Sive Morten
Special Consultant to the FPA
- Messages
- 18,695
Fundamentals
(Reuters) - The yen rose sharply against the euro and dollar on Friday after yet another downbeat session for oil prices and stock markets worldwide, underscoring worries about global growth.
The dollar fell overall, with the higher than-expected U.S. inflation data for January having limited impact. Analysts said declining oil and equities took the shine out of the dollar.
U.S. data this week has been generally positive, however, helping the dollar index <.DXY> post its best weekly performance in about two months.
The index was last down 0.3 percent on the day at 96.64.
Sterling climbed against the dollar on Friday after France's President Francois Hollande expressed hope that EU leaders would reach a deal to help Britain stay in the bloc at a summit in Brussels.
But the focus remained squarely on oil and equities, two assets that have struggled this year.
"With stock market fluctuations having recently followed crude oil prices closely, the Japanese yen continued to benefit from its safe haven status when equity markets fall," said Matt Weller, senior market analyst at FOREX.com, in Grand Rapids, Michigan.
"Though equities have recovered some of the losses from earlier in the month, any major return of market volatility may likely boost the yen even further."
Thursday's minutes of the European Central Bank's January meeting had the market again looking for more weakness in the euro against the dollar ahead of a March meeting now widely expected to deliver further policy easing.
"The minutes cemented expectations for stronger stimulus next month, growth-positive measures that are euro-negative as they aim to lower lending rates, harming the single currency’s appeal," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
ECB Vice President Vitor Constancio said at a Reuters Newsmaker event on Friday, however, that the central bank had not yet committed to any decision for its next meeting on March 10 but might act if it determines a recovery in inflation is getting pushed back further into the future.
Today guys, we will take a look at JPY again, but first I would like to place here new fundamental update on GBP from Fanthom Consulting:
During the Great Recession, sterling fell around 20% from its average in the ten years running up to the crisis. And there it remained until mid-2013. It then began to rise on what we judged to be an unsustainable path. Over the past month or so, it has fallen back somewhat. On our central view, it drifts sideways over the next year or two. Nevertheless, as we set out below, the risks are overwhelmingly to the downside. There is a trap door under sterling.
Writing back in 2009 we argued that there were two main factors underpinning the collapse in sterling through 2008. The first was an increase in the risk premium attached to sterling assets. The second was a reappraisal by investors of sterling’s long-run fair value. We felt this was due in large part to a collapse in the demand for one of our main exports – namely financial services.
Unsustainable rebound has begun to unravel
The catalyst for sterling’s rebound beginning in mid-2013 is unclear. It may have been looser monetary policy at other central banks, such as the ECB and the Bank of Japan, or it may have been the demand-stimulus provided by George Osborne in his spring 2013 Budget. In reality, it was probably some combination of the two. There was an expectation of a relative tightening of UK monetary policy, founded on the mistaken belief that the UK’s economic recovery was sustainable.
The link between relative monetary policies and exchange rates is plain to see. As we moved through 2013 and into 2014 markets were increasingly of the opinion that the Bank of England would raise rates before the US Federal Reserve. This pushed up the one-year forward rate spread, and with it the currency. As it became clear that the Bank was not in a position to raise rates but the FOMC was, the process reversed as the UK’s relative monetary policy loosened.
And expectations about relative interest rates and relative risk could push sterling lower still
Since the crisis, the short-end of the sterling curve has flattened in a way that is eerily reminiscent of movements in the short-end of the yen curve two decades ago. At the time of writing, a tightening of UK policy is not fully priced for the best part of four years. Can expectations about monetary policy at home relative to monetary policy abroad push sterling any lower? Yes.
Risks to the short-end of the US dollar curve are unambiguously to the upside. That is why we see sterling falling further against the US dollar over the next two years. In addition, we identify three downside risks to UK growth. These are: a period of uncertainty around the Brexit referendum; a sudden correction in the UK housing market; and financial contagion from China. If any of these three risks were to materialise, the short-end of the sterling curve could become flatter still.
