Sive Morten
Special Consultant to the FPA
- Messages
- 18,719
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.
(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.