Forex FOREX PRO WEEKLY, February 21 - 25, 2022

Sive Morten

Special Consultant to the FPA
Messages
16,092
Fundamentals

Once markets start unclenching from invasion hysteria - it comes back again, right on Friday. Here, actually, we see the execution of two moments that we've talked about previously and not just once. First is the geopolitical madness stands here for the long term, it is not even started yet and we're just on preliminary steps to major contradiction. Second - the more often the US tries to switch the attention of investors out of inflation, the more we think that markets underestimate its level. Since it is more or less clear the situation around geopolitical tensions and why the US keeps them hot, we focus today mostly on financial issues, and the coming interest rate in particular.

Market overview

A gauge of global stocks fell and government debt prices rose on Friday after hopes that diplomacy might resolve the Ukraine crisis faded on news Donetsk and Lugansk republics were evacuating population to Russia (Rostov region) from in the country's east as Ukrainian artillery fire intensifies and hazard of Ukrainian invasion magnifies. Sentiment soured as shelling increased in eastern Ukraine and a rebel leader announced the surprise evacuation, a surprise development in a conflict the West suspects Russia will use to justify an all-out invasion of its neighbor.

The dollar rebounded and the safe-haven Swiss franc rose as a mood that had improved on news late on Thursday that U.S. Secretary of State Antony Blinken would meet with Russian Foreign Minister Sergei Lavrov next week darkened again. Investors are waiting for the three-day weekend to be over to assess an equity market already weaker on the outlook that rising interest rates will hurt growth stocks, said Rick Meckler, partner at Cherry Lane Investments.

"Coming into this weekend with geopolitical concerns and what's been a persistently weak market, a lot of people threw in the towel," Meckler added.

President Joe Biden said on Friday the U.S. national emergency declared in March 2020 due to the COVID-19 pandemic will be extended beyond March 1 due to the ongoing risk to public health posed by the coronavirus. Biden said the deaths of more than 900,000 Americans from COVID-19 emphasized the need to respond to the pandemic with "the full capacity" of the federal government.

"There remains a need to continue this national emergency," Biden said in a letter on Friday to the speaker of the House of Representatives and the president of the Senate.

Federal Reserve chief Jerome Powell will testify before Congress on March 2 and 3 in what are likely to be his final public remarks on monetary policy before the U.S. central bank begins raising interest rates to fight decades-high inflation. Powell will deliver his regular semiannual monetary policy update to the U.S. House Financial Services Committee on March 2 and appear before the Senate Banking Committee on March 3. Both hearings will begin at 10 a.m., the committees said on Friday.

Powell, who has not spoken publicly since January, may use his testimony to lay out what he feels is the consensus of the Fed's 16 monetary policymakers, who will be weighing the risks of an upward inflation spiral against the possibility that tightening policy too hard or fast could choke off economic growth or disrupt financial markets.

Last week, St. Louis Fed President James Bullard called for a full percentage point worth of rate hikes over the next three meetings, a steeper path than the Fed has followed in decades.

"We are missing our inflation target on our preferred measure... and policy is still at rock bottom lows and we’ve still got asset purchases going on," Bullard said in a television interview with CNN. "This is a moment where we need to shift to less accommodation. "I'm not saying that’s necessarily what we have to do," Bullard said in his latest interview. "I’ve laid out this 100 basis points by July 1st and let the chair manage the committee and the expectations around that appropriately... But I do think it’s important to get moving and I do think it's important markets understand the necessity of the Fed's move."

The Federal Reserve will need to move more aggressively to remove accommodation than it did following the Great Recession by raising interest rates at a faster pace and shrinking its balance sheet more quickly, Cleveland Fed President Loretta Mester said on Thursday.

"Barring a material change in the economy, I anticipate that it will be appropriate to move the funds rate up at a faster pace this time and to begin reducing the size of the balance sheet soon and more quickly than last time," Mester said during a virtual event organized by the New York University Stern Center for Global Economy and Business. Fed officials also need to move away from providing explicit forward guidance as they reduce support, Mester said. "Instead, we will need to convey the overall trajectory of policy and give the rationale for our policy decisions," she said.

