FOREX PRO WEEKLY, December 07-11, 2015

[Sive Morten]

Fundamentals

(Reuters) - The U.S. dollar regained some ground against the euro on Friday after European Central Bank president Mario Draghi said the ECB could deploy more stimulus if needed, leading traders to reestablish short positions in the currency.

Draghi said the ECB is confident its latest measures will allow it to achieve its inflation target but stands ready to do more monetary stimulus if needed.

The comments came after the ECB announced a bare-minimum easing package on Thursday that disappointed expectations for a more dramatic move and led traders to scramble to unwind hefty short bets against the euro.

The euro hit a session low of $1.08360 after Draghi's comments, but did not stray far from Thursday's elevated levels. The euro posted its biggest one-day percentage gain against the dollar in nearly seven years on Thursday and hit a one-month high of $1.09810.

The euro remained on track for its biggest weekly percentage gain against the dollar in seven months.

"Are they doing their best to smooth the market and stem any panic? Yes, absolutely," said Greg Anderson, global head of FX strategy at BMO Capital Markets in New York, in reference to Draghi's comments. He said Draghi's remarks may have encouraged people to reestablish short bets against the euro.

Before Draghi's remarks, the euro was little changed against the dollar despite stronger-than-expected November U.S. jobs data that reinforced expectations that the U.S. Federal Reserve would hike interest rates for the first time in nearly a decade later this month.

"It’s solidified now: the Fed will raise rates" at its December meeting, Anderson said. The Labor Department data showed U.S. nonfarm payrolls increased 211,000 last month.

The jobs data helped the dollar gain against the yen, since rate hikes are expected to boost the dollar by driving investment flows into the United States.

“The (U.S. jobs data) guarantees the Fed tightening, and the dollar/yen is up as a result of that," said Kathy Lien, managing director of FX strategy for BK Asset Management.

The euro was last down 0.67 percent against the dollar at $1.08680 . The dollar index, which measures the greenback against a basket of six major rivals, was last up 0.76 percent at 98.363.

The dollar was last up 0.49 percent against the yen at 123.200 yen. The dollar was last up 0.36 percent against the Swiss franc at 0.99690 franc .

Speaking on CFTC data, guys, we have only ones that were on Wednesday, before ECB. Anyway, picture shows that net short speculative position has increased, as well as open interest. It means that investors have taken new shorts. At the same time, take a look - you can see absolute minimum of speculative positions, and right now EUR stands very close to extreme point. Extreme values of shorts does not necessary mean global reversal, but it could be the reason for meaningful retracement.

Technicals
Monthly
So ECB has made this week by comments on Thursday. Comments and assessment of Draghi speach are different and even opposite. Thus, some analysts tell that ECB announced insufficient measures and investors have expected even more dovish steps and that's why EUR has jumped, since market priced in already stronger measures. While others tell that measures were extremely dovish, QE prolongation provides confidence for carry traders and as a result demand for EUR has increased...

Despite what really it was, technical picture was forced to change focus due external impact. Recently we mostly were focused on downward continuation to parity. Right now we mostly will focus on what could happen inside the circle. There are a lot of different possibilities of different scale.

First scenario - market just could continue move down. Especially if recent rally was mostly technical. As you can see our bearish grabber and dynamic pressure pattern have not quite reached target - former 1.0460 low was not reached. Butterfly pattern is still valid and market was falling like a stone to its 1.27 target, though only oversold was able to stop it for some time. Thus, moving to 1.618 target which is a parity is still possible.
Second scenario is more interesting. If there is indeed some fundamental background with this rally, we could get deeper upward retracement. By the end of December we could get bullish grabber, or, potentially DRPO "Buy" LAL pattern. DRPO will be LAL (Look-alike) because market already has done 3/8 retracement up between bottoms of potential DRPO. This makes pattern a bit weaker. Anyway it could work. In this case bounce could reach as far as 1.20-1.21 area - 50% level. Still it will not break yet overall long-term bearish picture.

That's why it is extremely important what will happen inside the circle within coming 1-2 weeks. Because this is a key to long-term tendency.
My thought currently is downward action looks more probable, just based on calculating bullish and bearish points. So let's see whether situation will change or not.

Weekly

Here situation is relatively simple. The most obvious pattern that could be formed here is Double Bottom. If we indeed will get it, then EUR could creep as far as to 1.25 area. At the same time, it will clear the failure of this pattern - if EUR will drop below it's lows.

