Forex FOREX PRO WEEKLY, December 14 - 18, 2020

Sive Morten

Special Consultant to the FPA
Messages
15,280
Fundamentals

This week was relatively calm, so we haven't seen any strong action on FX market and Gold, mostly because ECB statement was anemic, while Brexit negotiations shows no progress by far. Still we hear some statements that hint on some difficulties through discussion process. We expect that next week provides a lot of volatility because of D. Trump now like a hunted beast as Supreme Court has denied Texas and other States claim, so he has very limited tools to change the situation. Besides, right on Monday the Colleagues voting starts. Second - Fed statement on Thu. We do not exclude the situation when these two effects overlaps. In Europe everybody keeps an eye on Brexit results.

Brexit turmoil

First, lets take a look at Brexit as this is hot topic right now. There is an opinion that everything stands good and EU/UK are coming to Agreement. Recent few statements makes us think that everything stands not as cloudless as it is presented in news.

Britain is likely to complete its journey out of the European Union in three weeks without a trade deal, British Prime Minister Boris Johnson and European Commission chief Ursula von der Leyen said on Friday. Britain quit the EU in January but remains an informal member until Dec. 31 - the end of a transition period during which it has remained in the EU single market and customs union.

Both sides say they want to agree arrangements to cover nearly $1 trillion in annual trade but negotiations are at an impasse, with Britain standing to lose zero-tariff and zero-quota access to the huge European single market.

“It’s looking very, very likely we’ll have to go for a solution that I think will be wonderful for the UK. We’ll be able to do exactly what we want from Jan. 1. It will obviously be different from what we set out to achieve,” Johnson told reporters.

“If there’s a big offer, a big change in what they’re saying then I must say that I’m yet to see it,” said Johnson, the face of the “leave” campaign in Britain’s 2016 Brexit referendum.

He later held a meeting with senior minister Michael Gove and officials to assess the country’s preparedness for a no-deal departure, a government official said.

Von Der Leyen was quoted by an EU official as telling leaders of the bloc’s 27 member states attending a summit in Brussels on Friday that prospects for a deal had worsened. “The probability of a no deal is higher than of a deal,” the official said on condition of anonymity.

Johnson and von der Leyen have given negotiators until Sunday evening to break the deadlock over fishing rights and EU demands for Britain to face consequences if in the future it diverges from the bloc’s rules. Johnson must decide whether the deal on offer is worth taking or the future freedom and domestic political benefits afforded by leaving without one outweigh the economic costs.



A Brexit without a trade deal would damage the economies of Europe, send shockwaves through financial markets, snarl borders and sow chaos through the delicate supply chains which stretch across Europe and beyond.

Italian Prime Minister Giuseppe Conte said there were still fundamental issues unresolved in the trade talks. “Time is running out and we need to prepare for a hard Brexit,” he said, referring to an abrupt rupture in trade arrangements.

EU leaders rejected a proposal from Johnson for a Brexit call with German Chancellor Angela Merkel and French President Emmanuel Macron on Monday, EU officials said. Johnson is under pressure from Brexit supporters in Britain not to cave to any EU demands that they say could undermine his promises to regain Britain’s sovereignty. Macron also faces domestic pressure, with French fishermen urging him to ensure the EU defends their fishing rights.

Asked by a reporter about an EU proposal for a one-year contingency plan, under which EU fishermen would keep access to Britain’s fishing waters, he said: “I’m not asking to have my cake and eat it, no. All I want is a cake that’s worth its weight. Because I won’t give up my share of it either.”

The Bank of England said it had taken steps to keep banks lending through 2021 as Britain prepares for any market disruption from a big change in the trading relationship with the EU, while also dealing with the COVID-19 pandemic.

Another article that indirectly hints on no-deal is UK navy to help protect fishing waters in case of no-deal Brexit

Four Royal Navy patrol ships will be ready from Jan. 1 to help Britain protect its fishing waters in case of a no-deal Brexit, as Prime Minister Boris Johnson said the UK was likely to complete its EU exit in three weeks without a trade deal. The Ministry of Defence “has conducted extensive planning and preparation to ensure that defence is ready for a range of scenarios at the end of the transition period,” a spokesman said.

“This preparation includes a standby package of 14,000 personnel to ensure that we are ready to support other government departments and authorities over the winter period, including with the EU transition, COVID-19 and potential severe weather events,” the spokesman said in an email to Reuters.



The 80-metre-long vessels will have the power to stop, check and impound all European Union fishing boats operating within Britain’s exclusive economic zone (EEZ), which can extend 200 miles (320 km) from shore. The Guardian newspaper reported earlier that two vessels will be deployed at sea with two on standby in case EU fishing boats enter the EEZ.

So, taking in consideration this information, no-deal Brexit comes on the first stage again. Recently we've discussed possible impact on the markets. No-deal with hard conditions suggests drop for 7-8% from current levels, that is approximately around 1.20-1.22 area on GBP/USD. Alternatively, making an Agreement at last moment could lead to upward gap for the same distance, somewhere to 1.40 area. Still, analysts treat probabilities not in favor of this scenario.

Finally, options market moves show traders bracing for chaos, with one-week implied volatility at a new eight-month high and the premium of sterling puts to calls near its highest since April as investors pay up for downside protection.