Mester also said she supports selling some of the Fed's mortgage holdings at some point to accelerate the move to a portfolio that invests primarily in Treasury securities. She is among the officials who view asset sales as a backup plan for the central bank as it shrinks a balance sheet that doubled in size during the pandemic

Federal Reserve officials on Friday squelched what had been rising market expectations for an aggressive initial response to 40-year-high U.S. inflation, signaling that steady interest rate hikes should be enough to do the trick.

"I don’t see any compelling argument to taking a big step at the beginning," New York Federal Reserve Bank President John Williams, the No. 2 official on the central bank's policy-setting panel, told reporters after a speech.I think we can steadily move up interest rates and reassess," he said at the online event.

Fed Governor Lael Brainard - President Joe Biden's nominee to be vice chair at the Fed - said officials will likely kick off a "series of rate increases" at their upcoming meeting in March, followed by decreases in the size of the Fed's balance sheet "in coming meetings."

Investors in federal funds futures contracts last week began leaning towards the idea the Fed would raise rates a half a percentage point in March. Those expectations have now drifted back, with a quarter-point hike now anticipated and six increases in total over the year.

In remarks at the conference in New York, Chicago Fed President Charles Evans downplayed the thought the Fed needed to get more aggressive, even though he agreed policy was "wrong-footed" with annual consumer price increases topping 7%. He said he remained convinced inflation would ease on its own.

"I see our current policy situation as likely requiring less ultimate financial restrictiveness compared with past episodes and posing a smaller risk," Evans said at a separate New York event. "We don’t know what is on the other side of the current inflation spike... We may once again be looking at a situation where there is nothing to fear from running the economy hot."

The Fed should begin raising rates next month and, once rate hikes are underway, begin to "steadily and predictably" trim its $9 trillion balance sheet, Williams said. Both actions, he said, will bring demand into better balance with supply.

At the same time, he said, other forces should also be bringing down inflation, with supply chains healing and consumers returning to pre-pandemic spending patterns. Williams said policymakers can speed up or slow down the pace of rate increases later as needed. A path in which the overnight federal funds rate moves to a range of 2% to 2.5% by the end of next year makes sense, he said.

Williams said he expects real U.S. GDP to grow by slightly less than 3% this year and for the unemployment rate to drop to about 3.5% by the end of the year. He projects inflation as measured by the personal consumption expenditures price index to decline to about 3% and for it to fall further next year as supply challenges improve.

But if we take a look at 3-month US Treasuries Bills, the major barometer of coming interest rate change, it shows that investors expect rate change in excess of 0.25%
In recent 1-2 sessions expectations are eased a bit on the background of running into the quality, but a few days ago expectations stand around 0.46% which suggests 0.5% rate change at least:
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Morgan Stanley expects the U.S. Federal Reserve to raise interest rates six times this year for a total of 150 basis points, a faster increase than previously predicted, according to a research report from the bank on Thursday. Major investment banks have been penciling in an increasingly strong run of interest rate hikes for 2022 after hotter-than-expected inflation data ramped up pressure on the Fed to take a firmer stand against soaring prices.

"Following the recent changes to our inflation outlook, we now expect the Fed to deliver a total of six 25bp hikes this year," Morgan Stanley Chief U.S. Economist Ellen Zentner wrote in the report.

The Fed is likely to hike rates by 25 basis points at the end of its March policy meeting, followed by additional 25 basis point hikes in May, June and July, with another two hikes in September and December, according to Morgan Stanley.

Eurodollar futures, which reflect the outlook for U.S. interest rates over the next few years, have started to price in an incremental easing of monetary policy by the Federal Reserve in 2024. If that plays out, it would be just two years after what is expected to be the start of a Fed tightening next month. The money markets' odds on a 50 basis point-hike the last few sessions have dwindled from as high as 80% to 37% on Friday.

