FOREX PRO WEEKLY December 22-26, 2014

Sive Morten

Special Consultant to the FPA
Reuters reports U.S. dollar hit its highest level against major currencies in over 8-1/2 years on Friday on diverging monetary policy between the Federal Reserve and other major central banks, and bullish dollar positions heading into the end of the year.

The euro hit a 28-month low against the greenback, while the dollar hovered near a 28-month high against the Swiss franc and hit a more than one-week high against the Japanese yen on the back of the Fed signaling on Wednesday that it would likely hike rates in 2015 and looser policies in Europe, Japan and Switzerland.

"The dollar's rise is a continuation of the broad dollar strength that we've been seeing, which was further supported by the Fed announcement," said Eric Viloria, currency strategist at Wells Fargo Securities in New York.

The dollar has gained against other major currencies on the view that expected Fed interest rate increases will boost the greenback by driving investment flows into the United States.

Strategists also said traders favored the dollar, which has risen about 12 percent against major currencies this year, on the view that the greenback is the safest position to take ahead of year-end volatility.

"These are markets that are very finicky, that can be driven by anything right now," said Axel Merk, president and chief investment officer of Palo Alto, California-based Merk Investments. "Many people want to be with the winning position."

Last week Recent CFTC data showed drastical drop in speculative short positions. Recent data shows that this tendency has continued, although pace is a bit shyer. Longs also have contracted slightly. It could mean just decreasing of investors’ activity at Xmas eve. Still, here we should take into consideration the date of recent data – 16th of December, although recent drop mostly has happened on 18-19th. So, it is interesting what CFTC data will show on 23rd of December…

Open interest:

Recently we’ve made wide comments on complex situation around EUR. As we’ve said previously EUR right now stands in center of geopolitical and economical turmoil and we have mutual 2-side relations EU-US and EU-Russia. And progress of these relations develops not very positive. Shortly speaking US freely gives the law to EU because de facto EU is not totally independent.
Economically US and EU drives on opposite courses. While US is tending to starting rate hiking cycle in mid 2015, ECB gives comments on QE and increasing of balance to the level of March 2012 and this assumes QE on approximately 3 Trln EUR.
This makes us think that EUR now stands under double pressure – EU pulls chestnuts out of the fire for US (in relation with Russia) and particularly due this action makes economical pit deeper. What could bit this sorrow?
As a result of blind or coercive following to US policy, EU meets problems with Russia, it’s 3rd largest trading partner. We suggest that situation will become worse, US will demand more and more sanctions from EU upon Russia. But in turn, economical situation EU-Russia stands in relation with geopolicy where US will not accept any compromises. Any ECB efforts on stabilizing of EU economy could be mitigated by new spiral of geopolitical tensions and painful sanctions. That’s why here is our conclusion – hardly real reversal on EUR is possible any time soon.
But the only one thing exists that could put short-term situation from top to bottom. And this thing is European QE. We already gave some hints on our daily updates on this subject. Here we operate such terms as “short-term” and “long-term”. As we have a habit to treat “short-term” as within a week, here we have to apply absolutely different scale, since right now we touch the sphere of economical policy and there is everything is “long-term”. That’s why I will give you example how correctly understand this.
Recent 2 years we saw QE in US. As result we’ve got huge bubble on stock market and other US assets. This we should treat as “short-term technical impact”. Why it is technical? Because recent huge growth of financial markets were driven not by real growth of economy and wealth of nation, but mostly due re-distribution of money flows. Thus Fed has injected trillions of dollars in financial system and have expected that banks and financial companies will put them in real sector as long-term loans that should support economy, increase job creating and wealth of people. May be some part of money really was applied as it should be, but most part was put in stock market. As a result, while QE functions, we’ve saw “technical short-term” impact as rally on stock market. Now about long-term… In long-term period we should get impact of real economical laws. QE somehow should impact US economy and not necessary that this impact will be positive. In reality nobody knows what will happen. Right now, as QE was closed, we stand just at the eve of new period.
Now, let’s back to EU. Why we think that drastical changes could happen on EUR? Probably you’ve got it already. As financial world already has seen the QE, how it works – investors understand that something of this kind will happen right now in EUR-zone. And this is “easy money”. Just put them in EU assets and wait while ECB will push market higher and higher with its liquidity. Why should QE fail in EU while it has worked in US? And this could change the picture for couple of years on EUR, at least till ECB will keep with QE. That’s why now we keep close eye on CFTC data. We already have first signs that relatively confirm our suspicions. But in the long-term perspective EUR really will remain under pressure. As soon as QE will be over, difference in rate policy between EU and US will start to dominate again and EUR could return back to decreasing. And again, guys, right now hardly somebody could imagine what result will follow from such huge QE programs, as in EU as in US. Short-term effect could be positive, but what will be with inflation? Who knows that it will remain at 2-3%?
From technical point of view we have large Gartley “222” Sell pattern, it nearest target is 1.22 – 0.618 AB-CD objective point. Last week market has not reached target just for 46 pips. Legs of the pattern very harmonic, speed of CD and AB legs are almost equal. EUR looks really heavy; month by month it opens at the high close at the low. On previous week we stand with concern how possible QE in EU could change situation with EUR currency. As market has started to form some reversal patterns on lower time frames, we have some doubts on timing of reaching 1.22 target. But right now this attempt was cancelled, and market again has turned to 1.22 destination probably it should be reached – just 25 pips rest.


