FOREX PRO WEEKLY, December 21 - 25, 2015

[Sive Morten]

Fundamentals

(Reuters) - The U.S. dollar tumbled against the yen on Friday after the Bank of Japan tweaked its monthly asset-purchase program in a way that traders viewed as minor, suggesting that the central bank may not ease policy as much as expected.

The BoJ set up a program to buy exchange-traded funds, extend the maturity of bonds it owns to around 12 years and increase purchases of risky assets. The adjustment hurt the dollar against the yen, since traders viewed it as an indication that the BoJ may be less likely to ease monetary policy further.

The dollar has gained against the yen this year on the view that the Federal Reserve's tilt toward higher rates and the BoJ's path of more potential stimulus would support the greenback since it would drive more investment flows into higher-yielding U.S. assets.

"The fact that when they do something, they do very little, shows that they are not really willing to step up monetary easing," said Jose Wynne, global head of FX research at Barclays in New York, in reference to the BoJ's move.

The dollar, which had hit a more than two-week high of 123.590 yen shortly after the announcement, was last down about 1 percent against the yen at 121.290 yen . The dollar was still on track to post a modest percentage gain against the yen for the week.

The euro rose slightly against the dollar, but analysts said the move was attributable to thin holiday trading rather than traders making bets on the fundamental outlook for the currency.

"After the FOMC... a lot of investors have just sort of closed shop for the year or dialed down their trading activity," said Ian Gordon, FX strategist at Bank of America Merrill Lynch in New York. He was referring to the Fed's first rate hike in nearly a decade on Wednesday.

The euro was last up 0.32 percent against the dollar at $1.08600 . The U.S. dollar index measures the greenback against a basket of six major rivals, was last down 0.54 percent at 98.723 after hitting a two-week high of 99.294 on Thursday.

The euro was set to post its biggest weekly percentage drop against the dollar in four weeks, while the dollar index was on track to notch its biggest weekly percentage gain in a month and a half.

Recent CFTC data on EUR shows that we probably have a deal with simple retracement and bearish trend should continue soon. Take a look at the picture:

Net short position has contracted a bit while EUR was moving up, but this contraction has taken place on a background of decreasing of open interest as well. It means that trades have closed some shorts but no new long contracts were opened. This is typical combination of speculative position with open interest that indicates retracement.

Technicals
Monthly

After ECB there is a Fed that has shaken markets. This shake was softer but it does not mean that it will be short term. In fact Fed program suggests 0.25% rate hike in every quarter of 2016. It means that by the end of 2016 Fed rate will be 1.25-1.375 as it is suggested by analysts and Fed Fund futures rate. Of cause this hiking procedure will be data depended, I mean NFP, GDP etc. but anyway, Fed has announced not just isolated rate hike but tendency. This is major point.
This lets us to make major conclusion that such sort of statement on background of EU QE program, will probably slowly but stubbornly press EUR/USD pair. And this lets us to confirm our expectation of parity and even -0.8 targets.

Now, if you remember our most important riddle was on possible upward retracement. Other words speaking this is not a question on "what trend we have" but mostly "when this trend will continue - right now, or will be slightly postponed".

So, bearish trend hardly will be totally cancelled, but could be postponed and will re-establish from some higher level, if solid retracement will take place. This retracement already has started from ECB statement 2 weeks ago. Based on CFTC data retracement is also possible, since short-to-total ratio of speculative positions looks overextended and needs some adjustments.

Despite what really it was, technical picture was forced to change focus due external impact. Recently we mostly were focused on downward continuation to parity. Right now we mostly will focus on what could happen inside the circle. There are a lot of different possibilities of different scale.

First scenario - market just could continue move down. Especially if recent rally was mostly technical. As you can see our bearish grabber and dynamic pressure pattern have not quite reached target - former 1.0460 low was not reached. Butterfly pattern is still valid and market was falling like a stone to its 1.27 target, though only oversold was able to stop it for some time. Thus, moving to 1.618 target which is a parity is still possible.

Second scenario is more interesting. If there is indeed some fundamental background with this rally, we could get deeper upward retracement. By the end of December we could get bullish grabber, engulfing and/or, potentially DRPO "Buy" LAL pattern. DRPO will be LAL (Look-alike) because market already has done 3/8 retracement up between bottoms of potential DRPO. This makes pattern a bit weaker. Anyway it could work. In this case bounce could reach as far as 1.20-1.21 area - 50% level. Still it will not break yet overall long-term bearish picture. After that market could continue action with butterfly that we've mentioned above.

