FOREX PRO WEEKLY January 05-09, 2015

[Sive Morten]

Fundamentals
Reuters reports U.S. dollar hit its highest against the euro in 4-1/2 years on Friday and reached parity with the Swiss franc after comments from European Central Bank President Mario Draghi underscored the divergence between European and U.S. monetary policy.
The euro fell to $1.2002 , its lowest since June 2010, after Draghi told the German financial newspaper Handelsblatt that the ECB was less likely to preserve price stability than it was six months ago, suggesting it was ready to take bolder steps on monetary stimulus early this year.
"Markets and commentators have been talking about this for ages, but to hear it from the horse's mouth has had a clear effect on the euro," said David Rodriguez, a quantitative strategist at DailyFX.com, a unit of retail FX broker FXCM in New York.
The euro zone single currency was also hurt by disappointing euro zone manufacturing data. The dollar index, which measures the greenback against a basket of six major currencies, hit a fresh nearly nine-year high of 91.131 and notched its third straight weekly gain.
The contrast between the U.S. Federal Reserve's path toward rate increases and looser policies in Europe and Japan boosted the dollar last year, and many analysts anticipate that divergence in policy to fuel a continued dollar rally in 2015.
The dollar hit parity, or equal value, with the Swiss franc for the first time in over four years. Draghi's comments put pressure on Switzerland's central bank to ease further in order to maintain a 1.20-franc-per-euro limit, said Alan Ruskin, global head of currency strategy at Deutsche Bank in New York.
The SNB imposed that limit in 2011, when the currency's strength squeezed exporters and threatened deflation. The SNB eased policy on Dec. 18, when it said it would impose an interest rate of -0.25 percent on some large deposits held by investors in francs.
Sterling hit a 17-month low of $1.5328 after data showed British manufacturing expanded less than expected in December.

Currently CFTC data does not show yet many changes. Data on 16th of December has shown large contraction of positions – as longs as shorts. Right now we see that Open Interest has increased slightly and it corresponds to growth in short positions, while longs stand flat. Still this data stands for 23rd. It is interesting to see what changes will come on current week when investors will start to return back on markets after holidays.

Open interest:

Shorts:

Longs:

Recently we’ve made wide comments on complex situation around EUR. As we’ve said previously EUR right now stands in center of geopolitical and economical turmoil and we have mutual 2-side relations EU-US and EU-Russia. And progress of these relations develops not very positive. Shortly speaking US freely gives the law to EU because de facto EU is not totally independent.
Economically US and EU drives on opposite courses. While US is tending to starting rate hiking cycle in mid 2015, ECB gives comments on QE and increasing of balance to the level of March 2012 and this assumes QE on approximately 3 Trln EUR. Recent Draghi comments gives small room for ECB maneuvers.
Here guys, I will not repeat again all things that we’ve discussed in recent 2 months. Shortly speaking EUR enters in tough times. Geopolitical tensions hit EU economy, since US and EU interests are totally opposite. EU wants stability on its Eastern borders and it does not want to maintain Ukraine on balance, while US interests are quite different here.
In economy sphere we mostly watch for two major events – details on ECB QE that should be announced on 22nd of January, second – impact of Fed rate policy on EUR. The major concern here how EUR will behave in this whitewater of financial events. Probably we need to explain a bit. At first glance it seems all simple – US will start rise rate and hence EUR should fall even deeper. But this is not quite so. We suspect that this will be true only till the moment of first rate hiking by Fed. We suspect that starting of QE program by ECB will attract a lot of investors who will want to make easy money. As US experience of QE shows, real Central Bank money mostly was put in equities but not in long-term loans of real industrial sector, population, manufacturing and etc. This has led to huge bubble on US equities. We suspect that something of this sort could appear on EU equities. Initially it will be gradual. But as soon as Fed will start to increase rates capital will start to flow to EU. As amount of money will increase this will lead to additional demand on EUR and here drop of EUR could stop, or at least will loose its pace, despite opposite courses in rate policy…
Currently it is very difficult to predict how definitely this will happen; we just mention common view on this situation. But what we do know that this will not be as simple as “US rising rates while EU not, hence USD will dominate over EUR”.
Technicals
Monthly
As New Year has started today guys, we will update our Yearly Pivots for EUR and take a look and monthly chart of Dollar Index as well. In 2014 EUR has broken through all yearly pivots, including YPS1. Usually this points on validity of existing bearish trend and assumes further downward continuation in 2015.
Now is the time to take wider view on monthly chart since our tactical targets have been achieved. Currently EUR provides a lot of different patterns and setups that we will keep an eye on in 2015. First of all, we will continue to monitor most recent AB=CD pattern. As market is passing through 0.618 target without any respect, next target is 100% and it stands at all time major 5/8 1.12 area. Also take a look that current 1.21-1.22 area is not just AB-CD target, this is Agreement support with favorite 50% level. Actually it is not the fact yet that market has passed it totally. And here we will be watching for another pattern. Recent thrust down on monthly chart seems suitable for DiNapoli directional pattern. As new YPP stands at 1.2730, that is above current market – B&B “Sell” seems possible.
Finally, we will be watching for butterfly “Buy” pattern that stands in Agreement with AB=CD and Fib support. This will be also an area of monthly oversold. This will be our ultimate target in 2015. It stands just slightly below YPS1=1.1467.

