Sive Morten
Special Consultant to the FPA
- Messages
- 18,776
Fundamentals
(Reuters) - The U.S. dollar slipped on Friday but notched its fourth straight year of gains against a basket of major currencies.
The dollar index which measures the greenback against a basket of six major rivals, gained about 3.7 percent for the year.
The index rose about 7.1 percent during the fourth quarter, more than half that gain coming since the Nov. 8 U.S. presidential election on expectations that U.S. President-elect Donald Trump's plan to boost fiscal stimulus would benefit the currency. A faster projected pace of rate hikes from the Federal Reserve next year also contributed.
Several analysts have said the dollar's uptrend remains intact next year, but noted the risk of dollar weakness given doubts surrounding how much dollar appreciation a Trump White House will tolerate.
"Much depends on how the Trump presidency and the Chinese economy work out," said Marshall Gittler, chief market analyst for retail broker FX Primus.
For the day, the dollar index was last off 0.38 percent at 102.290, down from a 14-year high of 103.65 hit on Dec. 20, and was up 0.18 percent against the yen at 116.74 yen. The greenback was still set to post its first yearly loss in five against the Japanese currency, of about 2.9 percent.
Sterling, which fell roughly 16.2 percent against the dollar to mark its worst year since 2008 on worries over Britain's June 24 "Brexit" vote to leave the European Union, was last up 0.62 percent at $1.2340.
Sterling bore the brunt of concerns this year over Britain's trade policy with Europe which flared up following the Brexit vote, said Jason Leinwand, founder and chief executive of FirstLine FX in Randolph, New Jersey.
The euro was up 0.39 percent against the dollar at $1.0529, but was set to fall 3 percent for the year to notch its third straight yearly loss.
Chart of the Week: One cheer for Christmas
by Fathom Consulting
‘Twas the night before Christmas, when all through the house
Investors awaited the pre-Christmas bounce.
Theory aside, the literature was clear,
For those with investments ’tis the ‘most wonderful time of the year’.*
Investors are well aware that much money can be made on stock markets in the pre-Christmas bounce. Indeed, there is now a wealth of academic research on the matter, which offers a conclusion about as close to unanimous as economists are ever likely to reach: “Equity markets do better in the week before Christmas than in other weeks”. Probably.
But the occurrence of such a phenomenon year-in and year-out is a challenge to the economic orthodoxy, which insists that there are no dollar bills left lying on the sidewalk. In fact, some research suggests that pre-holiday returns may be as much as 10-20 times greater than they are during the rest of the year. Additionally, it turns out that this is not just about Christmas either. Something similar tends to occur around other major holidays too, although returns before religious holidays exceed those of non-religious ones, possibly because they tend to be associated with more time off work.
So what is going on? A long list of theories that attempt to answer the question have fallen by the wayside, but an enduring (if unconfirmed) hypothesis is that it is a result of a psychological increase in euphoria associated with festive periods; in other words, ‘Christmas cheer’. This would also explain why the effect is predominately seen in countries that actually celebrate Christmas.
However, the additional Christmas bonus appears to be in decline. The moving average of the difference between festive and non-festive returns has fallen sharply in recent years and is close to its lowest ever level. Without knowing why this phenomenon has occurred in the past, it is difficult to say with any degree of confidence why it may be fading now. But the dramatic increases in algorithmic trading may be playing the role of ‘Scrooge’ and spoiling the party.
My opinion, guys, is people just are loosing the spirit of Christmas, it's major idea, the role of Christ in a destiny of humanity and each person in particular. That's why it is becoming harder and harder treat this day as important event, as "Holy day" - yes, this is where our simple "Holiday" was coming from. This important day now is under hard and dramatic secularization. For many people this is just a legal possibility when you haven't go to job, for others is a reason to get drink and eat and no more...And when you do not feel "something really special" in your heart, you have no wish to share with it, since this has become "ordinary". And changing of attitude to Xmas, leads to changing in behavior of people, their habits and now in souls also...
*Based on ‘Christmas economics – a sleigh ride’, Birg & Goeddeke (2014).
COT Report
Right now, guys, we do not have any new data on EUR from CFTC, but today I will show you CHF chart. It might be interesting, since there is a not bad relation exists between EUR and CHF. The most interesting thing here is a closing of all long positions on franc. Or better to say, drastic shift of net position from long to short. (Some longs definitely exist though.)
