandemic continuing, such a mistake could be particularly harmful.”
Here's Powell's five-point rundown on why he's not perturbed:
1) IT'S NOT BROAD-BASED
Inflation so far is coming from sharply higher prices in a limited number of sectors, particularly in goods and services hit hardest by the coronavirus pandemic and for which demand is now fast recovering as the economy reopens.
2) BIGGEST SURGES ALREADY RECEDING
Prices of cars and other durable goods are now stabilizing or dropping after skyrocketing in the summer. "It seems unlikely that durables inflation will continue to contribute importantly over time to overall inflation," Powell said.
3) NO THREAT FROM WAGES SO FAR
Wages are rising, but not faster than productivity gains or inflation in a way that could lead to an upward spiral. "We will continue to monitor this carefully," he said.
4) INFLATION EXPECTATIONS ANCHORED
The market-based and survey-based measures that the Fed looks at indicate that inflation expectations have made a "welcome" return to levels more consistent with its inflation goal but have not risen as fast as actual inflation, "suggesting households, businesses and market participants also believe that current high inflation readings are likely to prove transitory," Powell said.
5) GLOBALLY, THE PRESSURE IS DOWNWARD
Factors such as aging populations in the United States and elsewhere, along with globalization and advancements in technology, are pushing down on prices globally. "There is little reason to think that they have suddenly reversed or abated," Powell said.
After minutes of the Fed's policy-setting meeting in July were released last week, the dollar advanced because most market participants anticipated tapering to begin this year. The dollar began to retreat about 15 minutes before Powell spoke, after James Bullard, president of the St. Louis Fed, reiterated his hawkish view that tapering should begin soon and end by next year's first quarter.
According to Fed watch tool, based on FFR futures quotes market expects more or less valuable change in Fed sentiment from the summer of 2022 and first rate change in Dec 2022 or February of 2023.
U.S. Fed Chair Jerome Powell's wait-and-see approach in a much-anticipated address on Friday gave investors and market participants some reassurance that the central bank's extraordinary efforts to prop up the economy were likely to support riskier assets a while longer. Powell offered no indication on when the central bank plans to cut its asset purchases beyond saying it could be "this year."
Schwab's Jones said the Fed could announce tapering as early as its September meeting if the August employment report due out on Sept. 3 is strong, although weaker-than-expected jobs data could push the announcement to December. Jones added that she does not see any reason for investors to adjust their market positions in light of Powell's remarks and given the slow pace of policy change.
For Jay Hatfield, chief executive officer of Infrastructure Capital Management, Powell's words did little to upset the cart for risk assets. Even if investors believe the Fed is making a mistake in treating inflation as transitory and could hurt riskier assets eventually when it corrects itself, it is not yet time to abandon riskier assets for safe havens.
CFTC Report
This week we could see the impact of Fed minutes but again the reaction on JP statement is not included yet. Based on last week data - EUR position stands fragile as we see massive outflow of investors from the market, despite that open interest shows nominal surplus. Speculators have closed the bulk of long positions and hedgers reduced amount of contracts against EUR appreciation. This shows bearish sentiment for the EUR, at least in the beginning of the week. Recent Wyoming statement should support market for some time, but it was not an absolute surprise and its effect can't stay for too long. Chart shows that positive jump in net position last week was a mistake as trend returns to its own:
Source: cftc.gov, Charting by Investing. com
Next week to watch
#1 NFP Report
With almost two million new jobs created in the past two months, Friday's nonfarm payrolls data for August could prove key as investors assess just how close the Federal Reserve is to scaling back emergency stimulus. A Reuters poll forecast a 763,000 payrolls increase versus a 943,000 rise in July that gave the economy a powerful boost as it started the second half.
But the Delta COVID-19 variant has cast a shadow over the growth outlook, July retail sales fell sharply and one survey showed consumer sentiment slid in early August to its lowest in over a decade. Stocks have largely shrugged off economic worries, sticking near record highs. Another robust jobs number that renews taper talk could change that as Wall Street enters September, historically a shaky month for equities.
