Forex FOREX PRO WEEKLY, February 10 - 15, 2020

Sive Morten

Special Consultant to the FPA
Messages
12,991
Fundamentals

This week markets mostly were driven by its own fundamental factors. Stocks jump on a news that pharma companies have a progress in coronavirus vaccine. The logical final of this week is dollar appreciation - all statistics from US was positive, which we can't say about EU. As a result - drop of EUR net position and downside price action, which corresponds to our long term view on EUR this year.

The dollar held firm on Tuesday after a key U.S. manufacturing survey showed a surprise recovery, while concerns about a widening coronavirus outbreak in China kept the yuan and the Australian dollar subdued. It was boosted by a report from the Institute for Supply Management (ISM) reported that U.S. factory activity unexpectedly rebounded in January after contracting for five straight months amid a surge in new orders.

Sterling having lost 1.54% on Monday on renewed worries about Britain’s relations with the European Union. Prime Minister Boris Johnson set out tough terms for Brexit talks with the European Union, rekindling fears Britain would reach the end of an 11-month transition period without agreeing a trade deal.

Traders are also casting an eye on the U.S. state of Iowa, where Democrats are kicking off a process to choose a challenger to President Donald Trump.

Market players say a victory by a progressive candidate such Senator Bernie Sanders and Elizabeth Warren could hurt shares and lift safe-haven currencies as some of their policies are thought to be not in best interests of Wall Street.

Risk sentiment also improved after the ADP National Employment Report showed that U.S. private-sector payrolls increased by 291,000 in January, far above expectations for an increase of 156,000 jobs. January’s job gains were the largest since May 2015.

In addition, U.S. services sector activity picked up last month, with industries reporting increases in new orders. The Institute for Supply Management’s non-manufacturing index rose to 55.5 last month, the highest since August.

The dollar held gains after President Donald Trump was acquitted late Wednesday in his U.S. Senate impeachment trial. The Senate voted 52-48 to acquit him of abuse of power stemming from his request that Ukraine investigate political rival Joe Biden, a contender for the Democratic nomination to face Trump in the Nov. 3 election.

The euro fell to its lowest since October on Friday after German industrial output recorded its biggest decline in a decade in December and a recent batch of strong employment data in the United States encouraged investors to buy the dollar. Contracts German goods fell 2.1% in December from November, the biggest drop since February. A Reuters poll had forecast a 0.6% rise.

Weak data and some large option structures kept investor sentiment subdued. The euro found some support just below $1.10.

The euro and the British pound remained under pressure as tensions rose between the European Union and Britain over a post-Brexit trade deal.

The EU’s markets watchdog asked its British counterpart on Thursday to ensure that ICE Futures Europe and the London Metal Exchange fully comply with EU market transparency rules for commodity derivatives.

On Wednesday, the pound fell after a media report indicated that the EU would look to re-write a major set of European financial regulations known as Mifid II.

“The UK and EU have not begun the formal negotiation process of trade talks, but both sides appear to be doing their best to antagonize the other,” said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC.

MUFG analyst Derek Halpenny said the Germany data undermined European Central Bank President Christine Lagarde’s comments on Thursday that the euro zone economy was stabilising.

“The hard data sits inconsistently with most sentiment data pointing to some improvement. But the political line that ‘recovery is coming’ is losing credibility fast,” Halpenny said. “The October 2019 low of $1.0879 is now a credible near-term target given the scale of weakness in the German data, especially if the much-anticipated improvement in the coronavirus outlook fails to materialise.”

The dollar vaulted to a four-month peak against of basket of major currencies on Friday, propelled by a strong U.S. non-farm payrolls report that followed a spate of upbeat economic data this week, a scenario expected to keep interest rates steady.

Data showed U.S. non-farm payrolls increased by 225,000 jobs last month, with employment at construction sites increasing by the most in a year given milder-than-normal temperatures. Economists polled by Reuters had forecast payrolls would rise by 160,000 jobs in January.