Now take a look also on dollar index. Here was our analysis on 2011 that now has hit target:
https://www.forexpeacearmy.com/forex-forum/sive-morten-analysis/17534-forex-pro-weekly-october-31-november-04-2011-a.html
Now let’s take a look at monthly chart of dollar index. Our upside AB=CD and bullish quarterly grabber have been completed. In general dollar index shows mirror chart to EUR currency – with the same Butterfly and targets…

Still guys, this sounds very good when we speak on big picture. What we’re going to do in short term, particularly on next week?
Well, first we need to get clear notification that EUR has passed through 1.21-1.22 area and now respect will follow… Currently it is not the fact yet. If we will get any reversal patterns on daily chart – this could become B&B “Sell” that we’ve mentioned above…

Weekly
Here EUR has tried to turn to consolidation around our former 1.22 target but Draghi comments has push it lower and market moved below this level. Trend has turned bearish here again.
On weekly chart we’re mostly interested with two levels. 1.1950-1.20 has primary value for us, since it is stands closer and includes MPS1 and oversold. In fact, probably this level will tell us whether market will show any response on 1.20 monthly Agreement or it will continue move lower. This level is also interesting because it stands slightly below than former lows. So, here we also should watch for W&R that also could be a sign of possible retracement.
Second level is ~1.15. As we do not have any AB-CD’s here, we start to use extensions of retracements. This is not butterfly, just retracement… But 1.15 will be interesting in medium term perspective, but not on coming week. We just need to keep in mind that around 1.15 we have support…
That’s being said, all eyes on possible bullish patterns around 1.1940-1.20…

Daily
When market stands in long and stable downward action sooner or later it will pass and erase all AB-CD targets and patterns. Thus, month ago we have talked on possible butterflies, 3-Drives etc, but right now all of them are gone. On this type of market we usually apply harmonic swings, pivots and patterns on most recent swings.
Above we’ve estimated that 1.1940 will be support that includes weekly oversold and MPS1. Daily chart also points on this level but a bit differently. Thus, 1.1920 area is daily oversold as well, WPS1 and support of long term trend line, that in fact, keeps downward action since it has started around 1.40 area.
Also take a look that most recent swing could be a background for DiNapoli DRPO or B&B “Sell” pattern. That is what we could watch for in short-term. Harmonic swing points that upside target could stand as far as around 1.2250 – right around 50% resistance of most recent swing. So let’s see what will happen in reality and how market will response on 1.1940 support area…

Intraday charts
On Intraday charts, guys, we do not see anything interesting yet. Market just completed downward action and has no enough time yet to form something else or some response. Here we do not have any patterns yet…


Conclusion:
In 2015 it will be interesting to watch on EUR, since overall situation around EU as political as economical is very sophisticated and potentially in carries a lot of opportunities.
In long-term perspective we will be watching for patterns and events that we’ve mentioned in “Monthly” part of our analysis.
In short-term we mostly wonder, whether market will response on current support and will we get some retracement before market will start move to next target…



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.

