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FOREX PRO WEEKLY, December 11-15, 2017

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Dec 9, 2017.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals

    (Reuters) - The dollar rose against the euro and yen in choppy trading on Friday after a report showed the U.S. economy created more jobs than expected last month, but gains were capped by wages data that analysts said were disappointing.

    That could weigh on the pace of interest rate rises next year as the Federal Reserve grapples with sluggish wages that reflect persistently low inflation, analysts said.

    The dollar came off three-week highs after the report, while the euro, although still down on the day, recouped some of those losses.

    U.S. non-farm payrolls rose by 228,000 jobs in November amid broad gains in hiring as distortions from recent hurricanes faded. Economists polled by Reuters had forecast payrolls rising by 200,000 jobs last month.

    But analysts said average hourly earnings were lower than expected. Average hourly earnings rose five cents or 0.2 percent in November, but economists expected a 0.3 percent rise. The annual increase in wages was also weaker than forecast: the November figure came in at 2.5 percent versus a 2.7 percent expectation.

    “The lack of wage pressure will not alter the Fed’s rate hike aspiration in the coming meeting, but will certainly be a major discussion point for the new Fed chairman in 2018,” said Marvin Loh, senior global market strategist at BNY Mellon in Boston.

    Following the data, the dollar pared gains against the yen but was still higher on the day at 113.52 yen, up 0.4 percent. The euro reduced losses versus the dollar and was last flat on the day at $1.1767.

    The dollar index was up 0.1 percent at 93.899.

    The Fed is widely expected to raise interest rates at next week’s monetary policy meeting and for now is seen tightening two to three times next year.

    With a rate hike priced in, investors are more focused on what the Fed may signal about its monetary policy outlook next year. In the Fed’s last quarterly projection from September, the U.S. central bank indicated three more hikes in 2018.


    Michael Feroli, an economist at JP Morgan in New York, believes there could be as many as four rate hikes next year and the Fed’s newest forecasts could show a lower unemployment rate than the September projections and a generally firmer outlook for gross domestic product growth.

    “Both revisions should be directionally supportive of a somewhat faster rate normalization path,” Feroli said.

    Interesting article on changing situation in Italy:

    News in Charts: Italy and the itcoin
    by Fathom Consulting

    On the surface it appears that Italy is finally beginning to enjoy a cyclical upswing similar to the rest of the euro area, with growth having accelerated in 2017. Fathom, however, predicts that this upturn will be short-lived. In the long term, structural problems (including excessive levels of debt, the prevalence of non-performing loans, a declining population and anaemic productivity growth) will continue to hamper the Italian economy. In the near term, uncertainty surrounding the upcoming election, and the possible introduction of a parallel currency, may weigh on confidence heading into 2018.
    [​IMG]
    The latest opinion polls suggest that the election is unlikely to produce a decisive outcome, with none of Italy’s three major political blocs likely to win a majority. It therefore seems inevitable that Italy’s next government will be a coalition. While a grand coalition formed between the centre-left and centre-right blocs would probably lead to a near-continuation of current policy, an alliance between the centre-right bloc and the populist Five Star Movement could generate a period of heightened economic and financial market uncertainty, especially given that both blocs have previously indicated support for a parallel currency scheme.

    Regardless, of the electoral outcome, the outlook for Italian public finances remains grim. Years of structural reforms and anaemic economic growth have led to little appetite for further austerity. Indeed, with all major political parties currently proposing some form of fiscal expansion, Italian sovereign debt is unlikely to decline significantly from its current level.
    [​IMG]
    As Fathom highlighted in a recent note to clients, Italy’s public finances remain precarious, with the country’s debt at risk of spiralling out of control. According to Fathom’s proprietary debt calculator, Italian debt stability remains conditional on a commitment to fiscal restraint and continued access to cheap funding. The current spending plans of Italian politicians do not appear to reflect this reality. At present, Fathom calculates the market-implied probability of Italian default over the next five years to be less than ten per cent. Financial markets, therefore, have either not priced in Italy’s post-election fiscal plans or simply do not trust the politicians to implement what they have proposed.
    [​IMG]

    Another headline-grabbing proposal is for the Italian government to introduce a parallel currency that would circulate alongside the euro. Similar proposals currently have the support of the three of the four largest political parties and cannot, therefore, be completely ruled out.