"With financial markets having bought sterling for months on the assumption a Brexit trade deal would be completed, the risk is that may have been a false hope," said Jeffrey Halley, senior analyst at currency broker OANDA. "I sense that the market is still clinging to that conviction and has not yet materially thrown in the towel," he said.

"That could well change on Sunday, meaning that Monday morning in Wellington, New Zealand, when currency markets open in the wee hours, could be emotional."


ECB meeting

European Central Bank unveiled fresh stimulus measures broadly in line with expectations. The ECB expanded its debt purchase scheme and agreed to provide banks with even more ultra-cheap liquidity as long as they keep passing the cash onto companies.

The ECB increased the overall size of its Pandemic Emergency Purchase Programme by 500 billion euros ($605.40 billion) to 1.85 trillion euros and extended the scheme by 9 months to March 2022, with the aim of keeping government and corporate borrowing costs at record lows.

The move did not surprise investors as the central bank had made it clear more easing was on the way and bond purchases, along with liquidity facilities for banks, would form the backbone of any policy response.

However, “the European Central Bank did not present a big new bazooka,” said Carsten Brzeski, global head of macro at ING. It offered “a well-engineered extension of all well-known instruments to ensure that the current level of monetary accommodation is extended until at least the spring of 2022, hoping for the vaccine to have done its job by then.”

The ECB also said it is monitoring the euro’s exchange rate with regard to its possible implications for the medium-term inflation outlook, after it last week hit a two-and-a-half year high against the greenback. Analysts and market participants are watching to see if global central banks indicate they may act to stem the relative strength of their currencies as the greenback tumbles.

ECB "left the gun powder dry and no bazooka was fired. This has made investors bullish on the euro as the expectations were that the ECB is worried about the economic recovery," said Naeem Aslam, chief market analyst at Ava Trade.

“It’s the second major central bank to casually note exchange rate developments recently, underscoring the sliding USD,” said Mark McCormick, global head of FX strategy at TD Securities. “We don’t think there is too much the ECB can do to reverse market trends, though they can take some steam off the top.”


Among other positive developments for the euro zone, EU leaders in Brussels seemed close to unblocking a stalled 1.8 trillion euro package to help revive their pandemic-ravaged economies. Poland and Hungary have opposed the package because access to the money was, for the first time, to be linked to respecting the rule of law.

German investor sentiment soared more than expected in December on expectations that vaccines against the coronavirus would boost the outlook for Europe’s largest economy. The ZEW economic research institute said its survey of investors’ economic sentiment moved up to 55.0 from 39.0 in the previous month.

"With the strong bearish dollar dynamics in place, the trend in EUR/USD is up," said Peter Krpata, a currency strategist at Dutch bank ING. "We target $1.25 in 2021, with strong upside risks to $1.30." This coincides with our view as well.

US situation

Data on Thursday showed that the number of Americans filing first-time claims for unemployment benefits increased more than expected last week as mounting new COVID-19 infections caused more business restrictions. U.S. officials prepared on Friday for the most ambitious vaccination campaign in decades as regulators rapidly advanced toward approving the first COVID-19 vaccine to slow a pandemic now killing 3,000 Americans per day.

Data released at the end of last week pointed to a 245,000 increase in net, non-farm US payrolls in November. That marked a slowdown from October’s 610,000 increase but suggested some resilience in the economy despite a sharp increase in coronavirus infections through the month. It seems likely that December’s jobs report will show a drop in US employment, however, as surging infections lead to increased economic restrictions in some states. Last week, the California governor, Gavin Newsom, announced that stay-at-home orders would be automatically triggered when regions fell below 15% spare capacity in intensive care units. Within days, areas accounting for more than three quarters of the state’s population were subject to the restrictions. The Golden State accounts for 12% of US employment, and 15% of GDP. Nonetheless, with permanent layoffs across the country stabilising at levels below those seen during the Global Financial Crisis, the arrival of vaccines should lead to renewed jobs growth through 2021.
1607760425118.png


US nonfarm payrolls increased by 245K in November, significantly weaker than market expectations. Job growth has slowed after gains of around 700K and 600K in September and October. There was a gain of 350K in the private sector, but this was set against large government job losses. The slowing pace of job market improvement, together with surging coronavirus cases, puts additional pressure on Congress to enact a new stimulus package in coming weeks. The FOMC may also decide to ease policy further at its meeting next week.
1607760469905.png


But talks on a federal COVID-19 relief package have not yet been fruitful, and House Speaker Nancy Pelosi on Thursday raised the possibility of negotiations dragging on through Christmas.

“This has been a disappointing week on many fronts,” said Edward Moya, senior market analyst at OANDA in New York. There’s been no progress on COVID aid relief talks in DC, we have Brexit, which is once again going to go down to the wire, and coronavirus deaths and hospitalizations are still at a staggering pace in the U.S. and it’s likely to lead to more restrictive measures and lockdowns,” Moya said.

Analysts are overwhelmingly calling for further U.S. dollar weakness as global growth picks up and with the U.S. Federal Reserve expected to hold rates near zero for years to come. A risk to this view, however, will be if the U.S. economy surprises market participants by outperforming, analysts at Bank of America said on Friday in a report.

