Sive Morten
Special Consultant to the FPA
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Fundamentals
This week guys, was short due wonderful family holidays, which is Christmas time. Thus, we do not have a lot of fundamental background to discuss. Besides in last report we had very detailed discussion on all major driving factors. So, we briefly take a look at what has happened this week. The one thing is clear - in January markets will keep an eye on US/China agreement details and turmoil around D. Trump impeachment in Senate - Congress already has voted and supported this initiative.
Probably just few of you have seen our Gold update on 24th of December, but particular gold has put the foundation of the rally that we see after holidays. In recent gold rally we recognize capital flows and think that some big financial events stands under it. As a result - we see sharp change of sentiment on EUR as well. As we've said last week and in daily updates this week - it is really crucial for EUR (and for us) to start rally right from this area. Otherwise bullish scenario will be cancelled. And not it is stand under way... GBP situation develops according to our trading plan - everything that we've said in last weekly report is still valid. Take a look, GBP stopped dropping right at predefined 1.2920 level and turned to upside retracement. Our next step is to see where this retracement will be over and consider short entry in continuation of big bearish patterns that we have there.
As Reuters reports - The euro strengthened on Friday, pushing the dollar lower and the pound higher, as speculators unwound their short positions before the end of the year, with thin liquidity during the holiday season amplifying moves. Bleak European economic data meant hedge funds bet on an even weaker euro during 2019, but the battered currency rose on Friday to an eight day high of $1.1142.
“What I’m seeing here, it’s mainly some euro strength,” said Ulrich Leuchtmann, an analyst at Commerzbank. “This very negative euro sentiment has prevailed over 2019 and has run out of steam ... coming to this period of low liquidity, more people are more inclined to remove those short positions,” Leuchtmann said. This short-time trend is likely to continue next week too as the end of the decade approaches, he added. “A lot of specs (speculators) might consider if it’s wise to keep these (short) positions over the period.”
In the week to Dec. 17, leveraged funds trimmed their short euro positions to $9.16 billion, further away from the 2019 high of $14.84 billion. However, the upheaval in the euro may be limited by the large number of options expiring at $1.1155-$1.1160.
Euro strength took the pound to a one-week high of $1.3075 . Sterling gained some ground against the euro too, rising to a four-day high of 85.17 pence. The rise in sterling was helped by European Commission President Ursula von der Leyen saying the European Union may need to extend the deadline for talks about a new trade relationship with Britain.
The optimism around prospects for a Phase 1 Sino-U.S. trade deal reduced demand for safe-haven currencies such as the yen, but with global currency markets in holiday mood trading was mostly subdued. Beijing said on Wednesday it was in close touch with Washington on a trade deal signing ceremony, a day after U.S. President Donald Trump said he and Chinese President Xi Jinping would have a ceremony to sign a deal.
“The overnight gains in the dollar were partly erased by dipping Treasury yields after the seven-year note auction, U.S.-China trade optimism has put a solid floor under the dollar,” said Toshinobu Chiba, chief portfolio manager for fixed income at Nissay Asset Management. “In any case, I don’t expect any large moves either way in markets today as trading remains subdued due to the holiday week.”
“The EURUSD is particularly sensitive to global growth upgrades, and with trade optimism swinging positively for global growth, the Euro’s trend-following dynamics could start to argue for a push above,” Stephen Innes, chief Asia market strategist at AxiTrader, said in a note.
With the economic calendar light before the holidays, analysts doubt major currencies will post significant moves this week. The future path of the dollar is likely linked to what kind of benefits non-U.S. currencies reap from the recent easing in trade-related tensions between the United States and China.
“With the Fed likely on hold next year, the key to a weaker dollar in 2020 could depend on further momentum from Europe,” said Edward Moya, senior market analyst at OANDA. “Europe is likely to benefit the most from continued progress with the U.S.-China trade war and if we see any hints of a manufacturing rebound, the euro could eye the 1.15 level,” Moya said.
Even with the recent UK general election smoothing the path for Britain’s exit from the European Union, Britain’s ability to strike a new trading deal between the EU in a relatively short span of time remains a concern for some investors.
“We anticipate that the Brexit rubber hitting the road will curtail the pound’s upside potential in 2020,” analysts at Action Economics said.
Speaking on the GBP - it seems that our suggestion that it should be tough time for Pound is confirmed by Fathom as well. We suggest that another leg down should be formed on GBP chart in the beginning of the year, while Fathom tells on deteriorating of economy sentiment in UK:
Pre-election slump for UK economic sentiment
Fathom’s UK Economic Sentiment Indicator, which weights together a range of business and consumer surveys, was -0.2% in November — the lowest reading since August 2009. This gauge, which is calibrated to have the same mean and standard deviation as quarterly GDP growth, has been in contractionary territory since the summer. In our judgement, the UK ESI provides a useful guide to the underlying pace of economic activity. Based on survey data, it is more timely and less erratic than the official GDP statistics. Taking into account the official statistics available to date, and other indicators of economic activity including our ESI, we expect to see a small 0.1% contraction in the size of the UK economy in the final quarter of this year.
