Forex FOREX PRO WEEKLY, February 17 - 21, 2020

Sive Morten

Special Consultant to the FPA
Messages
13,160
Fundamentals

Last year, guys, we have pointed major long-term driving factors for EUR/USD pair that we based on to justify our long-term bearish view. In two words they are big difference between economy condition of EU and US, coming first fruits of EU and UK divorce, weak ECB policy, potential export tariffs on EU goods from US and some others. One of our major position is - while we do not see stabilization of EU economy and elimination of tariffs hazard from US we do not expect situation change, at least if US will keep existed economy pace.

Last time we've taken a look at US 2020 perspective. Although it is widely suggested that economy could slowdown a bit, but in general it is expected that it will be on a good tempo. In the beginning of the year it seems that mentioned driving factors do not work. Situation was a bit skewed by Iran conflict and coronavirus spreading. Now, when market slowly returns to its own driving factors, our background starts to shine.

This week we haven't got a lot of events, but EU statistics, especially GDP has become the last straw that launched the trend.

The dollar hit a four-month high against the euro on Tuesday as investors chased higher returns in the U.S., and after Federal Reserve Chairman Jerome Powell adopted an upbeat view of the U.S. economy. The greenback has gained against the single currency as data reinforces a view that the U.S. economic outlook is more
favorable than that of the euro zone, and on safety buying on concerns about the economic impact of the coronavirus outbreak that originated in China.

Low volatility across most of the foreign exchange market has also encouraged investors to seek out carry trades, where they borrow in low-yielding currencies such as the euro and the franc and invest in dollars or other high-yielding currencies.

“One of the big prevailing narratives right now is for the carry trade,” said Erik Nelson, a currency strategist at Wells Fargo in New York. “As volatility seems to be non-existent in the FX market a lot of people are piling into this short euro, long higher beta, higher interest rate currencies.” At the same time, “you’re looking at a euro zone economy that just can’t seem to get a lot of traction,” Nelson said. “That’s also more fundamentally supporting this idea that the euro is sort of flat on its back right now.”

Comments by Powell on Tuesday affirmed the view that the U.S. central bank is unlikely to change interest rates in the near term. Over the second half of 2019 "the economy appeared resilient to the global headwinds that had intensified last summer," Powell said in remarks to the House Financial Services Committee, as economic activity increased further and the labor market strengthened. With risks like trade policy uncertainty receding and global growth stabilizing, Powell signaled he saw no reason to adjust U.S. interest rates, unless new developments cause a "material reassessment" to the current outlook.

The greenback hit a more than two-year high against the euro on Wednesday as investors put more money into the U.S. stock market on growing optimism that the coronavirus will be contained. China reported on Wednesday its lowest number of new coronavirus cases in two weeks, bolstering a forecast by Beijing’s senior medical adviser for the outbreak in the country to end by April. Even so, fears of further international spread remained.

“The market is reasonably confident that China will be able to get control of the virus, although it may take some time,” said Steve Englander, head of global G10 FX research at Standard Chartered in New York. “The fact that it just doesn’t seem to be as deadly outside of China is something that’s comforting markets.”

The greenback has strengthened against the euro as economic data shows a brighter economic outlook for the United States than for the euro zone.

“The U.S. economic data is still superior to other economies’ and the growth gap with the rest of the world remains substantial,” said Ugo Lancioni, portfolio manager of the Neuberger Berman Macro Opportunities FX Fund.

Political uncertainty in Germany is an additional headwind for the single currency. Annegret Kramp-Karrenbauer, leader of Chancellor Angela Merkel’s Christian Democrats (CDU), on Monday confirmed she would not run for chancellor in next year’s federal election, but said she would remain party chair until another candidate is found.

U.S. data on Thursday showed that U.S. underlying consumer prices picked up in January as households paid more for rents and clothing, supporting the Federal Reserve’s contention that inflation would gradually rise toward its 2% target.

The euro fell again to a nearly three-year low on Friday amid worries about slowing growth in the euro zone, as fourth-quarter data confirmed the economy’s sluggish performance. The euro has lost close to 1% so far this week and is on track for its worst two-week performance since mid-2018.

Euro zone gross domestic product grew 0.1% quarter-on-quarter in the fourth quarter, in line with forecasts. Year-on-year growth was weaker than expected, at 0.9%, although employment grew more than expected.

The German economy stagnated, data also showed, renewing fears of a recession.

“When I think of the euro since the start of the year and in particular since the start of the month I think of `heavyweight’, as it has dropped like a stone compared with the dollar,” said Commerzbank analyst Antje Praefcke.