“A much stronger US recovery than in most of the rest of the world, particularly Europe, could be risk-off and USD positive by re-pricing the Fed,” they said.

Data on Friday showed that U.S. producer prices barely rose in November, supporting views that inflation would remain benign in the near term, while other data showed a surprise improvement in consumer sentiment early in December.

A risk-off move drove Treasury yields down across maturities on Friday, with the two-year yield falling to a four-month low, furthering speculation that the
Federal Reserve may announce adjustments to its Treasury purchases at next week's meeting.

The fall in yields was partly attributable to reports that congressional wrangling over a spending package and coronavirus aid could drag on through Christmas. Also pulling yields lower was news that European pharmaceutical companies Sanofi SA and GlaxoSmithKline Plc would delay the launch of their COVID-19 vaccine until late next year, a setback in the global fight against the pandemic.

Now on political risks. The U.S. Supreme Court on Friday rejected a long-shot lawsuit by Texas and backed by President Donald Trump seeking to throw out voting results in four states, dealing him a likely fatal blow in his quest to undo his election loss to President-elect Joe Biden. It means that D. Trump, as I've said above, is like a hunted beast. The point is Colleagues voting stands on Monday already, but he has not got the meaningful result of his efforts to contest the election's result, although some progress in this work definitely stands. As Supreme Court has denied its request or better to say claim - I'm worry that D. Trump could shoot the gulf, and announce Emergency regime. Actually I do not see any other options right now. It has to do it quickly, because after voting will take place and with Supreme Court on opposite side - hardly he could do something after that. At least all his claims will be classified just as a US citizen, but not the president already to newly elected US President J. Biden. As you understand, with this new role it becomes almost impossible to struggle the deep state of Democrats.

COT Report
Recent data shows no deteriorating of bullish mood, as speculators have increased long positions on a background of rising open interest. Hedgers have taken more hedge against EUR growth:

1607761034744.png



Next week we're watching for last Brexit efforts, Fed statement and preparing to Georgia elections.

Investors are looking ahead to dual U.S. Senate runoffs in Georgia early next month, a potential threat to a year-end rally that has pushed stocks to record highs in the midst of a country-wide surge of coronavirus cases. Democratic wins in both Jan. 5 Senate races would change control of the legislative body and give President-elect Joe Biden’s party full sway over Congress.
Georgia has not elected a Democratic senator in 20 years, but Biden’s narrow victory there over President Donald Trump has given Democrats hope. The latest polling gives a slight edge to both Democratic candidates, Jon Ossoff and Raphael Warnock, over their respective Republican opponents, David Perdue and Kelly Loeffler, according to data website 538. A win by both Ossoff and Warnock would give each party 50 Senate seats, but Democrats would effectively gain control because Vice President-elect Kamala Harris would be the deciding vote in any tie.

When the Bank of England announced a 150 billion pound increase in stimulus last month, it probably didn’t anticipate acting again soon. If a Brexit trade deal had been signed by now, as expected, that would have been sufficient to shield the economy. But it hasn’t quite gone that way. Another Brexit deadline looms on Sunday and banks are quietly raising the odds of no-deal.

No agreement by Thursday’s meeting would mean the BOE will need to focus on increased risks to the economy and possibly open the doors for more stimulus and sub-zero interest rates. Until recently, the 0.10% Bank rate was not expected to change until 2022. But Brexit deadlock means money markets now price a 65% probability of a 10 basis point (bps) cut by March 2021, doubling from a month ago.

November’s U.S. inflation uptick has increased speculation the Federal Reserve will on Wednesday announce plans to up purchases of longer-dated Treasuries to keep yields contained. Ten- and 30-year U.S. borrowing costs are up by roughly 60 and 100 bps respectively from record lows hit in March. Two-year yields are just 4 bps off record lows. That’s unsurprising -- the majority of the Fed’s $2 trillion purchases since March have been of short-dated debt.

That makes it likely the Fed will re-weight debt purchases towards the longer end. But will the move come this month?

Thirty-year yields are particularly sensitive to inflation expectations. They edged down even after data showing U.S. inflation rose 0.2% last month. That, investors say, is a sign of growing expectations that Fed intervention is coming.

1607761942038.png



Overall situation is going with our central scenario by far. ECB has increased stimulus pack slightly while Brussel stands at the eve of unwind additional 1.8 Trln. EUR measures to support CV19 hurt countries. Although it is widely discussed that ECB is concerned of rising EUR rate, we do not expect that any measures will be taken until 1.28-1.30 level. The trend that we have on EUR should continue, although hardly it becomes faster as we do not see big reasons for acceleration. US stands in difficult situation of political uncertainty, CV19 difficult situation that yet should be resolved by the new President whoever it will be. On coming week the major factor of uncertainty is D. Trump. He could take some desperate steps to turn situation in his favor and this could become a shock for the markets across the board. Speaking on Fed - we do not expect wide stimulus pack by few reasons, mostly we've mentioned it in daily updates. First is, S. Mnuchin said earlier that Fed stimulus programme has to be finished as planned - by the end of December. With uncertainty of new government and its fiscal programme, no stimulus - Fed hardly makes some decisive steps. Besides, Xmas stands just with one week. What a sense to announce new stimulus before the holidays as it would be better to do it when everybody returns to work with new President and his team in place. So - yes, it could announce purchasing rebalancing in favor of longer-term bonds, but no meaningful stimulus and new programme will be announced by our view. Finally, on Brexit subject - somehow I'm tending to hard result.

