Forex FOREX PRO WEEKLY, December 05 - 09, 2022

Sive Morten

Special Consultant to the FPA

This week once again we have big bulk of different information. Today we take a look more closely on recent J. Powell statement, EU inflation report and recent NFP report. While scandal around Twitter publication that we've covered in our Telegram channel and Chinese economy condition we keep for Gold report.

Market overview

The dollar dipped on Friday as a Federal Reserve official said rate hikes are likely to slow and as investors took profits from earlier gains after jobs data and wage inflation were surprisingly strong in November and muddied the outlook for how hawkish the U.S. central bank will be. The greenback initially jumped after data showed that employers added 263,000 jobs in November, well above estimates of 200,000.

Investors zeroed in on an increase in average hourly earnings by 0.6% in the month, above expectations for a 0.3% gain, and the participation rate, which declined to 62.1%, Marc Chandler, chief market strategist at Bannockburn Global Forex in New York, said. "Both of those measures reflect more than the nonfarm payroll growth number the tightness of the labor market," he added.

But the dollar gave back gains as investors took profits before the weekend and as Fed officials spoke on the outlook.

Chicago Fed President Charles Evans said that the pace of increases is likely to slow, but added that the U.S. central bank will likely need to raise borrowing costs to a "slightly higher" peak than envisioned in forecasts from September. Richmond Fed President Thomas Barkin also said the United States is likely in a sustained period in which there will remain a shortage of workers, complicating the Fed's aim of getting labor demand back into balance.

The greenback had tumbled after Fed Chairman Jerome Powell said on Wednesday that it was time to slow rate hikes, raising hopes that the Fed was closer to the end of its tightening cycle. Data on Thursday also showed that inflation is moderating, with the personal consumption expenditures (PCE) price index rising 0.3% after advancing by the same margin in September. In the 12 months through October, the PCE price index increased 6.0% after advancing 6.3% in September.

"Markets are really buying into the pivot story from the Fed," ING FX strategist Francesco Pesole said.

The next major U.S. economic indicator will be consumer price inflation data due on Dec. 13, one day before the Fed concludes its two-day meeting. The U.S. central bank is expected to increase rates by an additional 50 basis points at the meeting. Fed funds futures traders are now pricing for the Fed's benchmark rate to peak at 4.92% in May.


So, here is confirmation of our thoughts guys from ING bank. Markets have swallowed the bait. Things that we've discussed last time and have provided in-depth analysis of recent Fed minutes. In fact, J. Powell has said nothing new on Wed. We already have explained why we think Fed position as indecision one rather than acknowledgement of inflation defeat. Currently another question seems more important - what Fed is going to do next?

Usually guys, we put some thematic charts when we speak on sentiment or consumption or real estate or labor market. Unfortunately I can't attach more than 10 charts to single post. Today I've decided to show you the US economy "at whole" that you could see what is going on in reality and understand why markets are wrong. Just take a look at this:

Here you could see dynamic as it is. Real Estate market in all aspects is dropping, unemployment is rising, activity in production and service sector is decreasing as well as overall sentiment. I do not put an inflation here that you probably remember. We also have considered it last time. Surprisingly, we've got two times greater monthly wage inflation on Friday. That probably will make Fed job more complicated.

Besides we have other big disbalances on the US Job market. In general the figures of labor statistics in the United States are hardly reliable, but most likely, the general trend for deterioration is taking place. Indirectly, we could confirmation this with the duration of the last working week, that was 34.4 hours, compared to the previous value of 34.5. Employers are reducing the burden on staff.

The number of people employed in the United States continues to grow against the background of a record number of open vacancies exceeding 10 million people and growing demand, using the resource of depletion of savings and credit momentum. The number of employed exceeded the pre-pandemic level by 0.7% or 1 million people, but this is lower by 5.2 million in accordance with the potential trend based on the 2010-2019 trend and lower by about 7-8 million in accordance with unsecured demand.

In order to normalize supply and demand, it is necessary either to bring down demand by at least 8-10%, or to increase employment by 7-8 million people, or to increase labor productivity or find a balance between the three directions of compensating for the gap. This is not happening yet, because the more the Fed raises rates, the higher the demand for loans, although it should be exactly the opposite. Businesses and the public see a fictitious profit/premium/benefit between the current loan rates and the inflation rate, the Fed rates.