Sterling consolidated around $1.3030 mark. It gave back some of its gains after rising on Thursday when Rishi Sunak, an ultra-loyalist to Prime Minister Boris Johnson, was named finance minister. His appointment raised expectations the upcoming budget would increase public spending to boost the economy following Britain’s Jan. 31 withdrawal from the European Union.

Kit Juckes, an FX analyst at Societe Generale, said the new finance minister’s appointment raised the bar for the actual budget, “since markets now price in easier policy than they did yesterday morning.”

Anxiety about the impact of the coronavirus on the European economy this week helped send the euro to its lowest levels against the dollar in 2-1/2 years. A report on Friday that Fiat Chrysler plans to close a plant in Serbia due to a lack of parts added to fears that ties to China leave Europe’s economy vulnerable.

“We had some first indications that this might be starting to impinge on the global supply chain this morning with Chrysler shutting one of their factories in Eastern Europe because of shortage of supplies from China,” said Shaun Osborne, chief FX strategist at Scotiabank in Toronto.

Additional driving factor for EUR this week is coronavirus as EUR has tight relation to China in mutual trading. The euro dropped to more than two-year lows against the dollar as concerns about a sharp rise in the number of new cases in the coronavirus outbreak in China led investors to seek out U.S. assets. The United States is better placed to weather the economic impact of the virus than the eurozone.

“Europe, and Germany in particular, have very strong trade linkages to Asian markets, and specifically with China,” said Mazen Issa, senior FX strategist at TD Securities in New York. “Coming into the year, expectations were for a moderate growth rebound. While it did seem reasonable at the time, the disruptions are going to delay that narrative.”

This is briefly what we've got this week. Keeping virus panic aside - EU GDP dropped more showing slowdown, while US Consumer prices demonstrated opposite performance. But here is another event happened, in addition to others that we've mentioned previously. US already has imposed tariffs on $ 2.5Bln luxury goods from EU, intends to apply tariffs on car produces and now is - Airbus:

The U.S. government on Friday said it would increase tariffs on aircraft imported from the European Union to 15% from 10%, ratcheting up pressure on Brussels in a nearly 16-year transatlantic dispute over aircraft subsidies.

In a statement released late on Friday, USTR said it would make minor modifications to 25% tariffs imposed on cheese, wine and other non-aircraft products from the EU, including dropping prune juice from the list. It did not raise the tariff rates on those product, as it had suggested it might do in October.

The U.S. action comes as U.S. President Donald Trump, emboldened by agreement on a Phase 1 trade deal with China, has trained his sights on restructuring the more than $1 trillion U.S.-EU trade relationship, raising the specter of another major trade war as the global economy slows. EU officials have said they want to negotiate with Washington but will not be bullied into submission.

The USTR had announced in December that it could increase tariff rates up to 100% and subject additional EU products to tariffs, following a decision by the WTO that EU launch aid to Airbus continued to harm the U.S. aerospace industry.

The WTO in October had awarded Washington the right to impose tariffs on $7.5 billion of annual EU imports in its case against Airbus. Washington then slapped 10% tariffs on most European-made Airbus jets and 25% duties on products ranging from cheese to olives and single-malt whisky, from Oct. 18.

This is guys precisely what we have said in 2019, when US-China trade has been achieved. "Eye of Sauron" turns to Gondor (EU)!

But this is not all yet. We suggest that once China will calculate results of coronavirus epidemic - US drives them home by "Phase 2" agreement and squeeze all juice out of them.


CFTC DATA

Long term strong tendency that turns to active stage this week finds its reflection in investors positions. Thus, net short EUR position has increased almost twice this week, reaching 80K contracts and it has big room to fall more as previous record stands around -225K contracts:

1581754755608.png

Source: cftc.gov
Charting by Investing.com



This week we've got GDP data, and EUR currency suffered its worst start to a year in five years. Next week all investors will keep an eye on EU consumer confidence and PMI figures on Thursday and Friday as they should determine which way it blows.

China is Germany’s biggest export market so a sickly economy there matters, considering Deutschland AG is already flirting with recession. At the upcoming G20 meeting in Saudi Arabia, European finance ministers will warn their counterparts of “a larger than expected slowdown”, Reuters reported. Markets will focus in particular on what ECB chief Christine Lagarde says, considering policy easing expectations are back in play.

German politics too are being clouded by confusion over Chancellor Angela Merkel’s succession after next year’s election. The euro started 2020 at $1.124 but has slumped to near 3-year lows around $1.08. Bad economic data could push it below that cliff.