    According to the proposals, the government would pay its own suppliers, public sector employees and state pensions using a combination of euros and the new currency (hereafter dubbed the ‘itcoin’). Those receiving itcoins could in turn use them to make direct payments to the government (e.g. for tax purposes). Crucially, the government would commit to accepting these payments. As a result, it is possible that itcoins could also be used to make payments to the private sector. Proponents argue that firms would accept the parallel currency as means of payment since they could in turn use it to pay their own tax liabilities.

    Advocates claim that the itcoin would boost the economy since it would enable the government to pursue a fiscal expansion that would boost growth through multiplier and liquidity effects. The feasibility of the itcoin, however, is subject to debate. Under current proposals the itcoin would not formally be given the status of legal tender (i.e. private sector vendors would not be forced to accept it as means of payment). Arguably, therefore, possessing itcoins would be viewed as a less attractive prospect than holding euros. Consequently, there would be little reason for shopkeepers to accept itcoins as a means of payments and the parallel currency might plausibly be expected to fall out of circulation. Indeed, this is the predication of Thiers’ Law.

    Aside from debates over the itcoin’s feasibility, there are also questions over its legality. European laws currently state that the euro must be the only currency given the status of legal tender within the single currency bloc. Despite protestations by itcoin advocates, the EU would probably view the itcoin as incompatible with this law and consider debate over a parallel currency as indistinguishable from a debate over euro membership. From their point of view, the introduction of the itcoin could be the start of a slippery slope which might lead towards a euro exit.

    However, Italexit is not Fathom’s central forecast, even if a eurosceptic coalition is formed. Given that support for the euro remains solid, proposals for the itcoin’s introduction may instead be used as a bargaining tool in negotiations with the EU over future budgetary plans. Arguably, financial markets take a similar view — according to Fathom’s calculations the market-implied probability of Italexit is currently 3.4%.
    [​IMG]
    Ultimately, for the itcoin to be introduced, the Five Star Movement would have to show willingness to enter coalition negotiations with the centre-right, and public support for the euro would have to decline significantly. While neither of these events appear likely for now, they cannot be ruled out altogether.

    In any case, the election is unlikely to result in the formation of a strong and stable coalition government. As highlighted above, the Italian economy faces deep-rooted problems, many of which can only be resolved through further structural reforms. However, years of reform fatigue have left little appetite for more and the Italian economy is forecast to continue to bump along the bottom, with the country’s structural problems unlikely to be resolved any time soon.

    COT Report
    Today guys, in technical part we again will take a look at Dollar Index. I've checked charts that we've prepared last weekend - and I put them without any changes so, that you could see how our setup has worked and what we expect next.
    But, in COT report we will take a look at EUR. Because the major target of our analysis is EUR still.
    Here we have mostly bullish sentiment. Although total speculative position is coiling around all time high and makes upside potential limited for EUR - it doesn't prevent possible return back to 1.21 area.
    Open interest position has increased which means that some new flows have come to EUR market, as well as net long position. It means that overall sentiment is moderately bullish on EUR and nobody hurry to close it.
    upload_2017-12-9_12-28-7.

    Technicals

    Dollar Index should help us again with understanding situation on EUR. As we've talked on Friday - our major setup has not been triggered as EUR has dropped below strong support area and now too many scenarios exist there. While on dollar index situation stands more clear and it could help us better understand perspectives of EUR market as well.

    Sentiment analysis currently doesn't point on reversal yet. Not only on EUR but on GBP as well. It means that despite deep retracement that we have EUR still has chance on upside continuation.