If you will take a look at historical chart - previously this has happened 4-5 times and every time CHF has shown downward action. Here we mean CHF itself, not USD/CHF. Besides, downward action usually lasts for considerable period of time, for some months.
This event could shed some light on EUR perspective in the beginning of 2017. As we know franc is safe-haven currency. If investors start to abandon it, they're looking for bargain.
Taking in consideration coming carry trade on EUR, CHF and USD as it is anticipated six 0.25 rate hike in 2017-2018 - it could lead to cash flow in USD assets. Now yield spread between US and DE 10 year bonds stands at maximum area and reaches 2.23%. Anyway, this out flow from CHF hardly could be called as bullish sign for EUR...
Technical
Monthly
Right now we know that fundamental background mostly looks bearish for EUR - Potentially more hawkish Fed policy, ECB QE prolongation, coming elections in many EU countries, bringing more uncertainty. After GB, separatistic sentiment start to appear in other countries of EU, as Italy, France, Netherlands, Spain that are not satisfied with Brussels domination in governing EU.
So as New year is going to start, we will take a look at big picture and also bring new yearly pivots numbers.
Yearly Pivot (YPP) stands at 1.0828 area, YPR1 = 1.1305, YPS1 = 1.0040. Last one has major importancy for us. It is interesting that 2017 YPS1 coincides with parity.
On a way down, guys, EUR has passed through all major Fib levels. Last one was at 1.12 area and now we do not have any below current market. Also price has dropped below 1.27 extension of this big butterfly. Thus, on monthly chart the only logical destination point stands at parity - 1.618 butterfly extension, chanell trend line support and YPS1.
Last 2016 trading session has clarified question about possible bullish grabber on monthly chart - we do not have it.
Among other patterns that we have, we could mention bearish dynamic pressure. But mostly it has completed it's target as 1.05 lows has been taken out.
Also take a look at different behavior near low border of channel. Previously when market has touched it - it shows immediate upside pullback, it was V-shape reversal. Right now behavior is absolutely different, price just hangs on the border and shows no upside action. Any tight consolidation near trendline could become a sign of coming breakout.
Thus, based on monthly chart we could make two major conclusions. First is - real bullish trend will be re-established only when EUR will erase reversal candle and overcome its top above 1.16. Our next target on Monthly chart is parity - 1.618 Butterfly extension, YPS1 and trendline support.
In general guys, we think that steps that already have been announced by ECB and Fed should be enough to push EUR right to parity during "price-in" process, when market will "anticipate" them. But further dynamic will depend on real action from Fed, Trump administration and ECB. How they will fulfill their promises and obligations. Any surprising hawkish measures could push EUR even below parity, while step out from pormises could lead to appearing of reverse H&S pattern on monthly/weekly charts.
Weekly
Trend is bearish on weekly chart, but market is not at oversold. Here, I would like to continue discussion of "big picture" that we've started above.
On weekly chart we have 2 major patterns - butterfly and inner AB-CD pattern. Here we can see how accurate market reacts on each AB-CD target. First reaction was on 0.618 extension, now is on 1.0 target...
Final destination 1.618 point coincides with 1.618 butterfly target. Although we have multiple targets inside 1.0-1.05 area, ther are all minor. Recall, that we have daily 1.0230 extension. Also, if will take a careful look, you could recognize another smaller butterfly inside right wing here. It also has target at 1.02 and 1.013.
But, guys, if EUR will be on a road to parity, all these intermediate targets will be hit very fast one by one.
Also, it is not very probable that market will stuck around 1.27 butterfly and will not go to parity. By two reasons - first is, pshychological pressure, second - when price will hit 1.27, it will be between 1.0 and 1.618 extensions of AB-CD pattern and this position is very unstable, market gravitates to some target... That's why parity probably should be hit.
And after that most interesting thing will come. Take a look that butterfly could become part of large reverse H&S pattern. But whether it will be formed or not will depend on fundamental factors, D. Trump ficsal policy, US economy data and Fed reaction. Thus, we have more or less single road to parity, but around it we will get a crossroads...If there will be something bearish that wasn't priced in yet - EUR could drop even further. If not - H&S will start to form...
