FOREX PRO WEEKLY December 29-02, 2014

[Sive Morten]

Fundamentals
Reuters reports U.S. dollar rose against the yen and euro on Friday in scant volume, with many major markets still closed after the Christmas holiday. The greenback approached a 7-1/2-year peak against the yen and moved close to a 2-1/2-year high versus the euro based on the view the U.S. economy is expanding at a fast enough clip that the Federal Reserve could consider ending its near-zero interest-rate policy in mid-2015, analysts said.
"You have to be long-term bullish on the dollar next year. There's going to be a dip-buying mentality" said Rob Zukowski, senior technical analyst at 4Cast Ltd. based in New York.
Trading activity will likely pick up only a tad early next week due to another shortened week when markets will be closed on New Year's Day.
Data on Tuesday that showed the U.S. economy growing at its fastest quarterly pace in 11 years underscored the divergence in paths between the world's largest economy and those of Japan and Europe, where monetary policy is expected to remain loose to boost growth and avert 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 as a result of the steep drop in crude oil prices.

Widening differentials between U.S. and record-low Japanese and German yields should favor the dollar as more traders return from holidays.
U.S. two-year Treasuries yield held a 0.84 percentage point premium over the comparable German Schatz yield, which was the largest since early 2007. It held a 0.74 point yield premium over two-year Japanese government debt, close to the biggest level since May 2010, according to Reuters data.


As we’ve said once in daily video today’s report will be dedicated to Canadian dollar. Mostly because CAD stands at the eve of interesting setup on long-term chart. But let’s go step by step. First, let’s take a look at recent CFTC data on CAD.
Unfortunately we do not have data for 23rd of December, but only on 16th. Still even this data shows increasing of long speculative positions. Particularly due recent growth of buyer’s interest – we see increasing in open interest of Canadian dollar, while short positions have not decreased and stand at high levels. What is interesting for us is starting of careful purchasing of CAD.

Open interest:

Shorts:

Longs:

Also, as we know CAD stands in tight relation to Crude Oil prices:

Recent data on Crude storages in US has shown solid increasing. These numbers definitely would lead to drop in crude prices in other time, but recently crude just has swallowed them and stand tight around 60$. Currently nobody knows how deep Crude could fall. Recent level will be 37-40$. Average production costs stands around 35$ and it consists of two approximately equal parts of production - cheap with 5-20$ production expenses and expensive one – 30-60$. Currently there are no doubts that drop in crude prices are not normal market behavior and mostly is driven by geopolitical reasons. This is artificial drop. That’s why it could continue further, but in this case 50% of producers will closely come to breakeven point of production. And it will be more and more difficult to push price lower. May be there will no further pushing down at all. But, Crude stands at strong oversold at all time frames and at major 0.618 monthly AB=CD target. Technically this gives market support. 60$ per barrel is low level by itself, especially in winter and recent reaction of crude oil futures on data release just confirms our thoughts.
This moment has solid relation to analysis that we will make today with CAD. Because CAD also stands at very important level.

Technicals
Monthly
On monthly chart trend is bullish, market is not on overbought yet. Here you can see upside AB-CD pattern that is mirror to Crude oil. The only difference is that Crude has hit 0.618 target while CAD is not yet.

Target stands approximately at 1.19. Meantime market right now has reached major 0.618 Fib resistance level at 1.1665. We do not have any pivots here, because CAD has moved above all pivots – Yearly PP, YPR1 and YPR2. Major information here is reaching of Fib resistance level. Still, existence of major target slightly higher obliges us take any short position with caution.

Weekly
Weekly chart is the second big part of long-term puzzle. Here market shows that 1.1665 is not just Fib resistance but Agreement level that is accompanied by weekly overbought and confirmed by completed 1.618 butterfly “Sell” pattern. This is also MPR2, but this is minor add-on. If we would get monthly 0.618 target just 200 pips higher, we would say that this is perfect set up for short entry. Existence of untouched monthly target obliges us to think about any short position with caution.