#2 EU Inflation data
A slew of preliminary inflation data will enliven the coming week in the euro zone. Germany and Spain kick off the series on Monday, while on Tuesday "flash" August euro zone inflation is expected to show a 2.5% year-on-year rise versus 2.2% in July.
Like many other major central banks, the European Central Bank believes rising inflation is transitory and the long-term outlook remains subdued. But with supply disruptions, exacerbated by the Delta surge, adding to upward price pressures, inflation could prove stickier than anticipated. Both markets and the ECB, which meets on Sept. 9, will pay close attention.
# 3 Consumer sentiment
Stocks enter September near record highs, but a fast-spreading Delta variant and worries that major central banks will soon start unwinding pandemic-era stimulus means investors are reassessing so-called reflation trades. While stock markets have stubbornly marched higher, the breadth of the market gains has narrowed significantly, which means they are being driven by fewer constituents.
So, analysis of recent events and market society reaction on them bring us important information that let us to make judgement on Fed behavior. First is, the one thing we could say definitely and we also mentioned it previously. The importance of coming September NFP report is magnified right now and probably October one as well. But, even with good numbers on 3rd of September hardly we hear tapering announcement on September meeting. FOMC has no meeting in October, so the earliest month to get some changes is November. Poor NFP numbers or signs that inflation and employment are slowing down, ceiling and coming on plateau suggest that the journey postpones on 2022.
Second - we suggest that J. Powell's remarks is a key to forecasting now. He said - "We have much ground to cover to reach maximum employment, and time will tell whether we have reached 2 percent inflation on a sustainable basis". It means that inflation has no dominant role right now. They care only about employment. So, if inflation even jumps to 5% they make no policy adjustments. J. Powell splits tapering from rate change, which means that tapering announcement makes no link to starting of a rate hike cycle. And now just think what tapering is. $120 Bln monthly bond purchasing from the open market. How do you think so-called tapering announcement for $10 Bln off-purchasing makes any difference? De-facto is no, but only psychologically is. It means that market reaction follows just for the first announcement of tapering but it fades very fast and next time announcement of another $10 Bln makes no effect. It will be priced-in already. 120 Bln per month is nothing for $20 Trln bond market and only rate change expectation could make this whale move. Rate change now is expected at 2023. So we have approximately 2 years of relative prosperity for risky assets and dollar rivals. Ok, maybe not 2 cloudless years but 1 year at least - "We're still going to have very easy policy for a year probably and that's good for risk assets," said Kathy Jones, chief fixed-income strategist at the Schwab Center for Financial Research."
And at least 5-6 months of pure happiness until tapering announcement, that should be unlocked by coming NFP report. Finally, I wouldn't overestimate it, guys. Yes it is very valuable and definitely triggers strong market reaction whatever numbers we get. But - Fed sees things wider. They see slowdown in China and drop of sentiment in US as well. Delta now takes higher role for Fed. So, my suggestion that if even we get superb NFP on 3rd of September, chances on tapering announcement on September meeting still will be minimal. I suspect that everything points on November still...
Technicals
Monthly
So, by the end of the month price returns back in triangle body. As we have just two days till August close - EUR has good chances to stay there and add points to bullish background. So, our task on coming week is to find out how reliable this upward tendency. Because JP statement was not an absolute surprises and mostly was expected. This puts the shadow on durability of the rally.
Despite important shifts in sentiment and fundamental background, we do not have any of this kind on a technical side. MACD stands bearish, but fake triangle breakout could let market to start upward action, at least inside of it.
In general technical vital points provide big range to act for bullish context. While market stands above 1.06 low it keeps chances for bullish action. Drop below 1.09 YPS1 will be the strong sign, but right now, a bit deeper retracement doesn't mean yet that everything is over.
Weekly
Here market starts upward bounce from K-area, forming bullish engulfing pattern. And if we wouldn't have uncompleted 1.1621 OP target on daily chart - I would say we could consider long entry. Now it is unclear what will happen with this target.
