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FOREX PRO WEEKLY, February 19-23, 2018

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Feb 17, 2018.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals

    On this week there are not as many topics for discussion as it was last week. To finalize our stock market discussion last week, we provide Fathom consulting opinion. They also think that stock market will gradually continue to fall, just because of gap between economy growth rate and riskless rate is narrowing. Stock market strongly depends on this difference. Mostly, this rate narrowing is an indicator of business cycle that we've discussed recently. So, Fathom mostly also confirms that we are not in crisis run to liquidity and safe haven assets but in expected normal change of global economy stage, which is coming to "inflationary growth" step.
    Tranquility of stock market is also gonna become past. Volatility jump is also normal behavior when global economy comes from one step to another. At the edge between these steps there are a lot money flows appears as investors are working on portfolio rebalancing. Most common flows - partial out from stock market to protect profit into short-term bonds, which yield is gradually rising.

    Second topic that I would like to discuss today is Thursday - Friday dramatic action. So, opinions on this subject are rather different. Here is what Reuters written:

    Traditional market correlations have been scrambled this week. Declines in the dollar have come as U.S. Treasury yields hit four-year highs and as stronger-than-expected U.S. inflation bolstered bets that the Federal Reserve could increase interest rates as many as four times this year.

    “The market is befuddled by what seems to be changing inter-market relationships ... Last week, the stock market was falling off because of rising yields. This week yields rose and stock markets rallied,” said Marc Chandler, chief global currency strategist at Brown Brothers Harriman & Co in New York.


    If you remember initial reaction on Inflation data was absolutely normal - dollar has jumped as inflation have suggested higher yields and tougher Fed policy, which should make dollar assets more attractive. But then market surprisingly has turned in opposite direction and closed at new extreme points. Personally, I found just one explanation for this subject. The value of US interest rates were mitigated due significant growth on dollar money supply in observable perspective. Indeed - "Traders’ confidence in the dollar has also been worn down by worries over the United States’ current account and budget deficits, with the latter projected to balloon to near $1 trillion in 2019 amid a government spending splurge and hefty corporate tax cuts."
    Besides, recent government financing bill suggests significant increasing of spending which accompanied by tax cut effect could lead US debt to astronomic numbers:
    "The White House projects a large gap between government spending and tax revenue over the next decade, adding at least $7 trillion to the debt over that time. In 2019 and 2020 alone, the government would add a combined $2 trillion in debt under Trump’s plan."
    So it means that total debt will reach approximately 30 Trln within a decade. Putting all this stuff together, I suspect that rising of US yields comes not just due Fed policy but by real demand for higher yield from investors for US assets. Recent announcement of US government spending has happened in one moment and this has led to a lot of question, whether dollar indeed keeps its value or just becoming a pyramid as supply of dollars is growing with huge tempo.
    This puts US currency in a weaker position compares to other majors and erase effects of rate rising because of following value of currency per se. Rising yields in EU will have quite different effect, because of deficit is limited by government law and this makes EUR attractive. So, I hope you've got what I want to say...
    Another opinion, which also could make sense is hidden money flows due political processes. Here is what our forum member said:
    "Do not forget FED and US criminal banks who dump USD in order to transfer more money out of Europe. That is the new tax regulation, as US corporations will pay only 8 percent interest on the repatriated profits. Guys, nothing makes sense any more. Why would GBP go up, with so many problems around BREXIT? Because, that is where most of the money is, denominated in GBP and EUR. That is why they need to inflate those currencies, as they will transfer more USD back to USA. This is clearly a criminal action, and where is SEC now, to fine the big banks for that?
    The latest two months have produced unbelievable move in GBP and EUR in particular. all in all, that is the explanation. And, as long as those criminals keep their positions, USDx will just continue down. Any time the retail traders take profit, they immediately jump in, and take the position. And, it is all done by supercomputers now. So, we are not in a level playing field of any kind, especially not now."