Still in short-term period market could start to form some pattern on lower time frame charts that could become reversal one and at the same time suggests minor upside continuation, such as butterfly, 3-drive or something of this sort: take a look our butterfly here could be 2nd drive of big 3-Drive pattern. Still, before 3rd drive will appear – really deep retracement could happen.

Daily
Here market also has completed some patterns. In general it stands in long upside channel. Currently we have completed butterfly “sell” at daily overbought. But as you can see market does not hurry to turn down. We even have bullish grabber here. Flat standing at important resistance could be the sign of bullish dynamic pressure and could lead to further upside action. May be this butterfly will become first drive of 3-Drive pattern.

4-hour
Here market is forming some triangle or pennant pattern that theoretically works as continuation one and could shift to butterfly “sell”, for example. But should not forget that we stand at strong weekly resistance and it is logical to expect some (at least minor) retracement down. As market stands rather tight on previous week – pivot levels also stand tight and in fact envelope current market action. Any unexpected breakout of triangle, i.e. downside will suggest that retracement is started, but its depth could be absolutely different. Weekly chart does not exclude action even to 1.10 area.

Conclusion:

Right now as Crude oil as CAD market come to very important moment and met solid areas. But the paradox of situation is we do not see yet response on touching of these areas because too few time has passed since then.
As we know longer-term patterns and levels overrule shorter-term ones. It means that chances on downward retracement look preferable compares to current immediate upside continuation. Although it will follow with high probability but a bit later.



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.

 

[Sive Morten]

Good morning,


Reuters reports euro dipped to a 29-month low against the dollar on Tuesday as the announcement of a snap election in Greece threw the country into a fresh round of political turmoil.

The austerity-minded leading coalition in Greece failed on Monday to secure enough votes in parliament to elect a president, paving the way for an early general election next year.

The markets are now concerned that the leftwing opposition Syriza party may win the election and derail Greece's international bailout.

After Greece nearly crashed out of the euro in 2012, when it had to accept a bailout in return for austerity measures, the country had just returned to economic growth this year and ended a four-year exile from bond markets.

The euro's slip against the dollar has been limited thus far-- it was down only 0.2 percent on the day -- as the outcome of the Greek parliamentary vote was already priced in by some.

But other participants urged caution, suggesting political turmoil in Greece was only in its early stages.

"Several weeks of opinion polling lie ahead and, as the election date approaches, we should expect the euro to become gradually more sensitive to any apparent shifts in the public mood," Gareth Berry, a forex strategist at UBS, wrote in a note to clients.

A dip below $1.20 for the euro could be a distinct possibility if the risk, however remote, of a Greek exit from the euro zone re-emerges as it did in 2012, he said.

The Greek political situation adds to the burden placed on the common currency, already weighed by prospects of the European Central Bank implementing further easing measures in 2015 to shore up the euro zone economy and ward off deflation.

"The ECB policy meeting on Jan. 22 of course remains an important euro event, but developments in peripheral euro zone nations like Greece now also need attention," said Shinichiro Kadota, chief Japan FX strategist at Barclays in Tokyo.

The dollar, on the other hand, pared overnight gains and dipped against the yen on the back of a decline in Tokyo shares.

"It is the typical dampening of risk appetite that is weighing on stocks and in turn dollar/yen. It could remain a factor for the dollar if equities are unable to recover early next year in wake of the Greek situation," Kadota at Barclays said.

In recent months the dollar has risen in tandem with Japanese stocks as foreign investors in particular sell the yen to hedge their equities positions.

The currency market will look to indicators later in the day such as American consumer confidence data and the CaseShiller housing index that may further highlight the continuing strength of the U.S. economy relative to the euro zone and Japan.

Set to remain a key theme in 2015, the divergence between the Federal Reserve's path toward rate hikes and stimulative policies in Europe, Japan, and Switzerland have helped the dollar index hit an eight-year high this year.


Today guys we will take a look at tactical short-term setups, since there is not much time till New Year and probably it does not make sense to look at any strategical issues.
IF you remember we have two reliable setups on JPY and NZD that we've commented on Xmas eve.
On JPY we've got DRPO "Sell" pattern that now stands in progress. Potential target is 118.20 - 50% Support of whole DRPO thrust. I've marked confirmation bar with red circle. IT has appeared right before plunge has happened.