 

[Sive Morten]

EUR/USD Daily Update Tue 06, January 2015

Greetings,


Recent Reuters report tells dollar slipped against the safe-haven yen on Tuesday as investor risk aversion mounted on the back of a sharp drop in equities.

The battered euro caught some relief as the dollar stumbled against the yen, helping the common currency pull back a bit from a nine-year trough.

Persistent weakness in oil prices and uncertainly over the Greek political situation have spooked investors, sending Wall Street to its biggest one-day fall in about three months.

As the region's equities floundered -- Tokyo's Nikkei sank 3 percent -- the resulting flight to safety drove investors into the yen.

A sharp fall in U.S. Treasury yields also undermined the dollar versus the yen, with 10-year yields diving 14 basis points in just two sessions .

"The dollar/yen surge late last month that ignored some weak U.S. data was overdone, it was led by sentiment and not based on solid factors. So it's natural for players to adjust positions when faced by lower oil and tumbles in European, U.S. and now Japanese equities," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

"But the key theme of monetary policy divergence remains firmly in place, and I don't see the dollar declining much more against the yen," Murata said.

The euro's bounce, however, is expected to be limited as the prospect of more policy easing from the European Central Bank has grown ever stronger.

Adding pressure on the ECB to do more, German inflation slowed to its lowest in over five years in December. The data came just days after ECB President Mario Draghi said the risks were growing that inflation would stay too low for too long.

Constant chatter of a Greek exit from the euro zone further sapped confidence in the currency.

"I believe EURUSD will continue to fall this month as the market moves to near 100 percent certainty of ECB QE on January 22," analysts at CitiFX wrote in a note to clients, attributing those comments to the bank's head New York spot trader.

The euro slid to a two-month low of 142.020 yen .

A slide in crude oil prices hurt commodity currencies such as the Norwegian crown, which hovered near a three-week low of 7.6764 crowns per dollar.

Buffeted by a free fall in oil prices, the Norwegian currency had slid to a 12-year low of 7.8558 crowns against the dollar in December.

Brent crude oil was stuck near a 5-1/2-year trough of $52.66 per barrel hit overnight as growth in supplies showed no signs of abating in an already saturated market.

The Australian dollar, another commodity currency, got a breather after data showed Australia's trade deficit was not as big as feared.

The Aussie was up 0.8 percent at $0.8147 , crawling away from a 5-1/2 year low of $0.8036 struck on Monday.


So, guys, as Crude slump further - our thoughts on CAD were confirmed and market continues journey to upside. May be we will take a look at it later in the week.
On AUD we continue to monitor possible appearing of DRPO "Buy" pattern, especially because recently Gold has rebounded a bit.
But right now we will take a look at EUR. So, our first step of trading plan was completed rather fast. Market has moved slightly lower and has reached support of weekly and daily oversold and WPS1+MPS1. Also this is support of long-term daily trendline. Now we will be watching what will happen

Among pontential patterns we see DRPO on 4-hour chart, but it seems a bit small to be a pattern that could trigger significant retracement up. But may be it will put first break in the wall of larger retracement, may be it will initiate first bounce...