Market pricing for the December 2023 eurodollar contract showed an implied yield of 2.235%, which traders said can be a proxy for the federal funds rate.
That is looking likely to be the peak of the Fed-rate-hike cycle or the so-called "terminal rate," analysts said, with implied yields declining to 2.18% in the March 2024 contract, 2.125% in June, 2.095% for September, and 2.085% for December.

Fed officials estimate the long-term neutral rate, which is neither constricting nor stimulating economic growth, is 2.5%.

"If you look at the (yield) curve out around '23-'24 it starts to flatten out and invert, which would argue for pricing in rate cuts," said Jim Caron, portfolio manager and head of global macro strategies for the global fixed income team at Morgan Stanley Investment Management. "The long end of the curve is basically telling you the same thing. It's telling you the more they hike now, and the more they slow down growth now, the more they are going to steal it from the future, and therefore long-term growth prospects aren't very high either."

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The roughly 220 basis points of anticipated interest rate increases over the next two years suggest a faster pace of Fed tightening that may include one or two half percentage point hikes in that period, analysts said.

Dan Belton, fixed income strategist, at BMO Capital in Chicago, pointed out that at the beginning of the month, "futures markets priced a much later peak of the Fed's hiking cycle, closer to 2028 or 2029. He added that the market had also been looking for a "much shallower path of Fed hikes too, with the peak rate being closer to 1.82%" than it is now.

"It's as if traders in the eurodollar futures market think the Fed is going to overdo it next year and then have to reverse course and push rates back down," said Brian Reynolds, chief market strategist at Reynolds Strategy, and former money market portfolio manager for an investment firm.

The eurodollar curve has inverted a few times in the past.

In June 2018, the inversion suggested the Fed would have to cut interest rates at a time when it was in a tightening mode. Indeed, after hiking rates in December 2018, policymakers reversed course the following July with a rate cut. In 2020, the central bank cut the benchmark overnight lending rate to near zero as the coronavirus pandemic caused economic devastation around the world.

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:

* JP Morgan raises its Fed call to seven 25-bp rate hikes from five previously, for a total of 175 bps of tightening this year.
* Morgan Stanley now expects the Fed to deliver six 25-bp hikes this year. It had previously forecast 125 bps of tightening via four 25-bp hikes plus a 25-bp fed funds equivalent runoff of the Fed's balance sheet.
* UBS now expects 150 bps of tightening this year via six consecutive quarter-point moves from March through November. It had previously forecast 25-bp increases in March and June, then "a potential shift toward an every meeting hike pace".
* BNP Paribas expects six hikes of 25 bps this year starting in March, resulting in a cumulative 150 bps of tightening.
* Citi now expects 150 bps of tightening this year, starting with a 50-bp 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-bp increase at the upcoming March meeting.
* Societe Generale now expects five rate hikes of 25 bps this year, starting in March.
* Goldman Sachs said it is raising its forecast to include seven consecutive 25-bp 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-bp hike in the March meeting.
* HSBC expects the Fed to roll out a 50-bp hike in March and four more quarter-point rate rises in 2022.
* Deutsche Bank expects the Fed to call a 50-bp hike in March plus five more 25-bp hikes in 2022, with a hike at all but the November meeting.
* Barclays now expects the Fed to raise rates by 25 bps five times this year, up from three hikes forecast earlier.


The producer price index for final demand jumped 1.0% last month, the biggest advance since May, after climbing 0.4% in December, the Labor Department said. In the 12 months through January, the PPI rose 9.7%. That followed a 9.8% surge in December. Year-on-year PPI is slowing as last year's large increases drop out of the calculation. Economists polled by Reuters had forecast the PPI would gain 0.5% on the month and advance 9.1% on a year-on-year basis.

"This is further evidence of persistent and increasingly embedded inflationary pressure that should keep the Fed leaning towards even more hawkish policy," said Andrew Hollenhorst, chief U.S. economist at Citigroup in New York. "We continue to expect data over the next month will support a 50-basis-point hike by the Fed in March."