Logic is simple here - people are accelerating the demand for loans in the United States, because loan rates have increased less than the Fed rate and inflation. It will end in the prospects of defaults and bankruptcy, but first we must get enough of debts to the eyeballs. For example, let's suggest that domestic exchange rate collapsed, but price tags in stores did not have time to change in accordance with the new exchange rate, or have changed by a smaller amount. People see this gap, which causes a very specific material benefit and buy back goods whose prices have changed less than the currency has weakened.

It means that until we have demand (even due burning of savings and new consumer loans) - we need working staff to serve the consumption. That's why employment is growing and we have vacancies around despite rising "Challenge job cuts" indicator. But soon situation will change and stable rising of continues claims are the first bell.


Now, lets go back to main topic - what to expect from the Fed. First of all, we've noted last time that although inflation is declined, it clearly doesn't match to the hopes of the US monetary authorities, as they said. But there is another important circumstance: an increase in the rate leads to dangerous consequences, an increase in the cost of servicing the debt that has grown greatly over the past decades and enforced by sharp decline in the money supply.

We can't know the exact statistics figures here, neither inflation, nor the burden on borrowers. Official values of inflation indicators show a decrease (see the previous review), but their real values are unknown to us. It is possible that the picture in reality is not as optimistic. And certainly these indicators, even in their official form, are greater than the leaders of the monetary authorities would like to see. Accordingly, there are two major scenarios exist .

The first is - they believe that everything is going "as it should", but a little slower than we would like to. And therefore it makes sense to wait to see if inflation will decrease "by itself". Second: they definitely see that the negative consequences of raising the rate and reducing the money supply are increasing and hope that inflation will continue to decline, since it is simply dangerous to raise the rate.

Last time we've briefly mentioned causes of the 1930s crisis (Great Depression). Generally accepted reason is an excessive tightening of monetary policy and the Fed is based own decision on this experience. We suggest that inflation will not decrease to the 2% desired by Powell and his team. The structural component will remain and, quite possibly, will even increase, since the tightening of monetary policy leads to an acceleration of the structural crisis (as it happened almost 100 years ago). We have explained this phenomenon few times already

Today, it is possible to estimate the structural component of inflation around 8%, but this is a very general estimate, which, moreover, comes from official figures that may be seriously underestimated (and no one knows how much). If the Fed will raise the rate just slightly, by mid-January, based on December inflation figures, we should see either a slight increase or flat inflation indicators. In this case the Fed after the New Year will be forced to return to the issue. Well, we will be able to understand which of the two scenarios described above corresponded to reality. For now, we will only note that the general economic processes in the United States do not inspire optimism.

Situation in EU is hardly better

First - I would like to show you the bulk of data also. And we see here the same picture - negative tendencies could be seen in PMI, sentiment, employment, inflation etc. You do not need to know exact numbers to make conclusion on overall tendency. Consumption is depressed, unemployment is gradually rising, sentiment and PMI's stand in "recession" areas, Real Estate market data also shows downside tendency. I could put here additionally some country-specific numbers from France, Italy, Spain etc., but it is not necessary as they stands in similar tendencies.

Now let's take a look at recent EU inflation data. Here we start to see the same processes as in the US. Last week we already said, that sharp reversal of Germany PPI index could be the dangerous sign of destructive processes in economy, which is slowing down, but not a sign of improvement.

Inflation in the Eurozone is expectedly decreasing on the trajectory of reducing energy costs, but that's where the good news ends. This trend is expected, as energy inflation is clearly an outbreak that sooner or later but has to converge the level of structured inflation. In general, EU inflation remains rather high – 10% YoY compared to 10.6% in October and 9.9% in September, i.e. after a slowdown, this is the second worst result in 42 years.

For the month, the decline in the general consumer price index was 0.1%, where energy made the main contribution to the decline, decreasing by 1.9% for the month.
It is important to note that the inflation rate excluding energy continues to grow, reaching 7% YoY. Food products continue to set historical records, accelerating to 13.6% YoY and 0.9% m/m.

Consequently, the inflation rate excluding energy and food is 5% YoY, stabilizing at the highest levels in three decades. It is this structural level of inflation that we need to focus on, excluding volatile components. The growth in prices for non-energy goods is 6.1%, and for services 4.2% YoY, slowing slightly from 4.3% in September.

Among the large Eurozone countries in Germany, the CPI is 11.3%, in Italy – 12.5%, France – 7.1%, Spain – 6.6%, a strong release of inflationary pressure occurred in the Netherlands – 11.2% against 16.8% in October. Low inflation in Spain is due to the low participation of destructive energy inflation.