    In today's technical part of research - I'll keep all charts the same as they stand last week. Because the scenario that we've anticipated has been completed. But mostly it has relation to lower time frames. On monthly-weekly charts everything mostly stands the same...

    Our particular subject in two recent weeks - last two monthly candles. In fact, guys, we've got bearish engulfing here. And it seems, before final upside reversal will happen, we should get minor downside action back to previous lows around 90.65-91.0 area. Some deep retracement after first bounce up from K-support and trend line.
    This week Dollar index has shown minor retracement back inside the body of engulfing. This is typical action while pattern has been formed. Pattern will be valid until price stands below its top.
    dxy_m_11_12_17.

    Weekly

    On weekly chart this leads us the same major pattern as on EUR - DRPO "Buy". To be honest, guys, on EUR potential DRPO pattern looks purely. Here, we have more DRPO LAL (Look-alike) rather than pure DRPO.

    This is because we use absolute high as starting point of the thrust, while real thrust has started slightly lower, around 100.30 area. If we will use this point - then DXY already has tested 3/8 resistance that should not happen when you're dealing with DRPO. That's why we call this scenario as LAL.

    EUR, in turn, shows a bit different action, although shape is the same. There price keeps pure DRPO setup.

    As on DXY as on EUR DRPO has not been confirmed yet. We need just two details to be completed still - some deeper downside action first and upside reversal and close above 3x3 DMA second. This is here, on DXY. On EUR there should be mirror action, as we have DRPO "Sell" there.

    As and if DRPO "Buy" will be confirmed and start to work - action somewhere to 98-100 should happen to keep harmony of potential H&S pattern here.

    Last week market has not penetrated 3x3 DMA and this is good sign as DXY keeps chance for DRPO.

    dxy_w_11_12_17.

    Daily

    Remember this chart, guys? Last weekend we've suggested action back to 93.80 area. Here I just have added major pattern - "222" Buy that we should get together with DRPO "Buy" on weekly.

    Here you could understand why we use DXY instead of EUR, as it shows current situation better. DXY already has completed downside AB-CD action that we were watching on EUR and that is yet should be completed.

    But this makes overall situation more harmonic and logical. As on EUR current deep retracement looks a bit irrational - here is quite another story. As DXY has completed AB=CD - deep retracement is normal action.

    But this not all yet. Here we also have morning star candlestick pattern right around neckline. it also was a reason for upside action. So, our scenario was realized on 100% here.

    Now we've got clear H&S pattern and price stands at point where downside action should be re-established - top of right shoulder and near OB level.

    This, in turn, shed light on EUR situation. It also could turn up. But EUR itself doesn't show situation as clear as DXY:
    dxy_d_11_12_17.

    4-hour

    Jewell in our analysis crown guys, 4-hour chart - no comments. Everything stands from last week. Upside Morning star ab-cd is completed. Large AB=CD downside H&S target coincides with minor 1.618 AB-CD pattern.
    dxy_4h_11_12_17.

    Hourly

    And here is common thing to EUR, guys - channel. So, it could be used differently. Depending on your trading style you could wait for breakout and then try to take position on retracement. You could use stop entry orders, placed on breakout. Or, finally, you could try to get some patterns inside the channel - something like I've drawn here. One thing we could say definitely - DXY stands at culmination point and it seems that EUR does as well. Either our downside action here will start or long-term picture will change drastically.

    Because what daily H&S failure will mean? It will mean that DXY will go above 95 area, which erase DRPO and lead, in turn, to collapse on EUR.
    dxy_1h_11_12_17.

    Conclusion:

    So, Dollar Index again brings clearer picture and lets us better understand what is going on EUR either.
    Now market stands at "culmination" point as I call it. Here either our setup will work or situation will change drastically.



    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.
     
