Forex FOREX PRO WEEKLY, December 10-14, 2018

Sive Morten

Special Consultant to the FPA
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Fundamentals

The major event this week was NFP release. Effect was mixed, but we suggest that data was dollar supportive. Despite major number shows 155 K instead of 200K, but it doesn't play major role anymore, because US employment market is highly saturated. 180K new job places appears every month within 1.5 years on average. It is normal that room for new jobs becomes tighter.
What is really worthy of our attention is wage inflation that stands at the same 3.1% level on annual basis and November inflation has increased - data shows 0.2% compares to 0.1% expected. That's why we see so weak upside reaction on EUR and other currencies.

Reuters tells that The dollar fell against the euro on Friday, after data showed U.S. employers hired fewer workers than forecast in November, raising worries that U.S. growth is moderating and the Federal Reserve may stop raising rates sooner than previously thought.

Fed policymakers are still widely expected to raise interest rates again at their Dec. 18-19 meeting, but the focus is on how many rate hikes will follow in 2019.

“This was slightly disappointing on the headline level, but wage growth coming in as expected keeps the Fed on track to raise rates in December,” said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.

“The overall effect has been a sell-off in the dollar, largely in a reaction to a lower expectation for rate hikes in 2019,” he said.

Last week we mentioned that Interest rate futures implied traders see no more than one rate increase in 2019, compared with expectations a month earlier for possibly two rate hikes, according to CME Group’s FedWatch program.

Federal Reserve Chairman Jerome Powell said last week that U.S. interest rates were nearing neutral levels, which markets interpreted as signalling a slowdown in rate rises.

The U.S. central bank is flagging a turning point in monetary policy, as a Federal Reserve policymaker on Friday backed interest rate hikes in the “near term” but nodded to increasingly less certainty ahead.

“The dollar looks set for more choppy trade as markets seek answers to whether the U.S. economy is stronger or weaker than it thinks,” Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, said in a note.

Falling U.S. yields, which have been chipping away at the yield differential advantage the greenback enjoyed earlier this year, have been another factor impeding the dollar’s advance recently.

This week we do not have fresh CFTC report, guys. As we've mentioned in our daily videos through he week
- EUR has no inner direction right now and is driven mostly by external factors, mostly political. It means that we need some strong impact by some factor to move EUR from dead point, out from current consolidation. And it seems that next week we could get it. It will really tough week guys with huge volatility on EUR and GBP.ll

As Financial Times tells about coming week, we have three major events - Brexit voting, ECB meeting and US data.

Brexit voting on Tuesday
This is major topic of the week, guys. Traders change their daily schedules and intend to sit on trading place whole nights till voting results will be released. Voting takes place on Tuesday and results should be announced around Tokyo session open.
Right now major expectation is Brexit deal fails to pass. It means that there should be second UK referendum on Brexit and this time is big chance that UK will stay in EU.
Still everybody prepares to surprises. Bloomberg brings excellent article on this subject.

Money managers are canceling evening plans to stay at the office to ensure they don’t miss market swings like those seen during sterling’s 2016 flash crash or the chaos that followed the Swiss National Bank unexpectedly dropping its currency floor in 2015. The pound could move as much as 6 percent in either direction depending on the vote’s outcome, strategists say.

A late-running vote wouldn’t just see investors trapped at their desks, but could exaggerate any moves in the pound due to the thin liquidity. According to 2016 data from consultancy Aite Group, foreign-exchange volumes dwindle to just 2 percent of peak turnover between the New York close and the start of trading in Tokyo.

Liquidity is much more of a concern than it used to be, said Andreas Koenig, head of global currencies at Amundi Asset Management. It wasn’t even a topic of discussion when he started in the market in 1994, but the “erratic nature of liquidity” means it’s now something to bear in mind, he said.

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“That’s one of the SNB lessons learned, there were a lot of less experienced people on the desk,” said Alan Schwarz, New Jersey-based CEO of FXSpotStream LLC, a trading venue launched by banks. “I will guarantee you a lot of the most senior people at the banks will be at their desk or will be able to get to it.”

With the memory of the 2016 plunge in the pound provoked by thin liquidity in Asian hours still on their minds, traders will be hoping the vote doesn’t come too late. The result is due around 8:30 p.m. U.K. time, but a delay could see it pushed between the end of the New York close and the start of trading in Tokyo.

A relatively small shortfall in the votes Prime Minister Theresa May needs to pass her deal could actually spur gains in the currency on the prospect of talks for a second attempt, according to strategists. A large loss ignites risks including a no-confidence vote, a push for a second referendum or an election, which would drive sterling lower. Options betting on one-week volatility are holding near an 18-month high.