Well, it will be interesting to take a look at fresh CFTC reports of 2020 as on EUR as on GBP, but currently we do not see any reasons to revise our existed tactic trading plans on both currencies. I think we comfortably could follow them in nearest two weeks making daily updates as usual. Next week, by the way also will be short. We probably skip updates on 1-2 of January and return back on Friday, 3rd of January - the same as this week.
Technicals
Monthly
As GBP as EUR is worthy to be considered in technical part of our report, but, EUR has shown more revolutionary action and we better take a look at it. GBP we consider in our update on Tuesday, I suppose.
Last time we have discussed everything that relates to longer-term scenario. Thus, we said, that monthly time frame is the one where technical factors meet fundamental once. We've considered possible bullish scenario, which could take place if we're wrong about US tariffs on EU and if EU economy will show at least some improving. Right now investors keep net short positions on EUR (by the last CFTC report), understanding the same risks that we've mentioned previously and this is reasonable. Positive shifts in EU economy have to become stable and regular with no US tariffs on horizon.
From the technical point of view, we have October reversal month and Yearly Pivot Support 1. This year it holds downside action. We know the major feature of pivot supports - it has to hold downside action if this is a retracement. This is particular what we have right now.
Despite that EUR still can't get started upside action - October candle is still valid and keeps its reversal features, as lows stand intact. Now everything depends on EUR itself. It has to show more active upside performance, which we do not see yet. The vital point which determine everything is 1.09 lows. It seems that it is just two weeks till the new year, but lows also stand just 150 pips from current market.
Conversely - sudden drop below 1.09 area and YPS1 will unlock our bearish view and downside continuation back to 1.03 lows. EUR has to show breakout either above 1.12 area or below 1.09 to unleash larger time scale setups. Until we stand in this range - we deal with tactic short-term setups on daily and intraday charts.
This week EUR provides positive surprise, finally started upside motion. But another pit appears on horizon - it comes to MACDP line, which is 1.1228. The monthly bullish grabber is the one that bulls want to see least of all. It means that EUR keeps investors tight right till the last moment as year close price will have special meaning for monthly chart.
P.S. We know that formed grabber is not necessarily has to work. But, it's appearing per se is a risk factor.
Weekly
Weekly chart has less degree of changes as recent week still stands inside one. Recently we said that we see some worrying signs, such as bearish dynamic pressure and too slow upside action, inability even to challenge 1.12 resistance area, which looks a bit curious when you suggest bullish market. Upside action is started and now we will see whether it will be strong enough to cancel dynamic pressure price action.
To support monthly scenario weekly chart has to form bullish reversal, and preferably by some clear pattern. Currently it seems that we should focus on reverse H&S pattern. Current AB-CD pattern has XOP around 1.1450 Fib resistance and potential neckline. Right arm should be formed later around 1.1150 area.
This anticipated pattern is also useful as we could make judgement on EUR direction by comparing how it matches to the H&S project. While it follows it - it keeps bullish scenario. But if something goes wrong - this will be clear signal that sentiment changes and EUR turns downside.
Here is the low of "C" point has vital meaning, as drop below it tells that market destroys H&S setup. This will mean just one things - market will drop and put under question monthly bullish scenario as well.
Daily
Here EUR has completed absolutely vital condition - shows bounce up from daily K-support area. As we said yesterday, in daily update - if EUR is bullish it just has no choice but has to rally from this level. Thus, it has happened.
Now we consider 1.1280 level as next target, because of OP objective point. At the same time, market stands at resistance of 1.1208 5/8 level and daily Overbought. This is excellent background for retracement. We intend to use it for long entry at lower stand support. Besides, as a by-product of this retracement we could get scalp intraday trades.
High probability of pullback form one hand and overall bullish context from another one lets us think that we could get butterfly pattern here...
Intraday
Our suggestion of similarity of two patterns has worked perfect - XOP has been ignored again and EUR skyrocketed. Thus, guys, we discover new price shape here - once you'll see combination of bearish engulfing pattern and deep upside retracement, in excess of 5/8 level - target is between OP and XOP at strong support level. But XOP itself could be ignored.
Now about additional secondary patterns... This should be something of DiNapoli. As market stands Overbought - DRPO "Sell" here is very probable. As a target I would consider 1.1130-1.1140 levels cluster. Also, beyond DRPO shape, we could keep an eye on classic patterns as well, such as H&S:
Conclusion:
Now we do not see changes in major fundamental background and during Holidays intend to follow trading setups that we have already in place, as on EUR as on GBP.
