Forex FOREX PRO WEEKLY, February 08 - 12, 2021

Sive Morten

Special Consultant to the FPA

This week we've got the first test of "new market idea" that situation is changing and global economy is aimed on recovery. Yes, this is still the first steps that are not stable. We should not be surprised if in nearest month statistics is volatile and wobbles markets up and down. This is normal thing. NFP data mostly was a row with the previous sentiment of low inflation and poor economy conditions, but it might the echo of old legacy. At least some signs point on this.

Major weekly news

The dollar strengthened to two-month highs and the euro dropped below $1.20, as data pointed to an improvement in the U.S. economic outlook, bond yields rose and oil prices hit a one-year high. U.S. Treasury yields ticked up after ADP payroll data showed an increase in employment on Wednesday and ISM data showed services industry activity in the United States rose to its highest in nearly two years in January.

Bullish comments from U.S. Federal Reserve policymakers and renewed hopes for U.S. fiscal stimulus are also lending new impetus to reflation trades.

The labor market regained some minor ground in January when the economy added 49,000 jobs, according to a report released Friday by the Labor Department. But the report showed labor market growth is stalling, doing little to close the huge gap created by the pandemic. U.S. employment growth rebounded less than expected in January and job losses the prior month were deeper than initially thought, strengthening the argument for additional relief money from the government to aid the recovery from the COVID-19 pandemic.

The Labor Department said on Friday nonfarm payrolls increased by 49,000 jobs last month. Data for December was revised to show 227,000 jobs lost instead of 140,000 as previously reported.

“While the headline number of 49,000 new jobs, coming primarily from the government, was disappointing, the markedly higher — 80,000– new temporary jobs suggests that economic activity is picking up in the broader economy. Temp hiring is historically an accurate indicator that permanent hiring should gain strength as confidence in the direction of the economy gains momentum", said Prudential Financial strategists.

“The big thing is it’s inconsistent with other data we’re receiving: the employment numbers from IMS data are all stronger, the indications from the consumer confidence data, in terms of plentiful jobs hard to get, are all supporting a higher payroll number than this. The household survey, on the other hand, is showing you a big drop in the jobless rate at 6.3%. The net read on this is it supports a steeper yield curve… The weaker the data the more likely you get stimulus. The big thing is the curve, said Mizuho Securities, US.

“At that rate it’s going to take 10 years before we get to full employment,” Biden said Friday morning from the White House.

Roughly half of the 22 million jobs lost at the height of the pandemic have been recouped. But that still leaves a hole of about 10 million jobs, disproportionately ones held by women and minorities in low-wage roles.

The “long-term unemployed,” or those who have been out of work for at least six months, now make up about 40% of the total unemployed, or about 4 million people, up from about 20% before the pandemic. Research shows people who are long-term unemployed can have a harder time finding new jobs, putting them at greater risk of facing pay cuts or of dropping out of the labor market.

This week we also have got low level of monthly hourly earnings that have increased just for 0.2% that is lower then average of 0.3- 0.4 in recent 3-4 years. Still, on yearly basis wage inflation stands around 5%. Usually it holds around Fed major level of 2-3%, but since May it approximately two times higher. It means that we should not be confused by low monthly data as it could be statistical error and they are rather volatile. Average yearly numbers shows that it still stands high. This is important to our fundamental background:

Source: US Bureau of Labour Statistics
Charting by Investing. com

President Joe Biden and his Democratic allies in Congress forged ahead with their $1.9 trillion COVID-19 relief package on Friday as lawmakers approved a budget outline that will allow them to muscle Biden’s plan through in the coming weeks without Republican support. Republicans have floated a $600 billion aid package, less than a third the size of the Democratic plan. Even some Democrats, like Larry Summers, an economic adviser to former President Barack Obama, have warned that Biden might be spending too much.

Republican Representative Michael Burgess said Congress should wait until all of the previous $4 trillion in pandemic relief has been spent. He said $1 trillion has yet to go out the door. “Why is it suddenly so urgent that we pass another $2 trillion bill?” Burgess demanded.

In its overnight session, the Senate voted to oppose an immediate increase of the federal minimum wage from $7.25 per hour to $15 per hour. Senators also backed a motion calling for direct payments of up to $1,400 to be tailored to low-income earners.