Technicals

Monthly

This week market spent in tight range that makes no impact on technical picture. We keep the same bullish scenario here but still think that EUR needs some external support to pass through 1.22-1.25 resistance area. ECB stimulus fall short of our expectations, so maybe Brussels decision later could become the one. Although EUR has no Fib level resistance until 1.25, it has the barrier of former lows. It is not strict price level and works more like a range, but it starts somewhere around 1.22 and EUR should feel its pressure as it comes closer. Still, as 1.25 already has been challenged previously, we suppose that EUR has chances to reach it The next target above 1.25 stands around 1.2850-1.30, that is OP and extension of BC retracement swing:

eur_m_14_12_20.png


Weekly

Here EUR forms the inside week that brings nothing new to technical picture. The one thing that we could acknowledge here - price stands in tight range above broken top and this is bullish sign. Trend has turned bullish as well, market is not at overbought area:
eur_w_14_12_20.png


Daily
This is our major chart for now and we keep our journey to 1.2260 target. As we've said on Thursday - bullish grabber and upside flag breakout gives sufficient reasons to keep bullish context and watch for further upward action. Technical picture stands relatively simple here, that make easy to control vital moments. Thus, on daily chart market has to stay above the flag pattern to keep bullish context valid and keep upward action. Downside flag breakout means the reversal in short-term market sentiment. This combination lets us to focus only on recent upside swing to plan long-entry, because any other price action is the sign of bearish sentiment:

Intraday

Still on 4H chart we have the one issue that we have to consider. Here, the decisive pattern is high wave that market has failed to break on Friday and dropped back a bit. Still, we have the daily grabber and the perfect bullish scenario suggests EUR to turn up and continue upward action. But this is the one that we would call as perfect.

The alternative scenario is not bearish, but it suggests deeper retracement in a shape of AB-CD pattern back to 1.2030 K-support area. In this case daily grabber could fail (but not necessary). But this retracement doesn't break the bullish context because EUR as holds inside the flag as above major K-support area and former top.

Thus, it would be better to foresee stop placement below 1.20 area if you intend to take long position here. Still, this is reserved scenario. First - let's focus on preferable variant and hope that EUR has enough power to start upward action from current levels, maybe minor grabber here works as well.
eur_4h_14_12_20.png


For this purpose we could use 1H chart, as we did yesterday. Overall picture suggests that EUR has to turn up somewhere from 1.2090 area, or it turns on the way of 2nd scenario with drop to 1.2006-1.2030 area where XOP target stands as well. Your task is to choose, whether you will try to follow both ways of focus only on one of them.

eur_1h_14_12_20.png
 

adams1

Private
Messages
22
Fundamentals

This week was relatively calm, so we haven't seen any strong action on FX market and Gold, mostly because ECB statement was anemic, while Brexit negotiations shows no progress by far. Still we hear some statements that hint on some difficulties through discussion process. We expect that next week provides a lot of volatility because of D. Trump now like a hunted beast as Supreme Court has denied Texas and other States claim, so he has very limited tools to change the situation. Besides, right on Monday the Colleagues voting starts. Second - Fed statement on Thu. We do not exclude the situation when these two effects overlaps. In Europe everybody keeps an eye on Brexit results.

Brexit turmoil

First, lets take a look at Brexit as this is hot topic right now. There is an opinion that everything stands good and EU/UK are coming to Agreement. Recent few statements makes us think that everything stands not as cloudless as it is presented in news.

Britain is likely to complete its journey out of the European Union in three weeks without a trade deal, British Prime Minister Boris Johnson and European Commission chief Ursula von der Leyen said on Friday. Britain quit the EU in January but remains an informal member until Dec. 31 - the end of a transition period during which it has remained in the EU single market and customs union.

Both sides say they want to agree arrangements to cover nearly $1 trillion in annual trade but negotiations are at an impasse, with Britain standing to lose zero-tariff and zero-quota access to the huge European single market.

“It’s looking very, very likely we’ll have to go for a solution that I think will be wonderful for the UK. We’ll be able to do exactly what we want from Jan. 1. It will obviously be different from what we set out to achieve,” Johnson told reporters.

“If there’s a big offer, a big change in what they’re saying then I must say that I’m yet to see it,” said Johnson, the face of the “leave” campaign in Britain’s 2016 Brexit referendum.

He later held a meeting with senior minister Michael Gove and officials to assess the country’s preparedness for a no-deal departure, a government official said.

Von Der Leyen was quoted by an EU official as telling leaders of the bloc’s 27 member states attending a summit in Brussels on Friday that prospects for a deal had worsened. “The probability of a no deal is higher than of a deal,” the official said on condition of anonymity.