In longer-term picture - overall trend still stands bearish on weekly. Here we have two major patterns to consider that we've discussed last week.
"222" Buy" pattern. The result of this pattern might be twofold. First is, short-term reaction that could push price to 1.20 area and wide compound H&S pattern might be formed here. Or, alternatively, EUR could start new long-term upside trend if overall background in nearest months will be not dollar supportive.
Jump to 1.20 area could be based on empty Wyoming meeting, as we've said, and potentially another postponing of tapering announcement later. So, this target looks realistic now. Besides, keep in mind DXY 87.40 long term target. We should not write it off by far.
Daily
On Friday we've got bullish reversal candle and in general trend stands bullish here with MACD direction and its divergence. Upward action could continue for some time. At the same time, it is not quite clear what to do with untouched OP. The one thought that I have is volatility on NFP day. With this event in mind hardly investors will be too active on coming week and mostly will wait for the numbers. Extreme volatility on next Friday could let EUR to spike OP target. This is just one of the possible scenarios...
Another interesting moment is EUR chart looks a bit different to Dollar Index, where 3-Drive pattern seems possible as ratios between recent peaks are accurate to 3-Drive. On EUR currency the picture is more blur. Anyway, currently here we do not consider short entry and will look at intraday price performance to understand the strength of recent reaction:
Intraday
Market comes to resistance on 4H chart and here we could recognize only potential H&S pattern. It means that for position taking we need the pullback. And we could check the strength of upward action at once, depending on whether H&S pattern works or not:
1H chart shows that some reaction could follow from 1.18-1.1825 area. Here we have two different extension targets. Reaction on COP might be small, hardly deeper than 1.1750 K-area because of strong upward momentum. But as EUR enters deeper in 4H K-resistance and hits OP target - major pullback could start. We watch for H&S pattern and drop to 5/8 Fib support area.
In a case of direct upward breakout we suggest action to 1.19 area and larger H&S pattern on 4H chart.
Thus, on Monday we not consider any long position taking and wait for reaction on resistance. We also do not consider short positions on daily chart by far. On intraday charts theoretically it is possible once we get some bearish signs around 1.18-1.1840 area.
Its not a secret that market was waiting JP comments by the end of the week and results of Wyoming meeting. That's why price action through the whole week mostly was preliminary and tight. In fact it is nothing to discuss until Friday. The result was more or less predictable (at least for us) as we've spent a lot of time on analysis and come to conclusion that due multiple fundamental reasons Fed will wait. As tapering partially was priced-in, the statement has triggered upward action on dollar rivals and risky assets. All this stuff sounds good but the logical question is - what's next?
Market overview
The dollar slid on Friday after Federal Reserve Chair Jerome Powell indicated in a highly anticipated speech that the U.S. central bank could start tapering its massive support to the economy could start by year's end, which was not as fast as many in the market had assumed.
Powell said there had been clear progress toward maximum employment and he believed that if the U.S. economy improved as anticipated, "it could be appropriate to start reducing the pace of asset purchases this year."
In remarks to the annual Jackson Hole economic conference, Powell indicated the Fed will remain cautious in any eventual decision to raise interest rates as it tries to nurse the economy to full employment, saying he wants to avoid chasing “transitory” inflation and potentially discouraging job growth in the process - a defense in effect of the new approach to Fed policy he introduced a year ago.
On the separate and potentially imminent decision by the U.S. central bank to begin reducing its $120 billion in monthly purchases of U.S. Treasuries and mortgage-backed securities, Powell said he agreed with the majority of his colleagues that if job growth continues it “could be appropriate... this year.”
The weeks since the Fed’s policy meeting in July “brought more progress” towards repairing the jobs market, Powell said, with nearly a million positions added and continued progress expected. But it also coincided with “the further spread of the Delta variant” of the coronavirus, Powell noted, raising risks that would need to be evaluated as the debate over the bond-buying “taper” continues ahead of the Fed’s Sept. 21-22 policy meeting.