The trap door under sterling
The biggest threat to sterling, in our view, is that of a sudden reappraisal of its long-run fair value. In other words, a sudden realisation that sterling is fundamentally overvalued.
As we highlighted last September, the UK’s current account deficit is unprecedented in peacetime for the best part of two centuries, and possibly longer. Large deficits can be viewed as an irrelevance for years until suddenly they become the focus of market attention. We estimate that the currency would need to fall a further 30% in effective terms if investors were to determine that the current account should be brought rapidly back to zero. Needless to say, that adjustment could occur very quickly.
The UK’s large and persistent current account deficit is acting as a trap door under sterling. But who, or what, might release the catch? There are many potential candidates, including any of the downside risks to UK growth outlined above.
This fundamental background mostly agrees with technical analysis of monthly chart, that we've prepared as far as on 2013.
Now on JPY. Yen, guys, right now shows most dynamic charts, while other currencies, such as EUR, CAD behave more flat and lazy. Yen also still stands in focus due recent demand splash on safe haven assets.
CFTC data shows 3rd week in a row of growing bullish sentiment on Yen. Net long positions increases simultaneously with open interest:
Technicals
Monthly
Both targets - 115.40 and 113.50 have been hit within just single week. It means that DRPO "Sell" is done. Action of such large scale could happen only with support global geopolitical or economical factors and demand huge funds flow, as we've discussed. At the same time it means that big flows of this kind couldn't just finish in a blink of an eye - suddenly and usually they have a tendency to be continued with medium-term or even long-term period.
Fortunately or unfortunately but right now, guys, we can't just be focused on pure technical, market mechanics picture. We have to take in consideration major political events, since they will impact on market sentiment and right now Yen mostly is driven by sentiment. At the same time technical analysis has a feature to coincide or even predict some shifts in global events sometimes. We've seen this many times, when we do not know what event will happen but foresee market reaction on this.
So, as you know, in Munich, major geopolitical players have agreed to ease fire against "Moderate opposition" in Syria from 1st of the March. This agreement has no relation to terrorist organizations as ISIL and others... As boiling process on Middle East will get some relief of steam within nearest 2 weeks - this probably could give some relief to safe-haven assets demand as well. Especially if BoJ will combine geopolitical relief with direct intervention do chill out hot overextended purchases on national currency.
If we would driven by pure technical factors, I would say that it is small probability for downward continuation right now. Market stands at upper border of very strong support area. This area includes monthly oversold and K-support around 107-108 area. Although trend is bearish, but market could pass this level as it does not exist only if WW III will start. Definitely BoJ also see this support and this is very good area to hit bears' stops and launch intervention. Actually we have here DiNapoli bullish "Stretch" pattern. If even we do not have any intention to trade it - we should pay attention to it and do not try to go against it.
At the same time we have to acknowledge that Yen has dropped below YPS1 and this points on existing of new long-term bear trend on this currency pair. Consequently we treat any upside action in short-term perspective only as a bounce, but not as reversal. For reversal it needs to reverse geopolitical situation but hardly it will happen any time soon, especially within 1-2 weeks. Besides, market has shown outstanding drop in February, that has become most significant one for long period.
That's being said, monthly analysis leads us to conclusion that upside retracement or at least stabilization is possible in nearest time. Also Yen has rather wide range to do it - 107-110 area to stop dropping and form some reversal pattern. Taking in consideration that market right now stands at 111-112 - we still could take short-term short positions by patterns whatever will be formed, but our ceil for trading is 107-108 area.
Weekly
Last week expectedly has become inside one. Trend is bearish here and I do not have MPP since all of them have been broken down already.