Johnson and von der Leyen have given negotiators until Sunday evening to break the deadlock over fishing rights and EU demands for Britain to face consequences if in the future it diverges from the bloc’s rules. Johnson must decide whether the deal on offer is worth taking or the future freedom and domestic political benefits afforded by leaving without one outweigh the economic costs.



A Brexit without a trade deal would damage the economies of Europe, send shockwaves through financial markets, snarl borders and sow chaos through the delicate supply chains which stretch across Europe and beyond.

Italian Prime Minister Giuseppe Conte said there were still fundamental issues unresolved in the trade talks. “Time is running out and we need to prepare for a hard Brexit,” he said, referring to an abrupt rupture in trade arrangements.

EU leaders rejected a proposal from Johnson for a Brexit call with German Chancellor Angela Merkel and French President Emmanuel Macron on Monday, EU officials said. Johnson is under pressure from Brexit supporters in Britain not to cave to any EU demands that they say could undermine his promises to regain Britain’s sovereignty. Macron also faces domestic pressure, with French fishermen urging him to ensure the EU defends their fishing rights.

Asked by a reporter about an EU proposal for a one-year contingency plan, under which EU fishermen would keep access to Britain’s fishing waters, he said: “I’m not asking to have my cake and eat it, no. All I want is a cake that’s worth its weight. Because I won’t give up my share of it either.”

The Bank of England said it had taken steps to keep banks lending through 2021 as Britain prepares for any market disruption from a big change in the trading relationship with the EU, while also dealing with the COVID-19 pandemic.

Another article that indirectly hints on no-deal is UK navy to help protect fishing waters in case of no-deal Brexit

Four Royal Navy patrol ships will be ready from Jan. 1 to help Britain protect its fishing waters in case of a no-deal Brexit, as Prime Minister Boris Johnson said the UK was likely to complete its EU exit in three weeks without a trade deal. The Ministry of Defence “has conducted extensive planning and preparation to ensure that defence is ready for a range of scenarios at the end of the transition period,” a spokesman said.

“This preparation includes a standby package of 14,000 personnel to ensure that we are ready to support other government departments and authorities over the winter period, including with the EU transition, COVID-19 and potential severe weather events,” the spokesman said in an email to Reuters.



The 80-metre-long vessels will have the power to stop, check and impound all European Union fishing boats operating within Britain’s exclusive economic zone (EEZ), which can extend 200 miles (320 km) from shore. The Guardian newspaper reported earlier that two vessels will be deployed at sea with two on standby in case EU fishing boats enter the EEZ.

So, taking in consideration this information, no-deal Brexit comes on the first stage again. Recently we've discussed possible impact on the markets. No-deal with hard conditions suggests drop for 7-8% from current levels, that is approximately around 1.20-1.22 area on GBP/USD. Alternatively, making an Agreement at last moment could lead to upward gap for the same distance, somewhere to 1.40 area. Still, analysts treat probabilities not in favor of this scenario.

Finally, options market moves show traders bracing for chaos, with one-week implied volatility at a new eight-month high and the premium of sterling puts to calls near its highest since April as investors pay up for downside protection.

"With financial markets having bought sterling for months on the assumption a Brexit trade deal would be completed, the risk is that may have been a false hope," said Jeffrey Halley, senior analyst at currency broker OANDA. "I sense that the market is still clinging to that conviction and has not yet materially thrown in the towel," he said.

"That could well change on Sunday, meaning that Monday morning in Wellington, New Zealand, when currency markets open in the wee hours, could be emotional."


ECB meeting

European Central Bank unveiled fresh stimulus measures broadly in line with expectations. The ECB expanded its debt purchase scheme and agreed to provide banks with even more ultra-cheap liquidity as long as they keep passing the cash onto companies.

The ECB increased the overall size of its Pandemic Emergency Purchase Programme by 500 billion euros ($605.40 billion) to 1.85 trillion euros and extended the scheme by 9 months to March 2022, with the aim of keeping government and corporate borrowing costs at record lows.

The move did not surprise investors as the central bank had made it clear more easing was on the way and bond purchases, along with liquidity facilities for banks, would form the backbone of any policy response.

However, “the European Central Bank did not present a big new bazooka,” said Carsten Brzeski, global head of macro at ING. It offered “a well-engineered extension of all well-known instruments to ensure that the current level of monetary accommodation is extended until at least the spring of 2022, hoping for the vaccine to have done its job by then.”

The ECB also said it is monitoring the euro’s exchange rate with regard to its possible implications for the medium-term inflation outlook, after it last week hit a two-and-a-half year high against the greenback. Analysts and market participants are watching to see if global central banks indicate they may act to stem the relative strength of their currencies as the greenback tumbles.

ECB "left the gun powder dry and no bazooka was fired. This has made investors bullish on the euro as the expectations were that the ECB is worried about the economic recovery," said Naeem Aslam, chief market analyst at Ava Trade.

“It’s the second major central bank to casually note exchange rate developments recently, underscoring the sliding USD,” said Mark McCormick, global head of FX strategy at TD Securities. “We don’t think there is too much the ECB can do to reverse market trends, though they can take some steam off the top.”


Among other positive developments for the euro zone, EU leaders in Brussels seemed close to unblocking a stalled 1.8 trillion euro package to help revive their pandemic-ravaged economies. Poland and Hungary have opposed the package because access to the money was, for the first time, to be linked to respecting the rule of law.