The most unexpected outcome would be May winning.

“If it does pass, we’ll all go ‘Oh, my god!’” said Norman Villamin, chief investment officer at Union Bancaire Privee Ubp SA.

A shock 320-vote majority for May could lead the pound to rally more than 6 percent from around $1.27 now to $1.35 for Mizuho Bank Ltd. If May loses as expected, traders will be watching the margin of votes for hints on what happens next. Barclays Bank Plc predicts a rejection by more than 75 votes would see the pound plunge to $1.20, a level that could turn up the heat on lawmakers to avoid the U.K. crashing out of the bloc in March.

“The vote could be construed as more important than an election in terms of pound implications,” said Neil Jones, head of currency hedge fund sales at Mizuho. “Depending on the outcome, cable could move more than through an election result.”

Very good article. In my opinion guys, although I do not like to gamble on things that stand out of control... Still, if we take wider and broader view on situation - it corresponds to global political restructuring processes. EU is slowly splitting out from US. UK is historical ally, that always was with US and should stay with US. From this standpoint UK out from EU is logical step and mostly agrees to our long-term geopolitical view. If I would betting, I probably would dare to bet on passing of the vote through Parliament.

ECB meeting on Thursday

It is widely expected that rate will remain the same, but the value of this meeting stands twofold. Since this is end-quarter (and year) meeting, ECB should provide its macroeconomic forecast for next year. Market expects some shift to economic growth and inflation.

Second issue that could bring surprises, despite closing of QE, ECB could announce extension of TLTRO - targeted longer-term refinancing operations. As Nomura analysts said - “With the ECB potentially re-evaluating its entire range of policies there is a risk of more adjustments than we expect.

US data
After J. Powell comments on rate cycle, investors diminish their expectations to only single rate change in 2019. That's why it will be high attention to US Retail sales and consumer prices next week. First is they could shed some light on GDP, as Retail sales takes almost 70% of it, second - data could impact on Fed policy.
Consumer prices release stands on Wed and it is expected it will be flat - 2.2% on annual basis. Core inflation is expected to increase for 0.2% on monthly basis.

Retail sales is expected to rise for 0.1% on monthly basis.

Technicals
Monthly


Probably it is thankless job to make technical analysis at the eve of Brexit voting. Still, let's take a look what we have on charts.

December month shows very small range and has no impact on monthly picture at all. Here we mostly wait for clarity - either downside breakout and start action to 1.08 and later to 1.03 or ability of the EUR to hold above 1.12 and turning up. Market stands at wide support area between major 5/8 Fib level and YPP, which also natural support/resistance area. EUR should move somewhere and not it seems that Brexit voting should be strong enough to push market in one or other direction.

Indirect technical factors point on market's weakness, as EUR can't jump out from strong support within more than 5-6 months and just lays upon it. Trend stands bearish here. But, when you're dealing with strong political events, you never knows what will happen.

Monthly situation shortly could be described as indecision with light gravitation to the downside.
eur_m_10_12_18.png


Weekly

As we've said above NFP release shows mixed results, and may be even more dollar supportive that it was seemed in the moment of release. As a result, we've got another bearish grabber on weekly chart in addition to one that we've got before. All other things stand the same.
As we mentioned through the week, reverse H&S pattern on daily chart, that potentially could trigger upside action has obvious flaws and doesn't correspond to normal price action of bullish market.

Grabber target suggests drop below recent lows and probable reaching of at least 1.1185 major 5/8 Fib support. As we've said on Friday - although overall action looks like preparation for reversal, but final spike down is missing. The same conclusion we've made on Dollar Index.
eur_w_10_12_18.png



Daily

This week discussion on forum was really hot. In fact, EUR keeps valid both setups, as bearish as bullish. This leads to many opinions, sometimes contradictive, but all of them supported by some analysis. On this chart I show you bearish scenario. It comes from weekly situation and two grabbers that we have.
Now we have multiple upper spikes on candles which suggest appearing of downside pressure as soon as market comes to 1.14 area. Overall action reminds "222" Sell pattern. Previously we also talked a lot about irrational price action after right arm of reverse H&S has been formed. Market should behave differently, on this stage.
Grabber that has been formed this week is completed as market updates recent tops on Friday. So minimum target of this setup is around 1.12 lows, but potentially drop below them is possible.
This scenario will be valid, until price stands below "A" point and shows choppy price action without any direction.
eur_d_10_12_18.png


