Forex FOREX PRO WEEKLY, December 20 - 24, 2021

Sive Morten

Special Consultant to the FPA
Messages
15,946
Fundamentals
So, it was really tough week, not only in terms of massive fundamental data released, but technical situation and price behavior as well. Now it is too many dust in the air but it is starting to settle already so, some major shifts in global fiscal policy are becoming clear.

Market overview

Two years into the coronavirus pandemic, the United States is confronting another dark winter, with the red-hot Omicron variant threatening to worsen an already dangerous surge of cases. Hospitalizations for COVID-19 have jumped 45% over the last month, and confirmed cases have increased 40% to a weeklong average of 123,000 new U.S. infections a day, according to a Reuters tally. Pfizer Inc, one of the chief vaccine makers, on Friday predicted the pandemic would last until 2024

In New York City, Radio City Music Hall announced it has canceled all remaining dates of the Rockettes' annual Christmas Spectacular "due to increasing challenges from the pandemic," after staging more than 100 shows over the past seven weeks.

The Omicron variant appears to be far more transmissible than previous iterations of the virus, and more agile in evading immune defenses, according to early studies. Public health officials say it is likely to become the dominant variant in the country and could strain hospitals still struggling to contain this summer's Delta variant surge.

Tidal wave of Omicron likely coming to a hospital near you soon," Dr. Tom Frieden, former chief of the Centers for Disease Control and Prevention (CDC), posted on Twitter. Omicron's extraordinary level of infectiousness means it could cause many additional deaths, the top U.S. infectious disease expert, Dr. Anthony Fauci, said on Friday.

Several states have hit alarming levels of cases and hospitalizations. The U.S. states reporting the highest seven-day average of infections were New York, Ohio, Pennsylvania, Illinois and Michigan, according to a Reuters tally.

The U.S. dollar rose on Wednesday after the U.S. Federal Reserve said it would end its pandemic-era bond purchases in March and paved the way for three quarter-percentage-point interest rate increases in 2022. Fed officials also forecast that inflation would run at 2.6% next year, compared to the 2.2% projected as of September.

"The economy no longer needs increasing amounts of policy support," Fed Chair Jerome Powell said in a news conference in which he contrasted the near-depression conditions at the onset of the coronavirus pandemic in 2020 with today's environment of rising prices and wages and rapid improvement in the job market.

The pace of inflation is uncomfortably high, he said after the end of the Fed's latest two-day policy meeting, and "in my view, we are making rapid progress toward maximum employment," a combination of circumstances that has now convinced all Fed officials, even the most dovish, that it is time to exit more fully the pandemic policies put in place two years ago.

The scenario laid out by the central bank in its new policy statement and economic projections envisions the pandemic, despite the spread of the Omicron variant, giving way to a particularly benign set of economic conditions - a "soft landing" in which inflation eases largely on its own, interest rates increase comparatively slowly, and the unemployment rate is pinned to a low 3.5% level for three years.

Some analysts were skeptical.

"This is a forecast that implicitly has favorable developments that allow them to leave accommodation but get favorable inflation," said Vincent Reinhart, chief economist at Dreyfuss & Mellon, noting that the three-year rate hike cycle projected by Fed officials never reaches levels that would be considered restrictive, yet inflation is still expected to fall. Is that the way to bet?" he said.

The core of Fed officials thinks so. In their new economic projections, policymakers forecast that inflation would run at 2.6% next year, an increase over the 2.2% they projected in September, but then fall to 2.3% in 2023 and 2.1% in 2024. Unemployment is seen dropping to 3.5% next year, well below the point Fed officials feel is sustainable in the long run, and remaining there through 2024.

As a result of that combination of rising prices and strong employment, officials at the median projected the Fed's benchmark overnight interest rate would need to rise from its current near-zero level to 0.90% by the end of 2022. That would kick off a hiking cycle that would see the policy rate climb to 1.6% in 2023 and 2.1% in 2024 - still loose by most estimates.

To open the door to higher borrowing costs, the Fed announced it was doubling the pace of its bond-buying taper. The health crisis is still underway, the Fed acknowledged, with the new variant adding to uncertainty about the course of the economy.