    If you have any thought on this subject - do not hesitate to share with others. But this is not all yet. On Friday - EUR and others have dropped back keeping our bearish scenario valid. This is also was out of logic and it makes me think that some artificial action exists beyond of this flows as no new information has appeared that could reverse recent move...

    COT Report

    CFTC data doesn't show anything extraordinary yet. EUR is dropping from record highs but currently it is too early to talk about bear trend, at least on sentiment chart. Price, net long position and open interest are dropping simultaneously, which means long covering process. This is more typical for retracement phase, at least initially...

    upload_2018-2-17_12-46-27.

    Techincal
    Monthly


    Last week action makes minor impact on monthly chart. We can acknowledge probably just another challenge of the top. All other things stand mostly the same. Picture could change but recent drop keeps it still valid.

    So, as we've estimated, EUR stands at rather strong resistance area - monthly K-resistance 1.2516-1.26, accompanied by YPR1 @ 1.2617 area.

    Add here sentiment situation with highly saturated long positions and you will get perfect area for retracement. At least this is definitely not an area for long entry, if you're a long-term trader. For short-term traders it is possible to take long positions but with profit objectives around previous top and not count on upside breakout.

    Dollar Index, in turn stands at oversold and monthly 5/8 Fib support. So, most conservative retracement target is 1.20-1.21 area. This correction will be painless for overall bullish picture.
    Finally, another interesting detail, guys - actually EUR has completed upside harmonic retracement..

    That's being said, despite volatility jump on daily chart, here we have no reasons to cancel our view on retracement yet.
    upload_2018-2-17_13-18-25.

    Weekly

    The same story on weekly chart, guys. Usually you expect not so strong upside retracement, when you have completed butterfly and evening star patterns on top, accompanied by overbought. That's why so strong reaction was surprising, even from technical point of view. Still, as price was not able to hold above the top - this keeps bearish scenario valid as well.

    So weekly chart in fact shows two possible scenarios of retracement. First is light scenario - just minor response to butterfly by 3/8 retracement to 1.21 Fib support. Second is heavy scenario, if butterfly will become a part of H&S pattern. Between this scenarios could be the chance for H&S failure. In this case EUR could re-test long-term 1.16 support but then will turn to new highs.

    Speaking on "light" scenario, at first glance it seems that it has been completed as EUR "almost" has touched it. But, guys, we have to understand important thing - market at weekly OB, with solid bearish patterns on the back! It can't be "almost" has reached. Markets reach 3/8 levels in much easier situations without strong bearish patterns and OB. So, EUR either is not done yet with downside action or - bullish pressure is really very strong. Since it was not able to hold above 1.25 area on Friday, it seems that retracement is not over yet.

    upload_2018-2-17_13-26-55.

    Daily

    Now guys, we're coming to most interesting chart. If you carefully will look at the picture, you'll see that this is definitely not an upside continuation action. Market just grabbed stops above previous top. This is what DiNapoli calls "Wash & Rinse" action and it has bearish direction. Later in the session drop has become huge and EUR has formed bearish reversal session. It means that downside continuation has all chances to happen...
    Take a look on trend changing - on Thu it has turned bullish, that why we've paused our bearish stage of trading plan, while on Fri it has returned back to bearish! Usually I call this price action as 2-days stop grabber. As a rule it works as ordinary grabber.
    That's being said it seems on daily we have bearish context as well. To be honest guys, I would not exclude Double Top possibility here...
    upload_2018-2-17_13-37-59.

    Intraday

    Now is most interesting stuff. How to take position without any pain. Definitely we want to be in on a retracement to reversal session. On 4-hour chart we will watch for 1.2380 level - 50% support of whole upside action:
    upload_2018-2-17_13-42-12.

    While our major chart for position taking will be hourly. If our suggestion is correct, and indeed, we're dealing with potential Double Top then retracement probably will be small. In this situation B&B "Sell" pattern on hourly chart could make our day. Thrust down is sufficient, around 50% resistance previous consolidation stands, which increase chances that B&B "Sell" could start from either 3/8 or 1/2 Fib levels...
    upload_2018-2-17_13-47-30.