Intraday

Alternatively bullish setup is shown on 4H chart. It is based on the same market swings but suggests appearing of different patterns - upside AB=CD based on H&S pattern and butterfly. This scenario is valid until "C" point holds. What personally I do not like with this setup is - no thrust, very choppy and weak price action of potential CD leg, which theoretically should be straight. Market barely was able to hit COP target, showing failure upside breakout. I do not even mention the sell-off that you could see on hourly chart right at weekly close.
eur_4h_10_12_18.png


Still Brexit voting puts everybody to equal conditions. The major question actually stands not in direction of your position but in your participation in this event in general. If you still decide to trade on voting and you have bearish view - you could wait for appearing of bearish continuation pattern here, say, "222" sell or H&S on hourly chart with stops above OP target, at least initially.
Although it would be better to drop your position to minimal value and place stop initially above daily K-resistance. Volatility could be huge on thin night market on Tue-Wed.
If you have a bullish view - you need to take position as closer to "C" point on 4H chart as possible. Hardly you will get any new bullish patterns there, the only one that we have is already in place - this is potential butterfly. Good luck to everybody on Tue!
eur_1h_10_12_18.png


Conclusion:

This week technical factors takes backseat and week will pass under the sign of Brexit voting on Tuesday. This should become major event on market till the end of the year and has enough power to shift EUR/USD (and GBP) from dead consolidation point.
Our technical view stands more in favor of the bears, but Brexit puts everybody mostly in equal condition as situation could change in a blink of an eye.


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.
 
Master Sive.

Where and how did you get that low in price?
On my MT4 platform I ended up with 1.14012
 
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Master Sive.

Where and how did you get that low in price?
On my MT4 platform I ended up with 1.14012

There are multiple participants and liquidity providers plus the close prices you see on your chart depend on your broker's server time - that may result in a different daily close. So welcome in the decentralized forex world :) !
 
Hi Sive ,do you think that Trump will save Wall Street either with no hike or with a super dovish predictions for 2019?

Hi buddy,
Well, hardly Trump will think about Wall Street. Currently rate stands on the level that is near the crucial one for stock market. Even 1-2 more rate hikes will impact hard. Take a look at monthly DJIA - DPRO "Sell" is forming there, with reversal month as a second top. European stocks show huge H&S pattern, NASDAQ has hit all time butterfly and 1.618 XOP. Market is turning down.
Also check our 1-2 recent weekly reports, there was an article on S&P perspectives.
 
Hi everybody,

So, all of us probably knows that Brexit is postponed. This is not good for both sides, because infinite negotiations could continue and markets already are tired from expectations. For GBP this is light scenario of voting failure. But, guys, just imagine what will happen, if voting will pass after postponing...

Anyway, on EUR short-term sentiment stands bearish. Let's recall our 1H chart from weekly report. We said, if you want to go short - put stops above OP. This scenario has worked perfectly. Downside XOP is completed and market stands at minor 50% Fib level. So, if any AB-CD pullback will happen and "222" Sell will be formed - this could another chance for short entry.
eur_1h_11_12_18.png


On 4H chart we have the same triangle pattern, and price stands in 5th wave inside of it. Usually breakout happens on 5th wave. Now all eyes stand on ECB, which also could bring some surprises, we've talked about it. Today, guys we have new inputs from the France and it makes me think that ECB assessment of economy will be dovish. I gravitate more to dovish statement from the ECB now.
eur_4h_11_12_18.png


On daily chart now we've got good "222" Sell pattern. Yesterday it was reversal session as well. Long tails tell about solid selling once market comes to 1.14-1.1450 area. This makes us think that downside action is more probable now:
eur_d_11_12_18.png
 
Hi buddy,
Well, hardly Trump will think about Wall Street. Currently rate stands on the level that is near the crucial one for stock market. Even 1-2 more rate hikes will impact hard. Take a look at monthly DJIA - DPRO "Sell" is forming there, with reversal month as a second top. European stocks show huge H&S pattern, NASDAQ has hit all time butterfly and 1.618 XOP. Market is turning down.
Also check our 1-2 recent weekly reports, there was an article on S&P perspectives.
i did i did , i follow you mate , just I m tink ing such a hard landing might not in their interest , let s see what s gonna happen .
 
Taking into consideration the shape and internal structure of the decline off the 1.1815 peak, we can say that price action looks more neutral than bearish at this stage. On the short term prices went higher, but the scenario above proved to be incorrect.

The advance from 1.1267 looks corrective in nature and a weakness below 1.13054 would be troubling to a bullish outlook and a break of 1.1267 may continue below 1.1215. Note that price action may remain flat even if it goes above 1.1420.

No clear direction yet.

Not much progress since my last post, prices remained flat as expected. If 1.1267 holds, may take-off on Thursday.
 

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