“Today’s positive prints confirmed that the U.S. job market is firing on all cylinders, the U.S. economy is expanding,” said Olivier Konzeoue, FX Sales Trader at Saxo Markets in London. “The Federal Reserve looks set to stay put for the time being.”

The Fed, in its latest monetary policy report to the U.S. Congress released on Friday, cited the fallout from the spreading virus as one of the risks to the U.S. economic outlook.

“This is the first major hint that the Fed is concerned that the virus could possibly derail global growth,” said Edward Moya, senior market analyst, at OANDA in New York.

The death toll in mainland China reached 637 on Friday, with a total of 31,211 cases, WHO chief Tedros Adhanom Ghebreyesus said on Friday in Geneva. The virus has spread globally, with 320 cases in 27 countries and regions outside mainland China, a Reuters tally of official statements shows.

CFTC Data

Speculators raised their bullish bets on the U.S. dollar for the third straight week, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday. The value of the dollar's net long position, derived from net positions of International Monetary Market speculators in the yen, euro, British pound, Swiss franc and Canadian and Australian dollars, was $12.69 billion, in the week to Feb. 4. That compares with a net long position of $9.58 billion the previous week.

In a wider measure of dollar positioning that includes net contracts on the New Zealand dollar, Mexican peso, Brazilian real and Russian ruble, the U.S. dollar posted a net short position valued at $8.07 billion, down from $4.28 billion, a week earlier.

Specifically, net short position on EUR has increased almost twice this week and it reflects strong fundamental background that we've got.
1581148306450.png


Source: cftc.gov
Charting by Investing.com


European stock markets have already put in a stellar performance in 2020 with many indexes hitting record highs in recent days. With the results season underway, Stoxx 600 companies are seen reporting 1.2% earnings growth in the fourth quarter, according to IBES Refinitiv, marking the end of a nine-month corporate recession in Europe.

Now it is time to see if GDP readings due out provide any hints of those “green shoots” detected in the recent European PMI readings, which spurred hopes that a long slump in the region’s manufacturing sector could also be bottoming out.

In Britain, recent PMI readings showed a post-election economy bounce in January as services companies enjoyed the strongest influx of new orders since mid-2018. December GDP data, due on Tuesday, is expected to come in at 0.8% in Q4 year-on-year after 1.1% in Q3.

On the continent, flash data out on Friday is expected to show that year-on-year GDP growth across the bloc remained at 1.0% in the fourth quarter, while expansion in Germany is predicted to cool to 0.4% year-in-year from 0.5% in Q3.

Though with potential supply chain disruptions in the wake of the coronavirus outbreak, there could be some new headaches waiting just around the corner.

1581148594521.png



On a background of positive fundamental data in US this week, there are still some concerns whether US will be able to support this pace through the year.
Treasury Secretary Steven Mnuchin said on Friday he expects 2020 U.S. GDP growth to be less than 3%, partly due to problems at Boeing Co, which halted production of its 737 MAX planes over safety issues.

“I think our projections have been reduced because of Boeing and in other impacts, so it will be lower. I think we would have hit 3% but again, Boeing has had a big impact on our exports being the largest exporter,” Mnuchin said in an interview on Fox Business Network.

Fathom consulting in new report, dedicated to US performance in 2020 also suggests that growth pace could slowdown:

The US economy expanded by 2.3% last year, weaker than the figure of 2.9% recorded in 2018. The slowdown was driven primarily by softer investment spending, itself explained by a weak global backdrop and increased uncertainty related to trade. Without the Federal Reserve’s pivot towards easing, last year’s figure may have been even worse. The FOMC’s three rate cuts eased financial conditions, and supported the housing market and private residential investment.
1581148836751.png


Looking forward, we see grounds for qualified optimism. Survey data appear to have troughed, perhaps aided by a ‘Phase One’ trade deal between China and the US. After consistently posting readings consistent with contraction through the latter half of 2019, the ISM manufacturing survey rose by 3.1 points to 50.9 in January. Meanwhile, its partner non-manufacturing survey also increased. At the same time, the labour market remains in good health, with the unemployment rate at 3.5%, and non-farm payrolls continuing to increase at an above-trend pace. Finally, with inflation pressures subdued, the Federal Reserve is unlikely to take away the punch bowl. Indeed, their own forward guidance is consistent with the fed funds rate remaining unchanged through the year.

