Forex FOREX PRO WEEKLY, December 02 - 06, 2019

Sive Morten

Special Consultant to the FPA
Messages
12,709
Fundamentals

This was short week, guys, due Thanksgiving celebration and number of events also was small. Next week process should be more interesting. So, today we mostly discuss some common thoughts around FX market and EUR in particular.

Despite holiday sentiment, we still have got some statistics and continues talks around US/China agreement.

As Reuters reports - The dollar rose against a basket of currencies on Wednesday on upbeat U.S. data in subdued trading as uncertainty about a possible U.S.-China trade deal lingered during a U.S.-holiday shortened week.

U.S. economic growth picked up slightly in the third quarter, rather than slowing as initially reported, on a stronger pace of inventory accumulation and a less steep decline in business investment. Separate data showed new orders for key U.S.-made capital goods increased by the most in nine months in October and shipments rebounded.

“The dollar is definitely supported by the data,” said Alfonso Esparza, senior currency analyst at OANDA in Toronto. “The Fed has signaled that is done for the year and good data validates that thinking,” he said. “The other thing is that this is basically the end of the week for U.S. markets and no one wants short dollar exposure going into the Thanksgiving weekend,” Esparza said.

The index pared gains after U.S. data, excluding volatile food and energy components, showed the personal consumption expenditures (PCE) price index edged up 0.1% last month after being unchanged in September.

“A 0.1% m/m rise in the core PCE deflator left the Fed’s preferred core inflation rate at a well below-target 1.6%. That underlines that interest rates are unlikely to be raised again for the foreseeable future,” said Andrew Hunter, senior U.S. economist at Capital Economics.

While recent reports that the United States and China are close to agreement on the first phase of a trade deal have helped support risk sentiment, much uncertainty remains about the outlook for the trade talks.

Lingering trade tensions have generally supported the greenback as investors view the United States as relatively well-positioned to weather a full-blown trade war.

Sterling was up 0.31% on Wednesday, recovering from early losses following the third poll in a row that showed a narrowing lead for the governing Conservative Party before Britain's Dec. 12 election. Investors awaited the release of the YouGov seat-by-seat predictions of the election outcome. Last time the multilevel regression and post-stratification model accurately predicted the 2017 hung parliament.

Sterling briefly touched near seven-month highs against the euro on Thursday on a poll predicting a comfortable election victory for the ruling Conservatives, then slipped to end the day marginally lower. British Prime Minister Boris Johnson is on course to win a majority of 68 in parliament, according to a model from pollsters YouGov.

Sterling “will rally further if Wednesday’s poll from YouGov ... is confirmed on Dec. 12,” Stephen Gallo, currency strategist at BMO Capital Markets, said, referring to election day. Though he noted that an increase in the pound “from here is rather limited, with risks during the Brexit transition now being considerably underpriced by the FX market.”

The Conservatives could win 359 seats out of 650, up from 317 in the 2017 election and the best result for the party since Margaret Thatcher’s 1987 victory, according to YouGov’s model. Following the poll, the likelihood of a Conservative majority rose to 67.5% from 63%, according to odds from betting agencies, while the probability of a hung parliament - in which no party has a majority - fell to 28% from 32%.

Michael Hewson, chief market strategist at CMC Markets, said that he expects the pound to trade in the $1.27-$1.30 range until the election result is announced.
A Conservative majority could see the pound head towards $1.40, he said, as markets are not fully pricing in the Conservative lead shown by pre-election polls.

Commerzbank FX strategist Thu Lan Nguyen said that she would expect a rally in the pound if the Conservatives won a majority, because “there is still some scepticism about the polls”.

Once US was out from holiday on Friday - the euro hovered around its lowest levels for this month as the dollar held its poise on hopes that the United States and China would be able defuse their damaging tariff war with a preliminary trade deal.

The U.S. currency also gained from data showing the world’s biggest economy is on a firm footing, which prompted investors to scale back their rate-cut bets.