    Besides, B&B provides relatively safe and painless entry. If even EUR will turn up later - B&B should hit its minor target, which should let us to move stops to breakeven.
    We intend to use this B&B not for getting minor target, but for positioning down with greater perspective. First destination point is 1.22 lows (of potential neckline). Besides EUR is oversold there. So, it will be target for coming week...

    Conclusion:

    Despite dramatic action last week EUR keeps our bearish setup due huge volatility. We will try to apply relatively safe way for taking short position on Monday.


    P.S. In second weekly research (tomorrow) we will take a look at GBP instead of Gold. There we also have rather interesting setup, which brings more confidence of downside action on EUR as well...


    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.
     

    Attached Files:

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  2. FreddyFX

    FreddyFX Sergeant

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    Master Sive, I think with many others, I am confused at the moment.
    The retracement down I understood, and that is might continue a bit, also, but I get the feeling from your analyses that suddenly this further climb of the EU is not going to happen soon.
    Let me be clear, you are NOT expecting a test and passing higher of the latest top we had?
     
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  3. tun13

    tun13 Private, 1st Class

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    Only a forex master can give an insight such as this. Thank you very much for your analysis Sir.

     
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  4. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Hi Freddy. Exactly. That's why we will try to use B&B trade. It is very comfortable right now. If EUR will drop further and Double Top will be formed - we will be in position. If not and EUR still will turn up - we probably will be able to exit at breakeven because at least minor B&B target should be reached.
    In recent action a lot of confusion indeed, because upward action was a bit artificial, but recent drop seems also a bit irrational after solid rally. It seems that market two times has changed its mind. This is not normal. Hence either first upward action is artificial either drop is one...Here, from outside, by looking just on charts we can't estimate this definitely. But we will try to take as safe position as possible and catch early signs of either downside continuation or failure.
     
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  5. Rabul

    Rabul Private, 1st Class

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    Guys, news serve as a short term impulse only. Many times we don't find any explanation on price movements. Several days ago while studying charts I discovered something I decided to share with you. Market started positioning for further EUR appreciation over next years. As EUR shapes USD index it will coincide with severe USD drop, and appreciation of all assets priced in USD, precious metals included.
    The key point right now is at 1.2640. When price will stay above it will head towards above 1.70 over a few years (3-4).
    All news is just a noise, what matters is this chart you will find probably nowhere:
    [​IMG]
     
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  6. Venelin

    Venelin Master Sergeant

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    Hi Sive and all. Here is my long term Euro EW Monthly chart. Even if not going down to parity and beyond, 3 wave correction to the territory of previous wave 4 (1.15-1.16) should happen(if my count is correct :) ). Good luck! Eur Monthly.
     
    #6 Venelin, Feb 18, 2018
    Last edited: Feb 18, 2018
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  7. Stag

    Stag Sergeant

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    Hi guys, please find below my hints on how the PA looks like with an eye of an Elliottician.

    Foreword - A practical approach to the Wave Principle

    My charts assumes a basic familiarity with the Wave Principle and its application, at least a basic knowledge of the key five patterns of the Wave Principle and how they fit together - just like playing any strategy game assumes some level of knowledge of its building blocks. For those who are not familiar with the Wave Principle, it is built on the idea that the market is governed by patterns of investor psychology and it doesn't change based on the news, it changes for endogenous reasons called social mood. Consequently, financial markets are a product of human psychology and the waves of optimism and pessimism drive them.
    The five core Elliott wave patterns are: impulse, ending diagonal (called motive waves defining the direction of the trend), zigzag, flat/expanding flat and triangle (called corrective waves against the larger trend). Knowing these five patterns and its rules will serve as a basis of all your trade setups and you should look for one of them once you learn to identify them quickly and with confidence.