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With the CPI and PPI data in hand, economists are estimating the core PCE price index rose by about 0.6% in January. That would result in the year-on-year rate increasing 5.2%, which would be the largest gain since early 1983. While the Institute for Supply Management (ISM) surveys and data on inventory accumulation have suggested some easing in supply constraints, that has not been evident in the PPI data.

"In the months ahead, the PPI will be an important bellwether to gauge if supply chain easing could lead to cooler consumer prices," said Will Compernolle, a senior economist at FHN Financial in New York. "We don't expect immediate pass-through, but an eventual slowing in producer price increases would be a sign firms are able to increase capacity to meet strong demand."

The European Central Bank has been right to maintain its easy money policy as inflation is set to fall after "transient boosts" from supply snags that may extend into next year, the International Monetary Fund said on Thursday. The Washington-based institution said past data suggested that wages in the eurozone would rise only modestly and that inflation, which hit 5.1% last month, would fall back below the ECB's 2% target.

"We expect inflation to fall slightly below the European Central Bank’s target once the pandemic fades," read a blog post signed by managing director Kristalina Georgieva and two other officials. The ECB has appropriately decided to maintain an accommodative monetary stance until its medium-term inflation target is met while preserving its flexibility to adjust course if high underlying inflation proves more durable than expected."

The IMF's post was based on a new paper estimating that eurozone GDP would have been 2% higher last year had it not been for supply constraints, caused by lockdowns and by shortages of everything from containers to skilled workers. This supply shock accounted for half the increase in euro area producer price inflation excluding energy prices last year, the IMF said.

It warned that bottlenecks may last longer than expected and possibly into 2023 due to the spread of the Omicron variant of the coronavirus, posing a challenge for central bankers trying to support the economy while keeping a lid on inflation.

"Keeping medium-term inflation expectations stable despite transient boosts to inflation, including from supply disruptions and surging energy prices, is key to managing this trade-off," the IMF said.

Keen to downplay anxieties about the war in Europe, global investors appear to fear a monetary policy miscalculation even more. Their problem is that the two are hugely intertwined right now. World markets gyrated over the past week as fears of a standoff between nuclear powers in NATO and Moscow.

But where to focus? More global fund managers surveyed by Bank of America this month identified "monetary risks" - as opposed to geopolitical, credit, business cycle, or trade risks - as the biggest threat to financial market stability than at any point in near 20 years of polling. Although the survey was conducted before the latest ratchet in Ukraine tensions, a net 64% of respondents saw either hawkish central banks or inflation as the biggest "tail risks". Just 7% opted for the Russia-NATO conflict.

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All this angst led to the highest net cash reading in portfolios since the pandemic first unfolded, heightened recession fears, and the biggest net share of funds betting on a flatter yield curve since 2005. But the worry list speaks loudly to investor fears of central bank policy errors, in part due to the still wild pandemic-related and now geopolitical distortions. Misinterpret the inflation surge and tighten too much or too hastily - or even underestimate it, allow high inflation to fester and then have to squeeze harder eventually to wrest back control.

Bullard said he favoured a full percentage point increase in the Fed's main interest rate by midyear - mainly because the Fed's "credibility is on the line".

While some investors doubt the Fed will be that aggressive, it's unnerving to think central bankers might act just to be seen by markets, governments and the public to be "doing something" - even as their own analysis shows there's little they can do to ease an energy supply or geopolitical shock.

What's more, spooking markets in that direction can have a dynamic of its own if authorities then feel they then need to catch up.

PIMCO's Tiffany Wilding said she sees "virtually zero" chance of an intermeeting Fed hike and also doubts it will opt for a large 50 basis point rise in March. But even if the "rollercoaster" ride for U.S. bond investors seemed extreme, there was danger "market pricing may become a self-fulfilling prophecy," she added.

Unigestion multi-asset manager Salman Baig also thinks the Fed will have more patience than markets now bet. But he added: "Tightening into decelerating growth runs the risk of further slowdown, raising the concern of a policy mistake that would put a serious dent into 2022 earnings."

But all the furtive movement of tanks and troops in eastern Europe does have a role in seeding such a mistake. Although concerns have risen about broadening price pressures, the assumption in market and policymaking circles late last year was that even a flatlining oil price would see annual base effects get crushed early this year and take pressure off headline inflation rates everywhere in 2022.