U.S. economic growth picked up slightly in the third quarter, data showed on Wednesday, in contrast to other indicators pointing to a slowdown in global activity.

The Federal Reserve also flagged an upbeat outlook amid signs of labour market strength and a possible turnaround in business investment.

That prompted a pullback on rate cut bets for this year and next, with the market now pricing in a 5% chance the Fed will hike rates next month and most expecting it to hold steady.

Still, “any euphoria related to this is likely to be limited,” said Thu Lan Nguyen, a currency analyst at Commerzbank, noting that the rise is due to the change in the calculation methodology.

Members of the European Central Bank are discussing the potential for a new definition of the inflation target, which now stands at below, but close to 2%.

Nerves persisted within markets as traders navigated a blizzard of trade war headlines that offered few clues as to when or how a truce might be agreed between Washington and Beijing.

China has vowed to impose “firm countermeasures” after U.S. President Donald Trump’s approval of a bill backing Hong Kong’s pro-democracy protesters on Wednesday, but is yet to indicate whether they would have any bearing on trade talks.

Negotiators between the world two biggest economies have been trying for weeks to hammer out a ‘phase 1” trade deal, with markets hoping an agreement could be signed before year-end.

“There seems to be pretty good optimism around the trade talks going on between U.S. and China,” said William O’Loughlin, a portfolio manager at Rivkin Securities in Sydney. “Though as we know that can change on a dime...the rally doesn’t feel like a euphoric, super-bullish rally, it does feel like climbing the wall of worry.”

Indeed reaction was short term as dollar gave up early gains to trade slightly lower on the day against a basket of currencies on Friday. This mostly confirms what we've said about US/Sino saga - as longer it lasts as smaller reaction of the market will be on any news until final signing or failure.

Another thing that we rare mention here is market volatility. As we do not trade options, this useful analysis tool plays limited role in our view, but now we have absolutely unique situation when volatility stand at long-term lows. It is important, because low volatility is a sign of coming strong action, although it doesn't tell when this action should happen. As a rule, volatility is rising on falling market or wide whipsaw market, while shows gradual decrease on upside rally after major collapse. This is because of greed and fear. Fear is stronger and acts faster. This is the reason why any collapse is few times faster than any rally, which is driven by greed and develops slowly.

Following this logic, who knows, may be we are at the eve of EUR/USD drop... Volatility is relative indicator, not direct and it should be viewed in overall context. Currently we do not have strong reasons to suggest EUR/USD collapse, but they could appear and we should be prepared to this.

Trading ranges in the euro/dollar pair this week were the narrowest in 20 years, falling to around 20 pips on Monday, analysts at Nordea pointed out.
And implied euro/dollar volatility, calculated using option prices on a three-month horizon, is trading at 4.27%, the lowest on record, having fallen from 7.16% in January.
One-year volatility — or vol in traders’ parlance, is also at a record low of 5.48%, down two percentage points this year . Market participants reported relentless demand to sell options which are often used to hedge against unexpected currency moves. The renewed euro-dollar vol slump has taken a forex volatility index near record lows hit in April at 5.48%

This week, guys, we do not have CFTC data as it will be released on Monday, but Fathom consulting prepared fresh report on China economy situation, which mostly confirms our view that China care greater hurt in this war and more depends on trade peace rather than US. Here is some extracts from report:

Fathom’s underlying measure of economic activity in China, the CMI 2.0, slowed to 4.1% in the twelve months to September, nearly a third less than the official measure of 6% growth in Q3.
1575106928176.png


China’s economy has slowed by more than can be attributed to the drag from trade tensions alone. This is a consequence of structural issues at home, such as the reliance on the old-growth engine powered by manufacturing and investment, combined with a struggling domestic environment. Evidence of this is highlighted in shadow measures of consumer expenditure, which we believe to more reliably predict consumption patterns within China. The measures suggest that the Chinese authorities’ aim of rebalancing towards a more consumer-led economy is not succeeding.
1575106993614.png

At the same time, private sector firms, which we assume to be an important component of ‘other’, the red line in the chart below, have slashed investment; this together with weaker consumer expenditure points to substantially weaker growth in activity across the economy as a whole.
1575107068329.png

The Chinese economy has been plagued by overcapacity, mainly as a consequence of its old model of growth, in which excessive investment was pumped into the economy. One tactic is to export some of the spare capacity to China’s trading partners. But even with this policy action, China still faces an environment of excess capacity, and thus falling investment could be viewed as a positive development, or at least an unsurprising one, with businesses responding to diminishing marginal returns. However, the simultaneous downturn in consumption is not desirable. A downgrade to growth is the result.