German investor sentiment soared more than expected in December on expectations that vaccines against the coronavirus would boost the outlook for Europe’s largest economy. The ZEW economic research institute said its survey of investors’ economic sentiment moved up to 55.0 from 39.0 in the previous month.

"With the strong bearish dollar dynamics in place, the trend in EUR/USD is up," said Peter Krpata, a currency strategist at Dutch bank ING. "We target $1.25 in 2021, with strong upside risks to $1.30." This coincides with our view as well.

US situation

Data on Thursday showed that the number of Americans filing first-time claims for unemployment benefits increased more than expected last week as mounting new COVID-19 infections caused more business restrictions. U.S. officials prepared on Friday for the most ambitious vaccination campaign in decades as regulators rapidly advanced toward approving the first COVID-19 vaccine to slow a pandemic now killing 3,000 Americans per day.

Data released at the end of last week pointed to a 245,000 increase in net, non-farm US payrolls in November. That marked a slowdown from October’s 610,000 increase but suggested some resilience in the economy despite a sharp increase in coronavirus infections through the month. It seems likely that December’s jobs report will show a drop in US employment, however, as surging infections lead to increased economic restrictions in some states. Last week, the California governor, Gavin Newsom, announced that stay-at-home orders would be automatically triggered when regions fell below 15% spare capacity in intensive care units. Within days, areas accounting for more than three quarters of the state’s population were subject to the restrictions. The Golden State accounts for 12% of US employment, and 15% of GDP. Nonetheless, with permanent layoffs across the country stabilising at levels below those seen during the Global Financial Crisis, the arrival of vaccines should lead to renewed jobs growth through 2021.
View attachment 60247

US nonfarm payrolls increased by 245K in November, significantly weaker than market expectations. Job growth has slowed after gains of around 700K and 600K in September and October. There was a gain of 350K in the private sector, but this was set against large government job losses. The slowing pace of job market improvement, together with surging coronavirus cases, puts additional pressure on Congress to enact a new stimulus package in coming weeks. The FOMC may also decide to ease policy further at its meeting next week.
View attachment 60248

But talks on a federal COVID-19 relief package have not yet been fruitful, and House Speaker Nancy Pelosi on Thursday raised the possibility of negotiations dragging on through Christmas.

“This has been a disappointing week on many fronts,” said Edward Moya, senior market analyst at OANDA in New York. There’s been no progress on COVID aid relief talks in DC, we have Brexit, which is once again going to go down to the wire, and coronavirus deaths and hospitalizations are still at a staggering pace in the U.S. and it’s likely to lead to more restrictive measures and lockdowns,” Moya said.

Analysts are overwhelmingly calling for further U.S. dollar weakness as global growth picks up and with the U.S. Federal Reserve expected to hold rates near zero for years to come. A risk to this view, however, will be if the U.S. economy surprises market participants by outperforming, analysts at Bank of America said on Friday in a report.

“A much stronger US recovery than in most of the rest of the world, particularly Europe, could be risk-off and USD positive by re-pricing the Fed,” they said.

Data on Friday showed that U.S. producer prices barely rose in November, supporting views that inflation would remain benign in the near term, while other data showed a surprise improvement in consumer sentiment early in December.

A risk-off move drove Treasury yields down across maturities on Friday, with the two-year yield falling to a four-month low, furthering speculation that the
Federal Reserve may announce adjustments to its Treasury purchases at next week's meeting.

The fall in yields was partly attributable to reports that congressional wrangling over a spending package and coronavirus aid could drag on through Christmas. Also pulling yields lower was news that European pharmaceutical companies Sanofi SA and GlaxoSmithKline Plc would delay the launch of their COVID-19 vaccine until late next year, a setback in the global fight against the pandemic.

Now on political risks. The U.S. Supreme Court on Friday rejected a long-shot lawsuit by Texas and backed by President Donald Trump seeking to throw out voting results in four states, dealing him a likely fatal blow in his quest to undo his election loss to President-elect Joe Biden. It means that D. Trump, as I've said above, is like a hunted beast. The point is Colleagues voting stands on Monday already, but he has not got the meaningful result of his efforts to contest the election's result, although some progress in this work definitely stands. As Supreme Court has denied its request or better to say claim - I'm worry that D. Trump could shoot the gulf, and announce Emergency regime. Actually I do not see any other options right now. It has to do it quickly, because after voting will take place and with Supreme Court on opposite side - hardly he could do something after that. At least all his claims will be classified just as a US citizen, but not the president already to newly elected US President J. Biden. As you understand, with this new role it becomes almost impossible to struggle the deep state of Democrats.

COT Report
Recent data shows no deteriorating of bullish mood, as speculators have increased long positions on a background of rising open interest. Hedgers have taken more hedge against EUR growth:

View attachment 60249


Next week we're watching for last Brexit efforts, Fed statement and preparing to Georgia elections.