But it is qualified optimism because this will not be a V-shaped recovery. The previously mentioned Sino-US trade agreement merely prevented a further escalation in trade tensions. Most of the tariffs that have been implemented remain in place, while the signed treaty did not address thornier issues such as subsidies and China’s state-owned enterprises. Trade tensions between the world’s two largest economies therefore risk flaring once again. Meanwhile, the US trade deficit with the EU rose to a record high in 2019, perhaps setting the stage for a new source of global trade friction. Finally, uncertainty around the direction of US economic policy should increase as the presidential election heats up. All told, survey data may struggle to sustain their positive impetus, and that is before even factoring in any fallout from the coronavirus outbreak.


1581148981854.png


A look at the US economy’s fundamentals provides further reason for caution. In steady state, an economy’s potential growth rate boils down to two things: people and productivity. On both fronts, the US has been struggling. Demographic changes mean smaller increases in the working-age population moving forward. Meanwhile, productivity growth has been steadily declining for many years. Adding those two figures together, Fathom Consulting estimates that US trend economic growth lies somewhere between 1.0% and 1.5%. Admittedly, US GDP has been expanding at rates above this recently. But it cannot continue to do so indefinitely. Putting the above analysis together, any short-term cyclical boost is unlikely to be maintained, implying a further easing in annual growth rates to a new normal that is closer to 1% than 2%.

That's being said - all driving factors that we've mentioned last year and should set the shape of EUR/USD price action now are fully operational. Obvious difference between EU and US economies' performance, hazard of imposing US tariffs against the EU export and tougher relationship between EU and UK as countries come closer to the end of the year makes phantom upside reversal on EUR.

Besides, no one factor that could change situation appears. EU doesn't show improvement in economy, tariffs against EU are still possible. EU by the way also will get elections this year. Factors that were not widely announced last year and that we've discussed in our reports - now stand in the titles of news media as I've shown it above. Everybody starts to talk about them.

Even on perspective of US economy slowdown and suggesting drop of GDP to just 1% annually - it still will be greater than in EU, which now shows 0.1% and cares big risks to drop in recession as EU/UK economical problems start to make feasible impact on economy.

All this stuff doesn't give us any reasons to change our long-term bearish view on EUR/USD by far.

Technicals
Monthly


This week performance has exceptional meaning for monthly chart. Besides of strong fundamental background, price performance reflects overall sentiment. Take a look - market has turned down right at YPP, failed to break it up and now stands few pips from YPS1. Breakout of YPS1 means existence of bearish sentiment and indicates of new wave of long-term bearish trend. That's why if market will break 2019 lows we will go back to 1.03 area.

Additionally, now we could say that our bearish grabber here is getting more value as trend has turned bearish here. Market shows downside acceleration and this price performance gives small chances "C" lows to survive. Upside action is limited by harmonic retracement with no harm to major downside tendency.

Thus, all bearish signs that we've discussed previously now shine brighter and lead EUR to historical downside breakout.