Second setup is bullish grabber on weekly NZD. Formely we've said that market could take shape of 1.618 butterfly "sell" on 4-hour chart to hit grabber's target at 0.7995:

Right now market is breaking through resistance trendline and holds with this setup. Absolute invalidation point stands below grabber's low @ 0.7607, but if market will erase butterfly it will be sufficient to doubt this setup.

 

[Sive Morten]

Good morning,


Reuters reports dollar was on track to end 2014 with a gain of 12 percent against a basket of major currencies, and anticipated U.S. interest rake hikes may strengthen its appeal in the new year.

This year's gain will be the dollar's largest since 2005, when it climbed nearly 13 percent.

The divergence between the U.S. Federal Reserve's path toward rate hikes and stimulative monetary policies in the euro zone and Japan has helped the dollar index hit an eight-year high this year, and is likely to remain a key theme in 2015.

Recent solid data has reinforced the view that the U.S. economy is improving enough for the Federal Reserve to consider raising interest rates in mid-2015.

Underscoring its broad strength in 2014, the greenback is on track for annual gains against each of the currencies in the dollar index basket, namely the euro, yen, sterling, the Canadian dollar, the Swedish crown and Swiss franc.

The greenback has also risen this year versus the Australian dollar, New Zealand dollar and Norwegian crown.

Against the yen, the dollar held steady on Wednesday near 119.44 yen . The dollar had touched a one-week low of 118.86 yen on Tuesday, having pulled back from a seven-year high of 121.86 yen in early December.

Investor jitters over looming economic risks such as political turmoil in Greece have helped to support demand for the safe haven yen this week, along with year-end profit-taking on bullish dollar bets.

Still, the dollar has risen more than 13 percent versus the yen this year. The gains accelerated as the yen slid after the Bank of Japan surprised markets in late October by expanding its monetary stimulus to keep inflation expectations from flagging.

Over the course of 2015, the general direction of the dollar against the yen will probably be higher, said Teppei Ino, an analyst for Bank of Tokyo-Mitsubishi UFJ in Singapore.

For 2015, "if you ask whether the dollar is likely to head in the direction of 100 yen or head toward 130 yen, I think it will be the latter," Ino said.

Still, it could be a bumpy ride.

The fact that market participants are already positioned for further yen weakness may help temper gains for the dollar against the Japanese currency, and the yen could gain a near-term boost if worries about Greece intensify, Ino added.

The euro inched up 0.1 percent to $1.2163 . On Tuesday, it reached a 29-month low of $1.2123. The euro is down 11.5 percent for the year, on track for its biggest annual drop since 2005.

Greece's parliament failed to elect a president on Monday, paving the way for early general elections on Jan. 25 and throwing the country into a period of political turmoil.

The markets are now concerned that the leftwing opposition Syriza party may win the election and derail Greece's international bailout.

The Greek political situation adds to the burden placed on the common currency, already weighed down by prospects of the European Central Bank implementing further easing steps in 2015 to shore up the euro zone economy and ward off deflation.

Well, newsline shows nothing interesting by far. Still, today I've found something interesting that promise to be interesting in nearest perspective. We're speaking on AUD stiuation.
On weekly/monthly AUD has hit solid target and resistance - 1.618 of AB=CD right at monthly Fib support and weekly oversold. Currently it is unclear what consequences could come as a result of this level, but definitely some solid retracement on daily chart will happen:

As we stand at strong level we should be very careful to thrust down that we have on daily. It looks perfect and could give us DRPO "Buy" pattern. We mostly count on DRPO, but not on B&B "Sell" because market already has touched major target and currenty it has no sense for downward continuation. IT means that deep retracement has more chances to happen and this leads us to DRPO expectation:

Still AUD stands at daily overobought and hardly will move higher today. This is good for DRPO. 4-hour chart shows that DRPO could take shape of 1.27 reverse H&S pattern:

Thus, we have two scenarios of long entry here - either to wait for DRPO "Buy" confirmation, or take long position at 0.81-0.8120 right shoulder bottom area with stops below the head...

