Forex FOREX PRO WEEKLY, February 12 - 16, 2024

Sive Morten

Special Consultant to the FPA

After shacking NFP week, this one was a bit quiet, no big events at all. Among most important events I would mention new CBO forecast concerning US national debt and budget deficit. Second is - raising concern about German PBB Bank, as mortgage crisis is spreading over the continents and now comes to EU from the US. This is typical for structural crisis when it is migrating from one sphere to another. Real Estate market in any country has too many independent observers and analysts, so it is more difficult to manipulate and it better reflects the real situation in economy.

Market overview

As 2023 ended, market-watchers were certain the U.S. currency was headed one way this year, south, with traders expecting as many as six Fed rate cuts in 2024.
Now, powered by blockbuster jobs growth, a flourishing services sector, cooling inflation, a bottoming-out in lending conditions and a roaring stock market, just four are fully priced in.

The dollar is at three-month highs, leaving competitor currencies, whose central banks are juggling slowing inflation and slowing growth, in the dust.
Not a single G10 currency is in positive territory against the dollar so far this year. Investors are still not holding a net bullish position in the dollar either, suggesting that, if the gap between the U.S. economy and the rest of the world keeps widening, the greenback could get a fresh tailwind.


A resurgent dollar is more likely to stay strong than not over the coming months, according to foreign exchange strategists polled by Reuters, as markets reassess how soon the Federal Reserve may cut interest rates. Various Fed officials pushed back on rampant market speculation for a rate cut in March, with the probability now down to less than 20% from a peak of around 90%, according to rate futures.

The latest data from the Commodity Futures Trading Commission already showed currency speculators paring their short dollar bets for a third week in a row, a trend that is likely to continue. A near 80% majority of foreign exchange (FX) strategists, 52 of 67, in a Reuters Feb. 1-6 poll said the greater risk to their six-month forecast was for the dollar to trade stronger than they predicted. The remaining 15 said the greater risk was for it to be weaker. Citi suggests that US Dollar should remain strong until the US elections.

"The race has started, with the market at first questioning whether the dollar would continue weakening at the beginning of this year. Now I think they've come to believe the strong dollar should be closer towards leading the pack," said Paul Mackel, global head of FX at HSBC, adding that the speed at which central banks cut "will dictate currency performance. Overall, we believe in a strong dollar this year, but not an exceptional one like in 2021 and 2022."

With growth in most major economies expected to lag the U.S. and rate differentials favoring the greenback, most strategists say it will be an uphill task to dethrone the dollar in the short-term. However, the median forecast among 76 strategists surveyed showed the dollar would weaken from current levels against most major currencies in the next three, six and 12 months, an outlook analysts have held for about a year.

"Does it make sense for the market to be pricing similar cumulative rate cuts from the Fed, ECB (European Central Bank) and many other central banks ... we don't think so," noted George Saravelos, head of FX research at Deutsche Bank. "The real debate is not if the Fed cuts a few weeks sooner or later, but if it cuts by less or more than the rest of the world over the next two years. We continue to see the risks skewed towards less Fed easing and, therefore, in favor of the USD."

The Consumer Expectations Survey (CES) is used by policymakers to gauge whether the steepest streak of interest-rate hikes in the euro's history has persuaded households that once runaway inflation will fall back to the ECB's 2% inflation goal. The latest poll, carried out in December on an expanded panel of 11 countries, showed the median household expected prices to rise by 3.2% in the following 12 months, down from 3.5% a month earlier. On the flipside, expectations for inflation three years ahead remained slightly above the ECB's goal, even rising slightly to 2.5% from 2.4%.

This is precisely what we've discussed two weeks ago, when everybody was in expectation of March rate cut from the Fed.

ISM's non-manufacturing PMI increased to 53.4 from 50.5 in December, higher than 52.0 that economists polled by Reuters had forecast. A reading above 50 indicates growth in the services industry, which drives more than two-thirds of the economy.

"The question is, who can keep up with the U.S. in terms of the rates adjustment?" said Steven Englander, head of global G10 FX research and North America macro strategy at Standard Chartered Bank in New York. "The market's answer so far is not too many central banks and not too many of their currencies."

Treasury yields started to rise early on Monday after Fed Chair Jerome Powell said over the weekend that the U.S. central bank could "give it some time" before cutting rates. Yields rose further on news of the ISM survey. In an interview with the CBS News show "60 Minutes" that aired on Sunday but was conducted a day before the jobs report on Thursday, Powell said the Fed could be patient in deciding when to cut its benchmark interest rate.

"The prudent thing to do is ... to just give it some time and see that the data confirm that inflation is moving down to 2% in a sustainable way," Powell said.