Although action up looks not bad - pay attention that it was held by MPR1. And this will be one of the important indicators. If market will break it up - this will increase chances on further upward continuation and vice versa - failure to break MPR1 will be in favor of bearish breakout and continuation.

Finally, we also should pay attention to possible W&R of 1.0460 lows. If market will break them for short time and then return right back up, creating W&R - this will not be the failure of Double bottom, but confirmation. W&R is very typical for Double Bottoms. W&R is also will be welcome for our monthly patterns - grabber and dynamic pressure.

Daily
We mostly have discussed daily picture yesterday. Due recent rally market has formed DiNapoli Directional patterns. We could treat it probably as B&B "Sell" as we've discussed. Thrust down is a bit choppy, but may be it will be suitable for B&B pattern. By upward action market has reached major Fib levels.

IF we do not want to treat it as B&B, we could treat it as "Stretch" Sell pattern, because EUR also has hit overbought at major Fib level. As B&B as Stretch gives the same signal - down. But both patterns are mostly tactical. Still they are important for us, because we could take short position with small risk and high chances on success. Also these patterns gives high probability of moving stop to breakeven.

Since we do not know what will happen - either market will break lows down, or it will continue move up, B&B and Stretch could become excellent chances for trading and could clarify this. For example, if EUR will not stop at minimal B&B target and continue move down - chances on bearish breakout will increase. So, they give us chance to stand aside, but stand with position and watch will happen next.

If you by some reason would like to take long position - do not do this right now. Wait, at least, when market will leave overbought area.

4-hour
To take short position (if you do not have it yet), we need to get some reversal pattern on intraday chart. One we've got on Friday, this was DRPO "Sell" on hourly chart. It has started to work, but overall action is too slow that is not typical for DRPO... So, we do not exclude that some other pattern could be formed and market could show another leg up due upside momentum.
For that purpose watch for possible bullish grabber here, on 4-hour chart. If it will be formed, then do not take short position, since EUR probably will form some another reversal pattern, say, butterfly.

Hourly
Those of you, who have taken short on DRPO "Sell" - you could keep it but move stop at breakeven as soon as possible due reasons that we've announced above. NFP data has not given great assistance to USD yesterday.

It is not the fact yet, that upward leg will happen, but anyway it is better to be under insurance of B/E stop. Upward action really could happen, also because 3/8 support coincides with WPP. If EUR will test it and hold - this will be clear sign of possible upward continuation and particularly this could lead to appearing of bullish grabber on 4-hour chart.

Tactical target of possible move down stands at 5/8 Support around 1.0680

Conclusion
In short-term perspective we will try to take scalp short position based on DiNapoli directional patterns on daily chart. For that purpose we need to catch reversal pattern on intraday charts.
In longer-term perspective we need find out first how market will behave above 1.05. Only bearish breakout will become a clear sign of further downward continuation. While if retracement will start - it could reach as far as 1.20-1.21 area.


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.

 

[Sive Morten]

Good morning,

(Reuters) - The U.S. dollar held firm against commodity currencies on Tuesday and hovered near decade-highs against its Canadian peer, which has come under renewed pressure this week due to tumbling global oil prices.

Commodity currencies also remained on the defensive after Chinese trade data for November did little to soothe concerns about China's economic slowdown.

OPEC's inability to agree on a production ceiling last Friday meant that supply will continue to depress oil prices. The decision gave investors the green light to sell crude and currencies of oil exporters such as Canada and Norway.

"The decline in oil prices... will not be a one-night trade. Anticipate further downward pressure on oil prices, bond yields and commodity currencies," said Richard Grace, chief currency and rates strategist at Commonwealth Bank of Australia.

"With no major U.S. economic data until U.S. retail sales on Friday, commodity price themes will drive trading this week."

Crude oil futures on Tuesday remained close to near 7-year lows. On Monday, they tumbled 6 percent and touched their lowest levels since February 2009.

The U.S. dollar will probably stay firm against the Canadian dollar in coming months, given the weakness in oil prices and the differing outlook for U.S. and Canadian monetary policies, said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

"I think what it all comes down to is the fact that the Canadian economy looks weak," Murata said, adding that the U.S. dollar will probably rise to C$1.40 in the first half of 2016.

While the Federal Reserve is seen likely to raise U.S. interest rates at its policy meeting next week, and to gradually raise them further in 2016, the Bank of Canada is not expected to raise interest rates until the first quarter of 2017.

The Australian dollar fell 0.3 percent to $0.7243 as this week's tumble in oil prices weighed broadly on commodity currencies.

The euro edged up 0.2 percent to $1.0853 , staying well above last week's trough of $1.0523.