Investors are looking ahead to dual U.S. Senate runoffs in Georgia early next month, a potential threat to a year-end rally that has pushed stocks to record highs in the midst of a country-wide surge of coronavirus cases. Democratic wins in both Jan. 5 Senate races would change control of the legislative body and give President-elect Joe Biden’s party full sway over Congress.
Georgia has not elected a Democratic senator in 20 years, but Biden’s narrow victory there over President Donald Trump has given Democrats hope. The latest polling gives a slight edge to both Democratic candidates, Jon Ossoff and Raphael Warnock, over their respective Republican opponents, David Perdue and Kelly Loeffler, according to data website 538. A win by both Ossoff and Warnock would give each party 50 Senate seats, but Democrats would effectively gain control because Vice President-elect Kamala Harris would be the deciding vote in any tie.

When the Bank of England announced a 150 billion pound increase in stimulus last month, it probably didn’t anticipate acting again soon. If a Brexit trade deal had been signed by now, as expected, that would have been sufficient to shield the economy. But it hasn’t quite gone that way. Another Brexit deadline looms on Sunday and banks are quietly raising the odds of no-deal.

No agreement by Thursday’s meeting would mean the BOE will need to focus on increased risks to the economy and possibly open the doors for more stimulus and sub-zero interest rates. Until recently, the 0.10% Bank rate was not expected to change until 2022. But Brexit deadlock means money markets now price a 65% probability of a 10 basis point (bps) cut by March 2021, doubling from a month ago.

November’s U.S. inflation uptick has increased speculation the Federal Reserve will on Wednesday announce plans to up purchases of longer-dated Treasuries to keep yields contained. Ten- and 30-year U.S. borrowing costs are up by roughly 60 and 100 bps respectively from record lows hit in March. Two-year yields are just 4 bps off record lows. That’s unsurprising -- the majority of the Fed’s $2 trillion purchases since March have been of short-dated debt.

That makes it likely the Fed will re-weight debt purchases towards the longer end. But will the move come this month?

Thirty-year yields are particularly sensitive to inflation expectations. They edged down even after data showing U.S. inflation rose 0.2% last month. That, investors say, is a sign of growing expectations that Fed intervention is coming.

View attachment 60250


Overall situation is going with our central scenario by far. ECB has increased stimulus pack slightly while Brussel stands at the eve of unwind additional 1.8 Trln. EUR measures to support CV19 hurt countries. Although it is widely discussed that ECB is concerned of rising EUR rate, we do not expect that any measures will be taken until 1.28-1.30 level. The trend that we have on EUR should continue, although hardly it becomes faster as we do not see big reasons for acceleration. US stands in difficult situation of political uncertainty, CV19 difficult situation that yet should be resolved by the new President whoever it will be. On coming week the major factor of uncertainty is D. Trump. He could take some desperate steps to turn situation in his favor and this could become a shock for the markets across the board. Speaking on Fed - we do not expect wide stimulus pack by few reasons, mostly we've mentioned it in daily updates. First is, S. Mnuchin said earlier that Fed stimulus programme has to be finished as planned - by the end of December. With uncertainty of new government and its fiscal programme, no stimulus - Fed hardly makes some decisive steps. Besides, Xmas stands just with one week. What a sense to announce new stimulus before the holidays as it would be better to do it when everybody returns to work with new President and his team in place. So - yes, it could announce purchasing rebalancing in favor of longer-term bonds, but no meaningful stimulus and new programme will be announced by our view. Finally, on Brexit subject - somehow I'm tending to hard result.

Technicals

Monthly

This week market spent in tight range that makes no impact on technical picture. We keep the same bullish scenario here but still think that EUR needs some external support to pass through 1.22-1.25 resistance area. ECB stimulus fall short of our expectations, so maybe Brussels decision later could become the one. Although EUR has no Fib level resistance until 1.25, it has the barrier of former lows. It is not strict price level and works more like a range, but it starts somewhere around 1.22 and EUR should feel its pressure as it comes closer. Still, as 1.25 already has been challenged previously, we suppose that EUR has chances to reach it The next target above 1.25 stands around 1.2850-1.30, that is OP and extension of BC retracement swing:

View attachment 60251

Weekly

Here EUR forms the inside week that brings nothing new to technical picture. The one thing that we could acknowledge here - price stands in tight range above broken top and this is bullish sign. Trend has turned bullish as well, market is not at overbought area:
View attachment 60252

Daily
This is our major chart for now and we keep our journey to 1.2260 target. As we've said on Thursday - bullish grabber and upside flag breakout gives sufficient reasons to keep bullish context and watch for further upward action. Technical picture stands relatively simple here, that make easy to control vital moments. Thus, on daily chart market has to stay above the flag pattern to keep bullish context valid and keep upward action. Downside flag breakout means the reversal in short-term market sentiment. This combination lets us to focus only on recent upside swing to plan long-entry, because any other price action is the sign of bearish sentiment:

Intraday

Still on 4H chart we have the one issue that we have to consider. Here, the decisive pattern is high wave that market has failed to break on Friday and dropped back a bit. Still, we have the daily grabber and the perfect bullish scenario suggests EUR to turn up and continue upward action. But this is the one that we would call as perfect.

The alternative scenario is not bearish, but it suggests deeper retracement in a shape of AB-CD pattern back to 1.2030 K-support area. In this case daily grabber could fail (but not necessary). But this retracement doesn't break the bullish context because EUR as holds inside the flag as above major K-support area and former top.