1581755101908.png



Technicals
Monthly


This week few events have happened that hit monthly chart directly, which is quite rare. First is monthly grabber has reached minimal target as EUR has dropped below recent 1.09 lows. Second event is more important as EUR has dropped below Yearly Pivot Support 1. Now it stands not too far from it, and probably it is too early to call it as "breakout". Still, EUR drops below it and this has happened after failed test of YPP. This combination of events shows bearish sentiment.

As we've said - if EUR indeed drops a bit more showing real breakout, we focus on our next 1.03 lows target. Additionally we could point on 1.07 level. EUR accurately keeps harmonic swings here - as to the upside as to the downside. Thus, next downside harmonic target is 1.07.

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

What is also important that in fact, EUR has no real support in an area of 1.03-1.08 as major Fib levels are broken and YPS1 almost as well.

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_17_02_20.png


Weekly

This week we've got 2nd tail close week. Target are mostly the same as on monthly chart - AB-CD inside the channel consists of harmonic swings. Another target we've discussed in daily updates. This is major OP around 1.0806 area. The most valuable information here is Oversold level. When market shows acceleration inside the channel it suggests coming breakout and acceleration. But, as you can see OS level stands right around channel's border. It makes downside breakout hardly possible in nearest few weeks. This is the reason why we keep our focus on reaching 1.07 - 1.08 major targets and starting of upside pullback after that.

eur_w_17_02_20.png


Daily

On Daily chart market creeps with oversold down, showing miserable collapse. It is not much to comment here. We only could set the Fib levels as preparation to possible upside retracement as B&B "Sell" is our primary pattern that we would like to get here.

eur_d_17_02_20.png


Intraday

On intraday charts theoretically, only harmonic pullbacks could be used, at least until market hits the major targets. As price creeps with oversold it shows small equal intraday retracements. But it is open question the degree of utility of this tool. It seems that its applicability is mostly theoretical rather than practical.

eur_4h_17_02_20.png


Conclusion:

Long-term driving factors that we've specified in 2019 turn to active phase, triggering strong sell-off on EUR. As market stands near oversold it is not very comfortable to take short position right now. Our major scenario suggests reaching major targets of 1.07 - 1.08 first and moderate pullback after that, that we intend to use.
 

sveckar22

Corporal
Messages
79
A quick analysis of COT positions.

GOLD:

The sentiment is still very bullish on Gold, as Non-Commercial traders have been closing their Short positions and adding to their Long positions. Overall net positions increased.

16.2.2020 FPA GOLD.JPG

USOIL:

Compared to the last two weeks, when we saw big changes in the positions of Non-Commercial traders on USOIL, last week Non-Commercial traders added to both their Long and Short positions in small amounts, which led to a decrease in Net Long positions by only around thousand contracts.

16.2.2020 FPA OIL.JPG

DXY and EURO:

Big increase in trading activity on DXY (orange column), while Non-Commercial traders added to both Long and Short positions, the increase in Longs was greater which led to an increase in Net Long positions.

16.2.2020 FPA DXY.JPG

As we see Euro weakening Non-Commercial traders are adding to their Short positions, while Long positions are floating between 160 and 170 thousand for a while now.

16.2.2020 FPA EUR.JPG

AUD:

Long positions stayed pretty much unchanged, while a significant amount of Short positions have been closed. This led to a decrease in Net Short positions.

16.2.2020 FPA AUD.JPG

The market is still forming LLs and LHs, so I am not eager to take any Long positions. I just took a Short position at 0.6700 and 30 pips SL, with TP around previous lows or maybe lower depending on potential price action if indeed we will start breaking lower.

17.2.2020 AUD D.JPG


CAD:

Big increase in Longs and just a small increase in Shorts led to a decrease in Net Short positions yet again.

16.2.2020 FPA CAD.JPG

I will be buying at 1.32200.
17.2.2020 CAD D.JPG


GBP:

Last week Non-Commercial traders increased their Long positions and decreased their Short positions which led to an increase in Net Long positions.

16.2.2020 FPA GBP.JPG

JPY:

Net Long positions increased again as Non-Commercial traders added slightly to their Long positions and closed some of the Shorts.