    Beyond that wave patterns form smaller / larger versions of themselves meaning that price action is a fractal. In practice that means an impulse wave itself subdivides into five small waves at one lesser degree, being part of the larger five-wave pattern. Let's call them degrees, each subsequent degree has a different colour allowing you to easily differentiate them on my charts. How is this piece of information useful? When you see unfolding an impulse wave and its wave 5 has already completed three smaller waves, you will know that a setback is imminent and worth considering taking your profits or setting your protective stops if your analysis projects a pullback followed by the resumption of the larger terend. But surely this would not be the best time to open new long positions.

    You are ready to evaluate a chart and finding opportunities if you can put together things above by answering questions like "Is it either a corrective wave or a motive wave?" or "Is there a pattern I can recognize?".

    Sive discussed the Euro in details, so just a few hints from me on the Euro. Here we go.

    Dollar index

    It's premature to confirm the Dollar Index has bottomed, the favoured count suggests dollar strength is likely to prove temporary. The dip registering its low at 88.27 did satisfy expectations for wave "b" of an expanded flat correction. If it is a "c" of expanded flat, price action may peak slightly above 90.60. If the advance is a wave "c" of a zigzag, it should result in a rally that approaches 89.40 but does not not exceed 90.15. Both patterns are sideways patterns and would delay the start of the final leg down to around 88.21 where it would travel 100% of wave (i) (in case of zigzag).The structure of current rally, in five waves or three waves, should help determine whether wave (5) is underway. If the impulsive fall starting from 103.82 is a start of a new downtrend, the advance will have a corrective structure and its progress will be limited to 97-99 area.

    Weekly
    DX_F_180216_w.

    Daily
    DX_F _180216_d.

    Intraday
    DX_F_180216_h4.


    EURUSD
    The Euro has recovered from its wave (4) low, registered a new peak at 1.2556 and has turned lower from there. I'll keep the focus on higher against this level until I can count five waves in place for wave (5), be it an impulse or ending diagonal as seen on my chart. If the setback represents wave 4 it will end after three waves preferably in the red area, 1.2276 acts as final support. A final push to a new high for the rally should complete five waves and that would set the stage for another reversal which will probably represent the resumption of the larger decline instead of a short term correction (taking out the lower boundary of the green channel and breaching 1.2206 would be the first signs). Either way, EURUSD should test lower levels.

    Intraday
    EU_180216_h1.
     
    #7 Stag, Feb 18, 2018
    Last edited: Feb 18, 2018
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  8. FreddyFX

    FreddyFX Sergeant

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    I recall in an analysis a few weeks back it was mentioned that the overall vision is that the Euro Zone keeps doing better and better, so we can expect the Euro to attract more interest from investors. Living in Mexico, I also note a growing aversion to everything that is USA colored. So even companies here are more and more shifting their interest away from the USA, and with the fuss going on about NAFTA, also Canada is getting tired.
    What I am trying to say, lol, is that I would NOT be surprised that this further short EU will be short lived and that maybe even during the beginning of the week the pair will retake its direction UP.
    With Monday being a bank holiday in the USA, anything can happen.
     
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  9. Venelin

    Venelin Master Sergeant

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    Let us see what the nature of this decline towards 1.22 will be-impulsive or corrective :)
     
  10. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Well, currently fundamental background indeed is changing in favor of USD rivals. Although Fathom consulting suggests that ECB will keep rate zero for 8-12 month more, but changings in EU economy are coming, no doubts. Speaking on 5-year perspective, I think that EUR appreciation will be twofold - restructuring of EU and joining to huge new markets of Russia-Middle East-China trading space. Huge markets, huge possibilities.

    Venelin, Stag,
    Guys, I'm really like all this stuff with EW. It let's me to take new, fresh view on the markets. Keep it up!
    Do you have some indi for that? It looks like not manual markings on the chart...

    Also, Stag - could it be a kind of truncation of 5th wave as on EUR as on DXY, so that market will not create new top/bottom?
    Because my view on DXY suggests 5/8 upside retracement on weeky and it is mostly corresponds to what you've said...
     
    #10 Sive Morten, Feb 20, 2018
    Last edited: Feb 20, 2018
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