And so these monetary and geopolitical risks are joined at the hip and hard to disentangle completely. War and an energy shock could simply up the risk of hawkish error. Avoiding those may be needed to confirm the still-benign year end forecasts.

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To be continued
 

Sive Morten

Special Consultant to the FPA
Messages
16,092
COT Report

Speculators' net long bets on the U.S. dollar fell in the latest week, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday. The value of the net long dollar position was $6.76 billion for the week ended Feb. 15, the lowest since August. Last week, speculators' net long position stood at $7.81 billion.

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Despite flat standing and even downside Friday's action on EUR, the net position has become more bullish this week. Although the change of open interest is not significant - as speculators as hedgers were increasing positions in favor of the EUR:


Next week to watch

Tensions over Ukraine are set to keep markets on edge in the week ahead while U.S. consumer data and results from major U.S. retailers will give fresh insights into shoppers' minds as well as inflation and supply chains. PMI data could show how major economies are faring as governments dial back on COVID restrictions while flattening yield curves demand attention as the U.S. Federal Reserve's key March meeting draws closer. Meanwhile, by how much will New Zealand's central bank hike rates?

#1 Geopolitics
Tensions between Moscow, Washington and other Western capitals have dominated markets in recent days, and there is little sign of this abating as major Western powers warn of a possible imminent Russian invasion. Diplomatic efforts are continuing at full steam, with U.S. Secretary of State Antony Blinken accepting an invitation to meet Russian Foreign Minister Sergei Lavrov late in the week - provided Russia does not invade Ukraine.

Ukraine will also take center stage when some world leaders converge on Germany over the weekend for the annual Munich Security Conference.

#2 US Consumer confidence

January consumer confidence readings showed expectations for short-term growth ebbing, viewed by some economists as a warning sign against the backdrop of a stock market rout. Stocks have remained volatile in February as investors digest a hawkish shift from the Fed and worry over a potential escalation between Russia and NATO

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#3 RBNZ rate change

The Reserve Bank of New Zealand (RBNZ) is considered certain to raise the 0.75% cash rate for the third time in five months when policymakers meet on Wednesday.

The only question is whether Governor Adrian Orr and others will stick to quarter-point moves or up the ante to 50 basis points after recent data showed inflation and labor markets running hot. Policymakers have long expressed a preference for gradual moves, but swaps still imply a one-in-three chance of 50 basis points. The RBNZ is also likely to project a hike at every meeting this year, and perhaps an ultimate peak of 3.0%.

#4 EU and UK PMI's

Flash February PMIs due over the coming days -- euro area and UK ones are out on Monday -- could show how such developments are lifting economic activity. Sentiment in Germany has already received a boost and further positive news could encourage central banks to unwind post-pandemic stimulus fast.

Our 2 cents...

We probably not be unique, if we take a look at geopolitics and inflation fears from a bit different angle. I mean 2022 US Senate elections and 2024 probably as well. Biden administration now has problems at all fronts. Inside the country unpopular Covid measures, two digits of inflation, and no big achievements with his first term in President's chair make Democrats' positions very fragile. The public opinion polls show that republicans should return control over Senate this year. The relationships with former partners have become worse, including major rivals such as Russia, China, while dominating role in the EU is becoming weaker. The long-term spiral of consumption stimulation by decreasing interest rates for decades comes to an end. If previously households were getting the room to consume more due refinancing of mortgage loans and other credits, using Fed rate cut - now they can't do this anymore, and with coming rates hike the poorest part of could appear in difficult times. The wages do not grow with a 20-25% rate. And now it is a big concern that Fed action couldn't achieve inflation drop and do not hurt the economic growth at once. Besides, Democrats can't wait anymore, the elections start in November but Fed has not even started to act. They need results to come "yesterday".
The same situation was in the late '80s when inflation hits 18-20%, the defense budget was overblown, and only invasion to Iraq and following victorious war has let to consolidate population and help Democrats to stay on the throne. So geopolitical tensions are very useful to Democrats as they switch attention out from domestic problems and some war, if it stays far away, and becomes not very wide, but victorious - this could be some achievement in an eyes of the electorate. Especially if some more dominance will be set over Russia, which is one of the major rivals, at least in the defense sphere. This, in turn, could become a background, the preparation for following pressure on China.