16.2.2020 FPA JPY.JPG
 

Sive Morten

Special Consultant to the FPA
Messages
13,160
Greetings everybody,
While EUR is creeping to 1.08 target on daily chart - lets take a look at GBP, as it has its own, different driving factors. Market is a bit politicized now as it is widely discussing and expecting content of budget and, in general how government drives the country to exit from EU. Still, on intraday chart we have something to consider today:

On daily chart picture mostly stands the same and GBP again was not able to show downside breakout that we've discussed last week. Price returns back to upper border of triangle:
gbp_d_18_02_20.png


On a way up, price has broken K-resistance area, that we initially used for short entry. But only minor bounce has happened. Then, GBP jumped to 5/8 Fib resistance level. Currently we easily could recognize H&S pattern and price comes to the right arm's bottom. IT could be useful as for bulls as for bears. While bulls could consider long entry - bears, instead, could keep an eye on failure and drop closer to the head lows. This will be sign of weakness. Still, as H&S is still valid, let's focus on direct signal:
gbp_4h_18_02_20.png


On 1H chart price is forming clear AB-CD that creates Agreements as with K-support at 1.2985 as with 5/8 Fib level around 1.2950, where XOP stands. Both Agreements are suitable for position taking, and do not break the idea of H&S reversal. First level is stronger, and this is also former K-resistance area. Chances that upward action will start from there are greater. Anyway, at least minor pullback should happen, and let us to move stop to breakeven. Breaking of the XOP Agreement down will be bearish and that's the sign that bears could keep an eye on
gbp_1h_18_02_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,160
Morning guys,

Our trade on GBP has started well. While EUR still stands around the target and we're waiting for reaction, today again - let's take a look at GBP. Daily chart is the same. On 4H chart market keeps support level that we've specified yesterday, and if GBP starts right from here, the target should be around 1.3160 area:
gbp_4h_19_02_20.png


The tricky moment stands on 1H chart. As you can see - price now returns back to K-support area, but keeps previous lows intact. Overall price action is getting triangle shape. Support is still valid and also we have hidden bullish divergence with MACD. Thus - you could keep existent position. If you feel uncomfortable - you could close it at breakeven and watch for 2nd entry around XOP + 5/8 Fib support, if GBP will drop there.

gbp_1h_19_02_20.png
 

sveckar22

Corporal
Messages
79
Hello guys, I would like to give you a follow up on what I am looking for USDCAD.

In about one hour we will have some important statistics from the US and Canada, that could provide us some volatility.

19.2.2020 USDCAD NEWS.JPG

Based on my COT Analysis I am bullish on USDCAD and I was waiting for a retracement to go Long on this pair. I will try and do that at 1.32200 where we have FIB confluence in combination with COP target on the 4H timeframe and this minor XOP on the 1H time frame, my stop loss will be 40 pips.

19.2.2020 USDCAD 4H.JPG


19.2.2020 USDCAD 1H.JPG
 

Sive Morten

Special Consultant to the FPA
Messages
13,160
Morning guys,

EUR still stands flat and today again - GBP will be in focus. Besides we have real things to discuss there. First of all, daily trend has turned bearish and situation changes drastically. It means that here we have to recall again our Agreement support area around 1.27. At the same time Oversold level stands around 1.2815 and hardly GBP dropped too far below it this week:
gbp_d_20_02_20.png


Bullish scenario has been destroyed totally. Yesterday we've warned that something is wrong as GBP has returned back to K-support first, but later it has been broken 5/8 Agreement support (with XOP target) as it no exists. It means that H&S pattern that we were considering now stands in "failure" mode. It suggests price drop below the head, i.e. breakout of previous lows:
gbp_4h_20_02_20.png


As price now stands in active stage of H&S "failure" and bullish setup has been broken just yesterday, GBP is not at oversold - we do not expect long pauses and deep retracement. If any pullback will happen, it probably will be small and short-term. Most probable - 1.2940, or 1.2960 K-resistance as maximum.
gbp_1h_20_02_20.png


So, if you search chances for short entry - consider these two levels. Those who wants to go long should do nothing right now and wait when H&S will fail totally. 1.27 Agreement support on daily chart is next good area where some pullback could happen, so you probably should focus on this level.
 

Sive Morten

Special Consultant to the FPA
Messages
13,160
Morning guys,

As we're coming to the Friday, today, I suppose, it makes sense to take a look at something short-term. For example, we could consider momentum trade, (a kind of B&B "Sell") on 4H GBP chart. Recent sell-off was rather strong and has nice momentum. Thrust is not perfect, but it should be enough for 5/8 retracement and reaching minimal target here. This trade should be completed in single session so we do not need to keep position through the weekend. Or, if you consider this setup for longer-term possession, you could keep it with breakeven stop. Potential of the trade 50 pips approx.:
gbp_4h_21_02_20.png


On 1H chart we have Fib levels based on the thrusting action. Now price is forming AB-CD pattern, with OP that makes Agreement with 1.2915 Fib level. This is potential area for short-entry. Target is 5/8 support around 1.2875 (level is based not at current top but on OP level).

gbp_1h_21_02_20.png
 
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