In the days before Powell’s speech, several Fed regional bank presidents said they were eager to get a taper underway, and to reduce the asset purchases fast, with some arguing the shift was needed to prepare for interest rate increases that may be needed sooner than expected.
Data released earlier on Friday showed inflation continuing to rise. The personal consumption expenditures (PCE) price index, a key inflation gauge watched by the Fed, was up 4.2% in the 12 months through July, the third straight month it has been at least double the central bank’s 2% target.
We will be carefully assessing incoming data and the evolving risks,” he said, signaling that Fed discussions about exactly when to reduce the bond-buying program not only remain unresolved, but must be squared against the health and economic risks posed by the highly contagious Delta variant.
Powell’s remarks offered a broad road map of where the U.S. central bank stands as it moves away from policies rolled out to counteract the pandemic’s economic shock, while also accounting for the fact that the health crisis has not passed, and that millions of Americans remain out of work as a result of it.
Expectations for continued job growth are in part based on reopened schools, eased childcare constraints, and a steady return to consumer spending on close-contact activities - developments that may be influenced by the worsening outbreak.
Fed officials “expect to see continued strong job creation. And we will be learning more about the Delta variant’s effects,” Powell said in his speech. “For now, I believe that policy is well positioned; as always, we are prepared to adjust.”
The next major decision, of when to raise the benchmark overnight interest rate from the current near-zero level, will be subject to a “substantially more stringent test,” Powell said, that satisfies Fed officials that the economy has reached maximum employment and inflation is sustainably at the 2% target.
While the current fast pace of price increases is “a cause for concern,” Powell said it would also be damaging if the Fed jumped the gun with a premature decision to hike rates.
“We have much ground to cover to reach maximum employment, and time will tell whether we have reached 2 percent inflation on a sustainable basis,” Powell said. “If a central bank tightens policy in response to factors that turn out to be temporary ... the ill-timed policy move unnecessarily slows hiring and other economic activity and pushes inflation lower than desired. Today, with substantial slack remaining in the labor market and the pandemic continuing, such a mistake could be particularly harmful.”
Here's Powell's five-point rundown on why he's not perturbed:
1) IT'S NOT BROAD-BASED
Inflation so far is coming from sharply higher prices in a limited number of sectors, particularly in goods and services hit hardest by the coronavirus pandemic and for which demand is now fast recovering as the economy reopens.
2) BIGGEST SURGES ALREADY RECEDING
Prices of cars and other durable goods are now stabilizing or dropping after skyrocketing in the summer. "It seems unlikely that durables inflation will continue to contribute importantly over time to overall inflation," Powell said.
3) NO THREAT FROM WAGES SO FAR
Wages are rising, but not faster than productivity gains or inflation in a way that could lead to an upward spiral. "We will continue to monitor this carefully," he said.
4) INFLATION EXPECTATIONS ANCHORED
The market-based and survey-based measures that the Fed looks at indicate that inflation expectations have made a "welcome" return to levels more consistent with its inflation goal but have not risen as fast as actual inflation, "suggesting households, businesses and market participants also believe that current high inflation readings are likely to prove transitory," Powell said.
5) GLOBALLY, THE PRESSURE IS DOWNWARD
Factors such as aging populations in the United States and elsewhere, along with globalization and advancements in technology, are pushing down on prices globally. "There is little reason to think that they have suddenly reversed or abated," Powell said.
After minutes of the Fed's policy-setting meeting in July were released last week, the dollar advanced because most market participants anticipated tapering to begin this year. The dollar began to retreat about 15 minutes before Powell spoke, after James Bullard, president of the St. Louis Fed, reiterated his hawkish view that tapering should begin soon and end by next year's first quarter.
According to Fed watch tool, based on FFR futures quotes market expects more or less valuable change in Fed sentiment from the summer of 2022 and first rate change in Dec 2022 or February of 2023.
U.S. Fed Chair Jerome Powell's wait-and-see approach in a much-anticipated address on Friday gave investors and market participants some reassurance that the central bank's extraordinary efforts to prop up the economy were likely to support riskier assets a while longer. Powell offered no indication on when the central bank plans to cut its asset purchases beyond saying it could be "this year."
