Sive Morten
Special Consultant to the FPA
- Messages
- 18,685
Fundamentals
So, gradually we return back to work after holidays and our first input will be on EUR. We've monitored it pretty close so you should remember our last discussion. Also GBP shows very good activity in direction that we've taken and I even have thought on GBP update instead. But, probably it could wait for another week, since our last analysis is still valid - our target is 1.45 lows and market moves to it gradually...
(Reuters) - The dollar ended 2015 with a more than 9 percent annual gain against a basket of currencies on Thursday, despite falling in December, with portfolio rebalancing from asset managers leading the currency higher in thin trading.
Riding a rally dating to May 2014, the greenback has appreciated by a quarter in value against a basket of currencies and by 22 percent against the euro. For the year, the greenback rose over 10 percent against the euro for its second straight yearly gain.
On Thursday, the euro hit a more than one-week low against the dollar of $1.08530 , with analysts attributing the move to purchases of dollar-denominated assets from money managers moving to meet minimum exposure requirements.
"Portfolio rebalancing absolutely has something to do with the dollar’s strength," said Sireen Harajli, currency strategist at Mizuho Bank Ltd in New York, referring to Thursday's gains.
The dollar index, which measures the greenback against a basket of six major rivals, hit a more than one-week high of 98.750. For the month, it fell 1.5 percent, its first decline in four months.
Against the yen, the dollar hit a more than two-month low of 120.005 yen . Analysts said weaker-than-expected U.S. Chicago Purchasing Managers' Index data boosted the safe-haven Japanese currency. For the year, the dollar eked out a 0.4 percent gain to mark its fourth straight yearly rise against the yen.
The dollar has advanced this year on views that the Federal Reserve's start to its cycle of interest rate increases, combined with steadily loose monetary policy from the European Central Bank and the Bank of Japan, would continue to bolster the greenback.
The Fed increased rates for the first time in nearly a decade earlier this month and projections from Fed policymakers indicated that they expect four more increases next year.
Analysts said that divergence in monetary policy would remain a theme at least into the first quarter of 2016.
"The Fed could come back with a second hike in March, which is not fully priced in, and the dollar should draw fresh support from that," said Richard Franulovich, senior currency strategist at Westpac in New York.
The dollar was last up 1.3 percent against the Swiss franc at 1.00150 franc after hitting a more than three-week high of 1.00240 franc.
The dollar rose 0.7 percent against the franc for the year to mark its second straight yearly gain.
Here is interesting chart of annual performance of different assets in 2015:
COT Report shows shy increasing of as net short position as open interest. Taking a look at this chart we could make a conclusion that on a way down, while EUR was dropping - speculators have increased shorts. While EUR has turned to minor bounce to 1.10 area - shorts partially were closed and within last 2 weeks they are growing again.
It means that our bearish setup is still valid. Although open interest and speculative short position stands near all time extreme values - they have not reached them yet and still have some room to grow.
Technicals
Monthly
As usual we start new year with calculating yearly pivots. For EUR they are: YPP=1,1146; YPS1=1,0186; YPR1=1,1831. Pay attention that YPS1 stands in fact at parity...
As market mostly has dropped in 2014 and in last year spent in range - pivots stand rather close to current price. Thus, YPP could be tested even in January. YPR1 coincides with previous important lows and Fib resistance, so 1.18 will be rather strong level.
Appearing of YPP around 1.11 area has negative side as well. The point is current picture builds so that many patterns point on further drop. At the same time we know that markets gravitates to pivots, especially to yearly ones. This brings some contradictions and unnecessary worryings in analysis. Most bad thing is that we do not know when market will test YPP. It could do it in January, or it could first drop to YPS1 and then, on a back wave up will test YPP...
Still, right now we will follow direct technical analysis, but will keep in mind 1.1150 level as YPP.
Actually monthly chart of EUR is not very informative and it would be better to look at EUR through the prism of Dollar Index (DXY) futures. It shows brighter and more transparent picture.
Fed program suggests 0.25% rate hike in every quarter of 2016. It means that by the end of 2016 Fed rate will be 1.25-1.375 as it is suggested by analysts and Fed Fund futures rate. Of cause this hiking procedure will be data depended, I mean NFP, GDP etc. but anyway, Fed has announced not just isolated rate hike but tendency. This is major point.