Due to the high comparison base of 2022 (now inflation rates are high), energy inflation will decrease next year, and in the second half of 2023 it will make a negative contribution, but structural inflation is becoming more stable.


Macroeconomic data shows a serious deterioration in the entire global economy. In the US, this is primarily construction data and expert assessments of the state of the industry, but labor statistics also looks suspicious, in the EU — data on sales and inflation. Industrial stagnation has clearly begun in China, not to say "recession". In such a situation, "push the brake pedal" is extremely dangerous


As an example of what the Germany leaders could be aware of, we can recall Fed net negative interest expenses. Keeping any details aside, the chart shows how far this indicator has broken away from the long-term averages. Such a situation inevitably requires some kind of reaction, because it means that something is going completely not with the plan.
Besides, it shows why Fed members are scared. The situation is going out of the control and it is vitally to find the reasons (the obvious one — the rate cannot be raised anymore!), but also to develop and implement a new model of monetary policy management!
So some panic among the US monetary authorities is justified. Another thing is that the deterioration of the economy continues and for this reason it is necessary to act in any case. That's why the Fed leaders could start taking drastic steps, especially since it is becoming more and more difficult to maintain various pre-bankruptcy institutions, such as Credit Suisse.
So, we will see what ECB will do at nearest meeting and whether this will change the overall balance, but we suggest that it is too early to withdraw hawkish Fed policy and suggest that tightening is over. Besides, EU and ECB are just entering in the stage where the US is standing already. So, they also will get bad surprises, and I'm not sure that EUR could take over it better. The one thing that we could accept, based on recent action that a bit deeper retracement could happen before market will turn down again. Right now long-term vital bearish levels are not broken, so we do not have as technical as fundamental reasons to cancel our 0.9 target.


Here we keep watching for potential B&B "Sell" pattern that could start from 1.058-1.075 area. Price has closed above 3x3 DMA (not shown) and we need EUR to touch some major Fib resistance level. 3/8 has more chances to become the one. We very similar patterns on GBP and DXY as well. Besides, as we've discussed, on GBP it is closer to realization.

Theoretically B&B starting point is not limited by only 3/8 Fib level. It could be any Fib level if it has been reached within 1-3 closes above 3x3 DMA. So, if EUR hits 5/8 level of 1.12 within next two months - B&B could be still valid. But...

Right now we're mostly watching for nearest resistance because as EUR as GBP are overbought on weekly chart. Fed moves for 0.5 on December and 0.25 on February are mostly priced-in already. And only more hawkish ECB and BoE policy could push EUR and GBP higher. We will see...

Besides, here MACDP comes. Appearing of the bearish grabber and due to uncompleted 0.9 target, B&B hardly stops just at minimal target. It might become good setup for taking mid term bearish position. Now it is not ready yet and stands in progress, but we need to keep tracking it.

Appearing of DRPO here is hardly possible, just because we do not have fundamental background for major reversal just yet (or it is unknown). That's why, B&B "Sell" is more logical in current situation and let's focus first on it.


Weekly chart stands mostly the same. Market comes closer to overbought level that agrees with K-resistance. More than enough background for starting of B&B. Reaching of K-area also give us weekly bearish "Stretch" pattern. All together, especially if we get monthly bearish grabber - these patterns could create excellent context to justify short entry:


Here we make no changes to our Friday's conclusion. Despite short term intraday downside reaction due high wage inflation numbers, EUR remains on upside way. Since it is not at overbought yet, and has not touched major resistance - upside target of 1.0575-1.0595 area has good chances to be met next week:



4H chart despite minor pullback keeps bullish trend valid. NFP retracement has led to grabber appearance, that suggests further upside action:

Market has dropped precisely to K-support area. Now 1H trend also has turned bullish. Nearest target stands at 1.0566 here, but supposedly EUR could climb slightly higher, maybe by forming upside butterfly here. Taking of a new long position looks tricky as target stands too close. Still, if you want it is possible to use minor Fib levels from recent upside swing for position taking, with stops under K-support.
Could you elaborate a bit on the rate hiking and the effect of that? If the ECB will start to hike from current levels and FED is slowing the pace, wouldn't that suggest that euro would gain maore until the ECB policy catches up with where the FED is? Or do you expect the FED will hike agressively next year and that is not priced in?
Could you elaborate a bit on the rate hiking and the effect of that? If the ECB will start to hike from current levels and FED is slowing the pace, wouldn't that suggest that euro would gain maore until the ECB policy catches up with where the FED is?