“The upcoming package of stimulus is going to be big,” said Alan Lancz, president of Alan B. Lancz & Associates Inc, an investment advisory firm based in Toledo.

The Treasury yield curve steepened on Friday as yields on the benchmark 10-year note soared to levels not seen in nearly a year while two-year yields hit record lows after U.S. jobs data strengthened expectations of more stimulus spending from Washington. The benchmark 10-year yield was last up 2.6 basis points at 1.1652% having risen to 1.188%, its highest since March 20, 2020.

U.S. Treasury investors are pricing for an uptick in inflation as the economy recovers and the U.S. Federal Reserve seems willing to let the economy run hot. The 10-year Treasury Inflation-Protected Securities' breakeven inflation rate, which briefly slipped below 2% last week, was last at 2.191% , indicating the market expects inflation to average more than 2% a year for the next decade, above the current pace of inflation. It went as high as 2.197%, highest since May 2018.

S&P 500 companies have been beating analyst estimates for fourth-quarter earnings at a blistering pace and coming days will put that trend to the test. So far, 83.3 of results have posted profits above expectations, according to Refinitiv I/B/E/S data - far above the historic 65% rate. S&P 500 companies are now expected to post an overall 1.6% increase in fourth-quarter earnings, compared with a double-digit fall predicted on Jan 1. Results look even more rosy given the dismal picture in Europe where fourth-quarter earnings are seen dropping 23.9%.

The euro struggled at seven-week lows against the U.S. dollar on Tuesday as concerns about extended lockdowns dampened sentiment towards the single currency.
Data showed retail sales in Germany, Europe’s biggest economy, plunged by more than forecast in December, amplifying concerns that the euro zone is set for a double-dip recession in the first quarter of 2021.

“Things are looking even more depressing here,” Commerzbank strategists said in a daily note. The German retail sales for December disappointed massively, presenting a first taste of how the service sector is suffering under the current European lockdowns, which is likely to be reflected in the corresponding PMIs (purchasing managers’ indexes) over the course of the week.”

EU lagging

Europe’s slow vaccine roll-out means its economic recovery could lag behind upturns in the United States and Asia unless it can get the programme back on track in the weeks ahead. International Monetary Fund last month hailed the strong China rebound and forecast that the U.S. and Japanese economies would return to pre-pandemic levels by the end of the year, but the euro zone won’t catch up until next year.

While President Joe Biden’s administration aims to provide even more stimulus in a $1.9 trillion U.S. package, EU capitals are still negotiating which projects will get funding from a 750 billion-euro joint recovery fund. Delays to the European Union’s vaccine roll-out and concern about new coronavirus variants, meanwhile, make it harder for European governments to ease current pandemic restrictions.

“It remains a race between mutations of the virus and the vaccination, and euro zone countries are lagging on the vaccination process, that’s for sure,” said Sylvain Broyer, chief economist EMEA at S&P Global Ratings.


Data this week showed the euro zone’s downturn deepened in January as renewed restrictions hit the region’s dominant service industry hard.

Existing lockdowns in many countries are set to last into March and beyond. A German survey on Thursday showed that companies in the zone’s biggest economy expect restrictions of some kind to be in place until mid-September.

Much of the concern lies with the EU vaccination programme, launched with much fanfare on Dec. 27 but since struggling with slow rollouts and shortages of vaccine.
According to calculations by trade insurance group Euler Hermes, average daily vaccination rates across major EU economies stand at just 0.12% of the population - four times lower than in Britain and the United States.

EU countries have so far given first doses to about 3% of their populations, compared with 9% for the United States and 14% for Britain, according to Our World in Data. Euler Hermes estimated that represented a five-week lag on the vaccination front. If left uncorrected, that would cost close to 90 billion euros in output this year, equivalent to two percentage points of lost quarterly GDP growth.

Economies that finish the race first will be rewarded with strong positive multiplier effects supercharging consumption and investment activity in H2 2021, whereas vaccination laggards will remain stuck in crisis mode and face substantial costs - economic as well as political,” it said in a note.

A delayed recovery could make things harder for the European Central Bank as it seeks to keep policy ultra-loose even as a stronger U.S. economy pushes up borrowing costs globally.

