Sive Morten
Special Consultant to the FPA
- Messages
- 18,727
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.
(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.