This lets us to make major conclusion that such sort of statement on background of EU QE program, will probably slowly but stubbornly press EUR/USD pair. And this lets us to confirm our expectation of parity and even -0.8 targets.
Now, if you remember our most important riddle was on possible upward retracement. Other words speaking this is not a question on "what trend we have" but mostly "when this trend will continue - right now, or will be slightly postponed".
Last month we have tried to understand will we get any upside retracement on EUR due forming 2-bottom consolidation. And major riddle is what could happen inside this circle on monthly chart.
Our first scenario was - market just could continue move down. Especially if recent rally was mostly technical. As you can see our bearish grabber and dynamic pressure pattern have not quite reached target - former 1.0460 low was not reached. Butterfly pattern is still valid and market was falling like a stone to its 1.27 target, though only oversold was able to stop it for some time. Thus, moving to 1.618 target which is a parity is still possible.
Second scenario mostly relies on potential DRPO "Buy" pattern and 2-candle bullish grabber.
But with closer view on this sub on Dollar index we come to conclusion that this scenario has phantom perspectives. Here is the monthly chart of dollar Index:
Sorry that I plot as MACD as 3x3 DMA - just to safe some space. So market is not at overbought. Picture on top looks quite similar to EUR. If we will take close view on it - then we will see that we have not DRPO but DRPO "Failure" pattern and the same on EUR. Besides it is a bit difficult to call as DRPO at all since second close below 3x3 on EUR and above 3x3 on DXY - has not created the shape of peak. So, we have DRPO without second spike. As on EUR as on DXY - previously were formed some patterns - grabbers and dynamic pressure that have not reached the target yet - first top and bottom (on EUR) has to be washed out...
But what is more important is Fib extensions. On Dollar Index - market has skyrocketed so that passed through 1.0 Extension as it does not exist and now stands just slightly below major 1.618 target. It means that no serious backward action will start until this target will not be hit.
That's why we have real doubts on possible action to 1.21 on EUR and in general on starting any solid retracement up right now.
Weekly
Here we have another challenge. If you remember - we have simultaneously potential Double Bottom pattern (although perspectives are weak) and bearish grabber that right now suggests action back to 1.0450 lows.
Despite that trend has turned bullish - grabber pattern survived, since it's top was not touched. Last week EUR even dropped lower. If you will take a look at weekly DXY chart - you also will find there the grabber (but it will be bullish).
So, the only way how we could keep both the wolves have eaten much and the sheep have not been touched - If EUR will show W&R of 1.0450 lows by completing grabber''s target. Theoretically, this is possible, but in reality I'm not sure due monthly analysis and situation on dollar index, and, in fundamental situation in general.
Whatever will happen - situation on monthly chart leads us to important conclusion. Our setup is bearish, until EUR stands below top of bearish grabber. When market will complete its target - we will keep an eye on possible W&R of 1.04 lows. Currently our direction is down. Also pay attention to new monthly pivots numbers:
Daily
By taking a look at this chart, guys, it seems that market has played bad trick and put adjustment that have confused overall picture. Poor market's depth within last week has made the visuality of possible upward reversal and our bearish setup failure. Looks like lack of liquidity and leaving of trading for holidays by investors - have prevented normal behavior. As bearish power were stopped temporary, market has turned to stochastic fluctuations that was looked like failure of our bearish setup.
But suddenly right on 31st of December dollar has taken a lead again. Still taking in consideration this lesson, and to avoid becoming a victim in this fluctuations it would be better to keep up with important levels.
Daily trend holds bearish, bullish grabbers have failed and EUR has dropped on Thu. Based on our analysis of weekly chart, we probably should search chances for short entry. If you already have them right from the top of right shoulder of our H&S pattern - you probably could keep it.
At the same time - is it really impossible to market to form upside butterfly pattern here? Theoretically, it is possible, until EUR stands above 1.08. And this leads us to forming our strategy. IT will be mostly conservative and could be adjusted if somebody trades more actively or wants to take more risk.
Conservative tactics suggests do nothing until market stands between 1.08 and 1.1050 area. If market will drop below 1.08 - this will be important bearish confirmation, H&S pattern will be triggered and we should watch for short entry.
Moving above 1.1050 will cancel weekly bearish grabber and could trigger significant move up, at least to 1.18. That's why we will take long only above 1.1050 area.
