Sive Morten
Special Consultant to the FPA
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Fundamentals
(Reuters) - The U.S. dollar edged lower against a basket of major currencies on Friday, but still held near 14-year highs touched after Wednesday's Federal Reserve meeting, with profit-taking halting the greenback's rally.
The dollar index which measures the greenback against a basket of six major rivals, was last at 102.900, not far from Thursday's 14-year high of 103.560 but down 0.12 percent on the day.
The index gained 1.2 percent on Thursday to mark its biggest daily percentage gain in nearly six months a day after the U.S. central bank raised interest rates for the first time in a year. The Fed also signaled it was likely to hike rates three more times in 2017, up from the two increases forecast at the central bank's September meeting.
The projections, combined with expectations that U.S. President-elect Donald Trump's incoming administration may boost domestic economic growth with fiscal stimulus, sent the dollar shooting higher and brought parity with the euro back in play.
Profit-taking ahead of the weekend and expectations of a squeeze on dollar liquidity heading into year-end dampened the dollar's gains on Friday, analysts said.
"The scale of the move since the FOMC meeting has been significant, and you would expect to see some kind of profit-taking on dollar longs," said David Gilmore, partner at FX Analytics in Essex, Connecticut.
The euro was last up 0.2 percent against the dollar at $1.0433 after hitting a nearly 14-year low of $1.0364 on Thursday, with the current level putting it about 4 percent away from parity with the dollar. The dollar was down 0.2 percent against the yen at 117.94 yen after hitting a roughly 10-1/2 month high of 118.66 yen on Thursday.
Despite Friday's losses, the dollar remained on track to notch its biggest weekly percentage gains against the euro, yen, and Swiss franc in four weeks. The euro was on track to decline 1.2 percent against the dollar, while the dollar was set to gain 2.2 percent against the yen and about 1 percent against the Swiss franc for the week.
"We’re probably starting to thin out for the holidays as well," said Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman in New York.
Against the Swiss franc, the dollar was last down 0.3 percent at 1.0268 francs after touching 1.0344 francs on Thursday, its highest since August 2010.
New President May Force Hawkishness on 2017 Fed
by Breakingviews
Donald Trump may force the Federal Reserve to become more hawkish. The U.S. central bank on Wednesday nudged interest rates up again after a year-long pause. Looking ahead, Chair Janet Yellen and her colleagues have previously sounded cautious. But that was before the Trump bump boosted bond yields, inflation and stock prices.
The Fed finally pulled the trigger at its last meeting of 2016 after steady economic improvement throughout the year, raising the target range for overnight borrowing by a quarter of a point to 0.5-0.75 percent. In the three months to September, U.S. GDP expanded at a 3.2 percent annualized pace, the fastest in two years. The jobless rate in November fell to 4.6 percent, the lowest reading since August 2007.
Fed officials had been guarded about 2017. In September, the central bank scaled back its forecasts for next year from three increases to two amid global economic uncertainty, but brought the projection back to three on Wednesday. Meanwhile the market-implied probability of even two hikes in 2017 was under a third before the Fed’s decision, according to CME’s FedWatch analysis.
Other economic indicators are more optimistic. The 10-year Treasury yield jumped the most in three years the day after Trump’s Nov. 8 election to above 2 percent, and on Tuesday closed around 2.5 percent. The core personal consumption expenditures price index rose 1.7 percent in the year to October, while the headline PCE index rose 1.4 percent. Both are still below the Fed’s 2 percent target but both are the highest in months and should increase further because of rising wages.
Stocks have hit record levels since the election. The S&P 500 Index has gained nearly 5 percent since Trump’s election as the next U.S. president. Investors have been buoyed by his plans to cut personal and corporate taxes and spend up to $1 trillion on infrastructure.
Although the Fed has pushed for fiscal measures to boost growth, Yellen told Congress after the election that the outlook was fuzzy on that front. Fed officials have said their assessment will depend on what proposals are actually approved by Congress.