After the vicious short squeeze sparked by disappointment over the European Central Bank's modest easing measures, investors are wary about quickly re-establishing bearish euro positions.

The dollar slipped 0.2 percent against the yen to 123.09 yen .

So, on daily EUR we see that our resistance is working and holding market from further upside action. Now the major question is whether EUR will drop a bit lower to complete our B&B target or we will get some other action.

On 4-hour chart now we see normal reasonable bounce up, since EUR has reached support area of Fib level and WPP. At the same time, if we will take a look at hourly chart, we do not see any siigns of upside thrust out there. So, currently it still looks like smooth bounce up as reaction on support.
It makes us think that we still could count on further downward continuation that probably will take a shape of AB-CD pattern. As EUR likes 50% retracement - we suggest that downward action could re-establish somewhere from 1.0895-1.09 area. In this case AB=CD target will be precisely at 5/8 Fib support and coincide with B&B target:

 

[Sive Morten]

Good morning,

(Reuters) - The currencies of major commodity producers such as Australia and Canada steadied on Wednesday, letting them nurse big losses suffered the past two days from a selloff in oil and bulk commodities.

Most of the action this week has been confined to commodity currencies after OPEC members failed on Friday to agree on an oil production ceiling, triggering a renewed selloff in oil.

The slide in commodities has dampened investors' risk appetites, lending some support to low-yielding funding currencies such as the euro and the yen this week, although their moves have been relatively modest.

The euro last traded at $1.0901 , up 0.1 percent on the day, having pulled up from Tuesday's low around $1.0830.

"Every time we see risk aversion, we see the market paring back short euro positions, short yen positions," said Jesper Bargmann, head of trading for Nordea Bank in Singapore, adding that any weakness in European equities could trigger such short-covering in the euro.

Still, the euro's moves this week have been very mild compared with last Thursday's 3.1 percent surge after the European Central Bank disappointed with a modest easing.

The dollar eased 0.1 percent against the yen to 122.77 yen , having pulled back from Tuesday's high near 123.40 yen.

"The main focus for markets remained oil prices and equities, with the CRB index hitting fresh 13-year lows overnight and oil prices touching seven-year lows," analysts at ANZ wrote in a note to clients, referring to the Thomson Reuters/CoreCommodities CRB index.

Commodity currencies gained a bit of respite on Wednesday as oil prices edged higher, although the Canadian dollar and Norwegian crown were still wallowing near their lowest levels in over 10 years against the greenback.

The U.S. dollar was last at C$1.3575 , having risen on Tuesday to as high as C$1.3623, the weakest level for the Canadian dollar since mid-2004.

Against the Norwegian crown, the greenback last stood at 8.7486 crowns , having scaled a 13-year peak of 8.8194 crowns on Tuesday.

The Australian dollar held steady at $0.7215 . There was limited reaction to data showing China's consumer inflation picked up slightly in November

The New Zealand dollar slipped 0.2 percent to $0.6628 . Uncertainty over whether the Reserve Bank of New Zealand would cut interest rates on Thursday has kept investors wary.


Today guys, we probably will take a look on NZD. Right now EUR and GBP are still coiling around recent thurst, and we do not have any progress yet there. May be Friday Retail Sales report will move market in one or other direction.
Meantime, on NZD our long-term setup still holds and market has completed next step on a way to taget. If you remember we mostly deal with big morning star pattern on monthly chart. It has been formed right at strong support area. That's why chances on upward bounce looks not bad.
Last week we've traded long entry in upward continuation, based on B&B "Buy" pattern. It has worked perfect and even has doubled its target, so you should done not bad money if you've traded it.
In fact on daily chart we have large AB=CD pattern with minor target at 0.69 area. Major retracement which is BC leg already has been formed. It means that if market indeed is bullish, it should not show such retracement any more until it will hit the target:
View attachment 22534

At the same time you can see that NZD has hit solid resistance area recently - overbought and MPR1 and now stands with normal and logical retracement. But right now it comes to crucial point of it. Yes, retracement is OK, but as we've said it should not be too extended down.
On 4-hour chart as you can see, NZD has completed the target of our H&S pattern - 1.618 AB-CD extension. Now it comes to support area. First one is former neckline and K-support area, while slightly lower we have WPS1, MPP and major Fib level.
View attachment 22535

It will be perfect if NZD will stuck somewhere around and turn up again. Also keep an eye on daily chart for possible bullish grabbers.
The red line for bullish scenrio will be 0.6560 Fib support, probably. If market will break it down then NZD could fail upside continuation to 0.69 area. This is invalidation point for our trading plan.
You could trade it differently. Either apply scale in with minor entry around neck line, then adding more at 5/8 Fib support. Or use Minesweeper tactic - drop time frame, wait for bullish reversal pattern around support levels, or, wait for grabber on daily chart... It is difficult to predict all possible scenarios that could appear. But right now NZD still keeps chance on upward continuation.