Now 2 cents for those who likes more action. To be honest , guys, I do not believe much in perspectives of upside butterfly. That's why we probably could use some intraday setups for taking short position, but stay on guard and control 1.08 level breakout. Only if market will break H&S pattern, move above 1.10 - this could make butterfly possible. Besides, by DiNapoli we have clear bearish setups - grabber and trends in all time frames. We have no bullish directional patterns by far that could overrule bearish setup.
4-hour
Here trend is bearish as well. It is interesting but our H&S pattern is still valid. Tops of shoulders are equal, but right shoulder is a bit more extended in time. Probably we could make a discount of this moment and write-off it on poor liquidity at the eve of holidays. Particularly this upside action inside right shoulder has brought overall mess in analysis. Now situation becomes normal gradually. We finally see accelerations down - as on right slope of the head as right shoulder.
Most important level on coming week definitely will be the neck line. But it will have multiple meaning for us. This also will be WPS1 and MPP. If market will drop below it - it simultaneously will be strong bearish confirmation of trend and sentiment:
Hourly
That's why, guys, we probably could try to play this setup (for those traders who wants more activity):
WPP on coming week will coincide with nice K-resistance area on hourly chart. Also this will be a lower border of rectangle consolidation - i.e. very nice resistance. We could try to use market's gravitation to WPP testing and take short around 1.09 area. But be sure that we will not get upside thrusting candle right to this level or gap up open right around 1.09. We need gradual action to it.
Stop could be placed differently - depending on time frame and targets that you want to follow. But most close stop has to be above 1.0945 level - 5/8 Fib resistance. If you trade H&S - you could place stop above right shoulder... It is difficult to recommend definite levels since it will depend on your money management.
Conclusion
Fed statement mostly was supportive for long term bear trend on EUR/USD. Right now our trading plan suggests move down to 1.05 area. There we should get final clue - either it will be solid upside retracement, may be as far as 1.25 area, or it will be breakout and downward continuation to parity first. My opinion is latter scenario is more probable.
In short-term perspective we have excellent bearish pattern that promises us downward direction right to 1.05 area, and we will try to trade it. Market has theoretical chances to form bullish scenario, but based on recent action it really looks more theoretical rather than real. Still we also has prepared conservative trading plan to avoid whipsaw action impact on account.
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.
So, gradually we return back to work after holidays and our first input will be on EUR. We've monitored it pretty close so you should remember our last discussion. Also GBP shows very good activity in direction that we've taken and I even have thought on GBP update instead. But, probably it could wait for another week, since our last analysis is still valid - our target is 1.45 lows and market moves to it gradually...
(Reuters) - The dollar ended 2015 with a more than 9 percent annual gain against a basket of currencies on Thursday, despite falling in December, with portfolio rebalancing from asset managers leading the currency higher in thin trading.
Riding a rally dating to May 2014, the greenback has appreciated by a quarter in value against a basket of currencies and by 22 percent against the euro. For the year, the greenback rose over 10 percent against the euro for its second straight yearly gain.
On Thursday, the euro hit a more than one-week low against the dollar of $1.08530 , with analysts attributing the move to purchases of dollar-denominated assets from money managers moving to meet minimum exposure requirements.
"Portfolio rebalancing absolutely has something to do with the dollar’s strength," said Sireen Harajli, currency strategist at Mizuho Bank Ltd in New York, referring to Thursday's gains.
The dollar index, which measures the greenback against a basket of six major rivals, hit a more than one-week high of 98.750. For the month, it fell 1.5 percent, its first decline in four months.
Against the yen, the dollar hit a more than two-month low of 120.005 yen . Analysts said weaker-than-expected U.S. Chicago Purchasing Managers' Index data boosted the safe-haven Japanese currency. For the year, the dollar eked out a 0.4 percent gain to mark its fourth straight yearly rise against the yen.
The dollar has advanced this year on views that the Federal Reserve's start to its cycle of interest rate increases, combined with steadily loose monetary policy from the European Central Bank and the Bank of Japan, would continue to bolster the greenback.
The Fed increased rates for the first time in nearly a decade earlier this month and projections from Fed policymakers indicated that they expect four more increases next year.
Analysts said that divergence in monetary policy would remain a theme at least into the first quarter of 2016.
"The Fed could come back with a second hike in March, which is not fully priced in, and the dollar should draw fresh support from that," said Richard Franulovich, senior currency strategist at Westpac in New York.