This week guys, was short due wonderful family holidays, which is Christmas time. Thus, we do not have a lot of fundamental background to discuss. Besides in last report we had very detailed discussion on all major driving factors. So, we briefly take a look at what has happened this week. The one thing is clear - in January markets will keep an eye on US/China agreement details and turmoil around D. Trump impeachment in Senate - Congress already has voted and supported this initiative.
Probably just few of you have seen our Gold update on 24th of December, but particular gold has put the foundation of the rally that we see after holidays. In recent gold rally we recognize capital flows and think that some big financial events stands under it. As a result - we see sharp change of sentiment on EUR as well. As we've said last week and in daily updates this week - it is really crucial for EUR (and for us) to start rally right from this area. Otherwise bullish scenario will be cancelled. And not it is stand under way... GBP situation develops according to our trading plan - everything that we've said in last weekly report is still valid. Take a look, GBP stopped dropping right at predefined 1.2920 level and turned to upside retracement. Our next step is to see where this retracement will be over and consider short entry in continuation of big bearish patterns that we have there.
As Reuters reports - The euro strengthened on Friday, pushing the dollar lower and the pound higher, as speculators unwound their short positions before the end of the year, with thin liquidity during the holiday season amplifying moves. Bleak European economic data meant hedge funds bet on an even weaker euro during 2019, but the battered currency rose on Friday to an eight day high of $1.1142.
“What I’m seeing here, it’s mainly some euro strength,” said Ulrich Leuchtmann, an analyst at Commerzbank. “This very negative euro sentiment has prevailed over 2019 and has run out of steam ... coming to this period of low liquidity, more people are more inclined to remove those short positions,” Leuchtmann said. This short-time trend is likely to continue next week too as the end of the decade approaches, he added. “A lot of specs (speculators) might consider if it’s wise to keep these (short) positions over the period.”
In the week to Dec. 17, leveraged funds trimmed their short euro positions to $9.16 billion, further away from the 2019 high of $14.84 billion. However, the upheaval in the euro may be limited by the large number of options expiring at $1.1155-$1.1160.
Euro strength took the pound to a one-week high of $1.3075 . Sterling gained some ground against the euro too, rising to a four-day high of 85.17 pence. The rise in sterling was helped by European Commission President Ursula von der Leyen saying the European Union may need to extend the deadline for talks about a new trade relationship with Britain.
The optimism around prospects for a Phase 1 Sino-U.S. trade deal reduced demand for safe-haven currencies such as the yen, but with global currency markets in holiday mood trading was mostly subdued. Beijing said on Wednesday it was in close touch with Washington on a trade deal signing ceremony, a day after U.S. President Donald Trump said he and Chinese President Xi Jinping would have a ceremony to sign a deal.
“The overnight gains in the dollar were partly erased by dipping Treasury yields after the seven-year note auction, U.S.-China trade optimism has put a solid floor under the dollar,” said Toshinobu Chiba, chief portfolio manager for fixed income at Nissay Asset Management. “In any case, I don’t expect any large moves either way in markets today as trading remains subdued due to the holiday week.”
“The EURUSD is particularly sensitive to global growth upgrades, and with trade optimism swinging positively for global growth, the Euro’s trend-following dynamics could start to argue for a push above,” Stephen Innes, chief Asia market strategist at AxiTrader, said in a note.
With the economic calendar light before the holidays, analysts doubt major currencies will post significant moves this week. The future path of the dollar is likely linked to what kind of benefits non-U.S. currencies reap from the recent easing in trade-related tensions between the United States and China.
“With the Fed likely on hold next year, the key to a weaker dollar in 2020 could depend on further momentum from Europe,” said Edward Moya, senior market analyst at OANDA. “Europe is likely to benefit the most from continued progress with the U.S.-China trade war and if we see any hints of a manufacturing rebound, the euro could eye the 1.15 level,” Moya said.
Even with the recent UK general election smoothing the path for Britain’s exit from the European Union, Britain’s ability to strike a new trading deal between the EU in a relatively short span of time remains a concern for some investors.
“We anticipate that the Brexit rubber hitting the road will curtail the pound’s upside potential in 2020,” analysts at Action Economics said.
Speaking on the GBP - it seems that our suggestion that it should be tough time for Pound is confirmed by Fathom as well. We suggest that another leg down should be formed on GBP chart in the beginning of the year, while Fathom tells on deteriorating of economy sentiment in UK:
Pre-election slump for UK economic sentiment
Fathom’s UK Economic Sentiment Indicator, which weights together a range of business and consumer surveys, was -0.2% in November — the lowest reading since August 2009. This gauge, which is calibrated to have the same mean and standard deviation as quarterly GDP growth, has been in contractionary territory since the summer. In our judgement, the UK ESI provides a useful guide to the underlying pace of economic activity. Based on survey data, it is more timely and less erratic than the official GDP statistics. Taking into account the official statistics available to date, and other indicators of economic activity including our ESI, we expect to see a small 0.1% contraction in the size of the UK economy in the final quarter of this year.
