Forex FOREX PRO WEEKLY, February 14 - 18, 2022

[Sive Morten]

Fundamentals

In general, this week we get what we want - EUR gradually starts moving down. The CPI numbers are expectedly high and the only surprise that has changed the market's own behavior is Friday's geopolitical hysteria. Once it has started and then suddenly silenced - we warned that this is temporal relief. It is a big stake on the table and this is long-term tension. Within the first stage of this confrontation, everybody runs to classic safe-haven - the USD, US Bonds, and the Gold, but we suspect that later when conflict starts to spin up, only Gold rest and USD, Dollar assets start losing their value.

Market overview

The dollar and the euro both eased on Monday after European Central Bank President Christine Lagarde calmed market expectations of a quick hike in interest rates that pushed regional bond yields in Europe up to multi-year highs. There is no need for big monetary policy tightening in the eurozone as inflation is set to decline and could stabilize around the ECB's target of 2%, Lagarde told a European Parliament hearing.

Last week the ECB opened the door to a rate hike later in 2022 as inflation risks rose, while data showing an unexpected jump in U.S. jobs created in January also raised speculation of a faster timetable for the Federal Reserve to hike rates. The new rate expectations for both the Fed and ECB pit the dollar and euro against each other as to which will gain an upper hand. U.S. consumer price data to be released on Thursday is poised to be a key data point determinant.

"The euro-dollar will be in a kind of tug of war between these two forces, but ultimately with CPI in the U.S., we're probably due for a bit more of a dollar recovery," said Kathy Lien, a managing director at BK Asset Management.

The dollar and the euro both eased on Monday after European Central Bank President Christine Lagarde calmed market expectations of a quick hike in interest rates that pushed regional bond yields in Europe up to multi-year highs.

There is no need for big monetary policy tightening in the euro zone as inflation is set to decline and could stabilize around the ECB's target of 2%, Lagarde told a European Parliament hearing. read more

Last week the ECB opened the door to a rate hike later in 2022 as inflation risks rose, while data showing an unexpected jump in U.S. jobs created in January also raised speculation of a faster timetable for the Federal Reserve to hike rates.

The new rate expectations for both the Fed and ECB pit the dollar and euro against each other as to which will gain an upper hand. U.S. consumer price data to be released on Thursday is poised to be a key data point determinant.

"The euro-dollar will be in a kind of tug of war between these two forces, but ultimately with CPI in the U.S., we're probably due for a bit more of a dollar recovery," said Kathy Lien, a managing director at BK Asset Management.

The ECB last week got the ball moving in a positive direction for the euro, said Joe Manimbo, senior market analyst at Western Union Business Solutions. "Now the focus has shifted to U.S. inflation, which the market will use to figure out whether the Fed goes by 25 basis points or 50 basis points next month," Manimbo added.

Markets have now priced in a one-in-three chance the Fed might hike by a full 50 basis points in March, and reasonable chance rates will reach 1.5% by year-end.

"We don't believe the ECB is bracing for a sudden acceleration of tightening. We still see the Fed as being on track to move well ahead of the ECB, providing support for the dollar," said Mark Haefele, chief investment officer at UBS Global Wealth Management. Haefele said he expects the euro to fall to $1.10 by year-end and the dollar gaining versus the Swiss franc to finish the year at 0.98 francs per dollar, from 0.92 currently.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 2.4 basis points at 1.298%. The yield on two-year German bonds fell by 3.5 bps to -0.29%, after hitting its highest since September 2015 at -0.21%.

The European Central Bank could end its stimulus programme earlier than planned but it is unlikely to raise its main interest rate in July as investors are expecting, ECB policymaker Martins Kazaks told Reuters.

"July would imply an extremely and unlikely quick pace of tapering," Kazaks said in an interview. "But overall, at the current juncture, naming a specific month would be much premature. If we see that inflation remains high and the labour market remains strong or strengthens further, if we see that the economy keeps going, the direction is clear: we may act sooner than we assumed in the past," the 48-year old economist said.