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  2. shahsavari

    shahsavari Private, 1st Class

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    Thanks a lot
     
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  3. ward133

    ward133 Private, 1st Class

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    Good day.
    I want to ask please about brixet agreement that might be announced any time -according to what I read some place -
    Some think that once they announce the agreement the pound will fly forward
    My question. Will that be also for sake of euro ? I mean should that make the euro also fly forward ?

    And if it time to keep long position in pound now ?!

    Thank you
     
  4. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Well, on Friday Reuters has put market observation, as usual where there was a suggestion that EUR stands under pressure due situation of Ireland border and free-trade space. So, if this will be resolved, then probably this should be supportive.

    Technically, bullish grabber on GBP is still valid, despite deep drop on Friday.
    In our weekend analysis on DXY/EUR we've come to conlusion that Dollar Index has reached ultimate point of reversal. It should either go down (EUR should turn up) or medium-term situation will be broken.

    Thus, as technical and political situation mostly stand in agreement. Fed is another risk factor, btw...
     
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  5. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Good morning,

    (Reuters) - The dollar held firm near two-week highs versus a basket of major currencies on Tuesday, with traders awaiting the U.S. Federal Reserve’s policy meeting this week for fresh catalysts.

    The dollar index, which tracks the greenback against a basket of six major peers, inched up 0.1 percent to 93.931. That was within sight of Friday’s peak of 94.087, the highest since Nov. 21.

    The Fed is widely expected to raise interest rates at its two-day policy meeting that will end on Wednesday and is expected to tighten policy further next year.

    Most economists polled by Reuters now expect three more rate rises next year compared with two when surveyed just weeks ago, although the outlook remains clouded by stubbornly subdued inflation.

    Since a rate hike this week has been priced in, the dollar could sag initially after the Fed’s policy announcement, said Steven Dooley, currency strategist for Western Union Business Solutions in Melbourne.

    The Fed, however, will probably sound optimistic about the economic outlook and that is likely to help underpin the greenback, he added.

    “Once the initial flurry of short-term volatility rides out, we’re likely to see the U.S. dollar stronger again,” Dooley said, describing how the dollar could react to the Fed’s policy announcement due on Wednesday.

    “It seems most likely that the U.S. Federal Reserve will continue to sound optimistic and certainly continue on the path to raise rates three times next year,” Dooley said.

    Against the yen, the dollar eased 0.1 percent to 113.48 yen, after having risen to as high as 113.69 yen on Monday, the dollar’s strongest level in about a month.

    The dollar could come under pressure if Fed Chair Janet Yellen sounds less confident that inflation will rise toward the central bank’s 2-percent target, in her remarks during a post-meeting news conference, said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

    Even in that case the market reaction could be limited, however, as investors seek more clarity on the views of incoming Fed chair Jerome Powell, Murata said. The dollar will likely find support at levels around 112.00 yen or so, Murata added.

    The euro last changed hands at $1.1771, having pulled back from Monday’s intraday high of $1.1811.

    The New Zealand dollar set a fresh two-week high as investors welcomed the appointment of national pension fund chief Adrian Orr, a former central bank official, to head the Reserve Bank of New Zealand from March.

    The New Zealand dollar, which had climbed nearly 1.1 percent on Monday following the announcement, extended its gains on Tuesday and rose to $0.6937 at one point, its highest level since Nov. 28. It was last trading at $0.6927, up 0.3 percent on the day.


    Investors were relieved by the selection of an official with extensive expertise in monetary policy, and expected he would not veer too far from the status quo as he carries out a new dual mandate.

    Bitcoin slipped 1.4 percent to around $16,247 on the Luxembourg-based Bitstamp exchange, having set an all-time high of $17,270 on the exchange on Monday.

    Newly launched bitcoin futures on Chicago-based derivatives exchange Cboe Global Markets suggested that traders expect the cryptocurrency’s blistering price gains to slow in the coming months, even as it blasted above $17,000 on Monday to a fresh record high in the spot market.


