FOREX PRO WEEKLY February 16-20, 2014

[Sive Morten]

Fundamentals

On Friday the major event was around GDP data in Europe and Michigan sentiment index in US. While sentiment has reduced – other currencies have got some support from temporal dollar weakness.
As our analysis on EUR still holds and next couple of weeks should clarify a lot of different moments, especially concerns around Greece and Ukraine. That’s why today we will prepare update on GBP. Pound has got some support on BoE comments on inflation level. Sterling looks stronger among other European currencies. As EU has fallen in turmoil as internal as external problems and nobody even speaks about rate hiking, franc although looks strong but recent scandals in Swiss banking sphere and pressure from US on providing personal data on clients and accounts couldn’t be treated as positive sign. Besides, Switzerland economy stands in stagnation; it has negative interest rates and deflation. Still, it is difficult to say by far –either recent Sterling growth is result of pure internal process, or partially external. If we would suggest negative scenario in EU – it is obviously that the European power center will shift to UK and Sterling will get solid support.
CFTC data shows that open interest that has dropped significantly on Scotland voting – now was restored at almost previous levels. Open interest mostly has grown on short positions. Picture of speculative positions looks obvious – solid increasing of shorts while longs stand anemic. At the same time, if you will take a look at commercial positions (hedgers) you will see interesting detail. While there is no surprise in solid part on commercial longs – they just a mirror of speculative shorts, even by chart shape, we see increasing of commercial shorts, but non-commercial longs (speculative bulls) stand flat or even decrease. It could be a sign that bearish sentiment becomes softer. May be it will not lead to reversal, but retracement is possible. It seems that market is tired a bit from endless drop.
Speculative Longs:

Hedgers Shorts:

Technicals
Monthly
Since it is still valid – I would like to keep showing you monthly chart and analysis that we’ve made in December 2013 in our Forex Military School Course, where we were learning Elliot Waves technique.
https://www.forexpeacearmy.com/forex-forum/forex-military-school-complete-forex-education-pro-banker/30110-chapter-16-part-v-trading-elliot-waves-page-7-a.html

Our long term analysis suggests first appearing of new high on 4th wave at ~1.76 level and then starting of last 5th wave down. First condition was accomplished and we’ve got new high, but it was a bit lower – not 1.76 but 1.72. This was and is all time support-resistance area. Now we stand in final part of our journey. According to our 2013 analysis market should reach lows at 1.35 area. Let’s see what additional information we have right now.
Trend is bearish here, but GBP is not at oversold. Right now market has reached strong support area – Yearly Pivot support 1 and 5/8 major monthly Fib level. This is an area where market has stopped last time. Monthly chart give us just single AB-CD pattern with nearest target at 0.618 extension – 1.3088. Still, here we have another one non-Fib orienteer – lower border of current consolidation. If we will treat it as sideways action then lower border will stand ~1.42-1.43 area. But first we need to get over current support level and see what market could give us here. Currently 1.30-1.31 area looks unbelievable, but if we would suggest parity on EUR/USD and starting rate hiking cycle in US – why not? Still, this is very long-term picture and right now we’re mostly interested in reaction of the market on current support level. Our suggestions that we’ve made two weeks ago have been confirmed – and GBP shows upside action in February. Let’s see how long this journey will last…

Weekly
On previous research we had on weekly chart two questions – tactical and strategical. Tactically we’ve talked on bullish “Stretch” pattern and its target around 1.5350 area. Thus 250 pips rally was our short-term target. Now we see that GBP has completed this. Tactically we’ve thought about patterns of greater scale and could recent rally become part of such pattern. Particularly speaking we’ve talked about either B&B “Sell” or DRPO “Buy” here. And this is most important question here. Personally guys, I would better make a stake on DRPO by some reasons. First is – we have strong monthly support and CFTC data that increases chances on deeper upward action. But it couldn’t be achieved by B&B. Second is, if you will take a look at technical picture you’ll see that Sterling will not reach 1.58 Fib level within 3 closes above 3x3 DMA just because 1.58 stands too far in overbought area. The only way how we could get B&B “Sell” here is to look not at whole thrust, but at its part from 1.6523 top. In this case B&B is possible, if market will reach 1.5550 resistance on next week. This B&B probably will have nice chances on success, since this is also MPR1 and weekly overbought. So, it seems that this will become our primary pattern on coming week.