Schwab's Jones said the Fed could announce tapering as early as its September meeting if the August employment report due out on Sept. 3 is strong, although weaker-than-expected jobs data could push the announcement to December. Jones added that she does not see any reason for investors to adjust their market positions in light of Powell's remarks and given the slow pace of policy change.
For Jay Hatfield, chief executive officer of Infrastructure Capital Management, Powell's words did little to upset the cart for risk assets. Even if investors believe the Fed is making a mistake in treating inflation as transitory and could hurt riskier assets eventually when it corrects itself, it is not yet time to abandon riskier assets for safe havens.
CFTC Report
This week we could see the impact of Fed minutes but again the reaction on JP statement is not included yet. Based on last week data - EUR position stands fragile as we see massive outflow of investors from the market, despite that open interest shows nominal surplus. Speculators have closed the bulk of long positions and hedgers reduced amount of contracts against EUR appreciation. This shows bearish sentiment for the EUR, at least in the beginning of the week. Recent Wyoming statement should support market for some time, but it was not an absolute surprise and its effect can't stay for too long. Chart shows that positive jump in net position last week was a mistake as trend returns to its own:
Source: cftc.gov, Charting by Investing. com
Next week to watch
#1 NFP Report
With almost two million new jobs created in the past two months, Friday's nonfarm payrolls data for August could prove key as investors assess just how close the Federal Reserve is to scaling back emergency stimulus. A Reuters poll forecast a 763,000 payrolls increase versus a 943,000 rise in July that gave the economy a powerful boost as it started the second half.
But the Delta COVID-19 variant has cast a shadow over the growth outlook, July retail sales fell sharply and one survey showed consumer sentiment slid in early August to its lowest in over a decade. Stocks have largely shrugged off economic worries, sticking near record highs. Another robust jobs number that renews taper talk could change that as Wall Street enters September, historically a shaky month for equities.
#2 EU Inflation data
A slew of preliminary inflation data will enliven the coming week in the euro zone. Germany and Spain kick off the series on Monday, while on Tuesday "flash" August euro zone inflation is expected to show a 2.5% year-on-year rise versus 2.2% in July.
Like many other major central banks, the European Central Bank believes rising inflation is transitory and the long-term outlook remains subdued. But with supply disruptions, exacerbated by the Delta surge, adding to upward price pressures, inflation could prove stickier than anticipated. Both markets and the ECB, which meets on Sept. 9, will pay close attention.
# 3 Consumer sentiment
Stocks enter September near record highs, but a fast-spreading Delta variant and worries that major central banks will soon start unwinding pandemic-era stimulus means investors are reassessing so-called reflation trades. While stock markets have stubbornly marched higher, the breadth of the market gains has narrowed significantly, which means they are being driven by fewer constituents.
So, analysis of recent events and market society reaction on them bring us important information that let us to make judgement on Fed behavior. First is, the one thing we could say definitely and we also mentioned it previously. The importance of coming September NFP report is magnified right now and probably October one as well. But, even with good numbers on 3rd of September hardly we hear tapering announcement on September meeting. FOMC has no meeting in October, so the earliest month to get some changes is November. Poor NFP numbers or signs that inflation and employment are slowing down, ceiling and coming on plateau suggest that the journey postpones on 2022.
Second - we suggest that J. Powell's remarks is a key to forecasting now. He said - "We have much ground to cover to reach maximum employment, and time will tell whether we have reached 2 percent inflation on a sustainable basis". It means that inflation has no dominant role right now. They care only about employment. So, if inflation even jumps to 5% they make no policy adjustments. J. Powell splits tapering from rate change, which means that tapering announcement makes no link to starting of a rate hike cycle. And now just think what tapering is. $120 Bln monthly bond purchasing from the open market. How do you think so-called tapering announcement for $10 Bln off-purchasing makes any difference? De-facto is no, but only psychologically is. It means that market reaction follows just for the first announcement of tapering but it fades very fast and next time announcement of another $10 Bln makes no effect. It will be priced-in already. 120 Bln per month is nothing for $20 Trln bond market and only rate change expectation could make this whale move. Rate change now is expected at 2023. So we have approximately 2 years of relative prosperity for risky assets and dollar rivals. Ok, maybe not 2 cloudless years but 1 year at least - "We're still going to have very easy policy for a year probably and that's good for risk assets," said Kathy Jones, chief fixed-income strategist at the Schwab Center for Financial Research."
