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Forex FOREX PRO WEEKLY, December 24-28 2018

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Dec 22, 2018.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals

    As it was mentioned often on forum this week - EUR shows really tricky action right now and stands in the tricky environment. Any action that has happened within previous two weeks was a bit nervous and it looks like market doesn't have any inner direction. On Friday we've got the same story - good rally which was almost totally muted by following drop. The only thing that market right now produces well is volatility.
    The major riddle right now - what recent rally was. Real assets rebalancing for long-term perspective or just position closing, run to quality before long holidays. Solution of this question is vital for future performance as two answers suggest opposite action.

    Another concern has come from where nobody expects - U.S. President Donald Trump has discussed firing Federal Reserve Chairman Jerome Powell, Bloomberg reported on Saturday, citing sources. Trump’s frustration with the U.S. central bank chief intensified after this week’s interest rate increase and months of stock-market losses, the news agency said, citing four unidentified people familiar with the matter.

    The president has talked privately about firing Powell many times in the past few days, it said, citing two of the people. White House spokesmen declined to comment, as did Federal Reserve spokeswoman Michelle Smith, Bloomberg reported.

    The Fed raised interest rates on Wednesday for the fourth time in 2018, and signaled “some further gradual” rate increases ahead. Global financial markets, including Wall Street stocks, had been hoping for a more dovish policy outlook and sold off broadly.

    As Reuters reports - the dollar gained on Friday as investors sought the currency’s safety amid persistent equity market volatility and a possible U.S. government shutdown. U.S. President Donald Trump conceded on Friday there was a good chance the Senate would not approve his demand for $5 billion toward funding his border wall project and a government shutdown would probably begin at midnight.

    The news undermined Wall Street shares, with the S&P 500, already on pace for its worst December since the Great Depression, hitting its lowest since August 2017. The Dow Jones industrial average fell to its weakest since October 2017, while the Nasdaq sank to a 15-month low, flirting with bear market territory for a second day in a row.

    “It’s not clear at this stage whether President Trump would agree to a continuing resolution to temporarily fund the government, or would instead seek a government shutdown, which would go into effect at midnight tonight,” said Nick Bennenbroek, currency strategist at Wells Fargo Securities in New York. He added that if the shutdown goes into effect, he expects the dollar to continue its bounce next week.

    U.S. economic reports on Friday were mixed and had minimal impact on the dollar. The mixed data, however, should not prevent the Fed from raising rates imminently, said Michael Pearce, senior U.S. economist at Capital Economics in New York.

    As liquidity thinned ahead of the Christmas and New Year holidays, large currency options had an impact on the cash market as well. For instance, large options around the $1.15 level also pulled the euro lower.

    So, as you can see we stand in explosive mix of news and it is real challenge to find direction in this mess.

    Majority of traders think the same way. Just take a look at recent CFTC report. Open interest on EUR futures has dropped for 15%. So, 1/6 part of all positions have been closed. And what is really interesting - position were closed equally, as shorts as longs by as speculators as hedgers. So, investors just abandon market for awhile:

    upload_2018-12-22_13-15-21.

    This barely makes impact on final net position of this week as it stands mostly the same - bearish around 50K contracts:

    upload_2018-12-22_13-16-52.
    Source: CFTC.gov
    Charting by Investing.com


    Thus, we have no efficient tools that could help us to find direction right now and this is major position on the market by far. And it seems, in larger sense, as we could see from recent CFTC report, nobody sees clear direction here.

    More fuel to the fire brings Fathom consulting as they point on high degree of US/Global recession in 2020.
    Last Friday, at our Monetary Policy Forum (MPF) event hosted in partnership with Refinitiv, Fathom called for the advanced economies to shift decisively to a higher yield environment. A decade on, in the final quarterly MPF, we called for QE to be reversed in order to escape the low growth, low interest rate environment that the advanced economies remain stuck in. We were joined by former MPC members Sir Charlie Bean, Rachel Lomax and Andrew Sentance.

    At first, everything went to plan. In the ten years from 1997 to 2007 average inflation in the G7 was lower than in the decade before, averaging around 2%, with much lower volatility. As had been expected, low and stable inflation was associated with other positive economic outcomes. There seemed to be no trade-off with GDP growth, which remained broadly unchanged, however, with much lower variance.
    [​IMG]

    The Global Financial Crisis, and economic developments since then have raised big questions about this previously accepted policy mix. While independent central banks have broadly met their inflation targets, it has come at the cost of severely negative side effects including financial imbalances and dire productivity growth. Economic growth in the ten years to 2017 was both weaker than in decades prior and much more volatile, too. That alone would be enough to occupy the minds of policymakers for some time. But cyclical risks look set to make things even more challenging.