But Yellen may not have the luxury of waiting and seeing. If inflation and other benchmarks continue to rise, the Fed will soon feel pressure to up the pace of rate increases. Trump, once in office, may not like that idea as much as he did as a candidate.
_______________________________________________________________________________________
COT Report
U.S. dollar net long positions were little changed this week, affirming a trend in place for the last several weeks since the election of Donald Trump as U.S. president.
The value of the dollar's net long position was $28.01 billion in the week ended Dec. 13, marginally down from $28.14 billion the previous week, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.
Kathy Lien, managing director of FX strategy at BK Asset Management, said investors were taking profits on their long dollar position.
"Being a dollar bull has paid off handsomely over the past two months with the greenback rising 15 percent against the Japanese yen and more than 7.5 percent against the euro," said Lien.
"Both the speed and velocity of the move has been incredible and when such abrupt fluctuations occur, it is natural to expect profit-taking."
She still believes the dollar is a buy on dips, unless U.S. data, Federal Reserve comments, and U.S. interest rates suggest otherwise.
On EUR currency, guys, it seems that game is coming to pause. Recent data shows massive contraction of speculative net short position. It could happen either on contraction of shorts or on opening new longs. Open interest shows no significant contraction of total positions, since it stands stable during last 5-6 weeks. It means that some shorts were replaced by longs. And this is tactical bullish setup, which means that as closer to Christmas holidays we are as higher odds of profit taking and upside pullback.
But this setup stands in agreement with technical picture as EUR has hit major weekly target on Friday. Thus, combination with coming holidays and over of financial year makes chances on upside bounce quite possible.
Technical
Monthly
Right now we know that fundamental background mostly looks bearish for EUR - Potentially more hawkish Fed policy, Italy referendum that will lead to early elections next year and ECB QE prolongation.
Currently EUR stands at rather strong wide support area. This is lower border of downward channel and all-time 5/8 Fib support. Here EUR has formed Butterfly "buy" and it has reached first 1.27 extension. Probably it needs some time to pass through this level and supportive fundamental background of US strength that finally are coming probably.
Speaking on big scale bearish signs, we have these ones:
EUR was not able to reach YPR1 and returned right back down to YPP. Following this logic next destination could be YPS1 right around parity and 1.618 butterfly target. This is just another destination point that we have here, as EUR has dropped through YPP.
We have another bearish sign that looks like bearish dynamic pressure. Take a look that although trend holds bullish - market shows inablitity to move up, even from strong support area. Last week it has completed it's minimal target - 1.05 lows were taken out.
Next strong support stands precisely at parity and will become a culmination of downward action, since this level includes support line, YPS1 and butterfly 1.618 target. Brexit results hardly will bring prosperity to EU and probably will become another bearish driving factor for EUR. Separatistic sentiment start to appear in other countries of EU that are not satisfied with Brussels domination in governing EU. We aleardy see consequences of Brexit on GBP, so, some negative impact on EUR also will happen, this is just a question of time.
Also take a look at different behavior near low border of channel. Previously when market has touched it - it shows immediate upside pullback, it was V-shape reversal. Right now behavior is absolutely different, price just hangs on the border and shows no upside action. Any tight consolidation near trendline could become a sign of coming breakout.
Thus, based on monthly chart we could make two major conclusions. First is - real bullish trend will be re-established only when EUR will erase reversal candle and overcome its top above 1.16. Our next target on Monthly chart is parity - 1.618 Butterfly extension, YPS1 and trendline support.
The major short-term intrigue here is bullish stop grabber in December. In general it agrees with sentiment analysis and some patterns that we see on lower time frames. But if it will be confirmed - it will suggest action above 1.14 that doesn't match overall bearish tendency and views on the market.
In fairness it should be noted that this is weaker type of grabber that fails very often. So, let's keep watching...