    As EUR and DXY mostly stand quiet, we could take a look at GBP. Here is major concern around upside continuation - whether Cable has done it or some chance still exists. I stand on latter one. Although upside action has started pretty nice and was confirmed but daily bullish grabber, but intraday action suggests that grabber probably will be erased:
    gbp_d_12_12_17.

    Still, it will not mean yet that upside action is doomed. Because of strong downside action, we should be ready for erasing of grabber's action, but we still could get "222" Buy pattern on 4-hour chart:
    gbp_4h_12_12_17.

    It probably will be finalized by big hourly butterfly:
    gbp_1h_12_12_17.

    So, 1.3265 is a level to keep an eye on. Just avoid long entry if downside action will be too fast. In other circumstances, if even we will be wrong, some upside reaction probably will happen as respect of multiple targets that will stand around, including this butterfly.

    Another concern that we have is a contradiction of public opinion on coming Fed meeting and our technical DXY picture. Our picture shows bearish patterns, while market mostly expects hawkish comments from the Fed...So, it seems that either Fed will suprise everybody or our setup will fail. :cool:
     
  6. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Good morning,

    (Reuters) - The dollar stood near a four-week high against a basket of currencies on Wednesday after strong U.S. wholesale price figures kept the Federal Reserve on track for a widely-expected rate rise this week and more in 2018.

    The dollar index stood at 94.071, having risen to 94.219 on Tuesday, its highest level since Nov. 14.

    Against the yen, the dollar fetched 113.55 yen, having risen to a four-week high of 113.75 yen on Tuesday. The euro traded at $1.1737, having slipped to $1.17175 the previous day, which was its lowest level in three weeks.

    The Fed is almost unanimously expected to raise its interest rates target by 0.25 percentage point at the end of its two-day policy setting meeting on Wednesday.

    Investors are focussing more on the Fed’s projection on the pace of its rate hikes next year and policymakers’ view on the outlook for inflation.

    The Fed will announce its decision on rates at 1900 GMT Wednesday followed by a statement. Chair Janet Yellen will hold a news conference at 1930 GMT.

    While Fed policy makers’ projection in September suggested they expected three rate hikes in 2018, markets are pricing in only two, with many investors expecting tame inflation will lead to a slower tightening path.

    “Although price trend seem to be picking up, it is not clear if that is enough to convince dovish members of the Fed on the need to be concerned about inflation,” said Shinichiro Kadota, senior strategist at Barclays.

    U.S. producer price data for November showed 0.4 percent increase in wholesale inflation from the previous month.

    From a year ago, the producer price index shot up 3.1 percent, the biggest gain since January 2012 and followed a 2.8 percent rise in October.

    If U.S. consumer price data due at 1330 GMT on Wednesday also shows a similar uptick, that could fuel expectation of faster Fed rate hikes, analysts said.

    Traders are also looking to Senate election in Alabama, where Republican Roy Moore, facing allegations of sexual misconduct, is battling a former U.S. Attorney Doug Jones, 63, who hopes to pull off an upset victory in the deeply conservative Southern state.

    A Jones victory is seen as negative for the dollar and U.S. stocks as it would narrow the Republicans’ already slim majority in the U.S. Senate, possibly making it harder for Trump to advance his policy agenda including big tax cuts.

    Elsewhere, the British pound hovered at $1.3315, near two-week lows of $1.3303 touched on Tuesday, although the currency was briefly propped up by data showing British inflation unexpectedly hit a near six-year high in November.

    Consumer price inflation rose to an annual rate of 3.1 percent in November, above economists’ average expectations of 3.0 percent rise.


    As that is more than a percentage point above the Bank of England’s 2 percent target, Governor Mark Carney will have to explain to finance minister Philip Hammond what the BoE is doing in response.

    But because one of the main reasons behind the surge in inflation has been the pound’s plunge since last June’s vote for Brexit - about 12 percent on a trade-weighted basis - the BoE has said it expects it to come off slowly over the next three years to just above 2 percent as sterling steadies.