    We expect a US-led global recession in two years for reasons that we have previously outlined. Indeed, our proprietary model shows that the implied probability of a US recession will rise to a record high by the end of next year. When the next recession arrives, policymakers will find themselves with few tools in the cupboard to deal with it. During an average recession, central banks cut the policy rate by 370 basis points. However, outside of the US, interest rates are at the effective lower bound, nullifying the first line of counter-cyclical stimulus.

    Even without a recession, the advanced economies were facing the prospect of a permanent bad equilibrium: high debt, low interest rates and low productivity growth. Total debt in the advanced economies now makes up a record 190% of GDP, up sharply since before the financial crisis. The weight of that debt prevents interest rates from rising, with malign economic side effects. Fathom’s long-held view is that low interest rates harm the supply side of the economy, leading to lower productivity growth rates than would otherwise be the case. The current inflation-targeting framework is not equipped to help us escape this poor outcome.

    As usual, we closed the event by inviting our audience to express their own views on the macroeconomic and financial market outlook. We started by asking our invited guests when they thought the major economies would next suffer a recession. Well over half opted for either 2019 or 2020, with the plurality in agreement with Fathom that 2020 was the most likely year. Around one quarter believed there would be no recession before 2022.
    [​IMG]

    [​IMG]

    All that we can do in current environment is rely on technicals, until fundamentals become more clear. And we should be more careful with any position taking, following our major principles - taking trades around big levels with clear patterns on the back.
    Another solution is to wide amount of markets that you trade. Sometimes other markets provide better trading background and looks more clear. Personally, I'm watching gold, BTC markets as well and have long-term short positions on US and EU equity futures since autumn. Forex market is big, but it is not the only market yet. Just take a look at monthly Dow - have you seen somewhere better DRPO "Sell" pattern? Many interesting you could find at NASDAQ, DAX 30 as well.
    upload_2018-12-22_13-53-16.

    Here is monthly NASDAQ
    upload_2018-12-22_13-57-25.

    Sorry for light off-topic, guys. I just try to find complex solution to current situation.Now let's go to technical view on EUR.

    Technicals
    Monthly


    December month shows very small range and has no impact on monthly picture at all. Here we mostly wait for clarity - either downside breakout and start action to 1.08 and later to 1.03 or ability of the EUR to hold above 1.12 and turning up. Market stands at wide support area between major 5/8 Fib level and YPP, which also natural support/resistance area.

    Indirect technical factors point on market's weakness, as EUR can't jump out from strong support within more than 5-6 months and just lays upon it. Trend stands bearish here.

    Monthly situation shortly could be described as indecision with light gravitation to the downside. In fact, long standing around Yearly Pivot confirms things that we've discussed above. MACD trend stands bearish here.
    Thus we keep valid our downside COP target around 1.03 by far.
    eur_m_24_12_18.

    Weekly

    On the chart you see two frames - EUR on the left and Dollar index (DXY) on the right. Take a look at EUR, guys, and answer - are you impressed by Friday action? Does previous week really looks strong and send us upside reversal signal? Hardly we could tell this. Another moment that I do not like here guys, I've talked about it already once - consolidation around seemingly broken low/top (on EUR and DXY correspondingly). This is not the way how market reverses guys. At first glance on DXY we have clear bearish view - everything stands at place - wedge, bearish divergence, resistance etc. But, once price has created new top it doesn't hurry to drop, it is coiling around. This is not typical for bearish reversal, especially with long tails down, which suggest new buyers stepped in there.
    The same is on EUR - flat and long-term standing near the low. This is tell about possible energy accumulation for breakout, rather than reversal. That's being said, until we have this stuff on the back - I wouldn't take any long-term bullish position on EUR.

    upload_2018-12-22_14-14-23.

    Another important issue, my friends - massive sell-off on other currencies, especially asia pacific AUD, NZD. Crude oil is also not an exception. Action on GBP also hardly could be called as bullish reversal:

    upload_2018-12-22_14-27-53.

    Daily

    Dualized situation on market obliges us to be careful to both sides of the force and watch for bearish patterns as well. Incremental entropy suggests that we should be focused on shorter-term setups.

    On daily chart we could foresee a lot of patterns outside of current consolidation. For example, in case of upside breakout it could be "222" Sell, downside breakout suggests butterfly or AB-CD's etc.

    But, right now market stands inside consolidation and we have bearish engulfing of nice shape. It provides high probability of AB-CD downside action on intraday charts.