Weekly
Trend is bearish on weekly chart, but market is not at oversold. Actually all valuable support level were broken and right now market has relatively "free space" right to parity area.
Patterns that we have here create sequence of targets. First one 1.04 has been hit already, and now we have some minor targets on every 100 pips. Thus, 1.0230 - 1.618 of daily AB-CD pattern (red) and December WPS1, 1.0130 is 1.27 Butterfly target.
Also, if you will take a careful look, you'll see that right wing of our butterfly actually is smaller butterfly itself. Its target also stands around 1.02 area... But this difference between this target is mostly theoretical. As EUR will re-establish move down, all of them will be hit at once probably as market wll tend to parity.
Right now EUR stands at most valuable AB=CD target and we should be ready to some upside bounce
Daily
So, on daily chart we will not discuss any patterns, guys, just because we do not have any. Instead of that we will talk on possible retracement range, since this is most interesting thing right now. Here, by the way, you could see bullish divergence with MACD is forming...
So, following the logic of any AB=CD pattern, as it has been completed, especially if it has gradual and harmonic shape (as we do), it leads at least to 3/8 retracement of CD leg. This is 1.0840 Fib resistance on daily chart. We will not point that this is absolutely impossible, since on porfit taking, end of financial year and coming holidays everything is possible. Although 1.08 seems too high on a background of massive expections of further dropping, but, thecnically this is normal retracement and nothing curious will happen if EUR will bounce to 1.0840. But...
This level is not interesting to us on coming week, just because it stands above daily overbought and hardly will be reached. Thus, OB/OS analysis makes our life simpler and narrows the range that we should take a look at. In fact this range is limited by most recent downward swing. THat's what precisely we will be watching for on next week:
4-hour
Situation on intraday charts is very tricky, mostly it should concern scalp traders, who has intention to go long. For others this information is not very important.
As market stands at daily oversold, this is not good idea to go short right now. At the same time bounce up could start differently. At first glance market has completed 1.27 Butterfly at daily overbought - what else do we need to take scalp long position?
But here we have to pay attention on how this target has been hit. First of all - take a look that market already has shown 3/8 retracement up and respected this target. Second - pay attention to strong sell-off on the slope of right wing. This is not good background for upside reversal and usually tells that reaction on 1.27 target will be temporal, while later price should continue to 1.618 target.
Besides, butterfly also has inner AB=CD pattern (red dot lines) and it's target also has not been hit.
All these stuff means that EUR could turn up not immediately at current level but flirt a bit first with lower targets. Thus, before taking scalp long position we should wait at least reversal pattern on lower time frames and get some signs of upward thrust.
At the same time, if EUR will move above WPP it probably will mean that retracement has started. In this case watch for higher levels, as market is oversold on daily chart. 1.0550 definitely should be hit,WPR1 and major 5/8 around 1.0680 are possible also.
Hourly
First of all - take a look at our B&B "Sell" pattern. It has worked very nice...
What to watch for on next week... Currently we do not have a lot of hints here. As we've talked above - current consolidation could take a different shape. For example, EUR could form here another minor butterfly that will lead price to 1.618 target of 4-hour pattern. Or, conversely, EUR could break K-resistance and WPP and continue upward action.
This is the key level guys. If EUR will fail to pass through hourly K-resistance and WPP, it will mean that some downward lazy action is possible according to our suggestions, while upside breakout of K-area and WPP will mean that retracement has started and EUR will reach higher levels. So, watch for either patterns or upside breakout.
We have small bullish grabber here, but it doesn't bring a lot of clarity. It just suggest action right back to 1.0480 level...
Conclusion:
We still keep the same long-term view on EUR and it looks bearish. Our next long-term target stands around parity.
On a way down we will have some intermediate targets as well, almost each 100 pips, but their difference is mostly theoretical. As EUR will re-establish downward action, they will be hit almost at the same time.