That's why it is extremely important what will happen inside the circle within coming 1-2 weeks. Because this is a key to long-term tendency. And our analysis will be dedicated particularly to this riddle.

Weekly

Analysis that we've made last week assumes appearing of Double Bottom pattern that could become a reason for solid upside retracement on EUR. Previously we were arguing how particularly action could happen - directly to upside or market could return back to lows. Last week upside action was more probable but right now situation has changed.

Double Bottom could let EUR creep as far as to 1.25 area. At the same time, it will clear the failure of this pattern - if EUR will drop below it's lows.

At the same time - take a look we've got bearish grabber recently. This is big success to us by many reasons. Tactically, now we have direction and clear target - down to 1.05 lows. Strategically this moment lets us to be focused on major question - W&R of 1.045 lows and validity of Double Bottom pattern.

As we've said last time :
"Finally, we also should pay attention to possible W&R of 1.0460 lows, if somehow we will get not bullish engulfing, but, say, morning star pattern on monthly chart.
If market will break them for short time and then return right back up, creating W&R - this will not be the failure of Double bottom, but confirmation. W&R is very typical for Double Bottoms. W&R is also will be welcome for our monthly patterns - grabber and dynamic pressure."
So currently, appearing of morning star pattern on monthly is quite probable, compares to bullish engulfing. Particularly due grabber on weekly chart.
That's being said our weekly analysis tells that EUR should move down, at least to 1.05 area. (Invalidation point for this scenario is the top of grabber @ 1.1060. )
Then we will be watching for next step - either W&R and upside reversal or just downward breakout and continuation to parity.

Daily

We've closely watched for EUR day by day so there should be no surprises for you on daily chart. Appearing of bearish grabber on weekly chart brings for confidence with trading EUR down. Our previous assumption on possible reversal around 1.0750 support area now becomes blur and hardly will happen due weekly grabber that suggests move down to 1.05 lows.
But right now, our major task is to take short position, additional to one that we already got on reversal day right at the eve of Fed meeting. This task needs to be resolved anyway, despite whether you will take profit @ 1.0750 or will keep it right to the bottom, anyway you should enter first...
For that purpose we will need most recent swing down. Our task here is to take position on some upside retracement. We do not interesting with an area above 1.1060, because in this case grabber will fail and this will be quite another tune.
Trend has turned bearish on daily chart.

4-hour

So, mostly we already have discussed this chart. The major pattern that we could get it is H&S. Mostly it is well corresponds to overall analysis and expectation of downward continuation. Also it point possible target of upside retracement - this is an area round 1.0930-1.0960.
Also, guys, take a look we've got hidden bullish divergence with MACD that also supports upward retracement. As we've estimated previously 1.08 is an area of Fib support, MPS1, so this is good starting point for bounce up.

Hourly
At the same time, upward retracement should not be too extended. As you know EUR has uncompleted 1.618 AB-CD pattern with target around 1.0750. Currently hourly chart shows that most probable final point of retracement is 1.0911 - this is upside 1.618 AB=CD, Fib resistance, WPP and butterfly destination. May be something could change, but right now picture looks as it is:

Conclusion
Fed statement mostly was supportive for long term bear trend on EUR/USD. Right now our trading plan suggests move down to 1.05 area. There we should get final clue - either it will be solid upside retracement, may be as far as 1.25 area, or it will be breakout and downward continuation to parity first.
In short-term perspective we have excellent bearish pattern that promises us downward direction right to 1.05 area, and we will try to trade it.


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.

 

[Brett Reynolds]

Hmm. Morning Star on Monthly? That's means December candle will finish as Gravestone Doji or something like that!? Then first weekly candle of January will 'give the game away'!??

 

[Sive Morten]

Good morning,

(Reuters) - The dollar steadied against the euro on Tuesday after dipping against the common currency on an inconclusive Spanish election result, while traders looked ahead to U.S. data for direction.

"It was relatively easy for the euro to rise since there are not many participants in the market," said Daisuke Karakama, a market economist at Mizuho Bank in Tokyo.

"Furthermore, Spain has a current account surplus and its government debt-to-GDP ratio is expected to decline, so it will not become a Greece overnight even if anti-austerity parties take power," he said.

The dollar inched up 0.1 percent to 121.275 yen , having spent the previous day in a narrow range of 121.16-121.50.

The approaching holiday season that will shut much of the world's key financial markets limited activity and kept currencies bound in tight ranges.

With the U.S. Federal Reserve's much-anticipated interest rate hike out of the way, there was very little in the way of market-moving events in a holiday-heavy week.

Markets will look for short-term catalysts from U.S. data, including revised third quarter GDP and housing price indicators, due later in the session.