Recent action o weekly chart shows that sentiment is changing or investors stand nervous a bit. In December week by week we see opposite action… Some shed is put by recent contradictive information. Thus, CFTC shows contraction of the shorts while market is coming to major monthly target. At the same time recent reversal patterns that have appeared here, such as 3-Drive “Buy”, bullish engulfing, grabber have been erased by recent plunge down. Besides, recent move down has solid range that engulfs previous consolidation.
So, we could make only two conclusions – either patterns were erased due existence of 1.22 target and upside action could finally start from there, or upside retracement totally has been cancelled. It seems that we will get answer when monthly target will be hit.
At the same time here exist some other scenarios. Thus, thrust down is perfect and any DiNapoli pattern either B&B or DRPO will have solid potential, since this is weekly chart. Another pattern is H&S still. Take a look that current bottom stands around 1.618 extension of previous retracement. This might become shoulder. Again, solution probably should come soon.

Major conclusion here we’ve made on previous week – 3-Drive “buy” pattern has not reached its target and failed. Market has returned right back down below MPS1. Of cause, we know that some fundamental events stand at the back of this motion but from pure technical point of view market just gravitates to major monthly target.
The only bullish sign here is divergence of MACD. Marker probably has not reached 1.22 target on Friday due oversold. It means that it will try to do it in the beginning of the next week.

On Friday we’ve expected to get some bounce that could give us B&B “Sell” pattern as recent thrust is absolutely suitable for DiNapoli pattern. Although market has done this attempt but bounce was too small to create any pattern. As a result market has passed through former lows and stay there. Now market has reached oversold on daily chart and bounce up is possible again, but whether setup will be attractive for taking short position, since 1.22 target stands just 25 pips lower.
Thus, all that we could say right now – if market will still form B&B “sell” – it will be separate scalp trade with no relation to big picture. While daily setup probably will be formed only when EUR will reach 1.22 target.

Currently we have no doubts that market will reach major 1.22 target. Since we have some bullish signs on different time frames and CFTC data also looks not purely bearish, we do not exclude some retracement that could happen after. But as market has not touched it yet we have no clear patterns that could confirm this. The major hint here is possible H&S on weekly chart.
In short-term perspective market stands at oversold and here is possible B&B “Sell” scalp trade on 4-hour chart. But this will be separate self-sufficient short-term trade.

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.
EUR/USD Daily Update Tue 23, December 2014

Good morning,

Reuters reports dollar touched a fresh two-week high against the yen on Tuesday, but struggled to make further headway in a market subdued by a holiday in Japan.

A record-closing high on Wall Street had helped lift the greenback against the yen in New York, and modest follow-through buying in Asia saw the dollar come close to 120.20 .

However, momentum quickly faded in thin year-end conditions, leaving the greenback stuck in a very slim 120.01/120.19 range and short of a 7-1/2 year peak of 121.86 set earlier in the month.

The euro was equally muted, holding at two-year lows just above $1.2200 .

Commodity currencies fared no better with the Australian dollar pinned near a 4-1/2 year low of $0.8107 plumbed last week.