 

[Sive Morten]

USD/CAD Daily Update, Thu 01, January, 2015

Good morning, and Happy New Year to everybody!


Reuters reports dollar ended 2014 with a gain of nearly 13 percent against a basket of major currencies on Wednesday, its strongest year since 1997 and, according to most major banks, just a prelude to a further rise next year.

Traders favored the dollar as this year's winning bet heading into the New Year and pushed the euro to a fresh 29-month low against the greenback of $1.2098, just below a closely watched $1.21 technical level. The dollar also hit a new 29-month high against the Swiss franc of 0.9944 franc in thin trade.

"The winning trade has been in the dollar, and traders are closing the year holding on to their strong dollar positions," said Chris Gaffney, senior market strategist at EverBank Wealth Management in St. Louis.

The contrast between the U.S. Federal Reserve's path towards raising interest rates next year and looser monetary policies in the euro zone and Japan was the driving force behind the dollar index's rise to its highest in more than 8-1/2 years on Tuesday.

However, it is not clear whether further gains in the first half of next year might put the Fed off raising rates. Also, turbulence may grow in developing markets, especially China. Political turmoil could again threaten Greece's presence in the euro, adding to concern over the global financial system.

"I think certainly volatility is likely to go up," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. He said the upward trend in the dollar would likely continue, however.


Today we will make just brief update on Loonie, because we already have discussed all setups on all major currencies previously and right now you already know what to watch for on EUR, NZD, JPY and AUD. Since price progress on all markets across the board is shy, we just make some insight on riddle that we have on CAD and the one that we've discussed in our previous weekly research.
There we've said that if we wouldn't have monthly 0.618 AB=CD target @ 1.19 we would be absolutely happy, since market right now stands at strong monthly/weekly resistance and we would just prepare for short entry. But existence of big target on big time frame makes us nervous and we do not know exactly how market will behave. Either it will show some retracement first to respect resistance or, it will just continue action up and will show bounce down after reaching of 1.19...
Recent situation makes us think that the latter is more probable than the former. Take a look by yourself and first on Crude Oil chart. Market is passing through major 0.618 target down despite on any oversold conditions...

4-5 months in a row market opens at the top and close at the bottom.
As CAD mostly oil currency, it is difficult to count right now on opposite action. And this is confirmed by situation on daily and intraday charts:

So, despite what technical analysis tells us - it seems that CAD now is a hostage of geopolicy. On daily chart we see hint on possible bullish dynamic pressure. Take a look that market has completed: butterfly "Sell" on daily, 1.618 AB-CD on weekly, stands at major 5/8 Fib resistance but action does not suggest downward reversal yet. Trend has turned bearish but price action stands flat. This points on possible upside action - either for W&R of the previous top or for greater upside continuation.
On 4-hour chart we do not have bullish divergence with MACD, but price action takes the shape of sideways consolidation. And again - retracement has happened only to WPS1 and yesterday market has returned right back above WPP.

That's being said recent action tells us that we should wait a bit with short position, despite existence of clear reversal patterns and resistance on higher time frames....

 

[Sive Morten]

Good morning,


Reuters reports today euro fell to its lowest in 4-1/2 years against the dollar on Friday after the head of the European Central Bank fanned expectations it would take bolder steps on monetary stimulus later this month.

In an interview with German financial daily Handelsblatt, ECB President Mario Draghi said the risk of the central bank not fulfilling its mandate of preserving price stability was higher now than half a year ago, underlining its readiness to act early this year should it become necessary.

"The risk is on the downside for the euro after the comments from Draghi. It could break below $1.20 since there is a risk of a very low inflation reading out of the euro zone next week," said Niels Christensen, FX strategist at Nordea.

"That will just add to pressure on the ECB to take measures when it meets later this month."

Annual euro zone inflation is due out next week and forecasters are expecting it to drop to -0.1 percent in December from 0.3 percent a month ago, taking it even further below the ECB's target of just under 2 percent.