In short-term perspective, upside bounce could happen, due changes in Sentiment analysis, coming holidays and end of financial year.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
(Reuters) - The U.S. dollar edged lower against a basket of major currencies on Friday, but still held near 14-year highs touched after Wednesday's Federal Reserve meeting, with profit-taking halting the greenback's rally.
The dollar index which measures the greenback against a basket of six major rivals, was last at 102.900, not far from Thursday's 14-year high of 103.560 but down 0.12 percent on the day.
The index gained 1.2 percent on Thursday to mark its biggest daily percentage gain in nearly six months a day after the U.S. central bank raised interest rates for the first time in a year. The Fed also signaled it was likely to hike rates three more times in 2017, up from the two increases forecast at the central bank's September meeting.
The projections, combined with expectations that U.S. President-elect Donald Trump's incoming administration may boost domestic economic growth with fiscal stimulus, sent the dollar shooting higher and brought parity with the euro back in play.
Profit-taking ahead of the weekend and expectations of a squeeze on dollar liquidity heading into year-end dampened the dollar's gains on Friday, analysts said.
"The scale of the move since the FOMC meeting has been significant, and you would expect to see some kind of profit-taking on dollar longs," said David Gilmore, partner at FX Analytics in Essex, Connecticut.
The euro was last up 0.2 percent against the dollar at $1.0433 after hitting a nearly 14-year low of $1.0364 on Thursday, with the current level putting it about 4 percent away from parity with the dollar. The dollar was down 0.2 percent against the yen at 117.94 yen after hitting a roughly 10-1/2 month high of 118.66 yen on Thursday.
Despite Friday's losses, the dollar remained on track to notch its biggest weekly percentage gains against the euro, yen, and Swiss franc in four weeks. The euro was on track to decline 1.2 percent against the dollar, while the dollar was set to gain 2.2 percent against the yen and about 1 percent against the Swiss franc for the week.
"We’re probably starting to thin out for the holidays as well," said Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman in New York.
Against the Swiss franc, the dollar was last down 0.3 percent at 1.0268 francs after touching 1.0344 francs on Thursday, its highest since August 2010.
New President May Force Hawkishness on 2017 Fed
by Breakingviews
Donald Trump may force the Federal Reserve to become more hawkish. The U.S. central bank on Wednesday nudged interest rates up again after a year-long pause. Looking ahead, Chair Janet Yellen and her colleagues have previously sounded cautious. But that was before the Trump bump boosted bond yields, inflation and stock prices.
The Fed finally pulled the trigger at its last meeting of 2016 after steady economic improvement throughout the year, raising the target range for overnight borrowing by a quarter of a point to 0.5-0.75 percent. In the three months to September, U.S. GDP expanded at a 3.2 percent annualized pace, the fastest in two years. The jobless rate in November fell to 4.6 percent, the lowest reading since August 2007.
Fed officials had been guarded about 2017. In September, the central bank scaled back its forecasts for next year from three increases to two amid global economic uncertainty, but brought the projection back to three on Wednesday. Meanwhile the market-implied probability of even two hikes in 2017 was under a third before the Fed’s decision, according to CME’s FedWatch analysis.
Other economic indicators are more optimistic. The 10-year Treasury yield jumped the most in three years the day after Trump’s Nov. 8 election to above 2 percent, and on Tuesday closed around 2.5 percent. The core personal consumption expenditures price index rose 1.7 percent in the year to October, while the headline PCE index rose 1.4 percent. Both are still below the Fed’s 2 percent target but both are the highest in months and should increase further because of rising wages.
Stocks have hit record levels since the election. The S&P 500 Index has gained nearly 5 percent since Trump’s election as the next U.S. president. Investors have been buoyed by his plans to cut personal and corporate taxes and spend up to $1 trillion on infrastructure.
Although the Fed has pushed for fiscal measures to boost growth, Yellen told Congress after the election that the outlook was fuzzy on that front. Fed officials have said their assessment will depend on what proposals are actually approved by Congress.