Asset purchases are currently set to run at least until October although sources have told Reuters the ECB is likely to bring that date forward at its March 10 meeting.
Kazaks singled out a potential war between Russia and NATO as the biggest risk to the ECB's policy path.

Dutch central bank governor Klaas Knot said on Sunday he expected the first ECB rate rise to come in the fourth quarter of this year. France's Francois Villeroy de Galhau said on Friday that markets shouldn't "rush to conclusions" about the timing of any ECB move, while Slovakia's Peter Kazimir said the ECB "will be wiser in March" when it has more data.

Expectations of a rate rise in tandem have caused some topsy-turvy market response not fully fleshed out in the price action, said John Kicklighter, chief strategist at DailyFX. It inevitably has to snap back to some sense of normalcy," Kicklighter said, suggesting the notion of up to seven Fed rate hikes this year is too aggressive and unlikely to happen. Eventually, the markets will have to back off of their extreme expectations and that's probably what's going to settle some of this drive and volatility," he said.

Investors are looking carefully at the future trajectory between European and U.S. rates, as the Fed is likely to lift rates more than the ECB in coming months. While money markets were pricing in as much as 134 bps in cumulative rate hikes from the Fed this year, analysts were expecting 50 bps in hikes from the ECB. Still, the short-term outlook has tilted in favor of the single currency, with the widely watched bond yield spread between U.S. and German 10-year debt narrowing in late January to around 170 bps from an April high of 194 bps.

Almost overnight, inflation-linked bonds have become the hot ticket in global financial markets, pitting banks against hedge funds in a battle for market share and scarce trading talent. The $4.4 trillion markets for inflation-linked bonds, known as linkers, have shot to prominence as prices spiral higher in a post-pandemic world of supply chain glitches and abundant government spending.

"There is tremendous demand for the product, which is hot, just like green bonds are hot," said Ben De Forton, head of debt capital markets SSA France at BNP Paribas.

An indication of the change underway, inflation-sensitive exchange-traded products (ETPs) received record investment flows of over $47 billion last year, BlackRock says, equivalent to the cumulative inflow during 2015-2020.

As guardians of stability in prices and financial markets, the last word central bankers want to be associated with is "panic". Yet that is precisely the term used by two top European Central Bank watchers to describe the message communicated by ECB President Christine Lagarde since she opened the door to a rate hike in 2022 to curb record-high inflation.

"There can only be one conclusion: communication mission failed. This is 'from patience to panic'," ING's economist Carsten Brzeski said. "If you compare this to the Draghi era, it is extremely difficult for the market to know who to listen to," Brzeski added in an interview.

Sources have told Reuters that a sizable minority of policymakers who take a hawkish stance on inflation wanted to start dialling back stimulus at Thursday's meeting.

"Lagarde panicked, and shifted to the hawkish side to prevent a return to the Draghi-era of public disagreement (particularly in Germany)," UniCredit's chief economics advisor Erik F. Nielsen said in a research note. He added in an interview: "If the institution is led by a President swaying between sides it is difficult to give a consistent message."

Lagarde's reassurances that the ECB has plenty of tools to keep spreads under control, including reinvesting proceeds from maturing bonds bought as part of its quantitative easing (QE) programme, has not reassured investors either.

"The spreads widened dramatically because if we don't have QE, what are the tools?" UniCredit's Nielsen said. "We only have investments but whether that's enough, no-one seems to believe it."

Even former ECB vice-president Vitor Constancio made a rare criticism of its hawkish shift following two record inflation readings, comparing its policy setting to "looking out the window" - a citation from U.S. economist Alan Blinder. "Central banks must be forward-looking and therefore must use models and projections, adding, of course, some judgement," Constancio tweeted. "Looking out the window, seeing the temperature, and deciding, is a very bad strategy for monetary policy."

Investors are piling into derivatives linked to a rising euro, according to industry data and trading sources, as they bet the European Central Bank's hawkish tilt means the end to eight years of negative interest rates. The euro has hit three-month highs near $1.15 since the ECB opened the door to a rate increase later in 2022 and said that a March 10 meeting would be crucial in deciding how quickly the central bank would reduce its bond-buying scheme.