Investors stuck to a familiar theme of buying the greenback against almost everything else in an absence of any new drivers and amid speculation that the Federal Reserve will hike interest rates sometime next year.

Those expectations have widened the premium offered by two-year U.S. debt to 75 basis points over German bunds, the fattest margin since early 2007.

A pre-Christmas holiday rush of U.S. data due later in the day could further highlight the diverging policy outlook between the United States and most of the developed world.

Among them, third quarter gross domestic product is expected to be revised up, putting U.S. economic growth above a 4-percent annualised rate for a second straight quarter.

"We are likely to see some impressive U.S. data on Tuesday. This would be the first time since 2003 we have seen two consecutive quarters of GDP growth above 4.0 percent," analysts at BNP Paribas wrote in a note to clients.

They also expected a solid pick up in personal income and spending as well as a marked improvement in durable goods orders.

Such upbeat results should go some way in countering worries about a currency meltdown in Russia and political uncertainty in Greece, factors that have roiled markets recently.
Japanese markets will reopen on Wednesday, just as many major global financial centres wind down for the Christmas holiday on Thursday.

Actually guys, EUR stands flat with lack of news and Xmas eve. Thus, next weekly research we probably dedicate to CAD. Currently we see very interesting picture on CAD mostly in long term...
EUR still hang above major 1.22 target. After 2-days pause market has left oversold condition and now has free space below to reach this target. Today's GDP revision could become a trigger for some dive here. Market also stands below MPS1 and WPP:

On 4-hour chart we still have the same thrust down and still have no clear patterns. Be careful with current 3x3 DMA penetration. At first glance it could be part of DRPO "Buy", but as market does not stand at any support and has 1.22 target 33 pips lower - hardly this pattern will be reliable until target will be hit. GBP revision probably will lead market lower...
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NZD/USD Daily Update, Wed 24, December 2014

Good morning,

Reuters reports dollar hovered at its highest in nearly nine years against a basket of major currencies on Wednesday after stunningly strong U.S. economic growth spurred markets to bring forward the timing of a likely hike in interest rates.

Revised figures on Tuesday showed the U.S. economy grew at an annualised 5.0 percent clip in the third quarter, its quickest pace in 11 years.

"When you look at the strong U.S. GDP numbers, you really have no choice but to buy the dollar," said Takahiro Suzuki, vice president of forex at Nomura Securities. "I think the euro could fall below $1.20 as soon as January."

Traders suspect U.S. yields will rise even further as markets fine tunes expectations of the timing of an eventual rate hike, a factor that is likely to underpin the greenback.

The dollar index is up more than 12 percent so far this year, on track for its best annual performance in nearly a decade. To be sure, the rally only took off in the second half of 2014, a long time coming for those who had turned bullish this time last year.

The 'buy-the-dollar' trend should persist given little incentive for investors to look at either the euro or yen with central banks in the euro zone and Japan under pressure to stimulate economic growth.

Traders said a risk to this outlook came from Russia, where the rouble currency recently went into a tailspin, sparking fears of contagion across emerging markets.

Last week's rouble meltdown sparked a flight to safety that saw currencies such as the Swiss franc surge. That forced the Swiss National Bank (SNB) to announce a negative interest rate for the first time since the 1970s in order to stem the inflow.

"Looking into next year a more significant rout in emerging markets could lead to more defensive action from central banks such as the SNB and the BoJ," said Jane Foley, senior currency strategist at Rabobank.

"It is also likely that other central banks will be keeping one eye on emerging markets next year, not least the Federal Reserve."

Commodity currencies are also likely to remain out of favour early in 2015 given slowing global demand has seen oil and iron ore prices tumble.