    There was no notable change in market expectations on the BoE’s policy outlook, with sterling overnight indexed swaps pricing in a very small chance of a rate hike within the next six months.


    So, market mostly stands quiet and wait for Fed that we should get in a few hours. Still there are some moments exist that we need to clarify on EUR. First - EUR still keeps bullish scenario valid. Current deep retracement to 1.1710 major Fib support is normal action, as EUR has formed bullish reversal swing and rest of bearish momentum presses on price nad pushes it lower. This is just how markets work.
    That's why our story mostly stands around 1.17 area - whether it will survive or not. If it will, then upward action will happen, if not - then bullish scenario will be broken totally.
    eur_d_13_12_17.

    The mismatch in our heads mostly stands due existence of "222" Buy pattern on 4-hour chart, which we use a cornerstone of our analysis. Indeed, this would be nice and perfect situation if upward action was based on it. But - failure of this "222" is not an end yet. So, don't treat bullish setup is based on '222" only. It is sweet detail but this is not crucial one. Dropping below 1.1710 lows and erasing of '222" will not mean yet total failure of bullish scenario.
    Actually we've talked about it briefly, because since the beginning of downside retracement we've got 1.618 AB-CD target that stands around 1.1690 and this was worrying sign since the beginning.
    Now, it seems that EUR should completed it before it will done with downside action:
    eur_4h_13_12_17.

    On DXY situation is more friendly - as 1.618 of this AB-CD is already completed and butterfly "sell" has been formed:
    dxy_4h_13_12_17.

    On hourly chart now it is a bit risky to go long - potentially on speculative market's shaking, on spikes and volatility market could reach 1.1690 targets. Besides, here we have short-term '222" Sell pattern is forming. So, if you would like to go long in advance of Fed - you will have to place stops rather far, below XOP target and butterfly 1.618 extension. Otherwise, you need to wait and see - whether market will provide better opportunity for entry:
    eur_1h_13_12_17.

    But anyway - all this stuff about the Fed. EUR keeps bullish scenario valid by far, but only Fed will make final direction and it will be decisive for market.
     
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  7. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Good morning,

    (Reuters) - The dollar remained on the defensive on Thursday, having tumbled after the Federal Reserve raised interest rates as expected, but left its rate outlook for the coming years unchanged.

    There was limited reaction among major currencies after China raised interest rates marginally, in the wake of the Fed’s move.

    The dollar index, which tracks the greenback against a basket of six major currencies, eased 0.1 percent to 93.372 after falling 0.7 percent on Wednesday.

    The Fed raised key short-term rates by a quarter point to a range of 1.25-1.50 percent on Wednesday. The Fed projected three more hikes in both 2018 and 2019, unchanged from the last round of forecasts in September.

    Traders and analysts said the dollar came under pressure after the Fed’s policy announcement as the U.S. central bank kept its interest rate projections steady rather than revising them higher.

    Some market participants had speculated the Fed could raise its interest rate projection for next year to four rate hikes, said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore.

    “From the market perspective, anybody who was leaning that way basically ran for the exit,” Innes said, referring to the dollar’s drop after the Fed meeting.

    Against the yen, the dollar inched up 0.1 percent to 112.62 yen, after sliding 0.9 percent on Wednesday and having retreated from Tuesday's four-week high of 113.75 yen.

    The euro edged up 0.1 percent to $1.1836, having climbed 0.7 percent on Wednesday.

    The dollar was also weighed down after U.S. core consumer price data released on Wednesday showed slowing inflation, raising concerns the Fed will be less able to execute multiple rate increases next year.

    But some analysts see hopes for progress on U.S. tax reform, including tax cuts, lending support to the dollar.

    Congressional Republicans reached a deal on final tax legislation on Wednesday, clearing the way for final votes next week on a package that would slash the U.S. corporate tax rate to 21 percent and cut taxes for wealthy Americans.