Many traders believe the shift in thinking is evident and markets must catch up with an ECB finally ready to tighten -- even if not as fast as rivals.

"There was not a lot priced in (to the euro) and people have been forced to look at the ECB and when it could tighten. German inflation is very high," said Antony Foster, head of G10 spot trading, EMEA, at Japanese bank Nomura. "The BoE seems to have moved early and that's been priced. But there could be a lot further for euro pricing to go," Foster added, referring to the Bank of England's rate increases in December and this month.

Nomura's Foster said clients had been buying large numbers of euro call options -- which give traders the right to buy euros in the future at pre-determined prices -- between 1-month and 1-year maturities. This includes call options on euro/dollar, on euro/Swiss franc, and against Britain's sterling, which had hit a two-year high versus the single currency before the ECB meeting.

The end of negative rates would mark a significant moment for eurozone markets, which have suffered persistent outflows and currency weakness that analysts attribute to sub-0% rates. Those rates have made the euro a favorite for hedge funds to engage in lucrative carry trades -- the equivalent of borrowing in low-yielding currencies to invest in relatively higher-yielding ones. A strategy of borrowing euros and investing them in U.S. dollars, Australian dollars, and sterling posted a return of 5.3% last year, the highest since 2015, according to Refinitiv data.

Vasileios Gkionakis, head of European FX strategy at Citibank, said that the mentality of regarding the euro as a cheap currency to borrow was beginning to disappear.
"The ECB decision was a game changer for the euro," he said. "While we don't expect the euro and rest of the world yield differential to shrink dramatically, it is a big change in sentiment."

Industry data shows a shift in positioning in derivatives markets on euro/dollar -- a currency pair that has been stuck in a relatively tight trading range since 2015, frustrating bank traders that profit from higher volatility. Three-month risk reversals on euro/dollar, a ratio of calls to puts on the single currency, have bounced from -0.7 to -0.2 this week, the highest level since July.

Not everyone is bullish on the euro, and Thursday's forecast-beating U.S. inflation reading has markets once again betting on even faster tightening in the United States. Analysts at HSBC argue that the United States has higher growth and high inflation that justifies "persistent tightening", whereas hiking euro zone rates would do little to resolve its stagflation.

Eurozone labor markets have much more slack to absorb workers before wage pressures build and ECB policymakers could easily flip back towards their decade-long dovish setting if inflation subsides. The ECB will also be wary of any hawkish pricing that whacks up borrowing costs in the likes of Italy and Greece, where government bond yields have risen this month.

Speculative euro long positioning in futures markets has not increased in recent months, Commodity Futures Trading Commission data shows, even as economic data in the region has improved. But it means the euro should have further to climb if positioning shifts.

Goldman Sachs this week said the euro/dollar "fair value" was $1.30. Faster Fed rate increases could hold back the euro in the short term, Goldman's analysts said, but they raised their year-end euro/dollar forecast to $1.20 from a previous $1.15, with a further rise to $1.25 predicted for end-2023 and $1.30 at end-2024.

The dollar swung in choppy trade on Thursday after U.S. consumer prices rose higher than forecast in January, leading markets to boost expectations for the Federal Reserve to aggressively fight soaring inflation. The consumer price index rose 0.6% from December, the Labor Department said, while in the 12 months through January, CPI jumped 7.5%, the biggest year-on-year gain since February 1982

Is the US entering a wage-price spiral?

The data marked the fourth straight month of annual gains in excess of 6% and made St Louis Federal Reserve Bank President James Bullard, a voting member of the Fed's policy-setting committee, "dramatically" more hawkish, he said.

Chances of a 50 basis point interest-rate hike rose to more than the likelihood of a 25 basis point increase as was expected before. The market also considered how other central banks will fight inflation that's on the rise globally, driven especially by rising commodity prices.