So, guys, our short-term setup on EUR has been accomplished, market has hit 1.22 target and now we have no choice but wait a bit to see what reaction will follow on this event.
Thus, today I think we could take a look at someting different and NZD will be not bad choice at all. Although NZD moves lower but rather stabbornly compares to AUD and it decrease not as tremendous as AUD. In short-term perspective due coming holidays and achievement major targets on currencies, we can't exclude short-term relief across the board.
Thus, take a look at next setup. On weekly chart of NZD we have bullish grabber. Although this is not the type of grabber that I like most of all (I prefer pattern that supports previous trending action, while here we have the opposite one), but still, guys, this is grabber and what is intereting - market keeps it valid for 2nd week in a row. Even more, if grabber will achieve it's target - we could get DRPO "Buy" as well, just plot 3x3 DMA here and you'll see. Minimum target of current grabber is 0.7975:


On 4-hour chart there two important moments. First one is recent thrust up. May be it wouldn't be as interesting as it is, but take a look - this upside candle holds recent action for couple of weeks. Market just stands inside of it and does not continue move down.
This makes possible appearing of 1.618 butterfly "Sell" pattern. Here we apply 1.618 only, because weekly pattern suggests move above 0.7975, while 1.27 extension stands lower:


Invalidation point of this stuff stands below current lows - 0.76 area. If market will move below it - this will erase weekly grabber, but probably erasing of thrusting candle already could become first warning sign...
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Merry Christmas!
Today, guys will be no update, since markets are closed. Just some news from Reuters:

The Japanese yen rose on Thursday in extremely thin trade because of the Christmas holiday, but the dollar remained not far from the week's highs hit on diverging monetary policy outlooks.

Tokyo markets were open for business as usual, giving Japanese exporters a chance to sell dollars. But many foreign investors were taking time off, and markets were closed in other key countries around the region, including Australia, Singapore, Hong Kong and South Korea. They will also be closed in Europe and North America.

Recently upbeat U.S. economic data has provided evidence that the economy is steadily recovering, and heightened expectations that the U.S. Federal Reserve is on track to eventually hike interest rates in 2015. That outlook is in sharp contrast to Japan and Europe, where monetary policy is expected to remain loose to stimulate growth.

"Other than positioning, there are not a lot of people sitting in the cheering section for the yen right now," said Bart Wakabayashi, head of forex at State Street in Tokyo.

"There's no denying that the Fed continues to talk about when they're going to hike, as opposed to if they're going to hike," he said.

Revised gross domestic product figures out on Tuesday showed the U.S. economy grew at an annualised 5.0 percent in the third quarter, its fastest pace in 11 years.

U.S. data on Wednesday showed that the number of Americans filing new claims for unemployment benefits unexpectedly fell last week.

Meanwhile, minutes of the Bank of Japan's November meeting released on Thursday showed that policy board members made a rare call on the government to steadily promote measures to restore the country's fiscal health, a month after they expanded monetary stimulus.

At the November meeting, the central bank kept monetary policy unchanged after it took further easing steps in October to blunt the impact of sliding oil prices on its plan to achieve its 2 percent price growth target. It held steady at a subsequent meeting in December.

BOJ Governor Haruhiko Kuroda said on Thursday that the recent declines in oil prices have great benefits for Japan's economy and will help to accelerate inflation in the long run.

The BOJ's massive easing programme has pressured the yields on Japanese government bonds. The benchmark 10-year yield dropped 2 basis points to a record low 0.310 percent on Thursday, and shorter maturities have moved into negative territory, beginning at the front end of the curve.

The two-year yield dropped to a record low of -0.040 percent last week, and on Thursday, the Ministry of Finance sold two-year JGBs at negative yields for the first time.

Japanese yields are expected to stick to low levels as the BOJ continues its easy policy, in contrast to the Fed's expected hike in U.S. interest rates. These diverging expectations have helped the dollar gain around 14 percent against the yen so far this year, and to log a 7-1/2 year high of 121.86 yen earlier this month.

"There were some guys taking profits in the dollar-yen this week, but most people seem happy to be caught long," said Kaneo Ogino, director at Global-info Co in Tokyo, a foreign exchange research firm. "The dollar is set to finish the year on a high note, after the GDP report."
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USD/JPY Daily Update, Fri 26, December 2014

Good morning,

Reuters reports dollar edged up against the yen on Friday in light bargain-hunting following two sessions of losses, with some markets slowly getting into gear after the Christmas holiday.

Market participants expected it would still take a bit of time for business to resume in full swing, with key markets in the region such Australia, Hong Kong and Singapore closed on Friday. The U.K. market will remain closed on Friday although New York will be open.

After a dip to 120.005 yen the dollar was up 0.1 percent at 120.170 yen, crawling back towards the week's high of 120.800 hit on Tuesday.