Signs of a disconnect are starting to play out in markets: U.S. 10-year Treasury yields are up 20 basis points so far this year. In contrast, Germany’s borrowing costs remain deep in negative territory at -0.46% -- a sign that investors expect aggressive ECB stimulus for some time.

“If you get this outperformance of the U.S., you get more chatter about Fed tapering, pushing rates higher in the market, and making the ECB’s role harder,” said Jefferies European economist Marchel Alexandrovich. Right now they (central banks) are all doing the same thing, but in 2022 there will be many more questions about policy divergence with the ECB still being more accommodative.”

Berenberg analysts predict the euro area will take roughly nine quarters to return to pre-pandemic levels and the United States six quarters - a lesser divergence than that after 2008/09, when the euro zone economy took seven years to recover its losses and the United States bounced back in just three and a half years.

If EU capitals use resources from the EU’s 750 billion-euro joint recovery fund to address weaknesses in their economies, the hope is that future divergences will be smaller. But Europe’s patchy reform record means that is far from a given.

COT Report

Another reason why recent report should not be treated as something decisive is recent changes in EU net position. This week CFTC shows big drop of net long positions with substantial new short ones. Not only among speculators but hedgers as well. If we correctly compound them than we see that investors' opinion changes for ~ 70K contracts in bearish side, which is approximately 10% of the total open interest. This is decisive moment, which makes risky any long-term bullish positions on EUR:



Charting by

The dollar bounce is confounding some who bet on a multi-year downtrend. Fed officials’ bullish prognoses for 2021 growth and Democrats’ determination to push through big-time stimulus may herald more gains.

U.S. data hints at an economic rebound gathering steam -- jobless benefit claims have declined three weeks straight, factory orders beat expectations and fourth-quarter corporate earnings bucked earlier gloomy forecasts. Inflation numbers on Wednesday will show if core CPI can continue to top expectations.

But dollar gains are euro woes. Comprising over half the dollar’s index, the euro has been pressured by central bankers’ jawboning and a sluggish vaccination rollout.

The moves have not yet wrecked markets’ risk party. That may change if those holding $34 billion of short dollar bets decide to throw in the towel.


Dollar Smile

Actually, guys, we already saw the Smile 10 years ago. Right at this moment I've written the course and chapter particular on DXY and the Smile - and our forecast was spot on. As now again, the recovery stands on horizon, and with CFTC data above - investors start to think about the new smile.

An unexpected dollar bounce and some indications of a broader resurgence are confounding market players who took bearish positions on the U.S. currency on a bet that it was headed for a multi-year downtrend.

According to one fund manager, the dollar could be about to complete a trading pattern known as the “Dollar Smile,” which has in previous years preceded major U.S. economic rebounds and currency surges. Put forward by Stephen Jen, who runs hedge fund Eurizon SLJ Capital, it holds that the greenback strengthens in tough times as investors rush for safe, liquid assets. The currency then falls as U.S. growth flags, forcing Federal Reserve rate cuts that lead the dollar lower- the bottom of the smile - before rising again as the U.S. economy leads the global growth rebound. Per that theory, the dollar’s 40% appreciation between 2012 and February 2020 would have been the final upward stage of the smile following the troughs of 2011-2012. (precisely when I was written FPA course)

In the current cycle, Jen reckons the first two stages of the smile formation are complete: the dollar index shot to a 3-year high in March 2020, when investors sought it out amid the pandemic-linked market mayhem. It then declined when the Fed slashed interest rates to 0%, hitting a near three-year low last month on expectations of ultra-easy U.S. policy and additional borrowing that would blow out the balance of payments deficit.

In the past month, however, the greenback has jumped by more than 2%, as a fast vaccination campaign appears to signal that the world’s biggest economy will recover more quickly from the COVID-19 doldrums than most other developed nations.

“My point has been that the U.S. would come out of the pandemic very strong,” Jen said. “That is being demonstrated very clearly.”

He predicts the last part of the Smile to complete when the euro falls to $1.13, a level unseen since last July.

Dollar bulls got more encouragement this week from St Louis Fed President James Bullard’s prediction of “very strong” economic growth in 2021.

The growth gap between the U.S. and the Eurozone is likely to widen further,” said Stefanie Holtze-Jen, chief currency strategist at DWS, predicting the euro to hit $1.15 by year-end.