Powell, for example, told reporters that he would like to know how the U.S. labor market will function after people are free of healthcare, childcare and other pandemic worries, but "it doesn't look like that is coming anytime soon."

Yet he also downplayed Omicron's potential economic risks, saying he did not expect the Fed would have to resume emergency bond purchases or take other steps to counter any fresh COVID-19 wave, and that economic performance would be less and less influenced by the pace of coronavirus infections.

Fed officials projected U.S. economic growth of 4.0% next year, an increase over the 3.8% forecast in September and more than double the economy's underlying trend. In some of his most pointed comments about inflation yet, Powell said that sharply rising prices had now emerged as a bigger threat to jobs than the pandemic.

"What we need is another long expansion," he said. "That's what it would really take to get back to the kind of labor market that we'd like to see, and to have that happen we need to make sure that we maintain price stability."

Just days before the Fed's November meeting, however, when the plan was to be announced, Powell got his first inkling that the pace might be too slow: The Labor Department reported labor costs in the third quarter had shot up by the most since 2004.
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"I thought for a second there whether we should increase our taper," Powell said at a press conference on Wednesday, but decided to go ahead with the pace that had been "socialized. I honestly at that point really decided that I thought we needed to look at speeding up the taper and we went to work on that," he said. It was essentially higher inflation and, and faster - turns out much faster - progress in the labor market," Powell said.

Sterling and the euro jumped on Thursday after the Bank of England became the first major central bank to raise interest rates since the beginning of the pandemic, while the European Central Bank said it would continue to cut its bond purchases.

The ECB said it will cut bond buys under its 1.85 trillion euro Pandemic Emergency Purchase Programme and will end the scheme as expected in March. It will, however ramp up bond buying under the longer-running but more rigid Asset Purchase Programme(APP). The ECB now sees inflation averaging 3.2% in 2022, versus the 1.7% projected in September, before subsiding to 1.8% in 2023.

"The ECB has surprised the market with the relatively contained size of APP monthly purchases going forward, though there are dovish elements in its statement with respect to the reinvestments of the PEPP and the fact that it could be resumed," said Jane Foley, head of FX strategy, at Rabobank in London. EUR/USD has pushed higher which in part reflects the fact that the market was very long USD headed into this week," she added.

Money markets ramped up ECB rate hike bets after the central bank's statement, and are now pricing in a 15 bps increase by Dec. 2022, up from 8bps earlier in the day.

"Overall, we think the announcement is relatively hawkish. The ECB has effectively announced an additional 90 billion euros of purchases in Q2 and Q3 2022. This is fairly similar to simply using what is likely be left in the PEPP 1.85 trillion euro envelope when PEPP ends in March. So while it does provide some additional support to bond markets, it implies a fairly steep taper, softening only slightly the potential 'cliff edge' in purchases and providing little additional market support beyond Q3 next year. However...with net purchases now pretty much nailed on until at least the end of 2022, market expectations of a 15 bps policy rate rise next December look a little overdone, HSBC said.

"Relative to the Fed’s dramatic pivot yesterday and the Bank of England’s rate hike today, the European Central Bank remains in the slow lane. The ECB's projections of 1.8% inflation for 2023 and 2024 suggest that the ECB considers a first rate hike as highly unlikely in 2022 and as possible but not yet likely in 2023. We expect more inflation than the ECB for 2023 and 2024 and look for two 25bp rate hikes in 2023 (June and December) and three further hikes in 2024."

"Overall, the end of the PEPP is cushioned by a longer period of reinvestments under the PEPP and a stepped up APP that will likely run through 2022. Overall, this amounts to a very dovish taper, ABN AMRO said

The U.S. Federal Reserve's decision to accelerate reduction of bond purchases is "a well-calibrated" response to rising wage and price pressures but increases risks for emerging markets, IMF spokesman Gerry Rice said on Thursday.