A break above that peak would put the greenback in sight of a 7-1/2 year high of 121.860 scaled earlier in the month.

"That the recent drop by the dollar was contained shows that risk sentiment continues to improve. There is no change to our view that the yen will continue to weaken as the recovery in U.S. economic fundamentals, which is at the root of risk appetite, continues to gather pace," said Junichi Ishikawa, a market analyst at IG Securities in Tokyo.

The dollar also took back some ground against the euro after two days on the retreat.

The euro inched down 0.1 percent to $1.2210 , edging back towards a 28-month trough of $1.2165 reached on Tuesday in light of robust U.S. GDP data that further boosted prospects for the world's largest economy.

Recently upbeat U.S. economic data has provided evidence that the economy is steadily recovering, and heightened expectations that the U.S. Federal Reserve is on track to eventually hike interest rates in 2015.

That outlook is in sharp contrast to Japan and Europe, where monetary policy is expected to remain loose to stimulate growth and ward off deflation.

Data released on Friday highlighted some of the struggle the Bank of Japan faces. The year-on-year rise in Japan's core consumer prices slowed to 2.7 percent in November from 2.9 percent in October amid the recent decline in crude oil prices.

Widening differentials between U.S. and record-low Japanese yields should favour the dollar as more market participants return from holidays.

The two-year Japanese government bond yield struck a record-low minus 0.04 percent last week, taking the spread versus the two-year U.S. Treasury bill yield to its widest this week in more than four years.

The Australian and New Zealand dollars were little changed after taking a knock earlier in the week from strong U.S. GDP.

In addition to increasingly positive prospects for the U.S. economy, the diminishing premium offered by Australian government bonds over U.S. counterparts has influenced the Australian dollar's 9-percent fall this year.

So, as European markets were closed yesterday, our comments today stands around JPY. Still, this comments will be very short since markets have not shown yet something valuable since yesterday - FX right now is awaking after Xmas holiday, thus, we will point only on short-term setup that could appear on JPY.
We do not argue that yen probably will become weaker in long-term but in short term we could get nicely looking DRPO "Buy" pattern:

Thrust looks nice, market has reached WPR1 and shown first penetration of 3x3 DMA. Potential target stands around 118.20 and WPP. As you can see today market is opening with gap down that should be filled, that is common practice for FX markets. It means that chances on moving above 3x3 looks possible. So let's see whether yen will get some relief and whether it will confirm this potential DRPO...
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Gartey 222

Sive, I know I should know this by now, but I cannot understand what you are saying about the Gartley 222. I do not see how you have arrived at the 122 target here. I wonder if you could cover it more explicitly in the next video.
I received a message from DropBox that FPA complained of an infringement on the book I posted on your site written by Sive Morten (FOREX MILITARY SCHOOL). I want to say am sorry for any infringement I might have cause, though I would have deeply appreciate it if you warn me before writing Drop box management about the infringement, I would have joyfully remove it and apologize. However I do not have negative thoughts in mind.
Once again I want to say am Sorry.
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It has been a great year for USD against major currencies like EUR, JPY and Ruble. But in my opinion, next year will be a correction period for USD because spike in USD has been more than expected and with Central Banks around the world looking forward to take some measures in order to make their respective currencies stronger, I think in 2015 most of the traders will be betting against USD.
I received a message from DropBox that FPA complained of an infringement on the book I posted on your site written by Sive Morten (FOREX MILITARY SCHOOL). I want to say am sorry for any infringement I might have cause, though I would have deeply appreciate it if you warn me before writing Drop box management about the infringement, I would have joyfully remove it and apologize. However I do not have negative thoughts in mind.
Once again I want to say am Sorry.

Hi Ochills,
do not be upset too much and this is not your fault actually. We know that you would like to do it freely and heartly share with all our members with book without any fiscal interest.
As I know FPA administration just has its own view how compiled book should be distributed. So, no problem, actually...

It has been a great year for USD against major currencies like EUR, JPY and Ruble. But in my opinion, next year will be a correction period for USD because spike in USD has been more than expected and with Central Banks around the world looking forward to take some measures in order to make their respective currencies stronger, I think in 2015 most of the traders will be betting against USD.

Very probable, why not. Still we will go step by step and will base our trading process on clear setups that we will get... If it will be long-term retracement - I have no objection against this :)