Major investment banks have penciled in a strong run of interest rate hikes for 2022 after hotter-than-expected inflation data ramped up pressure on the Federal Reserve to take a firmer stand against soaring prices.
As the Fed gets set to raise pandemic-era rates, here are the estimates from major global investment banks on how far and fast rates will rise:

• Citi now expects 150 bps of tightening this year, starting with a 50 bps move in March, followed by four, quarter-point increases in May, June, September and December.
• Credit Suisse now expects the Fed to hike a cumulative 175 bps this year, beginning with a 50 bps increase at the upcoming March meeting.
• Societe Generale now expects five rate hikes of 25 bps this year, starting in March.
• Morgan Stanley says 125 bps of policy tightening this year is "appropriate", and will come in the form of four 25 bps rate hikes plus a 25 bps fed funds equivalent runoff of the Fed's balance sheet. Rate hike timing is highly data-dependent.
• Goldman Sachs said it is raising its forecast to include seven consecutive 25 bps rate hikes at each of the remaining Federal Open Market Committee (FOMC) meetings in 2022 from a previous expectation of five hikes. read more
• BofA Global Research expects the Fed to hike rates by 25 bps at each of this year's remaining seven meetings, unchanged from its previous outlook. However, it said there is a risk of a 50 bps hike in the Fed's March policy meeting.
• HSBC's said it expects the Fed to roll out a 50 bps hike in March and four more quarter-point rate rises in 2022.
• Deutsche Bank said it expects the Fed to call a 50 bps hike in March plus five more 25 bps hikes in 2022, with a hike at all but the November meeting.
• J.P.Morgan said on Jan. 28 it expects five rate hikes in 2022, up from the four it estimated previously.
• Barclays now expects the Fed to raise rates by 25 bps five times this year, up from three hikes forecast earlier.

Geopolitical worries have added another layer of volatility to an already-jumpy market as investors priced in the possibility of escalating conflict between Russia and NATO, though some doubted the issue would weigh on U.S. asset prices over the longer term. Reports of rising tensions slammed stocks on Friday and lifted prices for Treasuries, the dollar, and other safe-haven assets. Investors were already rattled by a hawkish turn from the Federal Reserve.

"The market is reacting because an actual collision has not yet been priced in," said Michael Farr of Farr, Miller and Washington LLC. "The severity of collision, if one occurs, will correlate to the severity of the market’s reaction."

The dollar rose along with other safe-haven assets on Friday after the United States said Russia has massed enough troops to hold any NATO invasion. An attack could begin any day and would likely start with an air assault, White House national security adviser Jake Sullivan told a media briefing. The dollar had been trading mostly sideways when the U.S. warning hit markets.

The market is growing more and more concerned about the prospect of an invasion, said Rai. "It’s definitely a safe-haven move," he said.

U.S. consumer sentiment fell to its lowest level in more than a decade in early February amid expectations that inflation would continue to rise in the near term. Economists polled by Reuters had forecast the index edging up.

The market's lack of clarity as to how interest rate hikes might progress has contributed to frenzied sessions this week as the dollar remains undecided on the future, said Erik Nelson, a currency strategist at Wells Fargo Securities. “I tend to think we consolidate in the short term here and am still biased toward euro downside, dollar upside against most currencies,” he said.

COT Report

Speculators' net long positioning in the U.S. dollar dropped in the latest week to its lowest since mid-August 2021, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday. The value of the net long dollar position fell to $7.81 billion for the week ended Feb. 8 from $9.78 billion the previous week. U.S. dollar net long positioning fell for a fourth consecutive week.

The decline in the U.S. dollar's net long benefited the euro, whose bullish bets rose to 38,842 contracts, which Scotiabank said was the largest since August last year.

This week we see a moderate change in EUR position. Open interest has increased for 11K contracts, and as speculators as hedgers have increased positions for EUR appreciation.

NEXT WEEK TO WATCH

Markets now appear to be gunning for a big U.S. rate hike in March, so Federal Reserve minutes and policymaker comments in the days ahead will be the key focus.