But the problem here is uncertainty. Russia is not the same as Iraq or Lybia. Any mistake immediately directly exacerbates Democrats' defeat in domestic political struggle. Closing any geopolitical tensions is not a solution as well. Because it makes US people stay focused on inflation and other domestic problems. In dry residual we get tough situation for Biden administration - he can't just sit on the hands and do nothing. He has to do something and has to warm up geopolitical tensions, by keeping an eye on the Fed and inflation level, but this is razor's thin way. The defeat in the foreign arena will lead to destructive processes inside the country as well. Keeping pressure on China with using artificial supply chains' breaking brings some fruits already - the Chinese economy is slowing, but it is a tough game to play as well because it easily could get out of control, as goods already cost higher for the population. And rising interest rates make the second impact on households' budgets. In fact, the US trying to struggle on two fronts - geopolitically with Russia and financially with China. It would be better to separate the timing of these two events, but unfortunately, they coincide.

But why we're talking about all this stuff? What is the relation between mentioned topics and, say EUR/USD price action? The relation is straightforward. Within the nearest few months, we suggest that EUR should become weaker for a few reasons. Tensions stand in Europe, they do not disappear but should become tougher, any sanctions that will be adopted should hurt the EU economy directly. We do not exclude also the political and social unrest in the EU if geopolitical confrontation with Russia will become a bit wider than was planned initially and involve EU countries. Finally, stronger Fed policy and demand for safe-haven support the US Dollar. This should last for 3-6 months, now it is difficult to set the correct time. With this period special demand should stay for the gold and safe-haven assets, including US bonds and US dollars.

In 2023 and later we suspect that situation could start changing. The US victory in the geopolitical arena now looks doubtful. Our view is that Republicans should get Senate domination this year and 2023 becomes the peak of political struggle inside the US. We suspect that Fed efforts to control inflation in such tough conditions are not sufficient until the US releases supply artificial bottlenecks. The geopolitical pressure on the US should keep growing in the next year and all these factors together lead to the rising of doubts about the US Dollar's strength.

Technicals
Monthly

EUR can't take off the COP target keeping major bearish technical moments here 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 previously. The market is not oversold.

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Weekly

With all this negative stuff that we've got in recent 2-3 weeks, bulls still could find a positive moment on EUR, although for the short-term perspective. In fact, on the weekly chart EUR keeps chances on upside bounce. The trend has turned bullish, we have a nice looking bullish engulfing pattern that is not broken yet. Besides, overall action could be treated as the DRPO "Buy" Look-alike pattern. Thrust looks good with just single penetration of 3x3 DMA.
Target points on 50% resistance level that agrees with the weekly overbought area. This is also the target of engulfing and DRPO patterns. So if the current setup holds, most probable that EUR hits the 1.17 area.
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Daily

On the daily chart, we have to answer the question, of whether EUR will be able to hold the bullish context. As we've suggested last week, it should drop a bit deeper before a possible upside turn starts. As political confrontation is rising again, our scenario fits with it. All that we need to do is try to catch the reversal action on lower time frames around predefined levels. Currently, it seems that it might happen around 1.12-1.1250 area, to keep the symmetry of supposed reverse H&S pattern here.

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Intraday

Here actually we have the same patterns that we've mentioned on Friday. The only difference that EUR starts the action in the direction of our targets. And, additionally, we've got a large AB=CD pattern on 4H chart:

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On 1H chart smaller scale AB-CD has the XOP right at the same area.
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Here we have an important moment guys. As EUR was not able to keep upward action after OP, and turns down again, forming bearish reversal swing, this is the point in favor of downside continuation to XOP target. It means that we consider 1.1248-1.1262 as the first entry area and 1.1180-1.1208 as the second one. Breaking the latter probably means the bulls' capitulation and EUR action to the new lows.
 