"The Federal Reserve has announced a well-calibrated, proportionate response to rising wage and price pressures by accelerating the reduction in its asset purchases and signaling a more front-loaded path for the federal funds rate," Rice said. "Continuing to set policy in such a data dependent way will help keep inflation expectations anchored. However, this faster pace of Fed normalization does increase the risks faced by countries reliant on dollar funding, especially emerging and developing economies," Rice said.

The IMF has grown more concerned in recent weeks about inflation leading to a more abrupt tightening of monetary policy in advanced countries, and has urged central banks to contain inflation before wage-price spirals take hold.

"A cautious ECB taper and a surprise BoE hike likely leaves (the dollar index) heavy near-term, especially given lopsided long USD positioning into year’s end," Westpac strategists wrote in a client note. But weakness likely does not extend beyond the low 95s" for the dollar index, with the Fed "streets ahead" of the ECB in terms of the tightening cycle, and dips into the mid-95 level are a buying opportunity, they said.

"It seems the Fed penciling in three hikes for 2022 and (sounding) optimistic about the economic prosperity - even in the face of Omicron - has allowed other central banks the ability to take a more hawkish turn," Chris Weston, head of research at brokerage Pepperstone in Melbourne, wrote in a report. Despite current dollar weakness, Weston says he doesn't expect much more upside in sterling given "the news flow seems skewed to the negative side of the ledger. He was also hesitant to buy the euro, although he notes that technically a break above $1.1355 would open the way for a test of $1.1480.

Euro zone bond yields slipped back on Friday as markets assessed the reduction of monetary stimulus from the European Central Bank as being roughly in line with expectations. The dollar rose on Friday as traders retreated from riskier currencies amid talk of interest rate hikes by central bankers and concerns about the spread of Omicron cases.

Investors doubts

Fathom suggests that based on experience of the Alpha variant late last year, we expect the impact of Omicron on global activity will be limited. If renewed lockdowns were put in place, it is almost inevitable they would be combined with additional fiscal support, potentially creating further supply bottlenecks, and putting further upward pressure on inflation, which brings us to investors’ second cause for concern.

Inflation has surprised on the upside across the major economies, and notably in the US, where it has reached 6.8%. The source of the initial global shock to inflation was a substantial shift in the composition of household expenditure away from consumption of services towards consumption of goods, reversing a trend that had been in place for decades. With producers unable to respond immediately to this dramatic switch in demand, the macroeconomic consequences look much like those of a negative supply shock. Output is lower than otherwise, and prices are higher. With consumption of many types of services prohibited during periods of lockdown, a step-increase in the goods share of consumption was an inevitable consequence of the pandemic. There are signs that the goods share is returning to more normal levels in some countries, notably France, but in the US it remains elevated.

A return to a more normal mix of household spending should lessen some of the upward pressure on inflation. There are already signs that shipping costs, for example, have peaked and are starting to fall. Nevertheless, business surveys suggest price pressures remain elevated, not just in manufacturing but elsewhere.
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There is material uncertainty about the outlook for monetary policy, globally. At Fathom we cannot recall a time, in our collective memory, when it has been higher. This is reflected in the width of our fan chart for the Fed funds rate. Any anxiety currently felt by those with exposure to interest rate-sensitive financial assets is justified. Those responsible for setting monetary policy continue to assume, or perhaps hope, that their hard-won credibility will do pretty much all of the work when it comes to getting inflation back under control. They may be right. We think there is about an evens chance that they are. In our ‘transitory’ scenario inflation is now close to its peak. It falls back rapidly towards target through next year, with minimal intervention required from policymakers. This is precisely what is priced in, as our chart shows.
But the risk is that firms and workers begin to expect a more sustained pickup in inflation, which affects their wage- and price-setting behavior and becomes self-fulfilling. In that world, interest-rate setters would have their work cut out. They would need to take tough decisions. Bringing inflation back to target when expectations of higher inflation have become embedded, and the inflation genie is out of the bottle, might require interest rates increases of several hundred basis points. Recent Fathom analysis of the drivers of consumer confidence suggests to us that the public, in both Europe and the US, has a strong dislike of inflation, even if higher prices are matched by higher wages. Nevertheless, our judgement remains, for now, that if the pickup in inflation becomes sustained, to which we attach a 50% weight, policymakers are more likely to ‘roll with it’ and accept a prolonged overshoot of the current 2% target, perhaps even shifting the target itself, than to ‘deal with it’ and tighten policy aggressively.