Jane Foley, head of FX strategy at Rabobank, said a weak euro zone economy was also likely weighing on the euro. We have stagnation in Germany," Foley said. "I think we're going into a period when it's going to be really hard for the euro to make significant gains."

Data on Monday showed that German exports fell more than expected in December due to weak global demand. While the dollar rose on Thursday after data on unemployment benefits again pointed to a resilient U.S. labor market, reinforcing the Federal Reserve's message that interest rates are unlikely to be cut in the near term. Initial claims for state unemployment benefits dropped 9,000 to a seasonally adjusted 218,000 for the week ended Feb. 3, the Labor Department said, less than the 220,000 forecast by economists polled by Reuters.

"The problem here is that we continue to get positive surprises in the U.S. and we're not getting enough positive surprises in the rest of the world, and certainly not in China," he said. "If the dollar is going to weaken, we're going to need to see some attenuation of the robustness in the U.S. data and some improvement in the data in Europe and China," he said. "When's that going to happen? Very, very hard to say."

The next major scheduled U.S. data release is January's Consumer Price Index (CPI) reading of inflation on Feb. 13.

Traders shrugged off revised U.S. monthly consumer prices that rose less than initially estimated in December. While underlying inflation remained a bit warm, the mixed picture did not alter the market's outlook on the timing of Fed rate cuts. The annual revisions published by the Labor Department also showed the consumer price index (CPI) increasing slightly more than previously reported in October and November.

"The revisions aren't going to make the Fed cut rates," said Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA LLC in New York. "The market's in a rush, (but) the Fed is sitting there saying we're not in a rush. Actually, things are really pretty good from their perspective," he said.

The widely anticipated revisions are more for economists and are too small to matter to the market, said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

Dallas Federal Reserve Bank President Lorie Logan on Friday said she is in no rush to cut interest rates, and while there has been "tremendous progress" on bringing down inflation, she wants more data to confirm the progress is durable.

"The risks that I'm seeing in the economy are becoming more in balance, but I do think we need to take time here to continue to look at the data," she said at the Tarrant Transportation Summit in Hurst, Texas. "I'm really not seeing any urgency to make any additional adjustments at this time," she said, adding that the labor market is still tight and she wants to "build our confidence whether the progress that we've seen on inflation will be sustained over the medium term."

Boston Federal Reserve Bank President Susan Collins on Thursday said she believes the U.S. central bank will likely cut interest rates by three-quarters of a percentage point this year, starting once data confirms inflation is on path to 2% amid a strong labor market. Fed policy maker projections published in December show most U.S. central banks see the policy rate, now at 5.25%-5.5%, ending 2024 in the 4.5%-4.75% range or below, with the median expectation for three 25 basis-point rate cuts. "My baseline is similar" Collins said, adding that policy is not on a preset path and that the Fed will need to adjust based on the data.


This week Congressional Budget Office has released new forecast for the US economy basic indicators - debt, budget deficit, GDP, unemployment etc. I will not re-post it here, as we have it in our Telegram channel. We've talked a lot as about GDP recently as about employment and have pointed on big signs of manipulation with this indicators. But in this report, we're particularly interested with budget deficit and debt. With close look at it, numbers lead to some interesting conclusions.
  • US budget deficit in fiscal year 2024 at $1.507 trillion (versus a deficit in fiscal year 2023 of $1.695 trillion);
  • the total US budget deficit in 2025-2034 is at $20.016 trillion (compared to the previous estimate of $20.314 trillion)
  • The US budget deficit will rise to $2.6 trillion in 10 years. The deficit's share of GDP will increase from 5.6% in 2024 to 6.1% in 10 years due to repayment costs, remaining well above the 3.7% average over the past 50 years , the CBO said.
  • US public debt will rise to 116% of GDP at the end of fiscal year 2034 from 97.3% at the end of fiscal year 2023
After just brief look at these numbers, I would ask two questions - are they going to cut spending? And second one - do they count to exploit the world financial system until 2034? Are they serious?

The national debt will come due next year at a record $8.9 trillion. According to the CBO, the government deficit in 2024 will be $1.4 trillion, and the Fed is reducing its balance sheet by $60 billion per month. The bottom line is that in 2024, someone will have to buy over $10 trillion worth of US government bonds. That's more than a third of the outstanding US government debt. And this is more than a third of US GDP.


This could be a particular problem as the largest holders of US Treasuries, namely foreigners, continue to reduce their holdings. More importantly, interest rate-sensitive balance sheets such as households, funds and insurance companies have been the biggest buyers of Treasuries in 2023, and the question is whether they will continue to buy once the Fed starts cutting rates.