Second is - hourly chart. Here we already have got butterfly, may be we will get something else.. right now all that we see is may be goofy looking H&S pattern. Current upside action looks too heavy and gradual, this is definitely not a reversal yet... So let's keep watching:

P.S.
Also guys, we suspect that as QE starting in January as if Greece will out from EU someday - this will lead to upside action on EUR. Mostly because these events will be well priced-in when they will come in fact. We've said about QE much in our weekly researches and you know our position on this question. Personally I intend to make investments on EU Equity market - It is needed just to choose correct stocks...

 

[Sive Morten]

Good morning,


Reuters reports euro hit another nine-year low against the dollar on Wednesday as investors braced for inflation numbers that should give doves at the European Central Bank a clear mandate for bolder policy stimulus.

Data due at 1000 GMT is expected to show the first annual fall in consumer prices since the depth of the global financial crisis in 2009, piling pressure on the ECB to launch a full-scale quantitative easing programme - effectively the printing of euros - at its next policy meeting on Jan 22.

The common currency fell as far as $1.1842 , its lowest since March 2006. It was last trading at $1.1865, down 0.2 percent on the day.

"A negative (inflation) print … is going to keep up market speculation that the ECB will announce something (on QE) in January," said Ian Stannard, head of European FX strategy at Morgan Stanley in London.

"But given the uncertainties in Greece, that may be a little bit ambitious at this point, at least for them to come out with any detailed plan," Stannard said.

A German newspaper reported on Tuesday that Germany was making contingency plans for the possible departure of Greece from the euro zone, ahead of a Greek election on Jan 25 that could see victory for the Syriza party, which wants to cancel austerity measures and some of the country's debt.
Key for the dollar later in the day will be the U.S. Federal Reserve's December meeting minutes, which should give markets some clues as to the timing of interest rate rises.

"The Fed may not hike rates until June at the earliest. That is too far ahead for participants to make bets on, so meantime market focus rests on the ECB's meeting and the Bank of Japan, which continues to instil fear due to its unpredictability," said Kyosuke Suzuki, head of FX at Societe Generale in Tokyo.

As Brent crude oil fell below $50 a barrel for the first time since May 2009 , oil-rich Canada's dollar hit a 5-1/2 year low at C$1.1851 against its U.S. counterpart.


So, guys, EUR has not responded yet on support that was hit recently. Actually, we do not sure that it will respond at all, at least patterns that we've intended to get have not appeared. On AUD some progress exists but we mostly are interested with final point - appearing or not appearing of DRPO "Buy" pattern.
That's why today we will take a look at NZD. Here we also do not have really big topic for discussion but still could provide some update since our recent analysis...
Recall that first part of our setup stands on weekly chart. We have bullish grabber there that is still valid and was not cancelled by recent price action.

Another reason why we've chosen NZD - we could get DRPO "Buy" pattern, and right now market forms candle that could provide confirmation if it will close above 3x3 DMA.

On daily chart all this stuff takes the shape of falling wedge pattern, accompanied by bullish divergence on MACD. Market has tested WPS1+MPS1, bounced up and now stands above WPP. Also it looks like ti has formed bullish morning star pattern, although white candle looks a bit insufficient. But what is more important here - take a look, as market has formed lower lows recently, now this tendency stopped and recent bottom stands higher than the previous one... All these signs are not strong and not very bright, but such kind of details could make a day when you pay attention to them...

Finally 4-hour chart. Here we do not a lot of objects for discussion. One thing that comes to my mind is possible Double Bottom, but may be later it will shift to butterfly - it is difficult to say right now. Anyway the major point here is downward action has slowed, bullish patterns are still valid and it means that weekly DRPO is possible.

 

[Sive Morten]

Good morning,


Reuters reports euro wobbled near a nine-year low on Thursday as investors wagered the European Central Bank would have to take bolder stimulus steps to combat growing deflationary pressures in the zone.
"Expectations that the ECB will start quantitative easing are strengthening firmly. Some people say it could fall to around $1.15," said Kyosuke Suzuki, director of forex at Societe Generale in Tokyo.