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COT Report

Speculators' net long bets on the U.S. dollar edged higher in the latest week, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday. The value of the net long dollar position was $20.06 billion for the week ended Dec. 14, up from a net long position of $19.46 billion for the prior week.

Recent data shows massive run out of the EUR, mostly by hedgers, meaning decreasing exposure to EUR in portfolios on both sides. As CFTC data releases on Wed, it could be the result of just preparation to coming Fed meeting. But, at the same time, it could mean the loosing of faith in EUR.

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Next week to watch

#1 US Consumer prices

'Tis the season to be shopping, but just how cheerful are U.S. shoppers in the face of soaring prices and Omicron? Clues should come from the December U.S. consumer confidence index on Wednesday and November new home sales, consumer spending and durable goods orders on Thursday.

U.S. consumer prices grew at their fastest pace in around four decades in November. Any signs that rising living costs and pandemic fatigue are weighing on spending - which accounts for over two thirds of U.S. economic activity - will not make for comfortable reading at the Fed. After all, the central bank just doubled the pace at which it will cut bond purchases and signalled as many as three rate hikes for 2022.

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#2 UK 3Q GDP final reading

Already, Brexit had capped Britain's post-pandemic rebound. Now an Omicron "tidal wave" (Johnson's words) spells more trouble. Private sector growth plunged in December to a 10-month low, PMIs showed, yet 5%-plus inflation may force the Bank of England into several rate hikes next year. On Dec. 22, final Q3 GDP readings may confirm Britain's economy falling behind G7 peers.

Conclusion:

So, we've got a lot of inputs this week, but to keep it simple, lets consider all information that we have in a light of EUR/USD action. Because, with taking wide view, trying to forecast a lot of fundamental factors concerning pandemic, speed of Fed rate change, the US economy performance and employment - we could stuck in details with very low efficiency.
About Omicron, I would like to share with you just with single opinion that has seemed interesting to me. To be honest guys, I'm far from vaxers/anti-vaxers tensions, and I'm not dare to point whether vaccinations are good or bad for the body. This is everybody own to decide. I'm mostly interested in terms, and pandemic as a tool of geopolitical struggle. In our Gold market research we've discussed in details how pandemic is used to crush Chinese economy. And it already brings the fruits.

So, above we saw that Pfizer said that it seems that pandemic lasts till 2024 at first approximation. Recently I've read the opinion of one of domestic leading virologists (Chumakov A.), he said Omicron contains all previous variants and mutations in just one body, adding few amino-acid chains. As he said, this is definitely not natural combination and usually, this type of variant suggests the desire "of the producer" to stop pandemic, as this type of virus leads to light disease way and appearing of immunity to all variants. It was intentionally "found" in South Africa to avoid uncomfortable questions. As he suggests that this is not natural virus in general, production of Omicron variant suggests the intention to put the final for pandemic. Although it could last for awhile more, or keep presenting in mass media as "dangerous" as long as they need to.

We see the relation between pandemic term, supply chains bottleneck and Inflation. Although this is well planned strategy that stand under control in general, but still some surprises could appear around it, such as inflation pace. Lasting of pandemic till 2024 suggests lasting inflation, which sets the high degree of probability that Fed will execute everything that it promises. And the only thing that we need to know - how ECB responses. Currently, and the reason why in Friday video we've said that rally on EUR is seemed to be short -term - stand in huge disproportion of Fed and ECB measures, as well as the US and EU economies. Although pandemic mostly is aimed to hurt Chinese economy but it also makes impact on EU with natural gas and oil prices, goods shipping and artificial deficit. The US also has the positive effect to hold economy growth of "ally" rival. With keeping things at this angle - it becomes clear that hardly we get the bearish trend change on EUR/USD any time soon, although short-term interruptions are possible. Other way speaking, the Thu reaction on ECB mostly was emotional that "ECB finally has changed something", which looks hawkish at first glance. Once the hawkish dust has settled - it has become clear that it has nothing hawkish, especially in relation to USD.