So, the budget deficit will decrease. Moreover, the bulk of the deficit (and therefore fiscal stimulus) in 2023 occurred in Q3 and Q4. If in annual terms the nominal (!) deficit decreases from 8% of GDP (for the second half of the year) to 5-6%, then the increase will be just around 1-2%.

If the majority of the fiscal stimulus falls in the 1st and 2nd quarters, then weak growth is inevitable in the 3rd and 4th quarters (due to the very high comparison base of the 3rd and 4th quarters of 2023), then in the second half of the year a sharp drop in GDP growth is inevitable, which may and probably will turn negative. Therefore, the 1.5% annual growth that is forecast may look like +2.5% in the first half of the year and -1% in the second.

The second story is a longer-term. Apparently, the Office of the Budget believes that the US will be able to exploit the global dollar system until at least 2034, which raises some doubts...

Numbers are mentioned above is the problem by few reasons. In fact - nobody likes to count. By using simple maths let you to see the core of the problem.

Firstly, the budget deficit will decrease. In 2023 it amounted to 1.7 trillion. dollars. Moreover, in the 4th quarter, when we saw GDP growth of 3.3%, the budget deficit amounted to 0.5 trillion dollars of these same 1.7 trillion. dollars. Roughly speaking, if we extrapolate, then growth of 3.3% of GDP in annual terms could be achieved through a deficit of $2 trillion.

So, US GDP is roughly $25 trillion, and 3% of them is 750 billion dollars. The state, by spending $2 trillion - actually is spending ~ 8% of GDP. These expenses also have a multiplier effect, that is, the dollar spent by the state turns into the economy and creates some additional added value. Not to mention the fact that this very dollar of demand will create an additional tax base for the budget.

That is, if there were no budget deficit, GDP would be more than 5% in the red (8% GDP of budget deficit generates only 3.3% of GDP growth = 3.3-8 ~ -4.7%). Especially considering that there has been virtually no credit creation in the economy for a 1.5 years, bank lending is not growing. That is, everything holds only on budgetary incentives. Why isn't lending growing? Because the rate has increased significantly, and the risks for banks have become higher, and overdue payments have begun to increase. Banks are simply more cautious about lending. We discussed this many times, showing that lending is contracting.

In short, fiscal stimulus for the year will be reduced by 30% relative to what we saw in the 4th quarter, which means that if there is no credit impulse in the banking system, then GDP growth will be close to zero. But here we also need to look at how this budget deficit is distributed across quarters. It is quite possible that if they spend a lot towards the beginning of the year and the deficit decreases towards the end of the year, then the start of the year will be quite beautiful, and the problems will begin later.

Secondly, it is also important to understand that those who currently hold $8.9 trillion of US treasuries may simply not want to buy them again after the Ministry of Finance pays them off. For example, they will want to take on more risk and decide to buy shares, or vice versa, they will decide to take other “safe” assets such as gold.

Well, we remember that in reverse repo, which was a source of liquidity when placing short-term treasuries throughout 2023, only $513 billion remained. Taking into account the linear rate of decline that we see now, in about 3 months this source will dry up.

In principle, if everyone continues to be tempted by lower rates, then many may want to transfer to longer-term treasuries in order to earn more in the long term. But it makes sense to do this only if there is no increase in inflation or it decreases. Because having a real return of 1% (with inflation of 3% and a return on long treasuries of 4%) is sad. That is, the market must believe that inflation has been defeated, which is most likely not a fact.

If inflation rises, then there is no particular point in buying long-term treasuries with a yield of 4%, because there will be a high risk that they will depreciate. So either cut the rate or don’t cut it, but the Fed actually controls only the yield on short-term bonds. The far end of the curve, long-term bond yields, is driven by inflation expectations.


This is actually explains Citi bank forecast and opinion of analysts why dollar should remain strong until the end of the year. Not only because of elections. Based on CBO report, negative impact on the US GDP should start i III-IVQ of 2024, but this is only if we consider just deficit numbers. US Treasury has reserves - $800 Bln on the Fed account. It means that bad things could appear in GDP numbers only in IVQ or even later - but they will be published only in 2025. Thus, as the Fed as US Treasury have enough sources to keep budget out of stress and provide some stimulus to keep showing good economy performance. The problem of debt refinancing is not as vital and will have long lasting effect. The only risk factor that could break their plans is the US Banking sector. But since big banks have excess of liquidity, the Fed counts on their activity in takeovers of problem banks. So, they will try to coup the negative effect on early stage if it starts.