In the longer term, the dollar, which was on track to post an 11 percent gain against a basket of key currencies <.DXY> this year, was expected to stay on a bullish footing next year. The dollar index was also headed for its fourth successive year of gains.

"With the Fed's rate hike at the end of 2015, a new phase of divergence is at hand...we expect the Obama dollar rally to continue in 2016," wrote Marc Chandler, global head of currency strategy at Brown Brothers Harriman.

"The premium one earns in U.S. dollars will continue to attract capital flows into the United States. Because of the wide, and widening interest rate differentials, one is paid to be long dollars."

With crude oil prices dropping to 11-year lows, the Canadian dollar remained under pressure. The loonie traded at C$1.3945 per dollar, within reach of an 11-year trough of C$1.4003 struck on Friday. The dollar has risen about 19 percent against the loonie so far this year.

The Australian dollar, another commodity currency, fared slightly better. The Aussie was up 0.2 percent at $0.7202 , putting further distance between a one-month low of $0.7097 hit last week after the Fed's rate hike shored up the U.S. currency.

Hurt by factors including an economic slowdown in China, Australia's chief trading partner, and decline in prices of commodities such as iron ore, the Aussie was on track to lose 12 percent against the dollar in 2015.

So, let's take a look again at EUR, because market has done with 1st step of our trading plan. Just to remind you - we have bearish patterns are forming on weekly and daily chart that suggest drop to 1.07 area first and potentially to 1.04 lows. So, prize is not bad - 5 points:

As we've suggested in weekly research - week should start from upward retracement to 1.0920 area. And this step has been completed yesterday. Action to 1.0930 has brought acceptable harmony to our potential H&S pattern. Right now we have potential target of AB=CD pattern here - 1.0690 aproximately.

Theoretically EUR could drift slightly higher, but technically we do not see any signficant reasons for that. WPP has been tested, 1.618 target has been completed and EUR has reached 50% resistance. So EUR has no significant targets above current level and if it is indeed bearish, it should start downward action somewhere from current area.

That's being said - our first destination is 1.07 area and AB-CD pattern target, based on H&S. Second - weekly grabber with 1.04 target.
Invalidation point - 1.1060-1.11. If market will break it up, then we will have to forget about short entry, at least until uside AB-CD will be completed.
Right now you could make a decision on trading of current setup. Moment has come, since EUR stands at the top of potential H&S pattern.

 

[Sive Morten]

Good morning,

(Reuters) - The dollar steadied in holiday-thinned Asian trading on Wednesday after data overnight painted a mixed picture of the U.S. economy, with major currency pairs bobbing in narrow ranges.

The dollar index <.DXY>, which tracks the greenback against a basket of six rival currencies, inched up to 98.276 after marking three losing sessions, but was still well below a two-week high of 99.294 set on Thursday last week.

Volume was relatively thin, with Tokyo markets closed for the Japanese emperor's birthday and many investors already away for the Christmas holiday later this week.

Data on Tuesday showed U.S. gross domestic product grew at a 2.0 percent annual pace in the third quarter, slightly slower than the initial estimate reported last month, but still better than the 1.9 percent expected by economists.

U.S. consumer spending rose in November by 0.3 percent, according to data inadvertently released late on Tuesday by the U.S. Bureau of Economic Analysis, about 12 hours ahead of schedule.

The final third-quarter reading of core PCE, a measure of domestic core inflation which is also the Fed's preferred inflation measure, rose to 1.4 percent, slightly beating expectations for an unchanged reading of 1.3 percent.

But other data showed that U.S. home resales unexpectedly plunged 10.5 percent to an annual rate of 4.76 million units in November, their steepest drop since July 2010.

"Weaker-than-expected November sales suggest that a sizeable contraction in brokers' commissions will dampen otherwise solid residential investment growth in Q4," strategists at Barclays wrote, and lowered their fourth quarter GDP tracking estimate one-tenth, to 1.6 percent.

After the U.S. Federal Reserve's widely anticipated interest rate hike last week, market focus has now turned to the outlook for policy.

A Reuters poll on Friday predicted the U.S. central bank would raise rates again in March, but might move more slowly after that, and bearish data surprises are likely to lower expectations of more tightening.

The euro edged down about 0.2 percent to $1.0937 , giving back some of this week's position-driven shortcovering gains in the wake of the indecisive outcome of the weekend elections in Spain.

The Australian dollar inched down to $0.7232, moving back toward a one-month low of $0.7097 hit on Thursday last week.

The Aussie is down more than 11 percent for the year, largely due to diverging interest rate outlooks between the United States and Australia.