Analysts at Nordea said their Dollar-o-Meter, which gauges the greenback’s direction using relative growth and inflation, central banking policies and politics, points to more gains for the dollar. “The dollar is at risk of wrong-footing the consensus once more, and strengthen rather than weaken in 2021,” they told clients.


So, with the information that we've presented here, we do not see yet any signs that break our theory on tectonic reversal on global markets. It is normal when we get contradicted numbers on the first stage of this shift, and, probably, not once and not twice we will get confusing numbers as well. Still, as it was mentioned by Mizuho Securities analysts recent NFP numbers are inconsistent with overall fundamental picture and contradicts to many other numbers, that we've mentioned just last week.

Dry numbers tell - EU probably gets 9 month lag behind US in recovery, that leads to 1.15-1.13 EUR/USD forecast by the end of the year.
US global net shorts positions are at all time highs that prepares technical background for potential reversal. We also see massive run out of the EUR this week.
Long-term interest rates rising fast and recent inflation numbers shows numbers that have not been seen for decades. Even wage inflation shows 5% on YoY basis.
EU probably meets "W" shape recovery that costs approximately 90Bln or 2% of GDP.
EU and US stock markets shows opposite performance. While EU companies earnings' dropped for ~23% in 4th Q of 2020, 83% of US companies beat expectations. US minimal wage is doubled - best support to inflation and consumption boost in nearest future, as people agree to work at places where they haven't agreed previously, as wage was too low. This definitely supports employment.
Finally 1Trln that is unspent yet from 4Trln pack and new 2Trln of stimulus are underway. Fed gives relatively bullish economy forecasts for 2021.

All these information doesn't need some special commentaries. If everything stands like this, EUR is doomed. At least currently everybody who plans long-term bullish positions have to think twice and be extra careful on decision making. It is needless to say that the process needs some time to become evident. As we said last week and earlier, our expectation - tendency takes the final shape closer to the April-May.



Although on a fundamental side we see the boiling pot - here, on long term charts major changes are yet to happen. Monthly picture stands quiet. Overall upside momentum looks nice, MACD trend is bullish. It is obvious from the chart that 1.25 resistance is critical for EUR, that it has to break to proceed higher. Most reasonable targets now stand around 1.28-1.30 area.

Technical picture suggests that we could accept any pullback with no problems to bullish context while it stands above 1.16 lows. The invalidation point, by the way, agrees with Yearly Pivot point that has special meaning to us. Although it is preferable to the market to stay above 1.20, just to keep short-term bullish context either.

Drop below 1.16 breaks the normal market mechanics as major retracement and reaction to COP is done. Thus, another deep retracement here is not logical and should not happen. Besides, action below 1.16 means appearing of bearish reversal swing. It is not necessary leads to bearish collapse and drop below 1.02 but deeper downside action happens and we would have to forget about bullish positions on lower time frames.

Hence, drop below 1.16 area here could confirm our fundamental analysis of global reversal.


This chart probably becomes our major one for week-by-week trading, but overall picture is not clear yet. Due NFP report EUR was able to stay above 1.20 and has not reached our major K-support area where we've planned to consider long entry. In general, downside reaction stands in the limits of just a retracement and doesn't let us to treat it as reversal by far. Despite that we have divergence, suggesting drop below 1.16.
Fundamental numbers of CPI, Sales and Fed minutes could clarify situation better, answering on whether NFP reaction was temporal or not.
It seems that on weekly time frame we still need to wait a bit.



In the beginning of the week we could try to play with intraday upside momentum. Here, on daily it takes nice shape of engulfing pattern, with the reversal candle on the board. Usually this combination triggers intraday upside AB-CD pattern.
Second stage of the plan starts when first one is over and we intend to keep an eye on MACDP and possible appearing of bearish grabber that could confirm the retracement feature of current action and EUR could turn down again. This probably happens around some of the intraday resistance levels. Besides, our daily OP target is not completed yet:


Trends has turned bullish here. The minimum target that EUR could reach with our setup stands around 1.21 K-area:

And on 1H chart we start the week with potential H&S pattern and its AB-CD target. As usual, we intend to use 50% support for the EUR as potential entry point. AB-CD target perfectly agrees with 4H K-resistance. Additionally scalpers could get few minor trades, such as B&B as upside rally looks perfect:



Hi Sive...been waiting for your analysis and eagerly read your thoughts & opinion which are generally shared by quite a number of other people including yours truly.