Daily
Now we come to chart that we're familiar with already. Trend is bullish here, also you can see "small" weekly butterfly here and daily AB-CD pattern. As butterfly as AB-CD target stands in the same area - 1.02-1.0220.
As we've said last week, upside action is limited by OB level and market indeed has turned down recently. Also price keeps harmonic upside swing very well. As a result we have 1.02-1.06 trading range on daily chart. So, in fact, this is the only target that we could use on coming week. All others stand beyond OS level.
Hourly
As we've discussed possible long-term perspectives, different patterns and other stuff, come to agreement that upside action is just a retracement, right now we need to get real signs that retracement is over. For that purpose we will watch for hourly chart.
First - if you have followed our Friday analysis and took short position around 1.0585 area - you can do nothing, just move stops to breakeven. For others task will be a bit more difficult. Market could act differently.
Price will open right around WPP and most simple scenario if pirce will drop below yellow rectangle, 1.0485 area. In this case EUR will drop back in H&S consolidation and it will become very bright sign that downward action should continue.
More difficult situation, will be, if EUR will try to test new MPP and may be even WPR1 that stand around 1.06-1.0650 area. But anyway, this will be good area for short entry, since we know that this is Fib resistance and this is daily OB. In this case we should watch for upside AB=CD pattern. The only strict condition though, that action should be gradual, not thrusting.
Market mechanics here is rather simple. From bearish market point of view - everything has been done already. Retracement has happened, as EUR has completed all major targets around 1.06. Thus, it should turn down right now, or could flirt a bit around 1.06 and then turn down.
If this will not happen and market will start shows signs of thrust, trying to climb above daily OB and WPR1 - it will mean that market is not bearish any more, at least in short-term. Thus - just look on market's behavior.
Conclusion:
In a big picture, we think that announced measures by ECB, Fed and D. Trump administration will be gradually priced-in and this should be enough to push EUR to parity. Further action will depend on fulfillment of their promises and new factors that will appear.
In short-term perspective, we need to get clear signs that upside retracement is over. If we will get it, then EUR should follow to next 1.02-1.0220 destination.
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 U.S. dollar slipped on Friday but notched its fourth straight year of gains against a basket of major currencies.
The dollar index which measures the greenback against a basket of six major rivals, gained about 3.7 percent for the year.
The index rose about 7.1 percent during the fourth quarter, more than half that gain coming since the Nov. 8 U.S. presidential election on expectations that U.S. President-elect Donald Trump's plan to boost fiscal stimulus would benefit the currency. A faster projected pace of rate hikes from the Federal Reserve next year also contributed.
Several analysts have said the dollar's uptrend remains intact next year, but noted the risk of dollar weakness given doubts surrounding how much dollar appreciation a Trump White House will tolerate.
"Much depends on how the Trump presidency and the Chinese economy work out," said Marshall Gittler, chief market analyst for retail broker FX Primus.
For the day, the dollar index was last off 0.38 percent at 102.290, down from a 14-year high of 103.65 hit on Dec. 20, and was up 0.18 percent against the yen at 116.74 yen. The greenback was still set to post its first yearly loss in five against the Japanese currency, of about 2.9 percent.
Sterling, which fell roughly 16.2 percent against the dollar to mark its worst year since 2008 on worries over Britain's June 24 "Brexit" vote to leave the European Union, was last up 0.62 percent at $1.2340.
Sterling bore the brunt of concerns this year over Britain's trade policy with Europe which flared up following the Brexit vote, said Jason Leinwand, founder and chief executive of FirstLine FX in Randolph, New Jersey.
The euro was up 0.39 percent against the dollar at $1.0529, but was set to fall 3 percent for the year to notch its third straight yearly loss.
Chart of the Week: One cheer for Christmas
by Fathom Consulting
‘Twas the night before Christmas, when all through the house
Investors awaited the pre-Christmas bounce.
Theory aside, the literature was clear,
For those with investments ’tis the ‘most wonderful time of the year’.*
Investors are well aware that much money can be made on stock markets in the pre-Christmas bounce. Indeed, there is now a wealth of academic research on the matter, which offers a conclusion about as close to unanimous as economists are ever likely to reach: “Equity markets do better in the week before Christmas than in other weeks”. Probably.