Technicals

Monthly

That's being said, it is logical to see downside continuation on monthly chart as EUR is tending lower in December. Monthly chart suggests next destination point around 1.10 area - the combination of YPS1 and the trend line. Market is not at oversold, the key rules of financial strategy are set, and with no strong support areas below - the reaching of 1.10 seems to be a question of time. CD leg here shows definite downside acceleration:

eur_m_20_12_21.png


Weekly

With the 4 week expectations and "indecision" performance, it seems that market finds the direction. We do not have the formal downside breakout yet, but some indirect signs suggest that it could happen on next week. First is, EUR has shown no reaction at strong support area. Recalls that it was XOP Agreement and oversold. Market just was standing flat. Second - downside action starts strongly as soon as markets have got all necessary information from Central Banks. It seems that on pre-Xmas week, we should be prepared to downside breakout. Market is not at oversold anymore, MACD trend stands bearish as well:
eur_w_20_12_21.png


Daily

While formally daily trend remains bullish, it brings doubtful relief to us, because of Friday's collapse. As we do not have any other tools here for target estimation, We suggest, we could pay attention to 1.1130 target as 1.27 downside extension and daily oversold combination. It seems like nice final for the end of 2021 year...

eur_d_20_12_21.png


Intraday

It seems that our grabber and "222" Sell has got prophetic meaning this time, as market has dropped through all supports crushing short-term bullish hopes. Intraday trends has turned bearish. In current environment we do not consider any long positions. As downside action seems thrusty enough, we could try to catch B&B "Sell" or any other minor upward bounce and consider short-entry.
eur_1h_20_12_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,946
Morning everybody,

Market is becoming quiet as we're going to X-mas holidays. Some traders prefer do nothing in these days, and indeed some logic is present with this decision. Anyway, it is not a lot of interesting stuff around today. The one thing that seems important - NZD DRPO failure that indirectly supports our view that EUR might go lower in nearest term.
So, on daily chart, there is a sign of bearish dynamic pressure as well and we keep our view that EUR could reach 1.1130 area:
eur_d_21_12_21.png


On 4H chart we've got minor bearish grabber, suggesting that downside action might start today:
eur_4h_21_12_21.png


But, at the same time, yesterday we've got not bad upside action and EUR has moved above the OP target with acceleration. This moment suggests that market still could try to make last effort and hit XOP Agreement around 1.13-1.1312 area. Butterfly also could be formed here:
eur_1h_21_12_21.png


It means that if you intend to go short with the grabber it makes sense to place stop above XOP just not to be out right at the moment when downside action could start. Alternatively you could ignore the grabber and wait for XOP, or combine both ways and use scale-in to average position, starting with the grabber entry and add more later if EUR still hits the XOP target. Everything is as usual...
 

Sive Morten

Special Consultant to the FPA
Messages
15,946
Morning guys,

So, we start to get fewer and fewer changes as market is becoming thinner and we come to Xmas holidays. So, our bearish setup yesterday has started relatively well. Now we have few moments that seems important. First is - bullish grabber on 4H chart. It suggests that it would be better to not consider any new short positions by far and also - move stops to breakeven on positions that you have:
eur_4h_22_12_21.png


Second - on 30-min chart, market was not able to complete XOP and just re-tested the top, then downside action has started. Overall action is not very fast and gradually is turning to channel shape. Thus, if you would like to go short - it would be better to wait for clarity with 4H grabber. Second - some bearish pattern inside the channel. As a rule, this is "222" Sell. Right now it is not good place for the new position.
Theoretically it is possible to trade grabber as well. It is a bit tricky, but at least the risk stands very small, as its lows just 20 pips below current market. If you could live without it - just wait for something more valuable here...
eur_1h_22_12_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,946
Morning guys,

So, now we could enjoy the whole trickiness of pre-Xmas market ;). If you check for the reasons of the rally yesterday, you see nothing but the news that "Omicron fears eased". It means nothing has happened but market makers have decided to move "thin market". Tomorrow it might me "Omicron fears risen".