 

[Sive Morten]

(Reuters) - The dollar struggled to take back some lost ground on Thursday after sharp losses from investors paring dollar-long positions, while the Australian dollar soared after an unexpected increase in jobs there caught investors by surprise.

The Australian dollar reached a high of $0.7333 , pulling away from the previous session's two-week low of $0.7169. It last stood at $0.7291, up 0.9 percent.

The Aussie's move "was fuelled by the overnight dollar-selling story," said Bart Wakabayashi, head of forex at State Street in Tokyo.

"The fact that there seems to be an unwinding of dollar holdings at the moment gave it that extra push," he said.

Another notable mover was the New Zealand currency, which rallied after the Reserve Bank of New Zealand cut interest rates but said further easing should not be needed.

The kiwi dollar climbed to a high of $0.6782 , more than two full U.S. cents above the previous session's low of $0.6562.

The euro edged down about 0.1 percent to $1.1009 but remained above the $1.10 level, bolstered by a central banker's suggestion that markets had been expecting too much stimulus from the European Central Bank.

The common currency scaled a one-month peak of $1.1044 on Wednesday, extending last week's 2.8 percent short-covering rally after the ECB fell well short of delivering the aggressive easing many investors had anticipated.

Responding to accusations of ECB miscommunication, Governing Council member Ewald Nowotny on Wednesday said it was market analysts who failed to assess properly signals the institution was sending, and that they should have paid more attention to economic fundamentals.

The greenback edged up about 0.2 percent against its Japanese counterpart to 121.62 after suffering its biggest one-day drop in over three months against the yen, breaking out of the past month's 122.23-123.77 range.

Market participants said the yen benefited from its safe-haven status as risk appetites continued to be suppressed by jitters over a rout in commodity prices.

Oil had a choppy session but eventually ended lower for a fourth day after the market ignored an unexpected drawdown in U.S. crude stockpiles to focus on a build in distillates.

With the euro and yen on the front foot, the dollar index slid to 97.223 on Wednesday, its lowest in over a month, and was last up about 0.1 percent at 97.454.

Analysts said investors appeared to be paring dollar-long positions ahead of next week's Federal Reserve policy review, at which an interest rate hike is widely anticipated.

"The extent of USD weakness over the past week reduces the danger of a post-Fed squeeze on USD longs and makes it less likely that the Fed Chair will dwell heavily on foreign exchange risks when she speaks at the press conference," analysts at BNP Paribas wrote in a note to clients.

Weaker oil prices helped the dollar hold its ground against the Canadian dollar, which languished near an 11-year trough of C$1.3623 per USD set on Tuesday. It last traded at C$1.3553.

China's yuan, meanwhile, weakened after the central bank set the midpoint at a more than 4-year low for the second day, a sign Beijing is quietly permitting the currency to depreciate after it was included in the International Monetary Fund's reserve basket.

Guided by the midpoint, the spot market opened at 6.4300 per dollar, its weakest open since Aug. 12. It was last at 6.4382.

So, guys, today is a bit difficult choice - what to put in update. NZD situation is sitll interesting and our yesterday entry was just near perfect. While right now we have not bad scalp "Buy" Setup on JPY. So let's better take a look at JPY, since we havn't watched over it too long and NZD has longer setup that will be valid tomorrow as well...

On Daily JPY market has completed upside AB=CD pattern target. Now we see logical retracement that has happened after it. Right now market is not at oversold but it has hit MPS1:

On 4-hour chart we have excellent thrust down, while market also has completed some targets. They are - range breakout, butterfly extension and 1.618 AB-CD target. Now it stands in upside bounce. Actually, guys, we have perfect potential B&B "Sell" pattern:

on 30m chart market is forming AB-CD pattern. It has target around 3/8 Fib resistance level. That's being said - 4-hour Fib level will be Agreement resistance where B&B "Sell" could start. If we would suggest that this will indeed happen, then target will be around 120.40, i.e. profit potential 60+ pips. Not bad for hourly trend:

 

[Sive Morten]

Good morning,

(Reuters) - The dollar steadied on Friday, given some breathing space after a recent surge by the euro lost momentum in wake of dovish comments by a policymaker, while profit-taking trimmed some of the Australian dollar's big gains made on an unusually strong domestic jobs report.