    Our major AB-CD pattern with XOP around 1.10 will be valid until market stands below "C" point of 1.1620. In fact, guys, EUR stands just with 30% retracement despite all long-term fluctuations here.
    eur_d_24_12_18.

    Intraday

    So, guys, I think we should start week without great shakes and clean up the mess with daily engulfing pattern. As usual, on intraday charts some AB-CD down should be formed. Thus, on 1H chart it is a clear shape of possible H&S pattern. On Friday market has formed downside reversal swing, which suggests upside pullback and forming of right arm of the pattern. Most probably that upside action starts from Agreement support level:
    eur_1h_24_12_18.


    Conclusion:

    Right now market holds traders in extremely difficult situation. Sentiment analysis shows that nobody knows what direction will be on the market. Indirect factors tell that it is too early to refuse bearish scenario on EUR.
    In current environment we see tactical short-term trading from strong levels and with clear patterns on the back as best strategy. At least until fundamental factors will become clearer.


    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.
     
  2. Venelin

    Venelin Master Sergeant

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    Happy Holidays to you Sive and all fellow FPA members! Let peace prevail!
     
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  3. FreddyFX

    FreddyFX Sergeant

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    Master Sive...and ALL other readers of this forum:

    Feliz Navidad Merry Christmas

    from Mexico !!!
     
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  4. maciek9669

    maciek9669 Private

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    ... and very Merry Christmas from the North Pole!! The market doesn’t spoil us on the end of year:)).good luck to everyone!!
     
  5. Major_Tom

    Major_Tom Private, 1st Class

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    Happy holidays to Sive and to all!!!
     
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  6. chalo

    chalo Private

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    Dear Sive, Feliz Navidad to you and all the contributors may this season bring peace to you all.
     
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  7. tun13

    tun13 Corporal

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    To Sir Sive and all forum members, may this season bring you Joy, Peace, Good Fortune and Love. Merry Christmas.
     
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  8. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Thanks guys for warm wishes. Markets gradually are waking up, especially Gold (LOL) with shutdown special effect ;)
     
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  9. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    Following our trading plan, while EUR has no direction and stands in 1.12-1.15 range, we've agreed to focus on tactical short-term setups. The first one was formed on Friday and we discussed it in weekly report - daily engulfing pattern, which also takes the shape of H&S on 1H chart. Now market is coming to its target.

    At the same time, daily chart shows that next pattern could be in opposite direction. Once engulfing target will be completed - we could get bullish grabber today:
    eur_d_27_12_18.

    On 4H chart this construction could take shape of "222" Buy pattern right at major Agreement support. So, it should be nice short-term setup.
    eur_4h_27_12_18.

    Meantime we still follow engulfing AB-CD target that stands around 1.13-1.1320. Market already starts to form indirect bullish signs - divergence, falling wedge pattern. Right arm of H&S could take the shape of the bullish butterfly as well.
    eur_1h_27_12_18.

    That's being said - if you've taken short position at the top of the arm, as it was suggested by our plan - keep it, move stops to breakeven. If you do not have any position yet - it would be better to wait for next tactical setup, as it could be formed very soon.
     
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  10. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    Our bearish setup has been erased by price action as EUR climbs above "C" point of our AB-CD and H&S pattern, so despite good start, OP has not been reached. Now we need to wait for some new setup here.

    That's why I thought, today we could take a look at GBP, where short term setup stands in place. You should remember our weekly chart - we paid a lot of attention to it before Brexit voting in Parliament 3 weeks ago and said our target is 1.25. It has been completed and now market stands in reasonable retracement:
    gbp_w_28_12_18.

    Retracement takes the shape of bearish continuation pattern - flag or pennant and it seems that GBP could show, if not a real downside continuation, but short-term deep downside retracement.
    Now market is held by daily K-resistance and natural support/resistance zone. Engulfing pattern has been formed:
    gbp_d_28_12_18.

    4H chart shows that upside AB-CD action inside the consolidation is completed, CD leg is very flat, which provides good chances on drop. Here we have "222" Sell pattern:
    gbp_4h_28_12_18.

    And final detail is on 1H chart - H&S pattern. Now we need to wait action to 1.2680-1.27 area to keep harmony among the arms of the pattern. This is also will be invalidation point of the pattern. Potential target of this setup stands around 1.2550 - AB=CD target of H&S pattern. Potentially we can't exclude stronger drop as setup has relation to weekly picture as well. Setup will be erased if market will jump above daily K-resistance area:
    gbp_1h_28_12_18.
     
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