The dollar was last up 1.3 percent against the Swiss franc at 1.00150 franc after hitting a more than three-week high of 1.00240 franc.
The dollar rose 0.7 percent against the franc for the year to mark its second straight yearly gain.
Here is interesting chart of annual performance of different assets in 2015:
COT Report shows shy increasing of as net short position as open interest. Taking a look at this chart we could make a conclusion that on a way down, while EUR was dropping - speculators have increased shorts. While EUR has turned to minor bounce to 1.10 area - shorts partially were closed and within last 2 weeks they are growing again.
It means that our bearish setup is still valid. Although open interest and speculative short position stands near all time extreme values - they have not reached them yet and still have some room to grow.
Technicals
Monthly
As usual we start new year with calculating yearly pivots. For EUR they are: YPP=1,1146; YPS1=1,0186; YPR1=1,1831. Pay attention that YPS1 stands in fact at parity...
As market mostly has dropped in 2014 and in last year spent in range - pivots stand rather close to current price. Thus, YPP could be tested even in January. YPR1 coincides with previous important lows and Fib resistance, so 1.18 will be rather strong level.
Appearing of YPP around 1.11 area has negative side as well. The point is current picture builds so that many patterns point on further drop. At the same time we know that markets gravitates to pivots, especially to yearly ones. This brings some contradictions and unnecessary worryings in analysis. Most bad thing is that we do not know when market will test YPP. It could do it in January, or it could first drop to YPS1 and then, on a back wave up will test YPP...
Still, right now we will follow direct technical analysis, but will keep in mind 1.1150 level as YPP.
Actually monthly chart of EUR is not very informative and it would be better to look at EUR through the prism of Dollar Index (DXY) futures. It shows brighter and more transparent picture.
Fed program suggests 0.25% rate hike in every quarter of 2016. It means that by the end of 2016 Fed rate will be 1.25-1.375 as it is suggested by analysts and Fed Fund futures rate. Of cause this hiking procedure will be data depended, I mean NFP, GDP etc. but anyway, Fed has announced not just isolated rate hike but tendency. This is major point.
This lets us to make major conclusion that such sort of statement on background of EU QE program, will probably slowly but stubbornly press EUR/USD pair. And this lets us to confirm our expectation of parity and even -0.8 targets.
Now, if you remember our most important riddle was on possible upward retracement. Other words speaking this is not a question on "what trend we have" but mostly "when this trend will continue - right now, or will be slightly postponed".
Last month we have tried to understand will we get any upside retracement on EUR due forming 2-bottom consolidation. And major riddle is what could happen inside this circle on monthly chart.
Our first scenario was - market just could continue move down. Especially if recent rally was mostly technical. As you can see our bearish grabber and dynamic pressure pattern have not quite reached target - former 1.0460 low was not reached. Butterfly pattern is still valid and market was falling like a stone to its 1.27 target, though only oversold was able to stop it for some time. Thus, moving to 1.618 target which is a parity is still possible.
Second scenario mostly relies on potential DRPO "Buy" pattern and 2-candle bullish grabber.
But with closer view on this sub on Dollar index we come to conclusion that this scenario has phantom perspectives. Here is the monthly chart of dollar Index:
Sorry that I plot as MACD as 3x3 DMA - just to safe some space. So market is not at overbought. Picture on top looks quite similar to EUR. If we will take close view on it - then we will see that we have not DRPO but DRPO "Failure" pattern and the same on EUR. Besides it is a bit difficult to call as DRPO at all since second close below 3x3 on EUR and above 3x3 on DXY - has not created the shape of peak. So, we have DRPO without second spike. As on EUR as on DXY - previously were formed some patterns - grabbers and dynamic pressure that have not reached the target yet - first top and bottom (on EUR) has to be washed out...
But what is more important is Fib extensions. On Dollar Index - market has skyrocketed so that passed through 1.0 Extension as it does not exist and now stands just slightly below major 1.618 target. It means that no serious backward action will start until this target will not be hit.
That's why we have real doubts on possible action to 1.21 on EUR and in general on starting any solid retracement up right now.
Weekly
Here we have another challenge. If you remember - we have simultaneously potential Double Bottom pattern (although perspectives are weak) and bearish grabber that right now suggests action back to 1.0450 lows.