The Aussie was down 0.5 percent at $0.7247 after soaring more than 1 percent to a high of $0.7335 on Thursday after data showed Australia's jobless rate had hit a 19-month low in November.

The euro was little changed at $1.0936 after shedding about 0.7 percent overnight. It was forced back from a 1-month high of $1.1044 scaled midweek after ECB Governing Council member Erkki Liikanen said Thursday the central bank stands ready to ease monetary policy further if required.

An overnight rebound on Wall Street, which ended a 3-day losing run, also slightly improved risk appetite and nudged up U.S. debt yields in favour of the dollar.

The common currency was still poised to end the week on a 0.5 percent gain, having soared after the ECB delivered a much tamer-than-expected monetary easing package late last week and disappointed euro bears.

The greenback may have suffered big losses against the euro this week but the seemingly inevitable divergence in U.S. and European monetary policy was expected to continue supporting the dollar in the longer term. The Federal Reserve is widely expected to hike interest rates next week for the first time in nearly a decade.

Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo, noted that whether investors continue to cover short positions in the euro when German bond yields have stopped rising is a key factor deciding if the common currency can sustain its recent gains.

"Unless a powerful dollar-bearish factor emerges, the euro's recent bounce is likely to peter out," he said.

The dollar was up 0.4 percent at 122.06 yen , putting further distance between a 1-month low of 121.075 plumbed earlier in the week. The dollar was still on track for a 1 percent weekly loss versus the yen. The safe-haven Japanese currency attracted bids this week as a slide in commodity prices bruised investor risk appetite.

Elsewhere, the South African rand fetched 15.3885 per dollar , struggling not too far from a fresh record low of 15.4895 hit overnight. Investors have dumped the rand, their confidence rattled when South African finance minister Nhlanhla Nene, known as a fiscal conservative, was sacked on Wednesday.

Nene's dismissal comes after rating agency Fitch last week downgraded South Africa to BBB-, a notch above "junk" status, citing a further weakening in economic performance and potential. Fitch said Thursday that Nene's exit raises "fiscal policy questions."

"It is difficult to imagine the rand bottoming out anytime soon, but I don't think its decline will strongly impact emerging market currencies in general," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

Lower oil prices kept other commodity-linked currencies on the defensive. The Canadian dollar touched a new 11-1/2-year low of C$1.3654 to the greenback.

Norway's crown fared a little better. The Norwegian currency fetched 9.47 crowns per euro , with data overnight showing a rise in inflation helping it move away from a 10-week trough of around 9.60 struck earlier this week.

China's yuan hit a 4-1/2-year low of 6.4515 to the dollar. Markets have been rife with speculation that Beijing would allow the yuan to depreciate after the currency's inclusion into the IMF's Special Drawing Rights basket.

Today we, guys, will take a look at EUR. As market was not able to confirm B&B "Sell" pattern, there were a lot of questions what will happen there? And now we will try to shed some light on this question. At least we will show one possible scenario...

On daily chart we've discussed possible B&B "Sell" pattern. But after small downward reaction - market has turned up again. But it does not mean that deep retracement will not happen. Long-term bearish momentum is still here and sooner or later will press on market. It means that retracement should happen anyway, but unfortunately it has not happened by B&B "Sell" pattern.
Now, as you can see EUR is not at overbought area. Also here we will need 1.11 level - 50% Fib of recent major swing. I do not have it on the chart, but keep in mind this level.

Picture on 4-hour chart makes me think that we could get 3-Drive "Sell" pattern as the trigger for bearish retracement. Take a look EUR has reached new top that is 1.27 of recent retracement. As EUR likes 50% correction and if it will complete it - next 1.27 extension will stand around 1.618 from the first one. Both of these levels will coincide around WPR1 and (bingo!) around daily 50% 1.11 level. Also we have bearish divergence iwth MACD here...

I'm not sure that we will get definitely this scenario, but right now it looks very nice and probable, especially based on different levels combination and agreement. So, let's keep watching. If we indeed will get 3-Drive - it could trigger deep retracement down on daily chart and release power of bearish momentum that still stands here.

 

[Rocketbunny]

Whatvis DRPO stands for?

 

[stelore]

Morning Master Sive.....
Thanks for NZDUSD view, but I'm focused on EURUSD, can we still rely on AB=CD pattern on 4H timeframe?

Or we might expect/think about going long?
Thanks a lot