But Yellen may not have the luxury of waiting and seeing. If inflation and other benchmarks continue to rise, the Fed will soon feel pressure to up the pace of rate increases. Trump, once in office, may not like that idea as much as he did as a candidate.
_______________________________________________________________________________________
COT Report
U.S. dollar net long positions were little changed this week, affirming a trend in place for the last several weeks since the election of Donald Trump as U.S. president.
The value of the dollar's net long position was $28.01 billion in the week ended Dec. 13, marginally down from $28.14 billion the previous week, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.
Kathy Lien, managing director of FX strategy at BK Asset Management, said investors were taking profits on their long dollar position.
"Being a dollar bull has paid off handsomely over the past two months with the greenback rising 15 percent against the Japanese yen and more than 7.5 percent against the euro," said Lien.
"Both the speed and velocity of the move has been incredible and when such abrupt fluctuations occur, it is natural to expect profit-taking."
She still believes the dollar is a buy on dips, unless U.S. data, Federal Reserve comments, and U.S. interest rates suggest otherwise.
On EUR currency, guys, it seems that game is coming to pause. Recent data shows massive contraction of speculative net short position. It could happen either on contraction of shorts or on opening new longs. Open interest shows no significant contraction of total positions, since it stands stable during last 5-6 weeks. It means that some shorts were replaced by longs. And this is tactical bullish setup, which means that as closer to Christmas holidays we are as higher odds of profit taking and upside pullback.
But this setup stands in agreement with technical picture as EUR has hit major weekly target on Friday. Thus, combination with coming holidays and over of financial year makes chances on upside bounce quite possible.
Technical
Monthly
Right now we know that fundamental background mostly looks bearish for EUR - Potentially more hawkish Fed policy, Italy referendum that will lead to early elections next year and ECB QE prolongation.
Currently EUR stands at rather strong wide support area. This is lower border of downward channel and all-time 5/8 Fib support. Here EUR has formed Butterfly "buy" and it has reached first 1.27 extension. Probably it needs some time to pass through this level and supportive fundamental background of US strength that finally are coming probably.
Speaking on big scale bearish signs, we have these ones:
EUR was not able to reach YPR1 and returned right back down to YPP. Following this logic next destination could be YPS1 right around parity and 1.618 butterfly target. This is just another destination point that we have here, as EUR has dropped through YPP.
We have another bearish sign that looks like bearish dynamic pressure. Take a look that although trend holds bullish - market shows inablitity to move up, even from strong support area. Last week it has completed it's minimal target - 1.05 lows were taken out.
Next strong support stands precisely at parity and will become a culmination of downward action, since this level includes support line, YPS1 and butterfly 1.618 target. Brexit results hardly will bring prosperity to EU and probably will become another bearish driving factor for EUR. Separatistic sentiment start to appear in other countries of EU that are not satisfied with Brussels domination in governing EU. We aleardy see consequences of Brexit on GBP, so, some negative impact on EUR also will happen, this is just a question of time.
Also take a look at different behavior near low border of channel. Previously when market has touched it - it shows immediate upside pullback, it was V-shape reversal. Right now behavior is absolutely different, price just hangs on the border and shows no upside action. Any tight consolidation near trendline could become a sign of coming breakout.
Thus, based on monthly chart we could make two major conclusions. First is - real bullish trend will be re-established only when EUR will erase reversal candle and overcome its top above 1.16. Our next target on Monthly chart is parity - 1.618 Butterfly extension, YPS1 and trendline support.
The major short-term intrigue here is bullish stop grabber in December. In general it agrees with sentiment analysis and some patterns that we see on lower time frames. But if it will be confirmed - it will suggest action above 1.14 that doesn't match overall bearish tendency and views on the market.
In fairness it should be noted that this is weaker type of grabber that fails very often. So, let's keep watching...
Weekly
Trend is bearish on weekly chart, but market is not at oversold. Actually all valuable support level were broken and right now market has relatively "free space" right to parity area.