Daily
Daily trend stands bullish. Chart shows that coming resistance also includes 1.618 AB-CD target and daily overbought. In general, in recent 3 weeks market mostly was held by overbought. So, to get confidence with possible B&B “Sell” on weekly chart – it would be perfect if we could get some reversal pattern around 1.5550 area. In this case our puzzle will be completed and we could take short position.

4-Hour
It would be better if we will take a look at 4-hour chart from “what we want to get” point of view. This will make simpler understanding of real action. Our major desire is to see reaching of 1.5550 weekly Fib resistance in a company of some reversal pattern. At the same time we know that 1.5450 is strong resistance by itself. It includes daily overbought AB=CD 1.618 target, butterfly and WPR1. This collection significantly reduces chances on direct rally to 1.5550 and tells that if even market will follow to 1.5550 level – it will do this after retracement.
Right now Cable is forming butterfly “sell”. Since price has not reached daily AB-CD target and upside acceleration was solid on Friday – it means that we should get 1.618 butterfly and retracement probably will start from there. As a target of this retracement we could apply harmonic swing of previous one – when market was in similar conditions at overbought. This swing point on 1.5280 area between WPP and WPS1. But what reversal pattern could bring us to 1.5550? Well, they are quite the same - it could be another butterfly, for example, or even H&S, 1.618 3-Drive “Sell”…

Conclusion:

Bears control market right now and in long-term perspective downward action probably will continue if geopolitical force balance in Europe will remain the same. Pound could take the lead on European stage if EU will meet significant problems from Greece, especially in sphere of national and financial independency that could be supported by other countries that also are not satisfied with financial policy in EU, such as Catalonia in Spain. This is major long-term risks that could impact on value of major European currencies.
In short-term perspective existing of solid support on weekly chart, shy deviation in hedgers’ position and patterns on intraday chart tell that upside retracement could continue for awhile. As a result of this retracement – we will watch for possible B&B “Sell” pattern that could start from 1.5550 area.


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.

 

[Sive Morten]

FX Daily Update, Tue 17, February 2015

Good morning,


Reuters reports euro skidded on Tuesday after a collapse in talks to secure a new debt deal for Greece kept markets guessing about the next chapter in the nerve-wracking saga as Athens tries to secure improved terms with its creditors.

Talks between Greece and euro zone finance ministers broke down when Athens rejected a proposal to request a six-month extension of its international bailout as "unacceptable".

"All up, still no deal. And something of a disappointment after what seemed to be the makings of a spirit of compromise last week," said David de Garis, senior economist at National Australia Bank.

Traders said the dollar was given a bit of a reprieve versus the safe-haven yen after a decent 20-year Japanese government bond auction results helped soothe sentiment.

The JGB market has undergone volatile swings this year, especially following debt auctions, becoming a source of concern among some currency participants worried about their potential impact on risk appetite.

FLASHBACKS OF 2011

The collapse of the Greek debt talks unsettled markets although the consensus appears to still favour a last-minute deal for Greece, which faces the risk of running out of funds by the end of the month, when its bailout package expires.

"The market has witnessed this before - it remembers the brinkmanship during the Greek debt negotiations of 2011. There are only nine trading days left until the Feb. 28 deadline but some see that as enough time. Thus we are not seeing the euro sold in panic," said Kyosuke Suzuki, director of forex at Societe Generale in Tokyo.

"On the other hand tail risk is definitely rising. This is limiting bargain-hunting of the euro by short-term players and the currency will remain under selling pressure."

The next focus points in the debt saga will be on Wednesday and Friday.

On Wednesday the European Central Bank decides whether to maintain emergency lending to Greek banks that are bleeding deposits at an alarming pace.

And Dutch Finance Minister Jeroen Dijsselbloem, who chaired the meeting with Greece, said Athens has until Friday to request an extension.

Among commodity currencies, the New Zealand dollar was the best performer, reaching a three-week high of $0.7529 .

Broad euro weakness nudged up the Australian dollar 0.3 percent to $0.7798 .