Despite that trend has turned bullish - grabber pattern survived, since it's top was not touched. Last week EUR even dropped lower. If you will take a look at weekly DXY chart - you also will find there the grabber (but it will be bullish).
So, the only way how we could keep both the wolves have eaten much and the sheep have not been touched - If EUR will show W&R of 1.0450 lows by completing grabber''s target. Theoretically, this is possible, but in reality I'm not sure due monthly analysis and situation on dollar index, and, in fundamental situation in general.
Whatever will happen - situation on monthly chart leads us to important conclusion. Our setup is bearish, until EUR stands below top of bearish grabber. When market will complete its target - we will keep an eye on possible W&R of 1.04 lows. Currently our direction is down. Also pay attention to new monthly pivots numbers:
Daily
By taking a look at this chart, guys, it seems that market has played bad trick and put adjustment that have confused overall picture. Poor market's depth within last week has made the visuality of possible upward reversal and our bearish setup failure. Looks like lack of liquidity and leaving of trading for holidays by investors - have prevented normal behavior. As bearish power were stopped temporary, market has turned to stochastic fluctuations that was looked like failure of our bearish setup.
But suddenly right on 31st of December dollar has taken a lead again. Still taking in consideration this lesson, and to avoid becoming a victim in this fluctuations it would be better to keep up with important levels.
Daily trend holds bearish, bullish grabbers have failed and EUR has dropped on Thu. Based on our analysis of weekly chart, we probably should search chances for short entry. If you already have them right from the top of right shoulder of our H&S pattern - you probably could keep it.
At the same time - is it really impossible to market to form upside butterfly pattern here? Theoretically, it is possible, until EUR stands above 1.08. And this leads us to forming our strategy. IT will be mostly conservative and could be adjusted if somebody trades more actively or wants to take more risk.
Conservative tactics suggests do nothing until market stands between 1.08 and 1.1050 area. If market will drop below 1.08 - this will be important bearish confirmation, H&S pattern will be triggered and we should watch for short entry.
Moving above 1.1050 will cancel weekly bearish grabber and could trigger significant move up, at least to 1.18. That's why we will take long only above 1.1050 area.
Now 2 cents for those who likes more action. To be honest , guys, I do not believe much in perspectives of upside butterfly. That's why we probably could use some intraday setups for taking short position, but stay on guard and control 1.08 level breakout. Only if market will break H&S pattern, move above 1.10 - this could make butterfly possible. Besides, by DiNapoli we have clear bearish setups - grabber and trends in all time frames. We have no bullish directional patterns by far that could overrule bearish setup.
4-hour
Here trend is bearish as well. It is interesting but our H&S pattern is still valid. Tops of shoulders are equal, but right shoulder is a bit more extended in time. Probably we could make a discount of this moment and write-off it on poor liquidity at the eve of holidays. Particularly this upside action inside right shoulder has brought overall mess in analysis. Now situation becomes normal gradually. We finally see accelerations down - as on right slope of the head as right shoulder.
Most important level on coming week definitely will be the neck line. But it will have multiple meaning for us. This also will be WPS1 and MPP. If market will drop below it - it simultaneously will be strong bearish confirmation of trend and sentiment:
Hourly
That's why, guys, we probably could try to play this setup (for those traders who wants more activity):
WPP on coming week will coincide with nice K-resistance area on hourly chart. Also this will be a lower border of rectangle consolidation - i.e. very nice resistance. We could try to use market's gravitation to WPP testing and take short around 1.09 area. But be sure that we will not get upside thrusting candle right to this level or gap up open right around 1.09. We need gradual action to it.
Stop could be placed differently - depending on time frame and targets that you want to follow. But most close stop has to be above 1.0945 level - 5/8 Fib resistance. If you trade H&S - you could place stop above right shoulder... It is difficult to recommend definite levels since it will depend on your money management.
Conclusion
Fed statement mostly was supportive for long term bear trend on EUR/USD. Right now our trading plan suggests move down to 1.05 area. There we should get final clue - either it will be solid upside retracement, may be as far as 1.25 area, or it will be breakout and downward continuation to parity first. My opinion is latter scenario is more probable.
In short-term perspective we have excellent bearish pattern that promises us downward direction right to 1.05 area, and we will try to trade it. Market has theoretical chances to form bullish scenario, but based on recent action it really looks more theoretical rather than real. Still we also has prepared conservative trading plan to avoid whipsaw action impact on account.
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.
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