Still, as you understand, here we discuss how technically it is possible to hide the problems. Problems per se are already here, and not disappear whatever the Fed and J. Yellen will do. They just will be hidden until time will come to play dirty with Republicans, and D. Trump in particular...

In fact, J. Yellen already tells this, about problems in banking sector, and not only the banking one. US regulators are monitoring risks stemming from non-bank mortgage lenders, and cautioned that a failure of one of them is possible in the case of market strains. She expects additional bank stress and financial losses from weakness in the commercial real estate market but believes this will not pose a systemic risk to the banking system.

"Valuations are falling. And so it's obvious that there's going to be stress and losses that are associated with this," Yellen said. "I hope and believe that this will not end up being a systemic risk to the banking system. The exposure of the largest banks is quite low, but there may be smaller banks that are stressed by these developments."

But how it will turn in reality - who knows... In fact it could be interpreted as a hint or warning about 2nd mortgage crisis, like in 2008-2009, but in commercial real estate sector. it looks like office real estate will never emerge from the Covid decline. Judging by data below, office occupancy completed its recovery in the spring of 2022.

Besides, it is spreading worldwide, and now is EU turn. Problems in the US commercial real estate market, which have already hit banks in New York and Japan, moved to Europe this week. Japanese bank Aozora Bank recorded its first loss in 15 years due to provisions on loans issued to commercial real estate in the United States. Unscheduled statement from Deutsche Pfandbriefbank AG:

In light of continued weakness in real estate markets, PBB further increased risk provisions in the fourth quarter of 2023. PBB remains profitable due to its financial strength - even amid the biggest real estate crisis since the global financial crisis.

A top investor in Deutsche Pfandbriefbank (PBB) has cut its stake in the lender as its shares and bonds come under pressure on concerns over its exposure to the U.S. commercial real estate market. The investor, Germany's RAG Foundation, trimmed its holding to 2.94% from 4.5%, according to a regulatory filing on Friday.

"We are watching developments in the U.S. real estate market (!!!) very closely," RAG said in a statement to Reuters, though it declined to disclose details of talks with PBB.

Higher interest rates, refinancing difficulties and lower office occupancy have hit the U.S. commercial real estate sector in recent months, raising concerns about defaults. A renewed sell-off in some U.S. regional banking shares this week has re-ignited fears about which lenders are most exposed.

Investors are withdrawing €1 billion a month from European property funds as falling demand and soaring borrowing costs raise concerns about commercial property valuations.

To be continued...
...So, this is just the first signs that are coming on surface, but a lot of still stand hidden. And all of this stuff happens on a background of expectations of inflation slowing. But there is also very interesting background appears. Inflation we will consider tomorrow in Gold report, as it has more relation to real interest rates now, which is major driver for Gold market. Here we just tell that it is not as obvious as it might seem. It could break the Fed's and J. Yellen sand castles.

All these stuff confirms our suggestion that hardly EUR will get easy road to strength. This week we see how drastically analysts opinions have changed. Only yesterday they've screamed "let's go to the March rate cut". Now the Fed as a gentleman passes ECB ahead, put them under first strike of currency drop. With keeping statistics under "gentle management" and keep stimulus high in I and IIQ of 2024 the US Treasury almost guarantee good numbers of GDP until the fall of 2024. So, as we've suggested last week, the started sharp reversal US Dollar on a background of strong NFP and GDP numbers is not an occasion. Finally, the Fed has big experience with identification and reaction on variety of crisis. ECB is not and it is a big question, whether it could make proper reaction and steps on EU Real Estate market to coup it on early stage. Somehow we are not sure with this...


Monthly time frame barely has changed. February is a very small candle by far, making no impact on overall picture. Nominal trend by MACD remains bullish, but EUR stands under YPP, showing early warning that sentiment might be changing.



Here trend is bearish, telling that we should consider short positions on daily chart. Although it is impossible to make final conclusion on longer-term direction by far. Situation will depend on ~1.05 support area, which is K-level here. While EUR is floating above "C" point, theoretical chances on, say, upside butterfly exist . But, until EUR stands in the range of 1.05-1.10, it make minor effect on major direction and makes us focus on lower time frames.


Here we're keep going with our big H&S pattern. Last week we've suggested the bounce - result you could see on the picture. Market was moving up a little bit, but every day of the week. Trend remains bearish by far, so we're mostly should stay focused here on bearish positions. The major riddle still stands unresolved - could EUR reach 1.10 area to form harmonic H&S or we get straight forward downside action?

The whole week we were busy on intraday charts. Volatility has dropped, so, next week probably will be the same.