But the occurrence of such a phenomenon year-in and year-out is a challenge to the economic orthodoxy, which insists that there are no dollar bills left lying on the sidewalk. In fact, some research suggests that pre-holiday returns may be as much as 10-20 times greater than they are during the rest of the year. Additionally, it turns out that this is not just about Christmas either. Something similar tends to occur around other major holidays too, although returns before religious holidays exceed those of non-religious ones, possibly because they tend to be associated with more time off work.
So what is going on? A long list of theories that attempt to answer the question have fallen by the wayside, but an enduring (if unconfirmed) hypothesis is that it is a result of a psychological increase in euphoria associated with festive periods; in other words, ‘Christmas cheer’. This would also explain why the effect is predominately seen in countries that actually celebrate Christmas.
However, the additional Christmas bonus appears to be in decline. The moving average of the difference between festive and non-festive returns has fallen sharply in recent years and is close to its lowest ever level. Without knowing why this phenomenon has occurred in the past, it is difficult to say with any degree of confidence why it may be fading now. But the dramatic increases in algorithmic trading may be playing the role of ‘Scrooge’ and spoiling the party.
My opinion, guys, is people just are loosing the spirit of Christmas, it's major idea, the role of Christ in a destiny of humanity and each person in particular. That's why it is becoming harder and harder treat this day as important event, as "Holy day" - yes, this is where our simple "Holiday" was coming from. This important day now is under hard and dramatic secularization. For many people this is just a legal possibility when you haven't go to job, for others is a reason to get drink and eat and no more...And when you do not feel "something really special" in your heart, you have no wish to share with it, since this has become "ordinary". And changing of attitude to Xmas, leads to changing in behavior of people, their habits and now in souls also...
*Based on ‘Christmas economics – a sleigh ride’, Birg & Goeddeke (2014).
COT Report
Right now, guys, we do not have any new data on EUR from CFTC, but today I will show you CHF chart. It might be interesting, since there is a not bad relation exists between EUR and CHF. The most interesting thing here is a closing of all long positions on franc. Or better to say, drastic shift of net position from long to short. (Some longs definitely exist though.)
If you will take a look at historical chart - previously this has happened 4-5 times and every time CHF has shown downward action. Here we mean CHF itself, not USD/CHF. Besides, downward action usually lasts for considerable period of time, for some months.
This event could shed some light on EUR perspective in the beginning of 2017. As we know franc is safe-haven currency. If investors start to abandon it, they're looking for bargain.
Taking in consideration coming carry trade on EUR, CHF and USD as it is anticipated six 0.25 rate hike in 2017-2018 - it could lead to cash flow in USD assets. Now yield spread between US and DE 10 year bonds stands at maximum area and reaches 2.23%. Anyway, this out flow from CHF hardly could be called as bullish sign for EUR...
Technical
Monthly
Right now we know that fundamental background mostly looks bearish for EUR - Potentially more hawkish Fed policy, ECB QE prolongation, coming elections in many EU countries, bringing more uncertainty. After GB, separatistic sentiment start to appear in other countries of EU, as Italy, France, Netherlands, Spain that are not satisfied with Brussels domination in governing EU.
So as New year is going to start, we will take a look at big picture and also bring new yearly pivots numbers.
Yearly Pivot (YPP) stands at 1.0828 area, YPR1 = 1.1305, YPS1 = 1.0040. Last one has major importancy for us. It is interesting that 2017 YPS1 coincides with parity.
On a way down, guys, EUR has passed through all major Fib levels. Last one was at 1.12 area and now we do not have any below current market. Also price has dropped below 1.27 extension of this big butterfly. Thus, on monthly chart the only logical destination point stands at parity - 1.618 butterfly extension, chanell trend line support and YPS1.
Last 2016 trading session has clarified question about possible bullish grabber on monthly chart - we do not have it.
Among other patterns that we have, we could mention bearish dynamic pressure. But mostly it has completed it's target as 1.05 lows has been taken out.
Also take a look at different behavior near low border of channel. Previously when market has touched it - it shows immediate upside pullback, it was V-shape reversal. Right now behavior is absolutely different, price just hangs on the border and shows no upside action. Any tight consolidation near trendline could become a sign of coming breakout.