There was scant market reaction to news Australia’s central bank board had debated whether to cut interest rates this month or next, but opted for February which offered the opportunity of early additional communication in Friday's Statement on Monetary Policy.

In minutes of the Feb 3 meeting, when the Reserve Bank of Australia cut its cash rate by a quarter point to a record low 2.25 percent, the central bank said members were told that growth risked staying below trend through 2015 if rates were left unchanged.



So, guys, as EUR still makes goodie-goodie talks around Greece debt burden - no real action stands there. Currently we see interesting perspectives on three currencies - AUD, JPY and GBP, may be CAD will follow a bit later. On Aussie we could get 4-hour Double bottom pattern, JPY is following to our analysis and now we see signs that upside leg to 125.50 finally could happen.
But today we will take a look at GBP again, since it shows progress with our trading plan that we've discussed yesterday.

Thus, in weekly research we've said that GBP should show downward retracement in the beginning of the week, but on Monday it show slightly higher top - just to complete daily AB=CD pattern. So this has happened yesterday and first stage of our trading plan has been completed - GBP has started retracement down right from daily overbought, MPR1 and AB-CD completion point.

On 4-hour chart this moment has been accompanied by butterfly "Sell" as well. As target of downward retracement we've decided to use harmonic swing from the point where GBP has hit overbought last time. This swing points on area between 1.5250 Fib support and WPS1 and 1.5280 area. Current reversal is also accompanied by nice MACD divergence:

Downward retracement now is taking shape of AB-CD and it has approx. the same target as harmonic swing^

That's being said, now we have second stage of our weekly trading plan in progress - action to 1.5250-80 support area. Still our primary object is to get short position around 1.5550 and as we hope market will be able to go there within current week.
That's why whether to take long position around 1.5250-80 is not important question for us, but we will discuss this opportunity if we will see something interesting there. Personally, I prefer another 1.618 upside butterfly...

 

[Sive Morten]

GBP/USD Daily Update, Wed 18, February 2015

Good morning,


Recent Reuters news: The yen steadied in early European deals on Wednesday, after a brief jump in Asian trading driven by the Bank of Japan's confirmation it saw no need to print more money to stimulate the economy.

With all eyes fixed on Greek and euro zone politicians' efforts to steer a way to a new deal on Greece's international bailout, the euro was trading firmly in the middle of a 2-cent range it has held for more than three weeks.

Price action generally was limited but the yen did blip higher after the BoJ decision to keep policy steady. Governor Haruhiko Kuroda said he saw no immediate need to expand monetary stimulus again with inflation heading up towards his 2 percent target, though he said the BOJ "would not hesitate" if the inflation outlook changed.

As with the euro, a period of relative stability for the yen has raised some doubts over how fast even the United States' better economic performance will drive further gains for the dollar after a surge since the middle of last year.

"With the economy near full employment to case for further yen weakness is less compelling," strategists from French bank BNP Paribas said in a morning note. They still recommended adding to short positions betting on more yen weakness but emphasised the move would now be gradual.

"Rising U.S. front-end yields should encourage further capital outflows from Japan and a rebuilding of short yen positions among FX market participants from the current moderate level of -2 on our positioning monitor."

Dealers said the yen should be stuck in the current range for longer.

"It seems to me we are going to tumble between roughly 117-120 yen for a while and the moment it looks like pushing on through 120 some comment will come out, as happened last week, to dampen things," said a spot dealer at one international bank in London.

"The Japanese authorities clearly like a weak yen, but it has all been a bit too quick for the economy to adjust."

Although Greece rejected a proposal to request a six-month extension of its international bailout on Monday, market players are betting that an agreement will be reached in the next couple of weeks.

All eyes are on the European Central Bank on Wednesday, with sources telling Reuters that Germany’s Bundesbank is leading opposition to increasing the 65 billion euros that the Greek central bank can give its struggling banks.

Without an increase, the banks face a tightening squeeze as deposits continue to stream out, potentially forcing Athens to introduce capital controls if there is no deal in Brussels this month.


Situation has not chanced much on FX market. Major currencies drive according to technical picture and we think that in short-term perspective GBP looks like most perspective currency for trading. Besides, we think that situation around GBP could change in long-term perspective, since UK could become new power center of Europe, while EU meets real problems with it's non-12 members, especially in Eastern Europe, Greece, Spain and others. At least we need to keep in mind this scenario and watch closely on geopolitical processes that now are going in EU and be careful with any signs of investors' turning to UK and GBP...