If everything will happen as you've described - yes, we should get longer-term upside bounce on EUR. But with one very important details - US inflation has to stay stable or moving down.

Or do you expect the FED will hike aggressively next year and that is not priced in?
I'm sure that if they could - they would keep high pace of hiking. But they can't do this, current levels are critical for US economy stability. Hardly they will hike aggressively. Next background for USD strength will come from ECB rate hiking slowdown, as they will come to the same moment where Fed already at. Because inflation in EU is even stronger, the economy structure is more sophisticated, i.e. they will have more problems. Spain, Portugal, Greece, Italy will feel the pain earlier, right at first steps of rate hiking.
Morning guys,

So, EUR has turned down a bit yesterday, Gold has shown stronger action, but it is not enough to make a conclusion that reversal has started already. On daily EUR, in general, action looks not too impressive:

On 4H chart the same - price just re-tests previous top. Our grabber has worked nice btw.

So, current performance shows not sufficient bearish context for position taking. That's why, I think that we need to wait a bit longer. For example, watch for H&S pattern here, on 1H, at least. Monthly B&B is big pattern. Partially conditions are met, so big pattern has to show itself clearly on lower time frames. Theoretically you could try to anticipate forming of bearish context, but it cares more risk. I prefer to wait.
Tough year for the traders, hard to read the market with all Central Bank interventions and the war...
One example, Bridgewater fund with big short exposition on Stocks, first 6 months, +32 Billions, next 2 months they loose 38 Billions and they finish the year with a -6 Billions and unsatisfied clients..
I guess the sellers are totally fu*** right now, and half of the traders are now on risk off mode for the year, maybe we still have little room for some upside actions before the big down. That would be in accordance with the big zones we re reaching on dollar, eurodoll, stocks and cryptos.
I keep my bearish bias for the end of the year.
Stay Safe, thanks Sive for your great work.
Morning everybody,

Today we've got small but valuable add -on. This is bearish grabber on daily chart. It could be seen only on CME Futures, (at least FX Choice shows that we do not have it). I have some (gut) feeling that this is it, guys, this is starting of the monthly big retracement. The reason why market is so lazy seems twofold. Its a end of financial year and pre-Xmas time, when everybody calculates bonuses and think about assets relocation. Second - it is expectations of CPI and the Fed next week. Due recent NFP numbers degree of uncertainty slightly increased, and new CPI could shift balance in favor of 0.75% rate change again.

Thus, once again I could speak on two ways of trading. First is, some anticipation, for aggressive traders, who're ready to take more risk and take position a bit in advance of evident reversal signs. It is possible to use the grabber. Second way is conservative - wait for some pattern, say H&S on 1H chart, release of CPI and Fed. Then make a decision... Both ways have own adv/disadv.
Morning everybody,

Market performance is becoming more and more quiet. Maybe because of expectation of coming PPI tomorrow and CPI+Fed on Tue next week, maybe by some other reason. But now, as longer market stands around, as more evident picture becomes. Performance that we see right now is difficult to call bearish. Grabber that we've discussed yesterday also has been erased, so this attempt was not successful:

On 4H chart market stubbornly stands above previous tops, which is also not a bearish type of action. Now, tight consolidation and very gradual action is more typical for consolidation then reversal:

The same is on 1H chart. Now the price shape becomes more clear and it is forming triangle consolidation. Inside the triangle we have reverse H&S pattern. Whether to trade it long or not - this choice is up to you, but definitely in this situation it would be better to wait with taking new short positions. Upward action could be very short-term, just the spike to daily XOP target around 1.0623 area, or, it more extended action, if coming data and Fed will be very poor for the US Dollar.
Thanks for the update. It wont budge so easily. Perhaps for a 2nd or 3rd try it would give a clear view.

PS.: could you link a document about the basic Dinapoli signals and their definitions? Is that already available on the channel? 1000xThanks.
Thanks for the update. It wont budge so easily. Perhaps for a 2nd or 3rd try it would give a clear view.

PS.: could you link a document about the basic Dinapoli signals and their definitions? Is that already available on the channel? 1000xThanks.
I think you will find something here.
If you look you can find Dinapoli's book online.
Thanks for the update. It wont budge so easily. Perhaps for a 2nd or 3rd try it would give a clear view.

PS.: could you link a document about the basic Dinapoli signals and their definitions? Is that already available on the channel? 1000xThanks.
I think you will find something here.
If you look you can find Dinapoli's book online.

Yes, and few terms you could find here as well: