Sive Morten
Special Consultant to the FPA
- Messages
- 18,754
Monthly
As Reuters reports, the dollar drifted lower after a weaker-than-expected U.S. jobs report on Friday that muddies the waters but is seen as unlikely to dissuade the Federal Reserve from diverting from its path of steadily removing monetary stimulus from the U.S. economy. U.S. nonfarm payrolls growth in January came in at a disappointing 113,000 against a consensus of 185,000, initially sending the greenback sharply lower. However, a bright spot in the report showed the proportion of working age Americans who have a job or are looking for one increased. After a knee-jerk sell-off of the dollar and an equally quick rebound, much of the greenback's strength was slowly bled away like a leaky balloon as the trading day wore on.
One strategist thinks the fact the dollar fell at all was based on the idea that next week's Congressional testimony by newly installed Federal Reserve Chair Janet Yellen will be more dovish when it comes to keeping monetary policy loose because of extreme weather impacting the data. David Woo, head of global rates and currency research at Bank of America Merrill Lynch in New York, thinks this is a misreading of the data and Yellen and the cause of the dollar's weakness. "I think the market reaction to today's number is based upon a more pessimistic reading of the economy than I think is justified and therefore the market expectations that the Fed may not now taper in March may be less justified than the market thinks it is," Woo said, leading to the dollar's decline.
Nick Bennenbroek, head of currency strategy at Wells Fargo Securities in New York, said that as the market digested the data and looked to the next Fed meeting in mid-March, "the bar is pretty high for them to deviate from the path." The jobs report was the second month of weak hiring, although the jobless rate did decline to 6.6 percent from 6.7 percent.
An earlier factor holding back the euro's advance, and eventually overshadowed by the U.S. data, was news that Germany's constitutional Court's decision to refer a complaint against the European Central Bank's bond-buying program to the European Court of Justice. The complaint says the ECB's plan, which pumps money into the financial system much the same way as the U.S. quantitative easing program, oversteps its mandate and violates a ban on it funding governments. The ECB's Outright Monetary Transactions (OMT) program, announced by President Mario Draghi in September 2012 at the height of the sovereign debt crisis and as yet unused, is widely credited with pulling the euro zone back from the brink. "The ECB has to quickly assess what repercussions the ruling will have for the range of tools available to calm markets," said Christian Schulz, senior economist at Berenberg. "Ironically, depending on the exact decision, the court may have made a much more wide-ranging quantitative easing program at the ECB more likely."
In contrast to the weak U.S. jobs data was an upbeat report from Canada which showed a bigger-than-expected increase in its January payrolls. "I think this increase in employment in January dampens expectations of the possibility of the Bank of Canada having to cut rates. But certainly with inflation remaining low, there's no pressure to start moving rates higher," said Paul Ferley, assistant chief economist at Royal Bank of Canada.
B]Technical[/B]
I still think, guys, that other currency pairs are more interesting than EUR right now, and last trading of JPY just confirms this. But as you would like to return of discussion on EUR – so be it.
Trend holds bullish on monthly time frame. Recent price action confirms our suggestion that until market stands above 1.33 and coiling around current levels – nothing clear about possible direction. As upward breakout as downward reversal could happen. Fundamental data of previous week does not suggest drastical changing of long-term sentiment and does not clarify absolutely possible direction. Even analysts’ opinion are not unique on recent NFP data and on next Fed steps on QE.
As we’ve noted in our previous EUR research, YPP will play it’s role sooner or later, and that has happened. Take a look, that upward bounce has started precisely from 1.3475 level. Now the major question stands as follows – whether this upward action is a confirmation of long-term bullish sentiment or just a respect of YPP first touch. Unfortunately there are no tools that could let us to answer definitely right now, but future price action could clarify this.
If we will follow to market mechanics, we’ll see that currently market should not show any solid retracement down. Any move of this kind should be treated as market weakness and it will increase probability of reversal down. Take a look that as market has hit minor 0.618 AB-CD extension target right at rock hard resistance – Fib level and Agreement and former yearly PR1, it has shown reasonable bounce down to 1.33. As retracement after 0.618 target already has happened, it is unlogical and unreasonable to see another deep bounce and it will look suspicious. Right now market still stands on the edge here. From one point of view price has failed to break up, but from another one – it still stands very close to previous highs. Thus, monthly time frame gives rather shy hints on possible direction, even it gives them at all. One thing that could help us somehow is that price stands very tight to former resistance around 0.618 target and does not show deep pullback. This coiling around resistance could mean that market is preparing for challenging this resistance. Another sign is that price has held above YPP. This tells that sentiment is still bullish here.
Weekly
Weekly chart now shows greater odds in favor of upward continuation, depsite how extended it will be. We will focus on nearest butterfly target – 1.27 around 1.3960 area. Although situation remains tricky and here is enough different issues that make overall context difficult.
Here what we have – Butterfly “Sell” is forming right around major monthly resistance, price still can’t pass through it. Current AB-CD pattern has reached minor 0.618 target, but CD leg is much flatter than AB and this is the sign of weakness. Trend stands bearish and we’ve got bearish divergence here right at monthly resistance.
Our ideal criteria of reversal was to see butterfly completion and then – move below 1.33 lows. In this case we will get reversal swing on weekly chart that could become at least something that could confirm downward ambitions.
Speaking about bullish signs, we can point on some moments. Although we’ve got bearish patterns, say, engulfing, divergence, but market does not follow it as usual. Yes, price has shown minor retracement down, but this also could be due AB=CD 1.618 inner butterfly extension and monthly resistance. Here former MPR1 stand as well. Second – recall what we’ve said previously:
“To speak about upward continuation o big scale, we need to get fulfilling of two conditions as well – market should coil around previous tops without significant retracement...”
And this is what we have right now. Market has bounced up from YPP, moved above MPP by yesterday’s close. Althuogh trend has turned bearish we see tight consolidation that takes the shape of flag right below resistance area. In January price has held above MPS1 and this also could be an indication that long-term bullish trend is still valid. That’s being said, although we have contradictive moments here, I would suggest that bullish signs have more value right now, mostly because they prevent further development of bearish patterns. They are not just opposite patterns that have been formed side-by-side. It looks like most recent bullish signs a kind of vanishing and preventing normal development of earlier bearish patterns.
Speaking about more extended action, if upward continuation will be long term – we need to see move above 1.3980 – butterfly 1.27 target first. In this case next target will be right around 1.43-1.44 – weekly AB-CD, Yearly PR1 and butterfly 1.618.
Daily
Here, guys I would keep picture as clear as possible. We will take a look at other patterns that also are present (but not marked) here on lower time frame charts. Here I we will discuss a core. In general, recent action since mid December does not look like reversal. When market was not able to pass through 1.3850 highs for second time and has formed W&R we could count on real reversal down, but current action hardly to call as long-term reversal action. It is more look like preparation for upward jump. We already have mentioned downward channel (or flag) on weekly chart. Trend here has turned bullish and market jumped out from Yearly PP. This is also solid Fib support.
The major moment right now is that market has not broken short-term downward tendency yet. It has not formed yet reversal swing and still stands in downward motion “2 step down 1 step up”. Thus, the first issue that we have to keep an eye on is appearing of reversal swing. And it could appear as we will see below. Nearest upward target right now stands at 1.3850 – as 0.618 extension of most recent AB=CD pattern, but even this target is beyond daily overbought.
4-hour
Broadening bottom or just triangle – that’s the pattern that you will have to deal with, if you intend to trade EUR on coming week. This is an area where coming week’s trading will stand probably. Also, guys, theoretically we could get diamond, but since this pattern is quite rare, I do not like to speak about it very much. So, I just have mentioned it as theoretical possibility. The culmination of broadening triangle is a breakout of the top of previous swing. For us this will be the same as appearing of reversal swing. Our invalidation point here will be 1.3475 lows around YPP, because triangle has formed already 4 waves inside and looks like has formed ultimate valley already. WPR1 on coming week will have absolutely special meaning for us. If market will form reversal swing and move above previous top – it will simultaneously move above WPR1 and that, in turn, will confirm upward breakout. We know that if market moves above WPR1 it tells about upward trend.
Now, how it could be traded... There are two tactics. First one is to wait, when reversal swing will be formed and then take position on deep down retracment. Second tactics – since we intend to see upward reversal swing market should continue move up for rather solid distance still and you can try to take long position right now and later decide wether to take profit and re-enter according to first tactic or just move stop to breakeven. This is more aggressive way of trading.
1-hour
If you still would like to try agressive tactics – watch for 1.3580 area first. This is hourly K-support and WPP. If market intends to form reversal swing and continue move up – it probably should hold above.
Conclusion:
On long-term charts price still coiling around edge point and currently chances exist as for upward breakout as for downward reversal. To rely on direction whatever it will be, we need to get clear patterns that could confirm it and point extended targets for us. But we do not have them yet, although recent week shows some action that could inspire bulls a bit.
In shorter-term, as I’ve said – EUR is not very bright and interesting for immediate trading as, say JPY. Thus, we will have to deal with broadening triangle that is rather tricky task by itself. First step here is to get upward reversal swing. Those how likes trade on intraday charts – could try to ride on this swing as well. But as we do not have yet clear setups on higher time frames we have to follow by price action but not drive on it.
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.
As Reuters reports, the dollar drifted lower after a weaker-than-expected U.S. jobs report on Friday that muddies the waters but is seen as unlikely to dissuade the Federal Reserve from diverting from its path of steadily removing monetary stimulus from the U.S. economy. U.S. nonfarm payrolls growth in January came in at a disappointing 113,000 against a consensus of 185,000, initially sending the greenback sharply lower. However, a bright spot in the report showed the proportion of working age Americans who have a job or are looking for one increased. After a knee-jerk sell-off of the dollar and an equally quick rebound, much of the greenback's strength was slowly bled away like a leaky balloon as the trading day wore on.
One strategist thinks the fact the dollar fell at all was based on the idea that next week's Congressional testimony by newly installed Federal Reserve Chair Janet Yellen will be more dovish when it comes to keeping monetary policy loose because of extreme weather impacting the data. David Woo, head of global rates and currency research at Bank of America Merrill Lynch in New York, thinks this is a misreading of the data and Yellen and the cause of the dollar's weakness. "I think the market reaction to today's number is based upon a more pessimistic reading of the economy than I think is justified and therefore the market expectations that the Fed may not now taper in March may be less justified than the market thinks it is," Woo said, leading to the dollar's decline.
Nick Bennenbroek, head of currency strategy at Wells Fargo Securities in New York, said that as the market digested the data and looked to the next Fed meeting in mid-March, "the bar is pretty high for them to deviate from the path." The jobs report was the second month of weak hiring, although the jobless rate did decline to 6.6 percent from 6.7 percent.
An earlier factor holding back the euro's advance, and eventually overshadowed by the U.S. data, was news that Germany's constitutional Court's decision to refer a complaint against the European Central Bank's bond-buying program to the European Court of Justice. The complaint says the ECB's plan, which pumps money into the financial system much the same way as the U.S. quantitative easing program, oversteps its mandate and violates a ban on it funding governments. The ECB's Outright Monetary Transactions (OMT) program, announced by President Mario Draghi in September 2012 at the height of the sovereign debt crisis and as yet unused, is widely credited with pulling the euro zone back from the brink. "The ECB has to quickly assess what repercussions the ruling will have for the range of tools available to calm markets," said Christian Schulz, senior economist at Berenberg. "Ironically, depending on the exact decision, the court may have made a much more wide-ranging quantitative easing program at the ECB more likely."
In contrast to the weak U.S. jobs data was an upbeat report from Canada which showed a bigger-than-expected increase in its January payrolls. "I think this increase in employment in January dampens expectations of the possibility of the Bank of Canada having to cut rates. But certainly with inflation remaining low, there's no pressure to start moving rates higher," said Paul Ferley, assistant chief economist at Royal Bank of Canada.
B]Technical[/B]
I still think, guys, that other currency pairs are more interesting than EUR right now, and last trading of JPY just confirms this. But as you would like to return of discussion on EUR – so be it.
Trend holds bullish on monthly time frame. Recent price action confirms our suggestion that until market stands above 1.33 and coiling around current levels – nothing clear about possible direction. As upward breakout as downward reversal could happen. Fundamental data of previous week does not suggest drastical changing of long-term sentiment and does not clarify absolutely possible direction. Even analysts’ opinion are not unique on recent NFP data and on next Fed steps on QE.
As we’ve noted in our previous EUR research, YPP will play it’s role sooner or later, and that has happened. Take a look, that upward bounce has started precisely from 1.3475 level. Now the major question stands as follows – whether this upward action is a confirmation of long-term bullish sentiment or just a respect of YPP first touch. Unfortunately there are no tools that could let us to answer definitely right now, but future price action could clarify this.
If we will follow to market mechanics, we’ll see that currently market should not show any solid retracement down. Any move of this kind should be treated as market weakness and it will increase probability of reversal down. Take a look that as market has hit minor 0.618 AB-CD extension target right at rock hard resistance – Fib level and Agreement and former yearly PR1, it has shown reasonable bounce down to 1.33. As retracement after 0.618 target already has happened, it is unlogical and unreasonable to see another deep bounce and it will look suspicious. Right now market still stands on the edge here. From one point of view price has failed to break up, but from another one – it still stands very close to previous highs. Thus, monthly time frame gives rather shy hints on possible direction, even it gives them at all. One thing that could help us somehow is that price stands very tight to former resistance around 0.618 target and does not show deep pullback. This coiling around resistance could mean that market is preparing for challenging this resistance. Another sign is that price has held above YPP. This tells that sentiment is still bullish here.