    Hours after the Fed’s rate hike, China’s central bank on Thursday raised interest rates for its reverse repos and medium-term lending facility (MLF) loans by 5 basis points.

    “Five basis points is not going to make that much of a difference. But it is an important symbolic message in the right direction, that rates are going higher,” said Heng Koon How, head of markets strategy for United Overseas Bank in Singapore.

    China’s move underscores the gradual moves toward monetary policy tightening taking place globally, Heng added.

    Data showing a surge in Australian jobs growth in November gave a lift to the Aussie, which touched a one-month high of $0.7675, and was last up 0.4 percent on the day at $0.7665.

    Later on Thursday, investors will turn their focus to monetary policy decisions by the European Central Bank and the Bank of England.

    The BoE is widely expected to keep interest rates on hold at 0.5 percent on Thursday, after raising rates for the first time since 2007 last month.

    The ECB is seen likely to keep interest rates steady and reaffirm its existing monetary policy stance, after having decided in October to halve bond buys to 30 billion euros a month from January.


    So, market has started pretty nice yesterday from soft CPI report and empty Fed comments. This definitely was not enough to keep USD strength. As a result upside action that we are focused on is started. But today will be even more tough session, I think - two Central Banks meetings (I even not count SNB), a lot of important statistics as in GB as in US. So, if ECB will get relay race from the Fed and will say at least something supportive to EUR - upward action could continue.
    In fact, our target around 1.20 stands not too far, and everything is possible.
    eur_d_14_12_17.

    Also we should not forget about market mechanics. In fact, rally that has started yesterday is a continuation of previous action from 1.155 leg. That's why, normally, EUR should drop back to previous lows, as major retracement already has been done.
    eur_4h_14_12_17.
    Maximum that market could let - is some retracement back inside recent rally candle. Here is 3/8 level looks important as it coincides with two pivots:
    eur_1h_14_12_17.

    If you have missed entry chance yesterday - keep an eye on possible upside continuation patterns, such as "222" Buy. It will not be really safe to step in today, as it will be tough session, but may be some good chance will appear.
     
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  8. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Good morning,

    (Reuters) - The dollar was on the defensive on Friday after wrangling over a bill to change the U.S. tax code dented confidence, while the euro sagged after the European Central Bank signalled it would maintain stimulus for as long as needed.

    The greenback was off 0.2 percent at 112.170 yen, having dropped to an eight-day low of 112.065 overnight.

    The U.S. currency had climbed to a one-month high of 113.750 yen on Tuesday. But it made a U-turn midweek after the Federal Reserve tightened monetary policy as expected but also expressed concern about low inflation.

    The dollar lost further ground after two U.S. Republican senators on Thursday were reported to have sought changes to the proposed legislation to overhaul the U.S. tax code.

    The tax bill needs a simple majority to pass in the Senate, in which Republicans hold just 52 of the 100 seats and no Democrats are expected to support it.

    “Negotiations tend to last until the last minute in these kind of situations. So it is not surprising, especially as those seeking changes to the bill were likely emboldened by the Republican’s defeat at Alabama,” said Shin Kadota, senior strategist at Barclays in Tokyo.

    Democrat Doug Jones won the contest for a U.S. senate seat on Tuesday in Alabama, a Republican stronghold, and trimmed their already narrow Senate majority.

    “The overall process of overhauling the tax bill is not in peril. That said, even if the tax bill is passed and becomes law, the positive impact on the dollar could be limited as the market has already priced in such a scenario for the most part,” Kadota at Barclays said.

    Negotiators from both the Senate and House of Representatives have been scrambling to reconcile their own versions of the tax bill in recent days. Once a compromise is reached, it will be sent to U.S. President Donald Trump to be signed into law.

    “There are suggestions that the economic impact of tax cuts won’t be that strong. But what is important is that an element of uncertainty, which the market dislikes, will be finally removed if the bill turns into law,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

    The euro was little changed at $1.1787 after losing about 0.4 percent overnight.