To break this tendency, EUR has to climb at least above 1.1220, or better to reach 1.1450 area, to set some background for further upside action, which now is difficult to imagine.

eur_m_10_02_20.png


Weekly

On weekly chart, the grabber that should have become a major background for our trade this week - has been erased. Trend has turned bearish and now we do not see any bullish sign here. EUR shows tail close this week as well. As price comes closer to recent lows, it makes sense to specify few targets around 1.08 area. First is major OP that we have here, second - AB=CD pattern inside the channel. Both stand relatively close to each other - 1.07-1.08 area. This is probably nearest points that market could follow to.

eur_w_10_02_20.png


Daily

In the beginning of the week we keep an eye on the same XOP target, that we've mentioned previously. This time it is also around daily oversold level, which gives good chances on some pullback. I'm not sure that we definitely return back to K-area of 1.1030-1.1046, but EUR should show at least minor 3/8 bounce to 1.0990-1.10 area once XOP will be hit.

eur_d_10_02_20.png


Intraday

As recent drop looks like acceptable thrust action - we could combine our daily idea with potential DiNapoli directional patterns here. B&B "Sell" around 1.10 could be welcome here. It is possible to treat it as separate trading setup as an "entry pattern" for longer-term daily scenario.
eur_4h_10_02_20.png


Conclusion:

This week fundamental background confirms our long-term bearish view on EUR. As market finally clarifies some arguable moments that existed in the beginning of the week - now we could focus on downside action on EUR/USD and trading setups that we have.
 

sveckar22

Private, 1st Class
Messages
69
Hi guys, I prepared my COT Analysis.

GOLD:

Like Mr. Sive suggested last week, Net Long positions were standing at record highs in the past few weeks. This week we saw Non-Commercial traders closing some of their Long positions and adding to their Short positions which led to a decrease in Net Long positions by almost 10%.
9.2.2020 COT GOLD.JPG

EUR and DXY:

On EUR Non-Commercial traders decreased their Long positions by around 14.000 contracts while they increased their Short positions by around 3.000 contracts. Net short positions increased.
9.2.2020 COT EUR.JPG

On DXY on the other hand Non-Commercial traders increased both their Long and Short positions, the increase in Longs was greater which led to an increase in Net Long positions.
9.2.2020 COT DXY.JPG

CAD and USOIL:

Non-Commercial traders decreased their Long positions yet again while again adding aggressively to their Short positions. This led to a big decrease in Net Long positions.

9.2.2020 COT USOIL.JPG

USOIL was trading below the previous week close for the whole week except for some spikes above it, but couldn’t close higher. I also couldn’t climb above the 0.618 FIB.

9.2.2020 USOIL D.JPG

On USD/CAD traders increased their Long positions and decreased their Short positions, which led to a decrease in Net Short positions.

9.2.2020 COT CAD.JPG

I will be looking for a pullback/retracement from one of this 0.618 FIBS before taking a Long position. This trade may not be ready in this week.

9.2.2020 CAD W.JPG


9.2.2020 CAD D.JPG


On the 4H timeframe this minor abc xop coincides exactly with the first 0.618 FIB.

9.2.2020 CAD 4H.JPG
 

sveckar22

Private, 1st Class
Messages
69
AUD:

Net Short positions increased on AUD/USD as the increase in Short positions was much greater than the one in Longs.

9.2.2020 COT AUD.JPG

The market is now approaching the XOP target, after the target is reached and some possible retracement we can start looking at some longer standing targets and trades to the downside.

9.2.2020 AUD USD.JPG


GBP:

Yet again Non-Commercial traders decreased their Long positions and increased their Short positions but not aggressively, still, Net Long positions decreased.

9.2.2020 COT GBP.JPG

JPY:

On JPY Non-Commercial traders increased their Short positions and decreased their Long positions. Net Long positions decreased significantly.

9.2.2020 COT JPY.JPG

I would wait for the market to complete this ABC OP target which coincides with 0.618 FIB before taking any Short positions.

9.2.2020 USDJPY D.JPG
 

Sive Morten

Special Consultant to the FPA
Messages
12,991
Morning folks,

Today we take a look at GBP. EUR ignores our XOP target on daily, because Dollar Index is not at the same XOP and still is coming to it. It means that EUR hardly will show any bounce until DXY hits the target. At the same time - it is not good placement for short entry as well, because of Daily Oversold. Thus, on EUR we have to wait a bit more.