Well, it will be interesting to take a look at fresh CFTC reports of 2020 as on EUR as on GBP, but currently we do not see any reasons to revise our existed tactic trading plans on both currencies. I think we comfortably could follow them in nearest two weeks making daily updates as usual. Next week, by the way also will be short. We probably skip updates on 1-2 of January and return back on Friday, 3rd of January - the same as this week.
Technicals
Monthly
As GBP as EUR is worthy to be considered in technical part of our report, but, EUR has shown more revolutionary action and we better take a look at it. GBP we consider in our update on Tuesday, I suppose.
Last time we have discussed everything that relates to longer-term scenario. Thus, we said, that monthly time frame is the one where technical factors meet fundamental once. We've considered possible bullish scenario, which could take place if we're wrong about US tariffs on EU and if EU economy will show at least some improving. Right now investors keep net short positions on EUR (by the last CFTC report), understanding the same risks that we've mentioned previously and this is reasonable. Positive shifts in EU economy have to become stable and regular with no US tariffs on horizon.
From the technical point of view, we have October reversal month and Yearly Pivot Support 1. This year it holds downside action. We know the major feature of pivot supports - it has to hold downside action if this is a retracement. This is particular what we have right now.
Despite that EUR still can't get started upside action - October candle is still valid and keeps its reversal features, as lows stand intact. Now everything depends on EUR itself. It has to show more active upside performance, which we do not see yet. The vital point which determine everything is 1.09 lows. It seems that it is just two weeks till the new year, but lows also stand just 150 pips from current market.
Conversely - sudden drop below 1.09 area and YPS1 will unlock our bearish view and downside continuation back to 1.03 lows. EUR has to show breakout either above 1.12 area or below 1.09 to unleash larger time scale setups. Until we stand in this range - we deal with tactic short-term setups on daily and intraday charts.
This week EUR provides positive surprise, finally started upside motion. But another pit appears on horizon - it comes to MACDP line, which is 1.1228. The monthly bullish grabber is the one that bulls want to see least of all. It means that EUR keeps investors tight right till the last moment as year close price will have special meaning for monthly chart.
P.S. We know that formed grabber is not necessarily has to work. But, it's appearing per se is a risk factor.
Weekly
Weekly chart has less degree of changes as recent week still stands inside one. Recently we said that we see some worrying signs, such as bearish dynamic pressure and too slow upside action, inability even to challenge 1.12 resistance area, which looks a bit curious when you suggest bullish market. Upside action is started and now we will see whether it will be strong enough to cancel dynamic pressure price action.
To support monthly scenario weekly chart has to form bullish reversal, and preferably by some clear pattern. Currently it seems that we should focus on reverse H&S pattern. Current AB-CD pattern has XOP around 1.1450 Fib resistance and potential neckline. Right arm should be formed later around 1.1150 area.
This anticipated pattern is also useful as we could make judgement on EUR direction by comparing how it matches to the H&S project. While it follows it - it keeps bullish scenario. But if something goes wrong - this will be clear signal that sentiment changes and EUR turns downside.
Here is the low of "C" point has vital meaning, as drop below it tells that market destroys H&S setup. This will mean just one things - market will drop and put under question monthly bullish scenario as well.
Daily
Here EUR has completed absolutely vital condition - shows bounce up from daily K-support area. As we said yesterday, in daily update - if EUR is bullish it just has no choice but has to rally from this level. Thus, it has happened.
Now we consider 1.1280 level as next target, because of OP objective point. At the same time, market stands at resistance of 1.1208 5/8 level and daily Overbought. This is excellent background for retracement. We intend to use it for long entry at lower stand support. Besides, as a by-product of this retracement we could get scalp intraday trades.
High probability of pullback form one hand and overall bullish context from another one lets us think that we could get butterfly pattern here...
Intraday
Our suggestion of similarity of two patterns has worked perfect - XOP has been ignored again and EUR skyrocketed. Thus, guys, we discover new price shape here - once you'll see combination of bearish engulfing pattern and deep upside retracement, in excess of 5/8 level - target is between OP and XOP at strong support level. But XOP itself could be ignored.
Now about additional secondary patterns... This should be something of DiNapoli. As market stands Overbought - DRPO "Sell" here is very probable. As a target I would consider 1.1130-1.1140 levels cluster. Also, beyond DRPO shape, we could keep an eye on classic patterns as well, such as H&S:
Conclusion:
Now we do not see changes in major fundamental background and during Holidays intend to follow trading setups that we have already in place, as on EUR as on GBP.