#1 Fed minutes

After U.S. inflation posted its biggest annual increase in 40 years in January, markets are pricing in a strong chance the Fed will hike rates by half a percentage point in March. Minutes from the Fed's January meeting, due on Wednesday, may already appear outdated. Nonetheless, edgy markets will scour them for signals on how big a move rate-setters are contemplating.

The Fed last month flagged a rates lift-off for March and also reaffirmed bond purchases will end then. The minutes may provide a sense of when, and how quickly, the Fed might reduce its balance sheet, which roughly doubled to nearly $9 trillion during the pandemic.

#2. UK data

It's a big data week in Britain with the latest employment figures out Tuesday, inflation data on Wednesday, and retail sales Friday. They're in focus because the Bank of England just delivered back-to-back rate rises for the first time since 2004, trebled wage growth forecasts, and predicted inflation to peak above 7%. Markets price another 130 basis points in hikes by year-end.

Data last month showed a 4.1% unemployment rate for the three months to November, the lowest since June 2020; new hirings surged by a record amount in December. Consumer prices, meanwhile, accelerated in December to near 30-year highs of 5.4% and may only peak in April when households face energy bill hikes of up to 50%.

While December shopping was hit by Omicron-linked curbs, the latest retail sales may also show consumers' mood being soured by inflation, lofty energy bills, higher rates, and tax hikes.

#3 Geopolitical progress

Shuttle diplomacy is at a fever pitch to prevent tensions between Moscow and the West from tipping over into a full-blown conflict.

After French President Emmanuel Macron's visit, German Chancellor Olaf Scholz will see Ukraine's President Volodymyr Zelenskiy on Monday, before heading to Moscow to meet Russia's, Vladimir Putin. Poland's foreign minister is due in Moscow too, and NATO holds a defense ministers summit in Brussels Wednesday.

While western powers send the military to Europe's eastern fringes and ready sanctions on Moscow, markets seem to be focusing on other issues such as central banks and inflation.

To be continued...

 

[Sive Morten]

The bottom line:

So, the financial component is more or less clear. As we've said last week - don't be too fascinated with recent ECB rhetoric as many things said but nothing is done yet, and "to promise doesn't mean to marry". In the shed of possible war conflict in Europe, the perspective of rate change somewhere in autumn now looks too far and uncertain as nobody knows what happens within a week. The 7.5% CPI numbers look more feasible which makes us agree with the majority of big banks that we get a 0.5% rate hike in March. Yes, we have more numbers in Feb and early March but, currently, I'm tending to this scenario. In general Goldman Sachs supports our fair value of the EUR that we've set last week around 1.36, while GS suggests it around 1.30, but it seems correct only if geopolitical tensions ease.

But of course, the central place takes the geopolitics. I hate this subject but we have to at least approximately review events and how they impact the FX market. As we've said, just when all this mess has started - this is for the long term, and it is not even started yet. I'm intentionally briefing the media today and understand that investors absolutely not ready for the reality that might follow. Markets mostly use the same cliche as in the past during the US invasion to Lybia and Iraq. The common view is the war happens somewhere far, although in Europe and just light echo will be heard in papers and news. This is a big delusion. The reality could be stunning. Thinking that everything intends to happen around Ukraine and nearly its borders is a very naive and short-term vision of the problem. With modern military technologies, it is impossible to sit over the sea and just send orders to the troops in Europe. Russia could respond to any NATO member, including the US, UK, and any other. If mess starts, it comes over the whole of Europe, the UK, and the US. Nobody could feel safe. Russia is not the same as the Taliban and M. Gaddafi, as Tucker Carlson said in his show.