The New Zealand dollar was slightly higher at $0.6810, hovering close to a two-month peak of $0.6836 touched on Tuesday.

The kiwi has been on rise ever since the Reserve Bank of New Zealand indicated it was unlikely to cut rates further from 2.5 percent, easily the highest among developed nations.

"Post the Fed's meeting, traders may be squaring up long USD positions, whilst others are reluctant to put on new positions into year-end," said BNZ Senior Market Strategist Kymberly Martin in Wellington.

So, guys on EUR again... Actually I'm a bit worry about contradictive patterns on EUR and Gold. It looks like that either one or another could fail. But not yet...
On daily - we've got another grabber yesterday. Market has moved slightly higher but this is acceptable as we've said. Situation in general has not changed, bearish patterns and scenario are still valid. At the same time, EUR stands at "moment of truth" - it should either start dropping or bearish scenario will fail. Although theoretical invalidation point stands above 1.1060 top, but market is forming H&S. If EUR will fail to drop from right shoulder - it probably will mean failure of the head either.

On 4-hour chart you can see why recent upside leg was acceptable. EUR has created the top of right shoulder that matches perfectly to the left one, almost pips to pips. As harmony stands, H&S is still valid:

Hourly chart shows another Agreement area of AB-CD and 5/8 Fib level by this time. So, again - we're at decision making point. Either take short or just ignore this trade...

And keep watching - if EUR will turn up again and move above recent top this will be important challenge on failure of our short-term bearish setup. H&S failure usually starts from the failure of right shoulder...

 

[Zilvinas]

The final third-quarter reading of core PCE, a measure of domestic core inflation which is also the Fed's preferred inflation measure, rose to 1.4 percent, slightly beating expectations for an unchanged reading of 1.3 percent.

As I understand looking into calender only today will be announced PCE reading. But you already have them?? Sive, please give us your sources

 

[Sive Morten]

As I understand looking into calender only today will be announced PCE reading. But you already have them?? Sive, please give us your sources

Reuters knows everything in advance Looks like it was a information leak ))

 

[Sive Morten]

Good morning, and Merry Christmas everybody,
today is an Eve, so I hope you will have good time with your relatives and loved ones! But since in Russia Christmas stands on 7th of January - tomorrow I will make an update anyway ))

(Reuters) - The dollar, euro and yen were subdued on Thursday in a languid session with much of the Western world already shuttered for the Christmas and year-end holidays, but some players are eyeing the potential for more dollar strength next year.

Many financial centres around the world will shut early and stay closed on Friday for the Christmas holidays. Some won't reopen until Tuesday.

The Japanese currency has well and truly gotten over last Friday's move by the Bank of Japan (BOJ) to fine tune its massive stimulus program. There was no major reaction to minutes of the BOJ's November meeting

A mixed bag of U.S. data on Wednesday gave the market no real steer. New orders for U.S. manufactured capital goods fell in November, but personal income rose for an eighth straight month. Consumer sentiment hit a five-month high in December.

Yet, analysts at BNP Paribas see potential for further upside in the greenback.

"If U.S. data remains broadly in line with the Fed's expectations, we suspect the USD will be off to a positive start in 2016 as there is plenty of scope for rates markets to price in more Fed hikes," they wrote in a note to clients.

"We exited our cash USD trade recommendations this week but will be looking to re-establish longs early next year."

The Canadian dollar held onto most of its overnight gains, spurred by a rebound in oil prices. The loonie traded at C$1.3843 per U.S. dollar , off a near 12-year trough of C$1.4003 set last week.

The Australian and New Zealand dollars were also bid at $0.7252 and $0.6802 , respectively, having rallied from last week's lows of $0.7097 and $0.6688.

Traders said the Antipodean pair have been underpinned by heavy buying interest from real money accounts, suggesting the hunt for yield is still in play for some.

Today, guys we will take a look at NZD, but through the prism of EUR. You will get it... Currently I see risk and unnatural market mechanics on EUR. This makes me think that EUR bearish setup failure has got more probability. On 4-hour chart - we do not see downward acceleration off from right shoulder top but it should be. It means that bears do not control market right now. Besides, EUR has moved back above WPP.
So, our recommendation is to close shorts, move stops to breakeven, or at least reduce trading volume of position. If market will move above shoulder's top - we could get butterfly "Sell"...
Now, what all this stuff has relation to NZD? Very simple. Take a look at daily chart. IT just increases our worries on EUR perspective, since NZD shows bullish picture.