    The common currency flagged after the European Central Bank on Thursday raised growth and inflation forecasts for the euro area, but stuck with its pledge to provide stimulus for as long as needed.

    With the euro on the back foot, the dollar index against a basket of six major currencies steadied at 93.523, having pulled away from an eight-day low of 93.282 set overnight. It was headed for a weekly loss of 0.3 percent.

    The pound inched up 0.1 percent to $1.3442. It had slipped from a near one-week high of $1.3467 the previous day, as markets were disappointed when the Bank of England stuck to its view that interest rates were likely to rise only gradually despite above-target inflation and progress in Brexit talks.

    Sterling, however, remained clear of a two-week low of $1.3303 plumbed on Tuesday and was headed for a 0.4 percent gain on the week.


    The Australian dollar was a shade higher at $0.7672 and within touching distance of a five-week high of $0.7680 set on Thursday after an upbeat domestic employment report.

    The New Zealand dollar was up 0.2 percent at $0.6997 after the country's finance minister Grant Robertson said he was comfortable with the currency's general trend.

    The kiwi slumped to a 17-month low of $0.6781 in mid-November following a change of government. It bounced back above $0.7000 earlier this week to touch a near two-month peak after the appointment of a well-regarded ex-central banker as the new chief of the Reserve Bank of New Zealand.


    So, while we're waiting for clarity in our European currencies - we could take a look at kiwi dollar today. Yesterday statistics and Central banks activity brings everything but clarity. So we need patterns to be formed there.

    But on kiwi dollar today we have short-term setup. On daily chart it seems that nearest target stands around 0.7180 area - daily K-resistance and Agreement with XOP AB-CD target. Meantime NZD right now stands at OB and this will become a serious barrier for immediate upside continuation. Taking in consideration the end of the week today and solid rally - it is possible some profit taking before weekend:
    nzd_d_15_12_17.

    On 4-hour chart we have two patterns that could trigger downside retracement. They are butterfly "Sell", that already has been completed and potential DRPO "Sell" that could finalize upside action. If our suggestion will be correct, then retracement target should stand around 0.6925-0.6935 levels:
    nzd_4h_15_12_17.

    If you like this setup you could take part differently. Most simple and safe way is to wait for DRPO "Sell" confirmation by closing below 3x3 DMA (green line). Still another scenario also exists and it is based on anticipation of downside reversal.
    On hourly chart we see that top of DRPO could take a shape of wide but perfect "222" Sell pattern. So choose what you like more:
    nzd_1h_15_12_17.

    "222" Sell gives better entry price and tighter stop, but it also has more chances to fail and NZD will continue move up. DRPO will be confirmed only if downside action will start... So, both of these patterns have their own adv and disadv.
     
    Lolly Tripathy likes this.
  9. gwynfor

    gwynfor Private

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    Good Morning Sive,

    May I ask two more questions before the upcoming holiday.

    By now the NZD USD market has formed a higher high after the initial penetration down and re-penetration up. Does this cancel the DRPO pattern, or will it still be valid if we get a further penetration down soon? Also do you always use XOP for a double repo?

    Thank you for all your help over the year.
     
    Sive Morten likes this.
  10. Sive Morten

    Sive Morten Special Consultant to the FPA

    Joined:
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    Hi,
    here is the chart of DRPO - no additional penetrations, market just has closed below 3x3 DMA.
    By letter - "222" Sell has failed (although mostly it has done well, market just slightly has exceeded previous top), as price has exceeded top. But we've warned about this possibility.

    Speaking of XOP - of course not. Actually harmonic patterns are different story and has no relation to DiNapoli. DRPO was invented by DiNapoli and he doesn't combine it with any other tools.
    This is my feature - to watch for harmonics when DRPO is forming. Usually I'm watching for butterflies, but sometimes it could be "222". The same is for H&S patterns...
    NZDUSDH4.
     

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