Sive Morten

Special Consultant to the FPA
Messages
16,092
Morning guys,

So, events are going fast and markets are underreacted just because the US is still sleeping after the President's day. But today this situation should be fixed.

Events are going in general according to our suggestion and we see just a prelude of escalation. In daily updates we skip any talks on geopolitics and keep them for the weekly report. But, because of the same factors that we already mentioned many times - dollar should become stronger these days. We've got another bullish grabber on dollar index:
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And this makes us to keep our scenario with EUR dropping to 1.1180-1.12 area. Also, you can't be sure with anything and we do not take the scenario with total collapse off the table as well:

On intraday charts we keep the same patterns - extensions and butterfly:
eur_4h_22_02_22.png


On 1H chart as we said - this is definitely not the bullish reversal price action by far and mostly shows the features of consolidation before downside continuation:
eur_1h_22_02_22.png


To be honest guys, now I'm ready to bet on EUR drop through 1.11 lows. And if even we get some bounce up from predefined support levels - hardly it makes daily H&S work properly. More probable that it triggers just minor upside pullbacks.
 

Sive Morten

Special Consultant to the FPA
Messages
16,092
Morning guys,

So, recent Biden speech was not not too hawkish and calms down markets a bit, as no big escalation happens. We take a look at geopolitical picture later in this week. Now, despite that EUR shows quiet action, we still suggest that price should reach 1.1260 area at least by few reasons.

First is - existence of bullish grabbers on dollar index mentioned yesterday. Today is another point in favor of the USD - rising 10-year yields and forming bullish reversal bar yesterday:
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That's why, maybe lower standing targets around 1.1180-1.12 could be arguable, reaching of 1.1260-1.1265 area still looks very probable. Thus, it makes no sense to deny scenario with the butterfly pattern:
eur_4h_23_02_22.png


Besides, now we also could recognize the potential 3-Drive pattern on the 1H chart with the same target:

eur_1h_23_02_22.png
 

Sive Morten

Special Consultant to the FPA
Messages
16,092
Morning guys,

After the recent events, it makes sense to wait for the US opening at least. Now many things depend on the US response. As you understand, despite our technical scenario is working properly - now there are too many risks. Thus, today you probably should make decision on wether take part of this scenario or not.

On daily chart price stands at culmination point, as I call it - this is the combination of an area where bullish setup is still valid, but price stands at the edge. It means that it has to go up, or, it will be downside breakout of 1.11 lows. As you understand, now we have not too many reasons to expect upward action:
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On 4H chart EUR has completed majority of our targets:
eur_4h_24_02_22.png


The same is on the 1H chart - 3-Drive is completed, as well as XOP with fast spike down:
eur_1h_24_02_22.png


Speaking on pure technical moments - downside acceleration is not a very good sign. Thus, if you decide to buy EUR, based on this pattern - try to move stops to breakeven as soon as possible.
Another way - that seems conservative is to do nothing until Monday. IT is just 2 sessions until the weekend, and the situation is changing rapidly now.
 

Sive Morten

Special Consultant to the FPA
Messages
16,092
Good morning everybody,

So, it seems our worries were not in vain recently. It seems currently the pause in downside action stands due to oversold and some easing in the geopolitical situation. But something tells me that this is temporal.
Besides, EUR has erased as weekly bullish engulfing as DRPO "Buy" pattern there. Hardly this adds points to the bulls. Besides, I have big doubts that situation around Ukraine will be over at current stage.

All these moments make me think that EUR has more chances to go lower next week. The only riddle is the bearish grabber on the weekly Dollar Index and the factors that could make'em work...
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In short-term I'm mostly watching for XOP at 4H around 1.1050:
eur_4h_25_02_22.png


For scalpers, it might interest situation a kind of B&B "Sell" on 1H chart as well. Despite that we're at oversold, I do not see interesting setups for the long entry by far:
eur_1h_25_02_22.png
 
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