Data on Wednesday showed consumer prices in the euro zone fell in December from a year earlier, marking the first annual decline since 2009. That only cemented market expectations the ECB will launch a bond buying program at its policy meeting on Jan. 22.

In contrast, the U.S. Federal Reserve is still expected to lift interest rates, although the timing remains unclear. Minutes of the December meeting offered no new clues on when the Fed will move, though most economists expect it around mid-year.

The focus now should shift back to the data, with the next few months of releases key in determining whether rate hikes will begin in June as we, along with most FOMC members, expect," analysts at BNP Paribas wrote in a note to clients.

Weakness in the euro kept the dollar index at nine-year highs. The index last traded at 92.003, near the peak of 92.265 set overnight.

Also on the menu for bears was sterling, which sank to its lowest in over 17 months after growth in Britain's dominant services sector slowed last month to its weakest since May 2013.

Both the Australian and Canadian dollars succumbed to selling pressure as well, but managed to stage a rebound from six-year troughs.

There is little in the way of market-moving data in Asia on Thursday, leaving the focus on European data as well as an interest rate decision by the Bank of England.


So, we still have nothing new from EUR, market just moving and moving lower and it seems that it could gravitate right to the next long-term target. IF EUR will keep up current pace, then this target will not as "long-term" as it was initially.
Thus, today we could take a look at our tactical patterns that we have - mostly on NZD and AUD. NZD has made solid step up and now we just need to wait for week closing tomorrow.
Today we will take a look at AUD again. In fact the core for current setup we have on monthly/weekly chart. After completing of all-times AB=CD market has turned to retracement and right now it has achieved downward 1.618 AB-CD right at major 5/8 Fib support and created Agreement. Also this is MPS1. This is the major reason why we think that some at least minor bounce is possible here. But minor on monthly chart usually means major on daily, or at least some valuable retracement:

ON weekly chart we also have completed most recent AB-CD pattern at the same area:

On daily we have our pattern that we're watching for and that could trigger this upside retracement, as response on solid monthly support. This is very good example why we should know where we are on big picture and what stands on our backs. Here we have perfect thrust down, close above 3x3, then close below and now we wait for second close above that will confirm DRPO "Buy":

Finally on hourly chart market is forming something that reminds double bottom. This is potentially reversal pattern and it forms right on second bottom of DRPO. Also, take a note that on second bottom of DRPO market has created lower valley. This is also positive sign for DRPO pattern. Now we just need to get close above 3x3 on daily chart and later get a confirmation from upside breakout of neckline of hourly Double bottom pattern. This will finish preparation stage of retracement. After that we just will need to monitor these patterns for possible failures...

 

[Sive Morten]

Good morning,


Reuters reports euro wallowed near a nine-year low on Friday, as speculation grew that the European Central Bank will embark on quantitative easing soon and U.S. jobs data will be good enough to cement the case for a rate hike by the Federal Reserve.

ECB President Mario Draghi said on Thursday the bank's Governing Council stands ready to take unconventional measures to stem prolonged low inflation, fuelling expectations of a policy move at the bank's meeting on Jan 22.

Numbers released on Friday by the euro zone's two biggest economies, France and Germany, only darkened the outlook for the 18-nation currency bloc. Industrial output declined in both countries and German exports fell sharply.

Also weakening the euro was concern that a Jan. 25 Greek general election will lead to a stand-off between Berlin and Athens over austerity policies imposed on Greece as a condition of its international bailout.

But the main focus on Friday was U.S. nonfarm payrolls, which are expected to rise again, extending the longest run of job creation on record.

"A nonfarm payroll number in line with our expectations (of a surprisingly large gain) will very much put back onto the market's radar that the Fed will be hiking mid-year," said Michael Sneyd, a currency strategist at BNP Paribas in London.

"Currently, market pricing is beyond that so there's still a lot of scope for U.S. yields to rise and for that to continue to provide support for the U.S. dollar."