So, yesterday we've discussed possible retracement on GBP and it has started but the depth of retracement appears to be much smaller that we've expected initially. Today market is showing strong upside reversal and upside continuation. Thus, our expectation to see 1.5550 level right now does not seem as impossible.

on 4-hour chart we see that market has not continued action lower but stop at WPP and shows nice upside thrusting action. It means that we probably will not see deeper retracement and GBP has all chances to proceed higher and reach Weekly Fib resistance @ 1.5550 by the end of the week.
Meantime 1.5450-1.5477 is an area between MPR1 and WPR1 and it could hold market for some time. Could market form, say H&S on hourly chart and turn down? Theoretically this is possible, but as market has shown very shy reaction on reaching 1.618 target of daily pattern - hardly it will turn down due some hourly patterns. That's why gravitation to 1.5550 weekly resistance and overbought directly looks more probable by far...

 

[Sive Morten]

FX Daily Update, Thu 19, February 2015

Good morning,


Reuters reports The dollar fell against the yen and euro on Thursday, paring gains after minutes of January's Federal Reserve policy meeting showed officials were concerned about hiking interest rates too soon.

"The two pillars of a strong dollar scenario: the first being strong fundamentals and the next being June rate hike expectations, are beginning to wobble," said Junichi Ishikawa, market analyst at IG Securities in Tokyo.

Although the closely-watched non-farm payrolls data released earlier this month proved robust, recent U.S. economic data have not been consistently strong.

Against such a backdrop Fed policymakers expressed concern that raising interest rates too soon could chill the U.S. economic recovery in the minutes issued on Wednesday.

Widening the scope of factors to consider, they also noted the potential negative impact from global factors such as China's economic slowdown and fighting in the Middle East and Ukraine.

"A few weeks ago it was about oil, then Greece and now its the Fed," said Bart Wakabayashi, head of forex at State Street in Tokyo.

"Market participants had tried distilling what the Fed was looking at into a few factors, but that is not easy any more as it has broadened its horizons. Players tend to make trading easier by making simple correlations, but we have to look deeper now to gauge sentiment," he said.

U.S. debt yields, which spiked midweek and shored up the dollar, promptly declined in wake of the minutes' release.

"The euro is quite stable amid the Greek risk...the immediate focal point is how risk assets fare going forward, as they have performed relatively well despite Greece. Heightened risk appetite may eventually prompt players to cover euro shorts," Ishikawa at IG Securities said.

Noise from Greek debt-related matters not withstanding, German and U.S. stocks have notched record highs over the past week. Japan's Nikkei <.N225> climbed to a 15-year high on Thursday.

The common currency could receive more support depending on the outcome of negotiations between Greece and its creditors, a major source of volatility for the euro.

Greece is expected to ask later in the day for an extension to its loan agreements with the euro zone as it faces running out of cash within weeks.

This seeming concession by Greece after weeks of haggling with creditors would give the euro some relief, but Athens must first overcome resistance from sceptical partners led by Germany.

Sterling traded at $1.5452 , holding to a swathe of territory won overnight when it hit a 1-1/2 month high of $1.5480 after data showed strong growth in British wages.

Benefiting from the dollar's broad weakness, the Aussie hovered close to a one-week high of 0.7840 hit late Wednesday.

The currency market was slightly robbed of liquidity with most of Asia excluding Japan away on Lunar New Year holidays.


Today, guys, we finally will take a look at EUR. Although we do not have here something really interesting, but situation there stands tricky. On daily chart we have not got DRPO "Buy" pattern that we've discussed previously and picture here looks moderately bearish by two reasons. First is - relation to MACD trend. It has turned bullish, but price action does not support it showing flat action. This could be sign of bearish dynamic pressure and suggests further downward action. Second - the nature of upside action. It is too slow and choppy and this points on retracement. This is not reversal.
As a result, we might say that 1.1530 of MPP and overbought is probably the ceil for current week.