Here we have two major points to discuss. First is H&S pattern. Yen has hit it's minimal destination - AB=CD 114 target but has not stopped here and dropped even lower. It seems that only oversold pressure has stopped market from collapse right to 161.8% target. Taking in consideration all stuff that we've discussed above and the fact that market stands below 100% AB=CD target - this leads us to conclusion that market should continue action to 1.618 extension still, around 108. Hardly big relief on monthly chart will happen before market will complete H&S ultimate target.
Thus, we probably could try to take short positions by some patterns that could be formed here, but we should be extra careful with oversold level and we have to be ready to close position fast is something will go wrong. It needless to say that BoJ intervention will play against us. Oversold level has specific feature. When market forms oversold low, say, on weekly chart - price could freely fluctuate on daily but above this low. Right now low stands around 110.60, while market is 200 pips higher. It means that some bearish positions could be taken (I mean USD/JPY), but with targets that stand above weekly low.
Finally - take a look at 108 target agrees with monthly K-support and puzzle gets another frame here.
Daily
On daily chart trend is bearish. BoJ has not dared for intervension yet, although situation was supportive to this action. That's why our B&B has started from logical technical area - nearest Fib resistance and it already has been completed.
As market strongly oversold, we still expect to get 2-leg upside retracement, but we can't count on DRPO "Buy" pattern, at least now. Currently it seems that simple AB=CD pattern looks more probable here.
The major object for us is final point of retracement, since we mosty would like to take short position at attractive price rather than trade JPY long on some scalp trade. That's why how upside retracement will happen and what shape it will take - we do not care much. The major thing is to get this retracement per se.
4-hour
Here we do not have a lot of important data. This just just shows that our B&B has been completed - market has reached 5/8 Fib support, as we've discussed yesterday. Trend is bearish here.
Now is the big question how precisely upside action could start. And we have not just single scenario guys.
Let's first one will be just simple AB=CD pattern as it was drawn here. IF it will happen as it is shown on the chart - JPY should reach 116.80 area of natural support/resistance.
Second scenario - appearing of some kind of Double Bottom here, that probably also could be treated as DRPO "Buy" look-alike on daily chart.
And finally 3rd scenario - butterfly "Buy". Right now we could imagine left wing in place. Is it really impossible for Yen after minor bounce up from 112 area - turn down and drop further below recent lows?
Yes, we have weekly oversold, but this pattern also will not be formed very fast...
That's being said - all these extended scenarios are suitable as potential patterns for retracement because oversold and support areas stand at monthly/weekly charts and they have big scale.
So, let's deal with them step by step. It is obvious that we need to get failure of AB=CD scenario first, before Double Bottom or Butterfly will become possible. So let's start with this scenario.
Hourly
So, here is our way down. Take a look how market has finished daily B&B - by nicely looking butterfly pattern. Now the major question will this butterfly become an upside reversal pattern as well? It could, but we have some doubts. There are two of them. First is - existing of untouched 1.618 AB-CD target just few pips lower. Second - downward acceleration right to 1.618 target of butterfly.
It means that butterfly could become of some greater pattern, say, 3-Drive "Buy" and we could either another butterfly or just swing down. If you strongly have decided to trade this scalp setup long - and do not want to wait and check this issue - you could do it, but you will have to place stop below AB-CD 1.618 target.
So, on coming week our first check of upside retracement will start. If Yen still will drop below 112 area - then we will turn to next possible pattern - Double Bottom.
Conclusion
We have bearish view on USD/JPY (bullish on JPY) in long-term perspective. As techincal as fundamental factors show possible further Yen appreciation. The core of our long-term view is investors' disappointment in BoJ efforts to make Yen weaker. This is important also because BoJ has applied all major tools to weaken the Yen. But based on recent reaction this still is not very successful. Additional pressure on Yen comes from geopolitical global situation that makes any BoJ efforts phantom.
At the same time Yen is approaching to strong monthly support around 107-108 area where medium term upside action could happen.
The major task for us is to try take short position in most safe place and appropriate price. That's why, we probably will monitor upside scenarios within nearest 1-2 weeks here.