"The dollar index is likely to rise beyond the 2005 peak. But to rise well beyond the peak, we will likely need to see further widening in yield gaps (between the dollar and other currencies)," said Minori Uchida, chief FX strategist at Bank of Tokyo-Mitsubishi UFJ in Tokyo.


So, guys, today all eyes on NFP release... On NZD chances to get DRPO on weekly chart have become even better, but NFP could turn situation from top to bottom. last NFP has put too high level that will be difficult to overcome. Today we again will take a look at AUD, because yesterday market finally has closed above 3x3 DMA and theoretically DRPO "Buy" pattern has been confirmed. Yes, this pattern has some flaws. For example, bottoms are a bit flat, we do not see growing volatility when bottoms were forming, it does not look clear as bears capitulation. But in most cases you will not get perfect looking DRPO on market. Besides, among other major pairs we do not have

On hourly chart we see the same double bottom pattern, market has reached neck line and now has turned to retracement. Also we see supportive factor from MACD - bullish divergence on double bottom lows. IF you want to take long position on this pattern watch for first Fib support at 0.81. DiNapoli teaches that if market will move below 5/8 support after confirmation of DRPO, then pattern should be treated as failed. But in last times market have changed and currently I prefer to place stops lower - somewhere near the bottom around WPS1 0.8030-0.8040. Because 5/8 Fib levels are most famous and usually cleared well by market makers, especially on NFP releases when volatility becomes greater. That's why better to place stop a bit lower...

You should apply entry technique that is most suitable to you and match your money management. For example, you can take 20% on position at first support and if market will fall further - apply scale-in. Many ways of entry exist here...

 

[Triantus Shango]

happy new year, sive and all readers! hope you all achieve your goals this year.

now, as always, i highly enjoy reading your analysis. i would like to share with the community what i see. although i do not use DiNapoli's approach, i see similar context. here are charts:

 

[stelore]

'Morning Sive,
any tought on AUDUSD DRPO buy?
--------
Hi Shango,
nice to "see" you again.......... Happy 2015!!!

 

[Sive Morten]

happy new year, sive and all readers! hope you all achieve your goals this year.

now, as always, i highly enjoy reading your analysis. i would like to share with the community what i see. although i do not use DiNapoli's approach, i see similar context. here are charts:

Hi Triantus,
It's great that you visit us! Nice analysis. Especially I like idea on churning on weekly chart. Probably we need to see CFTC data and trading volume there. If it will be rather big and range will remain small - this could become nice supportive factor...

'Morning Sive,
any tought on AUDUSD DRPO buy?
--------
Hi Shango,
nice to "see" you again.......... Happy 2015!!!

Hi Stelore,
Yes, I'm keeping eye on it either. The thoughts are the same - just watch whether market will confirm it and give us 2nd close above 3x3...

 

[zerg664]

Dear Sive,

Sorry for the stupid question, but could you please tell me what indicator do you use on Daily EUR/USD chart for OB/OS conditions (when price touches the bule line, some sort of MA?). This blue line indicates oversold conditions on EUR/USD chart as I can see. Please give the name of the indicator and what are the settings. I'm new to your methods of trading, but I'm trying to learn. Thank you

 

[Sive Morten]

Dear Sive,

Sorry for the stupid question, but could you please tell me what indicator do you use on Daily EUR/USD chart for OB/OS conditions (when price touches the bule line, some sort of MA?). This blue line indicates oversold conditions on EUR/USD chart as I can see. Please give the name of the indicator and what are the settings. I'm new to your methods of trading, but I'm trying to learn. Thank you

Hi Zerg,
this is DiNapoli Oscillator Predictor. You can learn more in DiNapoli book "Trading with DiNapoli levels", or try to start from our Forex Military School - there is a chapter dedicated to overbought oversold analysis and indicator. There you can find and download Detrended Oscillator. It works quite similar but its application not as simple.