Technicals
Monthly


This week price action was in tight range and barely impacts on monthly picture. The only thing that is important here is the bottom of reversal month. While it stands valid - EUR keeps chances on upside continuation. As we said, we've got reversal month by October's close. November stands inside one by far, showing retracement back in October's body. In general this is not something uncommon and absolutely natural process. At the same time, taking broader view - forming of reversal bar doesn't make any impact on major tendency by far, as EUR still keeps LH-LL trend. Reversal bar will complete its mission if it will lead to breaking of this tendency.

In general recent changes here were in favor of EUR due US statistics and more dovish Fed policy, at least in short-term. But this week data has improved and new achievement of US/China negotiations stands on horizon. It stops for awhile EUR appreciation. Now we need to keep close eye on key technical levels that are vital for longer-term tendency. Market should not erase October rally as it was in June. Otherwise EUR continues to drift lower to 1.03 area.

Now we come closer to the end of the year and second issue that might be interesting on EUR is YPS1. If EUR, by the end of the year will be able to hold above YPS1 - 2019 action could be treated as retracement of 2016 - 2017 rally. And EUR will keep chances on extension in 2020.

That's being said the major intrigue stands around fundamental background now - it is changing. It is interesting whether its change will be strong enough to make impact on monthly chart and long lasting tendency here. As economy in EU hardly will improve soon - the major driving factor depends on US - how better/worse situation will be there.

eur_m_02_12_19.png


Weekly

Our life could be easier, if we would get bullish grabber here, but we didn't. I'm not sure how representative this week action is, but EUR was able to hold above daily 5/8 Fib support area and we follow to our trading plan that is based on monthly bullish reversal setup. Besides, despite the retracement here - trend is still bullish.

Still bearish reversal week still stands in progress here. As it has triggered minor downside continuation within two weeks, now it is important what will happen around major daily support level. As we mentioned previously overall situation stands tricky. Downside reversal happens in the middle of the range and not at some resistance area, which looks bearish as well. Despite trend stands up, we still could recognize signs of bearish dynamic pressure - price is falling while MACD shows uptrend. And this fact increases importance of price action around daily support as it will be vital for short-term perspective.

eur_w_02_12_19.png


Daily

So our former setup is done here. Hopefully we were smart enough to not focus on big targets and choose near standing COP. According to our trading plan - bears should be out there, booking result, while bulls could step-in. But this is only the half the work. Here we have more important task is to understand what this rally is - just minor pullback before further collapse or reversal according to monthly candle.

As we've got reversal day, it seems that at least some upside continuation should happen. MACD Histogram also shows bullish divergence around major support area. Thus, we have at least some bullish background.

eur_d_02_12_19.png


Intraday

So our 3-Drive is done well, but it is already reached top between 2nd and 3rd Drives and completed its target. In the beginning of the week, I suggest that we could focus on this one:
eur_1h_02_12_19.png


On 4H chart we have upside reversal in a shape of bullish engulfing pattern, which suggests two things. First is - upside action probably will take the shape of AB=CD pattern. Second - before upside continuation some downside retracement should happen, i.e. BC leg should be formed. Besides, market has formed upside reversal swing which also suggests deep retracement.

Taking it all together lets us suggest a kind of reverse H&S pattern here with initial pullback out from the K-resistance to 1.10 area (or lower) and then upside continuation to OP target and Agreement with 1.1052 Fib level.