Thus, it would be better to foresee stop placement below 1.20 area if you intend to take long position here. Still, this is reserved scenario. First - let's focus on preferable variant and hope that EUR has enough power to start upward action from current levels, maybe minor grabber here works as well.
View attachment 60253

For this purpose we could use 1H chart, as we did yesterday. Overall picture suggests that EUR has to turn up somewhere from 1.2090 area, or it turns on the way of 2nd scenario with drop to 1.2006-1.2030 area where XOP target stands as well. Your task is to choose, whether you will try to follow both ways of focus only on one of them.

View attachment 60254
Thanks mentor, for such great analysis.

Please, I want to know if the price of my pending order can be changed during execution by broker without me doing it?

Awaiting answer to the above question.

High regard
Adamson
 

Sive Morten

Special Consultant to the FPA
Messages
15,280
Morning guys,

Today we have minor changes by far as nothing happens on the market and investors mostly are focused on coming Fed meeting later in this week. Colleagues voting is done, and obviously they have supported elections' results in Biden's favor. This choice has to be signed later on 6th of January by Congress. So, D. Trump has fewer and fewer time to act. All smooth tools that he could use are exhausted so, he actually has no choice but use extreme tools as emergency regime. Otherwise, all efforts will be in vain. I think that this story is not over yet and will get the continuation because it doesn't look like occasional initiative, it is not due ambitions but it seems that D. Trump steps were planned and prepared long time ago. We will see...

On daily chart we do not see yet any meaningful upward continuation, but, at the same time price stands above crucial levels as well, keeping bullish context intact:
eur_d_15_12_20.png


As you remember, in weekend we've discussed two scenarios and EUR has followed to the preferred one, with immediate upward breakout. Now price stands above broken flag but it strongly needs further upward continuation to confirm bullish scenario. In fact, now we can't accept any deep retracement as it stands against normal market mechanics:
eur_4h_15_12_20.png


Take a look at 1H chart - market has started well with our reverse H&S pattern. Now price stands in CD extension that doesn't suggest any deep pullbacks, as it already has happened on BC leg. So, price should stay above 1.21 and better above 1.2130 to keep everything natural. Otherwise, it could mean drastic change in short-term sentiment. For us perfect progress is upside breakout of current pennant pattern.
eur_1h_15_12_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,280
Morning everybody,

So, EUR today is making some efforts to move higher, but mostly overall setup stands the same and I do not see any sense to repeat what we've said yesterday. Let's better take a look at GBP.

Since we have some time till Brexit final point, GBP keeps short term bullish context. Take a look - target of 1.37 that we've set few weeks ago still holds:
gbp_d_16_12_20.png


On 4 H chart we have clear "222" Buy pattern with accompanied bullish MACD divergence. Also we have closer target of 1.3560. This week it becomes the major one as it coincides with daily Overbought level:
gbp_4h_16_12_20.png


On 1H chart price takes the same shape as on EUR - reverse H&S pattern. Neckline is broken already and it makes overall situation simple - price has to stay above "C" lows to keep bullish context. Drop below "C" triggers chain reaction of downside breakouts leading to appearing of bearish reversal daily swing and breaking of short-term bullish context. H&S target agrees with 1.3560-1.3590 level as well. Thus, if you want to go long - try to catch some minor pullback to Fib support with stops below "C". If Brexit surprises not intrudes - GBP has chances to reach the target...
gbp_1h_16_12_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,280
Morning guys,

so, today we could take a look at some results, of this week as Fed meeting has happened, price is moving higher and we need just to wait when daily target will be hit. The same story on GBP - OP that we've specified few days ago on 4H chart is reached.

On EUR daily chart price performance stands well, no overbought, so today-tomorrow, hopefully, EUR hits our 1.2260 target:
eur_d_17_12_20.png


On 1H chart market was able to keep perfect bullish context, showing no deep pullback. OP target has been hit right at the eve of Fed statement. Now, as price stands above OP, it means that extension swing continues and we could focus on next, XOP target that mostly coincides with the daily one.
As we're in extension mode, no deep retracement should happen, price has to stay above K-area and preferably above 1.22 Fib level. Thus, if you plan scalp trades - watch for these levels. Others, who keeps long positions - don't forget to manage it.
eur_1h_17_12_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,280
Morning guys,

So, our target for the week is done, as EUR hits 1.2260-1.2270 area. Now price gradually is entering natural resistance 1.22-1.25 area. Since this was tough week, EUR could show some temporal relief and response to achieved targets:
eur_d_18_12_20.png


On 4H chart it could take the shape of H&S pattern when market could reach 1.21 or even re-test broken 1.20 area, where now K-support stands as well. Bearish MACD divergence presents as well:
eur_4h_18_12_20.png


On 1H chart our XOP target of reverse H&S pattern is done as well:
eur_1h_18_12_20.png


So, overall mood stands positive and now we do not have any reasons to doubt on bullish context. So, we keep our medium-term target of 1.28 intact. If you want to take scalp short-position here - wait a bit more when&if pattern takes better shape. Right now we have more the hint rather than pattern in place.
 
Top