Thus, not occasionally we've called to move stops on breakeven. So, after recent performance the short-term shape has changed and we have bullish context. But, for the truth sake - EUR hardly could go too far as around 1.1380 we have Fib level and daily overbought:
eur_d_23_12_21.png


On 4H chart our grabber has worked nice, (although we had some doubts about it) and we have few upside extension that EUR could try to reach - 1.1375 is the first butterfly target and 1.1418 area major OP and 2nd butterfly extension. First one seems more reasonable in current situation. Besides, there are few other extensions on 1H chart that stand in the same area. Appearing of bullish reversal bar on a way up gives additional confidence with upward continuation.
eur_4h_23_12_21.png


On 1H chart two other extensions point on the same target around 1.1370-1.1380. If you would like to take position - keep an eye on 1.13-1.1312 area of multiple Fib levels. Potentially, we could get fast DRPO "Sell" here that could trigger downside retracement. Once again - if you take position, try to move stops to breakeven as soon as possible.
eur_1h_23_12_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,946
and whatever will happen with Eur,Usd etc …very Merry Christmas :)!!!

Indeed, I wish you to have a good time with your family and close ones. This is most important thing in current difficult times...

Well, guys, I'm not sure that you will be watching this :) Anyway - just brief look at our trading plan...

So, it seems that our retracement plan has worked pretty nice. On 4H chart yesterday we've got bullish grabber, that is also the bullish reversal bar and this looks inspiring for upward action. Here we keep the same nearest target around 1.1375-1.1380:
eur_4h_24_12_21.png


On 1H chart EUR indeed has formed nice DRPO "Sell" as starting pattern for retracement and EUR has bounced ups precisely from our K-support area. Now, those who have taken long positions - you could move stops and enjoy the holidays.

Others, if you have missed the trade but would like to participate - you could rely on grabber directly, and take position somewhere around, or wait for minor AB-CD action to 1.1320 area. Invalidation point is the same - lows of the 4H grabber
eur_1h_24_12_21.png
 

netbusinessman

Corporal
Messages
84
Have a very Merry Christmas, Safe and Happy Holidays and a Successful New Year

Sive sir yesterday i was entered short in NZDUSD, market is moving still inside of h4 candle should i exit position, as three session i wait but its moving side way, i also notice H&S pattern is emerging,

NZDUSD h4.jpg
nzdusd h4 current.jpg
 

Venelin

Master Sergeant
Messages
406
Indeed, I wish you to have a good time with your family and close ones. This is most important thing in current difficult times...

Well, guys, I'm not sure that you will be watching this :) Anyway - just brief look at our trading plan...

So, it seems that our retracement plan has worked pretty nice. On 4H chart yesterday we've got bullish grabber, that is also the bullish reversal bar and this looks inspiring for upward action. Here we keep the same nearest target around 1.1375-1.1380:
View attachment 72067

On 1H chart EUR indeed has formed nice DRPO "Sell" as starting pattern for retracement and EUR has bounced ups precisely from our K-support area. Now, those who have taken long positions - you could move stops and enjoy the holidays.

Others, if you have missed the trade but would like to participate - you could rely on grabber directly, and take position somewhere around, or wait for minor AB-CD action to 1.1320 area. Invalidation point is the same - lows of the 4H grabber
View attachment 72068
Have a Merry Christmas and prosperous new year!
 

Sive Morten

Special Consultant to the FPA
Messages
15,946
Have a very Merry Christmas, Safe and Happy Holidays and a Successful New Year

Sive sir yesterday i was entered short in NZDUSD, market is moving still inside of h4 candle should i exit position, as three session i wait but its moving side way, i also notice H&S pattern is emerging,

Well, once NZD has formed DRPO "Buy" Failure but later still has turned up - personally I've lost interest to current background. Comparing to other assets, such as Gold and major currencies - it seems that we have upside potential still, but how it will be realized on NZD is a big question.
Besides, market is very thin these days, so we could get quite different picture on Monday. It seems "masters" have decided to play "Omicron" card based on recent news headlines, so maybe your short position works... Based on Thu-Fri performance honestly I haven't considered short position on NZD...
 
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