When & if this setup will be completed, then we will think what to do next. Coming week is promised to be interesting with NFP on board by the end of the week.

Conclusion:

Conclusion today the same as last week - currently fundamental background stands stable and lets market to be driven by its own factors. Major events should happen in December and this keeps long-term charts intact. Thus, we keep up with our trading plan and continue trading setups that we have on daily/intraday frames.
 

sveckar22

Private, 1st Class
Messages
45
Thank you Mr. Sive for your amazing work. I find it so inspiring and fascinating every time your analysis works exactly to the pip. You were expecting a bounce from COP and when the price was there on Friday I saw some news about North Korea and Euro bounced exactly from the COP target.

Hi guys, due to US Holidays last week, COT report will be released today on Monday 2nd of December instead of Thursday 28th of November, so I will be posting it as soon as we get it, in the meantime, I prepared some charts with some of my potential trading ideas and targets.

USDJPY:

1.12.19 USDJPY W.JPG


1.12.19 USDJPY D.JPG



On the Weekly and Daily chart, we see higher highs and higher lows as the market is moving towards the major OP target on the weekly and the daily chart. This was so far supported by the COT analysis.

On the lower time frames, I can’t decide which measurement of the swings is more appropriate in the given situation. In the first picture, the XOP target was completed perfectly, although C point stands only a few pips higher than A point, I saw it done like this before.

In the second picture, I would consider this ABC setup but the C point was not a retracement to at least 0.382 FIB, but was pretty close. But B point was also OP target of minor AB=CD on the hourly chart so I guess C point could be valid.

This is a confusing situation for me because in the scenario from first picture XOP was hit and we should wait for a retracement but in the scenario of the second picture price is now coiling around COP target and the market could continue higher without deeper retracement. I also know sometimes there are no patterns working exactly as our techniques would suggest.

1.12.19 USDJPY 4H 1.JPG


1.12.19 USDJPY 4H 2.JPG


EUR/GBP:

A quick observation of this very symmetrical AB=CD pattern on the daily chart which could provide us with at least a technical bounce, and considering this was +800 pips move even a small bounce could be nice.

1.12.19 EURGBP D.JPG


EUR/JPY:

This it seems is working out really nicely for the bulls, also BC leg on Weekly and Daily chart is very flat and slow, a confluence of the target and support around 124.00.

On 4H timeframe chart, we saw no retracement on hitting the COP target.

1.12.19 EURJPY W.JPG


1.12.19 EURJPY D.JPG


1.12.19 EURJPY 4H.JPG
 

sveckar22

Private, 1st Class
Messages
45
GBP/JPY:

The market was consolidating around the OP target for five weeks without forming a retracement or bears showing any power, which makes me think XOP target could be reached.

1.12.19 GBPJPY D.JPG


Looking for a retracement on the 4H timeframe.

1.12.19 GBPJPY 4H.JPG


USD/CAD:


Despite net Short positions decreasing the previous week, the market couldn’t break through this trendline and form a higher top. Some important fundamental events this week so I am not eager to take any positions before things are clearer.

1.12.19 USDCAD D.JPG


AUD/USD:

The market was coiling around 0.618 FIB support for few days and is now trading below it, some important statistics being released for AUD this week so I am interested to see which of these two scenarios will play out.

1.12.19 AUDUSD D.JPG


On the 4H timeframe, the C leg is really slow, but larger COP and smaller XOP target coincide nicely. Bigger OP target would challenge this year’s lows.

1.12.19 AUDUSD 4H.JPG


USD/CHF:

And this is what I am looking at on USDCHF, but passing through the area ob C and B tops is crucial I think.

1.12.19 USDCHF D.JPG
 

sveckar22

Private, 1st Class
Messages
45
Hi mate, excellent insight on EUR/GBP. It might be useful for EUR performance as well...

Thank you.