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.
(Reuters) - The yen rose sharply against the euro and dollar on Friday after yet another downbeat session for oil prices and stock markets worldwide, underscoring worries about global growth.
The dollar fell overall, with the higher than-expected U.S. inflation data for January having limited impact. Analysts said declining oil and equities took the shine out of the dollar.
U.S. data this week has been generally positive, however, helping the dollar index <.DXY> post its best weekly performance in about two months.
The index was last down 0.3 percent on the day at 96.64.
Sterling climbed against the dollar on Friday after France's President Francois Hollande expressed hope that EU leaders would reach a deal to help Britain stay in the bloc at a summit in Brussels.
But the focus remained squarely on oil and equities, two assets that have struggled this year.
"With stock market fluctuations having recently followed crude oil prices closely, the Japanese yen continued to benefit from its safe haven status when equity markets fall," said Matt Weller, senior market analyst at FOREX.com, in Grand Rapids, Michigan.
"Though equities have recovered some of the losses from earlier in the month, any major return of market volatility may likely boost the yen even further."
Thursday's minutes of the European Central Bank's January meeting had the market again looking for more weakness in the euro against the dollar ahead of a March meeting now widely expected to deliver further policy easing.
"The minutes cemented expectations for stronger stimulus next month, growth-positive measures that are euro-negative as they aim to lower lending rates, harming the single currency’s appeal," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
ECB Vice President Vitor Constancio said at a Reuters Newsmaker event on Friday, however, that the central bank had not yet committed to any decision for its next meeting on March 10 but might act if it determines a recovery in inflation is getting pushed back further into the future.
Today guys, we will take a look at JPY again, but first I would like to place here new fundamental update on GBP from Fanthom Consulting:
During the Great Recession, sterling fell around 20% from its average in the ten years running up to the crisis. And there it remained until mid-2013. It then began to rise on what we judged to be an unsustainable path. Over the past month or so, it has fallen back somewhat. On our central view, it drifts sideways over the next year or two. Nevertheless, as we set out below, the risks are overwhelmingly to the downside. There is a trap door under sterling.
Writing back in 2009 we argued that there were two main factors underpinning the collapse in sterling through 2008. The first was an increase in the risk premium attached to sterling assets. The second was a reappraisal by investors of sterling’s long-run fair value. We felt this was due in large part to a collapse in the demand for one of our main exports – namely financial services.
Unsustainable rebound has begun to unravel
The catalyst for sterling’s rebound beginning in mid-2013 is unclear. It may have been looser monetary policy at other central banks, such as the ECB and the Bank of Japan, or it may have been the demand-stimulus provided by George Osborne in his spring 2013 Budget. In reality, it was probably some combination of the two. There was an expectation of a relative tightening of UK monetary policy, founded on the mistaken belief that the UK’s economic recovery was sustainable.
The link between relative monetary policies and exchange rates is plain to see. As we moved through 2013 and into 2014 markets were increasingly of the opinion that the Bank of England would raise rates before the US Federal Reserve. This pushed up the one-year forward rate spread, and with it the currency. As it became clear that the Bank was not in a position to raise rates but the FOMC was, the process reversed as the UK’s relative monetary policy loosened.
And expectations about relative interest rates and relative risk could push sterling lower still
Since the crisis, the short-end of the sterling curve has flattened in a way that is eerily reminiscent of movements in the short-end of the yen curve two decades ago. At the time of writing, a tightening of UK policy is not fully priced for the best part of four years. Can expectations about monetary policy at home relative to monetary policy abroad push sterling any lower? Yes.
Risks to the short-end of the US dollar curve are unambiguously to the upside. That is why we see sterling falling further against the US dollar over the next two years. In addition, we identify three downside risks to UK growth. These are: a period of uncertainty around the Brexit referendum; a sudden correction in the UK housing market; and financial contagion from China. If any of these three risks were to materialise, the short-end of the sterling curve could become flatter still.