On GBP our scenario starts. As we said - market probably should show some reaction on daily OS level and 1.2920 Fib support, and now we see that some bounce is started:

gbp_d_11_02_20.png


As we do not consider long entry here - we do not care from what point market turns up, but we do care where it will stop. Now it seems that primary level to watch is K-resistance around 1.2995-1.30, that is also previous lows:
gbp_4h_11_02_20.png


On 1H chart GBP is forming a kind of H&S and its AB-CD target shows OP around 1.2980 which is very close to our 4H K-area. XOP stands above it around 1.3024. Thus, following to our trading plan we consider short entry around 1.2980-1.30 with stop above 1.3030 area. Price action has to keep the same gradual pace.
gbp_1h_11_02_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
12,991
Morning guys,

our GBP setup is coming to the final point. EUR is coiling around previous daily lows and probably it could challenge them within 1-2 sessions. EUR gradually is returning under rules of major fundamental factors. As we've said in our weekly reports - it has phantom chances against USD if situation doesn't change. But it is not changing by far...

Here, on daily we have acceleration on CD leg, which suggests that EUR should reach OP target around 1.0850. Multiple stop orders that stand under major low probably will help to achieve it.
eur_d_12_02_20.png


On 4H chart we also see acceleration through the channel's border. Yes, price has completed secondary AB-CD target, and it could trigger retracement but just to nearest Fib level, I wouldn't count on something greater. To be honest, it is not surprise if EUR will start dropping immediately as well...
eur_4h_12_02_20.png


Situation here is not simple for trading, because price doesn't show any good retracement and stands near oversold level. This combination lets to enter only "by market", but cares big risk of unexpected upside pullback. This kind of background makes trading a bit uncomfortable, despite that chances to reach 1.0850 area are significant.
 

Sive Morten

Special Consultant to the FPA
Messages
12,991
Morning guys,

Today we take a look as on EUR as on GBP. As we've suggested, EUR has dropped below 1.09 lows and Dollar Index finally has hit daily XOP target. Today we expect that EUR will drift a bit lower first, to complete daily OP at 1.0850. Then, we intend to watch for pullback, and appearing of daily B&B "Sell" setup would be quite welcome:
eur_d_13_02_20.png


On GBP our upside trade is completed and finished precisely where we've suggested - at 4H K-resistance area. According to our weekly trading plan - this is an area where we intend to go short. Actually we did it yesterday, as we said in our update.
gbp_4h_13_02_20.png


If, guys, you've have taken the short position yesterday, as we did - now you could think about stop moving to breakeven. The major risk today comes from Dollar Index. Although in recent few months GBP lives of its own life, but still, it is a part of the index and has relation to it. As we suggest some pullback on DXY (it hits XOP, remember?) - it also could make impact on GBP, but we do not know at what degree. At least minor upward action also could happen, and that could be chance for those who has missed the chance yesterday.
gbp_1h_13_02_20.png


Here we need to keep an eye on 4H K-resistance and XOP around 1.3012. Bearish scenario will be valid until price stands below them. Upside breakout destroys short-term bearish setup.
 

Sive Morten

Special Consultant to the FPA
Messages
12,991
Greetings everybody,

Our GBP setup has been destroyed as price jumped through the K-resistance area. GBP lives its own life, different compares to other Dollar-related currencies. So, on GBP we just need to watch how situation will develop.

Now on EUR... major question now is where downside action should stop. And here I want to remind our weekly research, where we've specified weekly OP at 1.0807 level. Dollar Index also is going to daily OP (which EUR has hit already), thus, as EUR as DXY should hit major targets simultaneously. As soon as it will happen - moderate pullback should happen. We intend to use it, because it could be perfect B&B "Sell" setup:
eur_d_14_02_20.png


ON 4H chart we have secondary XOP target, which stands in the same, 1.0804 area. The first level to watch for is major 3/8 resistance around 1.0915.

eur_4h_14_02_20.png
 
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