Somehow everybody forgets that V. Putin is a former intelligence officer (KGB), he is a military man. And it is a proverb that "there are no former KGB officers". He is the only one among all other political leaders. He will not act according to media plans where everybody expects. Besides, geopolitically this direction brings absolutely no advantages.
What I would like to say is that the market effect, if a big mess starts, will be stunning. First is, we expect big demand for safe-haven assets, that we already see. From that standpoint, the question of ECB policy takes the backseat. The dollar should keep going higher in the short term if escalation doesn't ease. If conflict starts (God - save us) and everybody will see the direction of Russia's response that definitely will be not the Ukraine, dollar start to lose its value as it becomes not a safe haven anymore. If you have the wisdom you understand what I'm talking about.
I'm worried that something might happen as soon as Monday, the 14th of February. The reason is on Monday Russian Senate intends to discuss the acknowledgment of the independence of the Donetsk and Lugansk Republics. With 99% I suspect that it will be approved by a majority of the voters. It means that Russia could start to treat them as independent countries (similar like the US treats Taiwan) and this might become a big turn in foreign policy. Hopefully, my worries will be in vain.
In light of these events - don't hurry up to buy EUR. If we wouldn't have a geopolitical component, I would say let's keep watching for 1.1250-1.13, but now it is not as evident as before. It seems that gold once again becomes the only asset.

The conclusion is unnerving, guys. Russia has no space more to retreat as it was retreating since the '90s, while the counterparty doesn't want to come to a compromise. This combination promises nothing good to all risky assets and EUR in particular. As all investors across the board can't even imagine what we will get and what Mr. Putin might be preparing for the "partners" - I'm not even daring to suggest what volatility we will get

Technicals
Monthly

It is difficult to suggest how useful technical analysis is in the current political environment. The monthly picture has no big changes yet. Upward bounce from COP target looks nice but major bearish technical moments here are still valid - the trend is bearish here, downside CD leg speed is faster than AB, which doesn't let us count on upside reversal. Besides EUR has broken all meaningful support levels here and YPP of 2021.

The next downside long-term destination point is around the 1.09-1.10 area - the combination of YPS1 and the trend line. Which is actually matches UBS's view of 1.10 level by the end of this year, mentioned above. The market is not oversold.

If military tensions ease, with the new ECB position, we could keep an eye on potential bullish signs and what could change on the market. The most obvious suggestion is that EUR could re-test YPP once again if ECB remains consistent with the recent statement.

Weekly

Here formally we can't treat the recent action as a breaking of bullish context. In fact, the grabber is completed and price retracement stands just around 30% of big engulfing action. That's why the bullish technical setup is still valid. The only thing that we could do is more closely control the depth of retracement and downside targets on daily/intraday charts:

Daily

EUR has dropped more, as we've suggested, and the "High Wave" pattern was broken down, although due to different reasons. Anyway market is coming to the flirting area with a MACD indicator where we, as usual, could start watching for grabbers. Oversold level stands around the same area, where we suggest seeing the right arm's bottom of our H&S pattern - 1.1260-1.13. It should be interesting 2-3 sessions in the coming week.

Intraday

The target that we've said on Friday on 4H chart is almost done. K-area is mostly broken as we've suggested.

On 1H chart we finally get a Fib extension that gives us the OP around the same 1.13 area while XOP stands around 1.1215

So, overall performance and sentiment make us wait at least until our initial downside targets are reached. Currently, we do not have any valuable bullish signs that could hint at early upward action.

 

[Sive Morten]

Morning everybody,

So, at first glance everything goes with the plan - EUR stands on the spot, the predefined support area of 1.1250-1.13, which is major 5/8 support and daily oversold area. It seems, a good combination for the long entry, although we haven't got the bullish grabber here.

On the 4H chart price hits the target of Double Bottom pattern @ 1.1313:

And our OP is reached on the 1H chart:

But I do not want to by right now, guys, and here is why. Actually, there are a few moments for that. The first is - downside acceleration on the daily chart. EUR stands in the epicenter of geopolitical mess, and a minor move could hurt it a lot. Second - we do not have yet the bullish reversal pattern on intraday charts.

Gold is moving through the overbought area with no retracement... which is the sign of growing geopolitical uncertainty.

But the major reason is the shape of the Dollar Index. It doesn't look like it goes with the H&S. With the reversal bar and upward acceleration, now it starts looking more the tendency in favor of H& failure and upward rally:

This makes me sit on my hands for a while. In general, I like technical background, it is good, but we still need a bit more bullish context to start action.