Watching & listening to President Biden speech, it appears that market didn't show more optimism in the USD over the EUR, but I think market players were taking profits or shedding their long positions, while the bears were probably loading up on short positions while others were waiting for some clear price movements before jumping in.

Will reread your analysis once again tomorrow in preparation for next trading week.

Cheers and all the best!

Sive Morten

Special Consultant to the FPA
Morning everybody,

Let's keep going with our trading plan. So, upward action is started as we've suggested and now EUR is coming to the 1st destination point of 1.21-1.2120. This is the reason why we've talked about possible bearish grabber. At the same time, for the truth sake - grabber has small chances to appear as overall background doesn't support it.
Our long-term view and "Dollar Smile" strategy suggests downside action on DXY to the "Final" target of 87.30 in Feb-March, that is friendly to EUR performance (watch daily Gold video for Feb, 8 for details) :

Another reason is on 4H chart, as market is coming to K-resistance area:

On 1H chart, as price has started up a bit earlier, not from 50% but from 3/8 Fib support level, we have OP slightly higher - around 1.2120 than 1.21 as we've suggested initially.
Now price stands at COP, but retracement should not be deeper than 1.2060 K-support area, as we see acceleration to COP and, in general, upside thrust looks good.
Finally, if you calculate XOP - you'll see that it Agrees with 4H 1.2192 level, and in case of upside action, we could get larger 4H reverse H&S pattern. In general it fits to medium-term expectations. So, let's see...


Sive Morten

Special Consultant to the FPA
Morning everybody,

So, EUR shows stable and gradual action, forming no deep pullback which might be the sign of strength, despite that we do not see explosive action. As we've suggested - hardly we get grabber on daily chart, and, indeed - EUR just is going higher, so DXY is. Now we're watching for 1.22 area where the cluster of targets and resistance stand. Here, on daily chart - this is also overbought level:

4H chart shows that EUR easily has broken through the K-resistance, without any reaction. Next level to watch is major 5/8 around 1.22 that coincides with daily OB area:

Our minimal target of daily engulfing pattern is done - EUR hits and passed the OP. Take a look that on a way up there are very small retracement. For some case, I put Fib levels here, but, as price already stands above as K-area as OP - it could just proceed higher. But, if the pullback happens still - 1.20 K-area is the first one to watch. Initially stop could be hidden below the 2nd K-area. Next target is XOP that also agrees with as with Fib level as with daily OB area.

The setup of a greater scale could be formed when price hits 1.22 - recall large reverse H&S pattern that we've discussed.

Sive Morten

Special Consultant to the FPA
Morning everybody,

Today is just minor update as EUR shows no activity yesterday. CPI numbers that we've got was under expectations, so it mostly supports current trend in short term. Today we also get FOMC minutes later, that also could make some impact on the markets.

Now we do not see any signs that stand against bullish context. On 1H chart EUR stands as above broken K-area as above OP target, forming sideways consolidation that is also bullish sign. Usually when market intends to pullback - it happens faster and more directional. But, when price hits important levels and stands flat - this is bullish sign. Thus, hopefully, tod-tom EUR hits 1.22 XOP target and we could turn our attention to large 4H reverse H&S pattern, as we've planned.

Still, if by some reason EUR starts the pullback - we're watching for the same levels that we've specified yesterday.

Sive Morten

Special Consultant to the FPA
Morning everybody - just minor update today as EUR mostly stands flat.

Recent jump in US interest rates holds US dollar from downside continuation, which, in turn, also holds rally on the EUR. As interest rates should rise above 1.2% (we have bullish grabber there), immediate upward continuation on EUR is under question. Gold market already shows downside pullback, and EUR could follow and finally reach some support areas that we've discussed yesterday.

Besides, attempt of upside breakout that we've expected yesterday - has failed, and now, we've got W&R of the top and few bearish grabbers on 1H chart. This collection makes not very attractive to buy EUR right now:


Hi Sive...yup...EUR/USD did not get on any of the buses this week...perhaps its waiting for that stimulus bus to arrive.

Cheers & all the best!