And at least 5-6 months of pure happiness until tapering announcement, that should be unlocked by coming NFP report. Finally, I wouldn't overestimate it, guys. Yes it is very valuable and definitely triggers strong market reaction whatever numbers we get. But - Fed sees things wider. They see slowdown in China and drop of sentiment in US as well. Delta now takes higher role for Fed. So, my suggestion that if even we get superb NFP on 3rd of September, chances on tapering announcement on September meeting still will be minimal. I suspect that everything points on November still...
Technicals
Monthly
So, by the end of the month price returns back in triangle body. As we have just two days till August close - EUR has good chances to stay there and add points to bullish background. So, our task on coming week is to find out how reliable this upward tendency. Because JP statement was not an absolute surprises and mostly was expected. This puts the shadow on durability of the rally.
Despite important shifts in sentiment and fundamental background, we do not have any of this kind on a technical side. MACD stands bearish, but fake triangle breakout could let market to start upward action, at least inside of it.
In general technical vital points provide big range to act for bullish context. While market stands above 1.06 low it keeps chances for bullish action. Drop below 1.09 YPS1 will be the strong sign, but right now, a bit deeper retracement doesn't mean yet that everything is over.
Weekly
Here market starts upward bounce from K-area, forming bullish engulfing pattern. And if we wouldn't have uncompleted 1.1621 OP target on daily chart - I would say we could consider long entry. Now it is unclear what will happen with this target.
In longer-term picture - overall trend still stands bearish on weekly. Here we have two major patterns to consider that we've discussed last week.
"222" Buy" pattern. The result of this pattern might be twofold. First is, short-term reaction that could push price to 1.20 area and wide compound H&S pattern might be formed here. Or, alternatively, EUR could start new long-term upside trend if overall background in nearest months will be not dollar supportive.
Jump to 1.20 area could be based on empty Wyoming meeting, as we've said, and potentially another postponing of tapering announcement later. So, this target looks realistic now. Besides, keep in mind DXY 87.40 long term target. We should not write it off by far.
Daily
On Friday we've got bullish reversal candle and in general trend stands bullish here with MACD direction and its divergence. Upward action could continue for some time. At the same time, it is not quite clear what to do with untouched OP. The one thought that I have is volatility on NFP day. With this event in mind hardly investors will be too active on coming week and mostly will wait for the numbers. Extreme volatility on next Friday could let EUR to spike OP target. This is just one of the possible scenarios...
Another interesting moment is EUR chart looks a bit different to Dollar Index, where 3-Drive pattern seems possible as ratios between recent peaks are accurate to 3-Drive. On EUR currency the picture is more blur. Anyway, currently here we do not consider short entry and will look at intraday price performance to understand the strength of recent reaction:
Intraday
Market comes to resistance on 4H chart and here we could recognize only potential H&S pattern. It means that for position taking we need the pullback. And we could check the strength of upward action at once, depending on whether H&S pattern works or not:
1H chart shows that some reaction could follow from 1.18-1.1825 area. Here we have two different extension targets. Reaction on COP might be small, hardly deeper than 1.1750 K-area because of strong upward momentum. But as EUR enters deeper in 4H K-resistance and hits OP target - major pullback could start. We watch for H&S pattern and drop to 5/8 Fib support area.
In a case of direct upward breakout we suggest action to 1.19 area and larger H&S pattern on 4H chart.
Thus, on Monday we not consider any long position taking and wait for reaction on resistance. We also do not consider short positions on daily chart by far. On intraday charts theoretically it is possible once we get some bearish signs around 1.18-1.1840 area.