On 4-hour chart we see that 1.1530 is also closest targets of different patterns. Thus, here is minor 0.618 AB-CD target, possible 1.27 Butterfly "sell" and former consolidation. If we add here daily resistance by overbought and MPP - we get solid resistance cluster. Taking in consideration the weakness of current upside action - it is difficult to take bet on further upside action beyond 1.1530:

At the same time we do not want to call about immediate downward reversal. Although it is weak, but still we have "222' Buy pattern with minor target around 1.1530 and it has chances to reach it.

That's being said, if we will not get super positive Greek news - we expect upside creeping to 1.1530 area and then downward reversal.

 

[Sive Morten]

FX Daily Update, Fri 20, February 2015

Good morning,


Reuters reports The dollar held firm on Friday after upbeat U.S. jobless claims data made views swing back in favour of an earlier rate hike by the Federal Reserve, while the euro stayed under pressure ahead of a crunch meeting on Greece's bailout programme.

Initial claims for state unemployment benefits fell 21,000, about twice as much as expected, to a seasonally adjusted 283,000, offering fresh evidence the U.S. labour market was gathering steam.

The data helped reverse expectations of a possible delay in Fed rate hikes that arose when minutes of its last policy meeting, published on Wednesday, showed policymakers were concerned about increasing rates too soon.

"Although the dollar slipped on dovish Fed minutes, the market is coming to think that the minutes are a bit stale because they don't reflect the strong (January) payrolls data," said Osao Iizuka, chief currency dealer at Sumitomo Mitsui Trust Bank.

U.S. debt yields also rose on Thursday, helping to lift the dollar, particularly against the yen, which traditionally has a strong inverse correlation with U.S. yields.

GUARDED OPTIMISM

The euro traded at $1.1364 , off Thursday's high of $1.1450. It has largely stuck to a narrow $1.1300-1.1450 range this week, as all eyes remain on talks between Greece and the euro zone.

With Greece's EU/IMF bailout programme due to expire on Feb. 28, Greek Prime Minister Alexis Tsipras, who won power promising to ditch the bailout, urgently needs to secure a financial lifeline to keep the country afloat beyond late March.

So far, guarded optimism is prevailing in the market, chiefly on the grounds that failure to strike a deal would be too costly for both as it could risk a Greek debt default and exit from the euro.

On Thursday, Germany rejected a Greek proposal for a six-month extension to its euro zone loan agreement, ahead of the euro zone finance ministers' meeting on Friday.

But in a document seen by Reuters, Greece appeared to have moved substantially toward the position taken by euro zone finance ministers in negotiations on Monday that ended without a deal, as Athens vowed to ditch the 240 billion euro bailout programme.

Yields on Greek and other lower-rated euro zone bonds slid on Thursday on hopes of an agreement.

"The market appears to be relieved for now after Greece asked for a loan extension. But Greece is not promising fiscal austerity and Germany has shown scepticism," said Masafumi Yamamoto, market strategist at Praevidentia Strategy in Tokyo.

"The market is used to seeing this by now, but if a deal isn't reached today, the euro could face selling pressure and dollar/yen could also see the same as risk appetite will be hurt," he said.


So, EUR stands absolutely anemic and is not interesting for trading by far. Today we will take a brief look at AUD and GBP. On GBP daily picture looks bullish and we wonder - if Greek debt negotiations will end negatively - whether GBP will rise or fall? Somehow I think that former is more probable. Anyway, pound sterling consolidates below resistance right now, building an energy and daily picture looks bullish:

On 4-hour chart we see just minor bounce down from MPR+WPR1 resistance. In fact market is coiling below, does not show any pullback and this looks bullish. So if today we finally will see upside breakout and reaching of 1.5550 area - we will get weekly B&B "Sell" pattern. Nothing terrible will happen if GBP will reach this level on next week, but for purity of B&B it would be better if it will happen on current one.

It is difficult to suggest how particularly market will reach this area and what pattern will be formed, but now it is not as important, because it is too small room till this area and probably it is not big sense to take long position here.

Finally - picture on AUD. This is 4-hour chart and potentially we could get intraday Double Bottom pattern:

 

[Venelin]

Hi guys,
Here is what I see in Euro after today's FOMC minutes:

Butterfly 161.8% sell in agreement with 100% AB=CD
Below 1.1260 looks like skewed H&S

Good luck!