Weekly
Weekly chart now shows greater odds in favor of upward continuation, depsite how extended it will be. We will focus on nearest butterfly target – 1.27 around 1.3960 area. Although situation remains tricky and here is enough different issues that make overall context difficult.
Here what we have – Butterfly “Sell” is forming right around major monthly resistance, price still can’t pass through it. Current AB-CD pattern has reached minor 0.618 target, but CD leg is much flatter than AB and this is the sign of weakness. Trend stands bearish and we’ve got bearish divergence here right at monthly resistance.
Our ideal criteria of reversal was to see butterfly completion and then – move below 1.33 lows. In this case we will get reversal swing on weekly chart that could become at least something that could confirm downward ambitions.
Speaking about bullish signs, we can point on some moments. Although we’ve got bearish patterns, say, engulfing, divergence, but market does not follow it as usual. Yes, price has shown minor retracement down, but this also could be due AB=CD 1.618 inner butterfly extension and monthly resistance. Here former MPR1 stand as well. Second – recall what we’ve said previously:
“To speak about upward continuation o big scale, we need to get fulfilling of two conditions as well – market should coil around previous tops without significant retracement...”
And this is what we have right now. Market has bounced up from YPP, moved above MPP by yesterday’s close. Althuogh trend has turned bearish we see tight consolidation that takes the shape of flag right below resistance area. In January price has held above MPS1 and this also could be an indication that long-term bullish trend is still valid. That’s being said, although we have contradictive moments here, I would suggest that bullish signs have more value right now, mostly because they prevent further development of bearish patterns. They are not just opposite patterns that have been formed side-by-side. It looks like most recent bullish signs a kind of vanishing and preventing normal development of earlier bearish patterns.
Speaking about more extended action, if upward continuation will be long term – we need to see move above 1.3980 – butterfly 1.27 target first. In this case next target will be right around 1.43-1.44 – weekly AB-CD, Yearly PR1 and butterfly 1.618.
Daily
Here, guys I would keep picture as clear as possible. We will take a look at other patterns that also are present (but not marked) here on lower time frame charts. Here I we will discuss a core. In general, recent action since mid December does not look like reversal. When market was not able to pass through 1.3850 highs for second time and has formed W&R we could count on real reversal down, but current action hardly to call as long-term reversal action. It is more look like preparation for upward jump. We already have mentioned downward channel (or flag) on weekly chart. Trend here has turned bullish and market jumped out from Yearly PP. This is also solid Fib support.
The major moment right now is that market has not broken short-term downward tendency yet. It has not formed yet reversal swing and still stands in downward motion “2 step down 1 step up”. Thus, the first issue that we have to keep an eye on is appearing of reversal swing. And it could appear as we will see below. Nearest upward target right now stands at 1.3850 – as 0.618 extension of most recent AB=CD pattern, but even this target is beyond daily overbought.
4-hour
Broadening bottom or just triangle – that’s the pattern that you will have to deal with, if you intend to trade EUR on coming week. This is an area where coming week’s trading will stand probably. Also, guys, theoretically we could get diamond, but since this pattern is quite rare, I do not like to speak about it very much. So, I just have mentioned it as theoretical possibility. The culmination of broadening triangle is a breakout of the top of previous swing. For us this will be the same as appearing of reversal swing. Our invalidation point here will be 1.3475 lows around YPP, because triangle has formed already 4 waves inside and looks like has formed ultimate valley already. WPR1 on coming week will have absolutely special meaning for us. If market will form reversal swing and move above previous top – it will simultaneously move above WPR1 and that, in turn, will confirm upward breakout. We know that if market moves above WPR1 it tells about upward trend.
Now, how it could be traded... There are two tactics. First one is to wait, when reversal swing will be formed and then take position on deep down retracment. Second tactics – since we intend to see upward reversal swing market should continue move up for rather solid distance still and you can try to take long position right now and later decide wether to take profit and re-enter according to first tactic or just move stop to breakeven. This is more aggressive way of trading.
1-hour
If you still would like to try agressive tactics – watch for 1.3580 area first. This is hourly K-support and WPP. If market intends to form reversal swing and continue move up – it probably should hold above.
Conclusion:
On long-term charts price still coiling around edge point and currently chances exist as for upward breakout as for downward reversal. To rely on direction whatever it will be, we need to get clear patterns that could confirm it and point extended targets for us. But we do not have them yet, although recent week shows some action that could inspire bulls a bit.
In shorter-term, as I’ve said – EUR is not very bright and interesting for immediate trading as, say JPY. Thus, we will have to deal with broadening triangle that is rather tricky task by itself. First step here is to get upward reversal swing. Those how likes trade on intraday charts – could try to ride on this swing as well. But as we do not have yet clear setups on higher time frames we have to follow by price action but not drive on it.
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.