 

[Sive Morten]

Morning everybody,

Yesterday markets have got their first dose of relief, as Russia starts moving troops out of the border. All markets across the board have shown around 3/8 pullback but the action was not very optimistic, I would say it was careful a bit. EUR stands in a mixed environment because Dollar has dropped a bit as people move out from safe haven while interest rates move higher.

At the same time, inflation problems in the US supposedly are stronger than presented in media and US has not just monetary but structural inflation that can't be healed just by the rate hike. And war might be a very good reason that they could put the responsibility to. The US needs war and not occasionally they send a lot of weapons and troops to Europe. Somehow, when the 1st war in Ukraine started in 2014 - they sent almost nothing. Indirectly it makes us be worry that we're not out of the woods yet. And it seems that markets also suspect something. We do know the official version - it's "Russian invasion coming", but maybe it has a dual purpose.
That's why, despite that on the technical side we have the background that could be used for trading and taking a long position, but you should clearly understand risks. On daily chart EUR stands at good support area, strong enough to trigger upward bounce, at least:

On 4H and 1H chart bounce takes the shape of reverse H&S, although the shape of the price is a bit choppy and shows no signs of solid thrust. Nevertheless, formally we're getting either H&S or cup& handle pattern that theoretically could be used for position taking.

 

[Joshnix]

Mr. Morten what about the close below the MACDP on the daily. Today it finished a retracement to the MACDP. I chose to go short, your hesitancy confirmed my feelings. Do you still feel we get to 1.1260 or ultimately 1.09 on fundamental background? Or are you expecting a lot of choppiness?

 

[Sive Morten]

Mr. Morten what about the close below the MACDP on the daily. Today it finished a retracement to the MACDP. I chose to go short, your hesitancy confirmed my feelings. Do you still feel we get to 1.1260 or ultimately 1.09 on fundamental background? Or are you expecting a lot of choppiness?

Hi mate,
well, formally we have not bad background for long entry - good support and Agreement with downside OP. Some upward action as well today... But, I do not like the performance of dollar index and wrong H&S shape, and second - upward action as on gold market as on interest rates. All these moments are indications of geopolitical risks. EUR stands in the epicenter. At the same time - we can't just sit aside and scary wait for something. We should trade somehow anyway. It means that we either follow our usual setups and take the risk of possible unexpected strong moves or just do nothing and sit on our hands. But this condition could stay for a long time, so should we do nothing? Thus, while the market stands above 1.1260, chances on daily reverse H&S exist.

 

[Sive Morten]

Welcome back everybody,

So, after all this madness with invasion market finally are turning back to the financial background, which is really big problem to the US authorities. If within two previous weeks we've heard only "Ukraine, Ukraine Ukraine..." now everybody starts talk "Inflation, Inflation, inflation" and this is pain point for the Biden administration and the Fed....

Today we have few tricky things on EUR that makes me tend in favor of downside continuation still. Despite that we have not bad upside reaction from the support area, mentioned in weekly report. And these tricky things stand on dollar index. There are three of them. Two we've mentioned already - bad shape of H&S pattern and bullish reversal bar, and the last one we've just got yesterday - bullish grabber:

With this collection of patterns, I suspect that we could get something like this:

Of course, I might be wrong, but with sideways action on the interest rates and upward direction on the gold market, it seems that investors start to understand that inflation risks are undervalued and start re-price the inflation level. This makes me no wish to buy EUR now. But this is just IMO.
Thus, if you want to short the EUR - you could try to use the butterfly. Alternatively, for long entry purposes, it is possible to follow the daily H&S shape. At this moment invalidation level seems under 5/8 support and daily oversold level.

 

[Sive Morten]

Morning guys,

On EUR we have mostly the same picture, with single minor detail - we've got a 4H bullish grabber recently. It means that some upward spike could follow today. Overall price action doesn't look like a major reversal, so we still think that if it happens at all - it probably starts from the somewhere lower level:

It might be makes no impact on overall situation but it put under question the butterfly that we've discussed yesterday. So, let's temporary take it out of the table and will see for the couple of sessions what will happen.