The trap door under sterling
The biggest threat to sterling, in our view, is that of a sudden reappraisal of its long-run fair value. In other words, a sudden realisation that sterling is fundamentally overvalued.
As we highlighted last September, the UK’s current account deficit is unprecedented in peacetime for the best part of two centuries, and possibly longer. Large deficits can be viewed as an irrelevance for years until suddenly they become the focus of market attention. We estimate that the currency would need to fall a further 30% in effective terms if investors were to determine that the current account should be brought rapidly back to zero. Needless to say, that adjustment could occur very quickly.
The UK’s large and persistent current account deficit is acting as a trap door under sterling. But who, or what, might release the catch? There are many potential candidates, including any of the downside risks to UK growth outlined above.
This fundamental background mostly agrees with technical analysis of monthly chart, that we've prepared as far as on 2013.
Now on JPY. Yen, guys, right now shows most dynamic charts, while other currencies, such as EUR, CAD behave more flat and lazy. Yen also still stands in focus due recent demand splash on safe haven assets.
CFTC data shows 3rd week in a row of growing bullish sentiment on Yen. Net long positions increases simultaneously with open interest:
Technicals
Monthly
Both targets - 115.40 and 113.50 have been hit within just single week. It means that DRPO "Sell" is done. Action of such large scale could happen only with support global geopolitical or economical factors and demand huge funds flow, as we've discussed. At the same time it means that big flows of this kind couldn't just finish in a blink of an eye - suddenly and usually they have a tendency to be continued with medium-term or even long-term period.
Fortunately or unfortunately but right now, guys, we can't just be focused on pure technical, market mechanics picture. We have to take in consideration major political events, since they will impact on market sentiment and right now Yen mostly is driven by sentiment. At the same time technical analysis has a feature to coincide or even predict some shifts in global events sometimes. We've seen this many times, when we do not know what event will happen but foresee market reaction on this.
So, as you know, in Munich, major geopolitical players have agreed to ease fire against "Moderate opposition" in Syria from 1st of the March. This agreement has no relation to terrorist organizations as ISIL and others... As boiling process on Middle East will get some relief of steam within nearest 2 weeks - this probably could give some relief to safe-haven assets demand as well. Especially if BoJ will combine geopolitical relief with direct intervention do chill out hot overextended purchases on national currency.
If we would driven by pure technical factors, I would say that it is small probability for downward continuation right now. Market stands at upper border of very strong support area. This area includes monthly oversold and K-support around 107-108 area. Although trend is bearish, but market could pass this level as it does not exist only if WW III will start. Definitely BoJ also see this support and this is very good area to hit bears' stops and launch intervention. Actually we have here DiNapoli bullish "Stretch" pattern. If even we do not have any intention to trade it - we should pay attention to it and do not try to go against it.
At the same time we have to acknowledge that Yen has dropped below YPS1 and this points on existing of new long-term bear trend on this currency pair. Consequently we treat any upside action in short-term perspective only as a bounce, but not as reversal. For reversal it needs to reverse geopolitical situation but hardly it will happen any time soon, especially within 1-2 weeks. Besides, market has shown outstanding drop in February, that has become most significant one for long period.
That's being said, monthly analysis leads us to conclusion that upside retracement or at least stabilization is possible in nearest time. Also Yen has rather wide range to do it - 107-110 area to stop dropping and form some reversal pattern. Taking in consideration that market right now stands at 111-112 - we still could take short-term short positions by patterns whatever will be formed, but our ceil for trading is 107-108 area.
Weekly
Last week expectedly has become inside one. Trend is bearish here and I do not have MPP since all of them have been broken down already.