Patterns that we have here create sequence of targets. First one 1.04 has been hit already, and now we have some minor targets on every 100 pips. Thus, 1.0230 - 1.618 of daily AB-CD pattern (red) and December WPS1, 1.0130 is 1.27 Butterfly target.
Also, if you will take a careful look, you'll see that right wing of our butterfly actually is smaller butterfly itself. Its target also stands around 1.02 area... But this difference between this target is mostly theoretical. As EUR will re-establish move down, all of them will be hit at once probably as market wll tend to parity.
Right now EUR stands at most valuable AB=CD target and we should be ready to some upside bounce
Daily
So, on daily chart we will not discuss any patterns, guys, just because we do not have any. Instead of that we will talk on possible retracement range, since this is most interesting thing right now. Here, by the way, you could see bullish divergence with MACD is forming...
So, following the logic of any AB=CD pattern, as it has been completed, especially if it has gradual and harmonic shape (as we do), it leads at least to 3/8 retracement of CD leg. This is 1.0840 Fib resistance on daily chart. We will not point that this is absolutely impossible, since on porfit taking, end of financial year and coming holidays everything is possible. Although 1.08 seems too high on a background of massive expections of further dropping, but, thecnically this is normal retracement and nothing curious will happen if EUR will bounce to 1.0840. But...
This level is not interesting to us on coming week, just because it stands above daily overbought and hardly will be reached. Thus, OB/OS analysis makes our life simpler and narrows the range that we should take a look at. In fact this range is limited by most recent downward swing. THat's what precisely we will be watching for on next week:
4-hour
Situation on intraday charts is very tricky, mostly it should concern scalp traders, who has intention to go long. For others this information is not very important.
As market stands at daily oversold, this is not good idea to go short right now. At the same time bounce up could start differently. At first glance market has completed 1.27 Butterfly at daily overbought - what else do we need to take scalp long position?
But here we have to pay attention on how this target has been hit. First of all - take a look that market already has shown 3/8 retracement up and respected this target. Second - pay attention to strong sell-off on the slope of right wing. This is not good background for upside reversal and usually tells that reaction on 1.27 target will be temporal, while later price should continue to 1.618 target.
Besides, butterfly also has inner AB=CD pattern (red dot lines) and it's target also has not been hit.
All these stuff means that EUR could turn up not immediately at current level but flirt a bit first with lower targets. Thus, before taking scalp long position we should wait at least reversal pattern on lower time frames and get some signs of upward thrust.
At the same time, if EUR will move above WPP it probably will mean that retracement has started. In this case watch for higher levels, as market is oversold on daily chart. 1.0550 definitely should be hit,WPR1 and major 5/8 around 1.0680 are possible also.
Hourly
First of all - take a look at our B&B "Sell" pattern. It has worked very nice...
What to watch for on next week... Currently we do not have a lot of hints here. As we've talked above - current consolidation could take a different shape. For example, EUR could form here another minor butterfly that will lead price to 1.618 target of 4-hour pattern. Or, conversely, EUR could break K-resistance and WPP and continue upward action.
This is the key level guys. If EUR will fail to pass through hourly K-resistance and WPP, it will mean that some downward lazy action is possible according to our suggestions, while upside breakout of K-area and WPP will mean that retracement has started and EUR will reach higher levels. So, watch for either patterns or upside breakout.
We have small bullish grabber here, but it doesn't bring a lot of clarity. It just suggest action right back to 1.0480 level...
Conclusion:
We still keep the same long-term view on EUR and it looks bearish. Our next long-term target stands around parity.
On a way down we will have some intermediate targets as well, almost each 100 pips, but their difference is mostly theoretical. As EUR will re-establish downward action, they will be hit almost at the same time.
In short-term perspective, upside bounce could happen, due changes in Sentiment analysis, coming holidays and end of financial year.
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.