For now EUR keeps bullish context valid. Although it couldn't break 3/8 resistance on Friday, but, it was able to stay above 1.0750 area on retracement. Still overall action remains choppy, suggesting that chances on downside reversal after reaching of major target are better than on the rally proceeding.

OP target is DRPO "Buy" destination point and 50% resistance area. Just to remind you - market stands in the upside reaction after completion of downside OP and touching Agreement support area on daily chart. Around 1.08 we could get "222" Sell pattern, so the range between 1.08 and 1.0830 K-resistance is the first one where we will start thinking about short entry
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Morning everybody,

So, EUR has shown accurate drop out from 1.08. Thus, upside DRPO is done and 4H upside OP target is done as well. As we've said in weekend - we consider 1.08-1.0830 as the 1st area where short entry is possible. But, probably not everybody were in time to catch this drop, as it has started fast.

On daily chart it seems that nothing is going on. But it is not quite so. Also retail brokers' charts do not show it, in fact we have bearish grabber on EUR, and (bullish) on DXY. It might be first sign of market preparation and expectations from coming CPI. Our bearish flag remains.

Second important moment here is MACD direction. Retailers shows bullish trend, while CME shows it is bearish. We have to go with the futures in such a situations:

On 4H chart is nothing special. EUR has formed bearish reversal candle once OP has been done:

On 1H chart you could see that 50% Fib level also has been touched - so DRPO is also completed, as we've said. Now, with the grabber in place - we do not consider any bullish positions. Market has shown the drop, but now it is the 2nd chance to come aboard, if you want. Invalidation point is above 1.0810 - grabber's top. The only choice that you have to make by yourself is - whether to enter now or after CPI report.
Morning everybody,

So, CPI trigger has worked, our setup is also started well. At first glance this is occasion but in longer-term this is the situation that has been prepared by fundamental reason. For few months we talk about new inflationary spiral in our weekly reports, even this week we also talked about it. Now the Fed has really big headache and problem, as whole their plan could collapse.

It means that this action is not just short-term emotional reaction. This is continuation of the tendency. And it should keep going. By looking on what is going on in EU, I do not see any reason for reversal. On daily chart we start watching for next downside target - 1.0575:

It is based on the same 4H H&S pattern. Once retracement after OP is over - market should keep going to the next one, which is XOP:

For today session I would also consider 1.0670 intraday target. On 1H chart we could recognize the butterfly, so this is next 1.618 downside target:

Until the end of the week we get few other important data - production stats, Michigan, PPI, but I would focus on Retail Sales tomorrow. I think this is 2nd most important data this week after CPI. As you understand no longs by far...

ZeroHedge Live Debate: The Fate of the US Dollar​

Very interesting debate about future as a whole! Look it up!
Morning guys,

Today we have minor tactical update. Market is frozen, people try to understand what has happened with CPI, thinking, deciding, where to move next. So, as a rule, activity returns after weekend, when decisions are made. Now investors collecting data to sleep with...

On daily chart we have natural upside bounce. Not only on EUR but on DXY, interest rates as well. Our major interest on daily chart - potential new bearish grabber, that might be formed today or tomorrow...

On 4H chart we see nothing interesting by far. But, on 1H chart we could keep moving with our butterfly, because upside bounce has happened, and if you would like to - you could consider short entry with 1.0670 target.

Here are few options how you could step-in. First is try to catch reversal patterns on 5-15 min timeframes and stick with them, split position and step in few times or, wait when downside action starts and try to jump in on minor pullback. 1.0775 K-area now seems like invalidation point for this setup, because too high retracement contradicts to previous fast drop of the butterfly. Normally it should not happen.
Morning everybody,

So, poor Retail Sales repot has put dirt but was not able to crush short-term bearish context totally. Today we get still a lot of data, so EUR might hold it, will see. Besides, on DXY it seems so that we could get bullish grabber today, if it will close slightly higher. If not - we will have to consider more extended upside bounce, although major downside tendency remains intact:

On 4H chart we do not have something special - market is keep moving inside the channel.

The most important time frame for us now is 1H. Despite strong hit from Retail Sales - EUR was able to hold K-area, that we treat as vital for this short-term scenario. Today we get a lot of other data that could make opposite impact - PPI and inflation expectations from Michigan.

So, if you still hold shorts you have few options - do nothing, close it now, or try to use DiNapoli advanced out technique. Those who read book carefully, should remember - he explains how to out when price breaks K-area. He usually waits for minor downside reaction that lets out either at breakeven or even with small profit. So, you could try to follow it.

If EUR still will not be able to hold this level, we could get reverse H&S first, and next week start to consider more extended upside bounce.