Here we have two major points to discuss. First is H&S pattern. Yen has hit it's minimal destination - AB=CD 114 target but has not stopped here and dropped even lower. It seems that only oversold pressure has stopped market from collapse right to 161.8% target. Taking in consideration all stuff that we've discussed above and the fact that market stands below 100% AB=CD target - this leads us to conclusion that market should continue action to 1.618 extension still, around 108. Hardly big relief on monthly chart will happen before market will complete H&S ultimate target.
Thus, we probably could try to take short positions by some patterns that could be formed here, but we should be extra careful with oversold level and we have to be ready to close position fast is something will go wrong. It needless to say that BoJ intervention will play against us. Oversold level has specific feature. When market forms oversold low, say, on weekly chart - price could freely fluctuate on daily but above this low. Right now low stands around 110.60, while market is 200 pips higher. It means that some bearish positions could be taken (I mean USD/JPY), but with targets that stand above weekly low.
Finally - take a look at 108 target agrees with monthly K-support and puzzle gets another frame here.
Daily
On daily chart trend is bearish. BoJ has not dared for intervension yet, although situation was supportive to this action. That's why our B&B has started from logical technical area - nearest Fib resistance and it already has been completed.
As market strongly oversold, we still expect to get 2-leg upside retracement, but we can't count on DRPO "Buy" pattern, at least now. Currently it seems that simple AB=CD pattern looks more probable here.
The major object for us is final point of retracement, since we mosty would like to take short position at attractive price rather than trade JPY long on some scalp trade. That's why how upside retracement will happen and what shape it will take - we do not care much. The major thing is to get this retracement per se.
4-hour
Here we do not have a lot of important data. This just just shows that our B&B has been completed - market has reached 5/8 Fib support, as we've discussed yesterday. Trend is bearish here.
Now is the big question how precisely upside action could start. And we have not just single scenario guys.
Let's first one will be just simple AB=CD pattern as it was drawn here. IF it will happen as it is shown on the chart - JPY should reach 116.80 area of natural support/resistance.
Second scenario - appearing of some kind of Double Bottom here, that probably also could be treated as DRPO "Buy" look-alike on daily chart.
And finally 3rd scenario - butterfly "Buy". Right now we could imagine left wing in place. Is it really impossible for Yen after minor bounce up from 112 area - turn down and drop further below recent lows?
Yes, we have weekly oversold, but this pattern also will not be formed very fast...
That's being said - all these extended scenarios are suitable as potential patterns for retracement because oversold and support areas stand at monthly/weekly charts and they have big scale.
So, let's deal with them step by step. It is obvious that we need to get failure of AB=CD scenario first, before Double Bottom or Butterfly will become possible. So let's start with this scenario.
Hourly
So, here is our way down. Take a look how market has finished daily B&B - by nicely looking butterfly pattern. Now the major question will this butterfly become an upside reversal pattern as well? It could, but we have some doubts. There are two of them. First is - existing of untouched 1.618 AB-CD target just few pips lower. Second - downward acceleration right to 1.618 target of butterfly.
It means that butterfly could become of some greater pattern, say, 3-Drive "Buy" and we could either another butterfly or just swing down. If you strongly have decided to trade this scalp setup long - and do not want to wait and check this issue - you could do it, but you will have to place stop below AB-CD 1.618 target.
So, on coming week our first check of upside retracement will start. If Yen still will drop below 112 area - then we will turn to next possible pattern - Double Bottom.
Conclusion
We have bearish view on USD/JPY (bullish on JPY) in long-term perspective. As techincal as fundamental factors show possible further Yen appreciation. The core of our long-term view is investors' disappointment in BoJ efforts to make Yen weaker. This is important also because BoJ has applied all major tools to weaken the Yen. But based on recent reaction this still is not very successful. Additional pressure on Yen comes from geopolitical global situation that makes any BoJ efforts phantom.
At the same time Yen is approaching to strong monthly support around 107-108 area where medium term upside action could happen.
The major task for us is to try take short position in most safe place and appropriate price. That's why, we probably will monitor upside scenarios within nearest 1-2 weeks here.
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.