This is the same setup that we've traded and it is still valid - our target here is the same 0.6910 and 0.618 of big AB-CD pattern. Recent behavior looks really bullish. As market has shown minor retracement after reaching of MPR1 - now it returns right back, has formed bullish grabbers and stands above MPR1. It means that NZD stands not in upward retracement in bear trend but in bull trend. As you understand - NZD and EUR stands in relation to USD, and since NZD and Gold show bullish setups, our worries on EUR perspectives are not empty.
On 4-hour chart market is forming butterfly with 1.618 extension precisely at 0.6915. Also we have hidden bullish divergence with MACD that has triggered recent upside action:

That's being said, guys, situation on EUR looks tricky and it would be better to prevent losses in any way - close shorts, tight stops, reduce volume and be ready to reverse when market will break right shoulder's top. Last point is for those who trades agressively.

Or, close positions - let it all hang out and just meet Christmas!!!

 

[stelore]

 

[Sive Morten]

Cool card, Stefano, Thank you!

 

[Sive Morten]

Good morning and Merry Christmas everybody!

(Reuters) - The dollar edged down to a fresh two-month low against the yen in very thin Christmas Day trading on Friday, as investors continued to lock in gains ahead of the year-end.

Volume was light, with many countries around the region closed for the Christmas holiday. U.S. and European financial markets will also be closed.

A rebound in recently beleaguered crude oil futures also put pressure on the dollar. U.S. crude has gained more than 9 percent this week, while Brent has gained 2 percent as it pulled away from 11-year lows.

The dollar index, which tracks the U.S. unit against a basket of six rival currencies, inched down about 0.1 percent to 97.919, well below the two-week high of 99.294 set last week in the wake of the U.S. Federal Reserve's widely anticipated interest rate hike. The index is still up 8.5 percent for the year, despite being on track to shed 0.7 percent on the week and more than 2 percent for December.

Against its Japanese counterpart, the greenback was last down about 0.2 percent at 120.20 yen , after earlier dipping to 120.12, its lowest since Nov. 3, coming within sight of the 119-yen level it has not breached since late October.

"People continue to take profits on their dollar positions, as the end of year nears," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

The yen's upside was seen limited by uncertainty about whether Bank of Japan Governor Haruhiko Kuroda might try to convince policymakers to expand stimulus as early as next month.

"Some people expect Kuroda to take more action. And that makes them nervous," Ogino said.

The dollar scaled a more than two-week high of 123.590 yen a week ago, but tumbled off that peak later in the day after the BOJ tweaked its monthly asset-purchase program, on the perception that the minor steps made it less likely that the BOJ would ease monetary policy further.

A mixed spate of data released earlier on Friday might give some investors reason to change these perceptions. Japan's core consumer prices rose for the first time in five months in November, but a drop in household spending cast doubt on the BOJ's prediction that strong consumption will lift prices and help the bank meet its 2 percent target.

The government downgraded its assessment to say household spending was weak, compared with the previous month's view that it was moving sideways, rekindling speculation that the BOJ might consider further steps next year.

The euro edged down about 0.1 percent to $1.0956 , and slipped about 0.3 percent against the yen to 131.56 .

Meanwhile, China's yuan firmed against the dollar in line with the central bank's higher guidance rate, and is set for a slight weekly gain after seven straight weeks of losses - the longest weekly losing streak in 20 years.

So, guys, as you can see there is interesting news are coming from Japan. I thought may be we need to update our view on JPY on weekend research. We haven't taken a look at Yen for long time already... Today we will update our view on NZD again, since yesterday we talked about it but mostly as add-on to EUR...
If you remember, we have the core of our trading on monthly chart. This is Agreement at oversold which is very strong support area. As soon as it been hit - NZD formed morning star pattern and our trading has started. Initial thrust has happened already as well as retracement, and now we stand in extension phase.

This extension takes shape of AB=CD pattern. First - we use minor extension of 61.8% as target. This gives us ~0.6910 area:

As you can see shape of AB-CD is very harmonic and legs are equal speed and slope. Trend is bullish. Recently (why we recall NZD at all) market has formed other bullish signs, which are - multiple grabbers. They suggest further upside action. Price standing above MPR1 and yesterday kiwi has moved up again. This tells that current upside action definitely is bullish extension but not retracement with some bear trend.

On 4-hour chart trend has turned bullish again, we have some patterns that have the same target as daily AB-CD @ 0.6910:

Market stands significantly higher WPR1 - another confirmation of bullish trend. On hourly chart NZD has completed short-term AB-CD 1.618 target. This could let market to show some minor retracement. So, if you want to take long position - you could watch for some Fib level.