Would you in a situation like this consider market hitting the OP target, or is market almost reaching the target just short of it by 15pips on an 800 pips pattern and bouncing enough to be looking for some patterns to go long, I guess this is very situational but what is your general rule if you have any? Hope my question was clear :)

2.12.19 EURGBP 4H.JPG
 

Sive Morten

Special Consultant to the FPA
Messages
12,709
Morning everybody,

So, EUR has shown good rally recently due poor ISM numbers, which were released below 50 level, indicating US economy contraction. As a result, EUR has reached and exceeded our short-term target, going directly to intraday XOP.

On daily chart, as momentum yesterday was really good, we could set the new target, which is COP around 1.1164:
eur_d_03_12_19.png


While on 4H chart recent action we could tread as Double Bottom. BTW its classic target almost coincides with daily COP and shows just 20 pips difference. As market has hit our XOP and price stands near 1.11 daily resistance - some pullback is possible, but hardly it will be too deep. EUR is not at Obought right now. Most probable that we could get retracement to 3/8 levels - 1.1048-1.1055, "222" Buy" patterns also could be formed there. Then, upside action has good chances to continue:
eur_4h_03_12_19.png
 

sveckar22

Private, 1st Class
Messages
45
Hi guys, I would like to point out a few things from this week’s COT analysis. I will continue with the full analysis from this Sundays onwards, since the late release due to holidays messed up with my schedule a bit.

AUD/USD:

Increase in Shorts as well as Longs from Non-Commercial traders this week led to just a small decrease in net Short positions.

1.12.19 AUD COT.JPG


USD/CAD:

Non-Commercial traders have been adding to their Long positions and decreasing their Short position again. Which led to a decrease in net Short positions.

1.12.19 CAD COT.JPG


GBP/USD:

A small decrease in Long positions and a bigger decrease in Short positions led to a decrease in net Short positions.

1.12.19 GBP COT.JPG


USD/JPY:

Increase both in Long and Short positions, but the increase in Long positions was greater which led to an increase in net Long positions.

1.12.19 JPY COT.JPG
 

Sive Morten

Special Consultant to the FPA
Messages
12,709
Morning guys,
So our US/China saga continues and situation becomes worse, at least as it is presented in news. Stocks and gold have shown strong action yesterday, although in opposite directions. Meantime, in FX market impact was not as strong, at least on EUR. Actually it stands at the same place where we've left it yesterday ;)

So, I thought, today we could take a look at something else, say, GBP. Here we keep our short-term bullish view. Polls now suggest confident BJ victory and this should support GBP. Scalp and event traders are starting to accumulate bullish "rumors" positions to close them after December, 9.

Technically we could consider 1.32 target area as it stands below Obought area. In fact, GBP has not resistance levels till 1.32 level. This level is a cluster of different targets - XOP and butterfly on daily:

gbp_d_04_12_19.png


... and our reverse H&S XOP on 4H chart. Meantime we're coming gradually to first H&S target around 1.3040 area:
gbp_4h_04_12_19.png


On 1H chart market stands at resistance right now - AB=CD target and butterfly extension, which suggests 30% pullback. But in general overall strategy till elections is "buying on deeps", using "222" patterns, any retracement to strong Fib areas. Now any economical news and stats take backseat while politics comes on first stage and it will warm up situation around GBP.
gbp_1h_04_12_19.png
 

Sive Morten

Special Consultant to the FPA
Messages
12,709
Morning guys,

Our GBP setup works well, so let's take a look at EUR again. Yesterday market has made attempt to break 1.11 daily resistance level, but this attempt was unsuccessful. It means that our retracement setup is still stand on the table:
eur_d_05_12_19.png


On 4H chart we have bearish grabber and a kind of stop grabber type of action that confirms our suggestion:
eur_4h_05_12_19.png


On 1H chart we easily could recognize H&S shape, which suggests downside AB=CD action to 1.1044 area where is OP stand. Take a look that OP creates an Agreement with 1.1045 Fib level on 4H chart.
It means that bears could consider this setup with H&S, while bulls should wait either when retracement will be over or if bearish scenario will fail and price move above 1.11, erasing H&S and coming back to the top:
eur_1h_05_12_19.png
 
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