Thus, based on monthly chart we could make two major conclusions. First is - real bullish trend will be re-established only when EUR will erase reversal candle and overcome its top above 1.16. Our next target on Monthly chart is parity - 1.618 Butterfly extension, YPS1 and trendline support.
In general guys, we think that steps that already have been announced by ECB and Fed should be enough to push EUR right to parity during "price-in" process, when market will "anticipate" them. But further dynamic will depend on real action from Fed, Trump administration and ECB. How they will fulfill their promises and obligations. Any surprising hawkish measures could push EUR even below parity, while step out from pormises could lead to appearing of reverse H&S pattern on monthly/weekly charts.
Weekly
Trend is bearish on weekly chart, but market is not at oversold. Here, I would like to continue discussion of "big picture" that we've started above.
On weekly chart we have 2 major patterns - butterfly and inner AB-CD pattern. Here we can see how accurate market reacts on each AB-CD target. First reaction was on 0.618 extension, now is on 1.0 target...
Final destination 1.618 point coincides with 1.618 butterfly target. Although we have multiple targets inside 1.0-1.05 area, ther are all minor. Recall, that we have daily 1.0230 extension. Also, if will take a careful look, you could recognize another smaller butterfly inside right wing here. It also has target at 1.02 and 1.013.
But, guys, if EUR will be on a road to parity, all these intermediate targets will be hit very fast one by one.
Also, it is not very probable that market will stuck around 1.27 butterfly and will not go to parity. By two reasons - first is, pshychological pressure, second - when price will hit 1.27, it will be between 1.0 and 1.618 extensions of AB-CD pattern and this position is very unstable, market gravitates to some target... That's why parity probably should be hit.
And after that most interesting thing will come. Take a look that butterfly could become part of large reverse H&S pattern. But whether it will be formed or not will depend on fundamental factors, D. Trump ficsal policy, US economy data and Fed reaction. Thus, we have more or less single road to parity, but around it we will get a crossroads...If there will be something bearish that wasn't priced in yet - EUR could drop even further. If not - H&S will start to form...
Daily
Now we come to chart that we're familiar with already. Trend is bullish here, also you can see "small" weekly butterfly here and daily AB-CD pattern. As butterfly as AB-CD target stands in the same area - 1.02-1.0220.
As we've said last week, upside action is limited by OB level and market indeed has turned down recently. Also price keeps harmonic upside swing very well. As a result we have 1.02-1.06 trading range on daily chart. So, in fact, this is the only target that we could use on coming week. All others stand beyond OS level.
Hourly
As we've discussed possible long-term perspectives, different patterns and other stuff, come to agreement that upside action is just a retracement, right now we need to get real signs that retracement is over. For that purpose we will watch for hourly chart.
First - if you have followed our Friday analysis and took short position around 1.0585 area - you can do nothing, just move stops to breakeven. For others task will be a bit more difficult. Market could act differently.
Price will open right around WPP and most simple scenario if pirce will drop below yellow rectangle, 1.0485 area. In this case EUR will drop back in H&S consolidation and it will become very bright sign that downward action should continue.
More difficult situation, will be, if EUR will try to test new MPP and may be even WPR1 that stand around 1.06-1.0650 area. But anyway, this will be good area for short entry, since we know that this is Fib resistance and this is daily OB. In this case we should watch for upside AB=CD pattern. The only strict condition though, that action should be gradual, not thrusting.
Market mechanics here is rather simple. From bearish market point of view - everything has been done already. Retracement has happened, as EUR has completed all major targets around 1.06. Thus, it should turn down right now, or could flirt a bit around 1.06 and then turn down.
If this will not happen and market will start shows signs of thrust, trying to climb above daily OB and WPR1 - it will mean that market is not bearish any more, at least in short-term. Thus - just look on market's behavior.
Conclusion:
In a big picture, we think that announced measures by ECB, Fed and D. Trump administration will be gradually priced-in and this should be enough to push EUR to parity. Further action will depend on fulfillment of their promises and new factors that will appear.
In short-term perspective, we need to get clear signs that upside retracement is over. If we will get it, then EUR should follow to next 1.02-1.0220 destination.
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.