Jeffrey Halley, FX trader for Saxo Capital Markets in Singapore, said the euro's fall picked up momentum after triggering stop-loss orders in a thin market.

Meanwhile, the dollar hit its highest level in nearly nine years against a basket of currencies, drawing strength from the U.S. economy's outperformance and the diverging outlook for monetary policies in major economies.

"Many of the themes that were in vogue heading into the end of the year, remain very much firmly in place," said Callum Henderson, global head of FX research for Standard Chartered Bank in Singapore.

"The U.S. recovery is not stellar but it's certainly materially better than in most places in the G10."

The contrast between the Federal Reserve's path toward rate hikes and stimulative policies in Europe and Japan gave a broad boost to the dollar last year.


So, it seems that on weekend we need to take a look at EUR again. Our thoughts on CAD possible uspide continuation are coming to life and CAD starts to creep higher today...
THus, let's take a look at AUD. On AUD is pretty interesting setup, mostly because it has foundation on weekly chart.
Recall that AUD stands at weekly Fib support + 1.618 AB-CD Agreement and oversold. THis creates solid support and good chances for bounce up. Even minor retracement will lead for ~200 pips rally on lower time frames:

On daily chart we said that most probable pattern that we could here is DRPO "Sell" as due market mechanics as due technical condition on daily chart - AUD is overbought on daily and it just can't reach 3/8 Fib level to create, say, B&B "Sell".
Thus, we've said that market should move slightly lower - out from overbought and close below 3x3 DMA for second time. Now we see this action in progress:

On 4-hour chart it could take a shape for reverse H&S and level that we've pointed as possible destination of retracement almost has been reached. Now, those of you who wants to trade it, based on this H&S pattern should think about taking long position. Others, who wants to wait DRPO confirmation should wait a bit more.

 

[Brett Reynolds]

I have been long on loonie and taking profits on and off for a few months now. I agree at strong resistence as on Oil..but we could immediately see another leg down on Oil to $50 or even lower!? I am still holding open long on loonie from 1.1570. Stop @ 1.1540I be looking for breakout of wedge (triangle) @ 1.1670 and retest up to 1.19 area. If I get stopped out then I look at 1.1470 or 1.1370 to go long again!?

 

[Venelin]

As new year knocks on the door I am monitoring cable for potential Weekly DRPO lal buy:

Cheers!

 

[butcher]

Eur/jpy

Hi Sive,

What do you think of EUR/JPY pair?

Monthly; bearish grabber



Weekly; Potential of DRPO Sell or B&B Buy.



Daily; Agreement + OS



4HR; Potential of DRPO Buy or B&B Sell.




Regards

 

[Sive Morten]

Hi Sive,

What do you think of EUR/JPY pair?

Monthly; bearish grabber

Weekly; Potential of DRPO Sell or B&B Buy.
Daily; Agreement + OS
4HR; Potential of DRPO Buy or B&B Sell.

Regards

Monthly chart might be interesting, also because it looks like market stands at major 5/8 Fib resistance. Although this is not the type of grabber that I prefer, but this condition could be compensated by existence of major resistance.
On weekly chart, may be... and most probable DRPO due situation that we have on monthly chart. But thrust is minimal...
On daily this is not Agreement, since BC leg of your AB-CD is too small. Daily picture mostly reminds H&S pattern. That also confirms possible downward action.
4-hour chart again - taking into consideration analysis of higher time frames, we would like to get B&B "Sell" here, but not DRPO...

 

[Brett Reynolds]

I have been long on loonie and taking profits on and off for a few months now. I agree at strong resistence as on Oil..but we could immediately see another leg down on Oil to $50 or even lower!? I am still holding open long on loonie from 1.1570. Stop @ 1.1540I be looking for breakout of wedge (triangle) @ 1.1670 and retest up to 1.19 area. If I get stopped out then I look at 1.1470 or 1.1370 to go long again!?

My Stop survived! I have learned the hard way about trading against strong trends such as on $/CAD and $/Yen. (Especially the loonie!) It looks like at least another leg down now on Oil, so as per update we should see 1.1750/1.19 on CAD and on Oil next support is $50.50 approx!?