Sive Morten
Special Consultant to the FPA
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Fundamentals
This week we do not have a lot of important events, at least in economy sphere. Political ones is a quite different tune. But on economy we see improving PMI and inflation statistics in EU, while US has shown so-so data. As a result as EU as GBP have shown mixed action. Still, setups that we consider right now are still valid.
The euro, the pound and a clutch of trade-sensitive currencies rallied as the dollar slid to a six-month low on Tuesday, with investors confident that global growth prospects are improving and U.S.-China trade relations significantly better. After staying strong for much of 2019 thanks to the relative outperformance of the U.S. economy and investors’ preference for a safe-haven currency amid the trade dispute between Washington and Beijing, the dollar’s gains for the year have shrivelled in December.
The buoyant end-of-year sentiment enocouraged investors to buy up currencies linked to trade and global growth, sending many such as the Australian dollar, Chinese yuan and Scandinavian crowns to multi-month or multi-week highs against the greenback.
In thin volumes on the last day of the decade, currencies were also more volatile than many had expected.
Analysts did not attribute the moves to any specific new developments.
“I can’t see much reason for the movement in the FX market except end-year position squaring, or just being careful and cutting positions ahead of the New Year’s holiday and the start of 2020. As a result I wouldn’t draw any big conclusions from it,” said Marshal Gittler, currency analyst at ACLS Global.
Chinese Vice Premier Liu He will visit Washington this week to sign a Phase 1 trade deal with the United States, the South China Morning Post reported on Monday.
U.S. President Donald Trump said on Tuesday that Phase 1 of trade deal with China would be signed on Jan. 15 at the White House, but uncertainty surrounds details of the agreement.
Signs that the euro zone economy may be stabilising have lifted the common currency in recent weeks as investors unwound short positions, though the currency has shed around 2% of its value against the dollar in 2019. Latest CFTC data shows that hedge funds held $9.16 billion of euro shorts, far less than the $14.84 billion seen in May.
MUFG analysts saw a “bearish technical development for the U.S. dollar that signals an increasing risk of further weakness ahead”. “Weakness in the U.S. dollar towards the end of this year has coincided with the renewed expansion of the Fed’s balance and the paring back of pessimism over the outlook for global growth,” they said.
Sterling hit new two-week highs against the dollar, although the possibility of a ‘no-deal’ Brexit at the end of 2020 means the currency is still not close to where it was on Dec. 12, the day Prime Minister Boris Johnson won the British election.
In terms of data, final purchasing managers indexes painted a slightly brighter than expected picture across much of Asia and Europe, with final French, German and euro zone readings a touch better than advance PMIs. However, they confirmed euro zone activity contracting for the 11th straight month .
The euro strengthened 1.8% to the dollar last month but the PMIs failed to lift it further even though bond yields extended their rise and inflation expectations rose to the highest since July.
But Societe Generale analysts wrote: “Higher bond yields are likely to keep the euro’s micro-rally going, wildfires will keep a lid on Aussie dollar, and PMIs and oil are supporting Norwegian, Swedish and Canadian currencies.”
Investors rushed into safe-haven assets on Friday after U.S. air strikes in Iraq killed a senior Iranian military official, sending the Japanese yen to a three-month high, while the U.S. dollar index was knocked by the weakest domestic factory activity in a decade.
U.S. Treasuries, German bunds and gold rallied after the overnight air strike in Baghdad killed Qassem Soleimani, Tehran’s most prominent military commander and the architect of its growing military influence in the Middle East.
“Overall, geopolitical risk premia have risen substantially overnight,” said Karl Schamotta, chief market strategist at Cambridge Global Payments. Investors were “really looking for safe havens and a port in the storm,” he added.
The U.S. manufacturing sector contracted in December by the most in more than a decade, with order volumes crashing to a near 11-year low and factory employment falling for a fifth straight month, according to a report from ISM released on Friday.
“That is a depressing number,” said Schamotta.
It suggests “trade war-related uncertainty has actually damaged the manufacturing sector on a sustained basis and that points to weakness in GDP, particularly in the coming quarter because what you’re likely to see is an inventory drawdown as opposed to continued build.”
The longer-term effects on the dollar are unclear. Though it weakened Friday, the greenback may ultimately benefit if slower U.S. manufacturing dents hopes for global growth in 2020.
“The idea that other countries that are large exporters to the U.S. might see a large rebound in the near term - that idea is losing traction here,” said Schamotta.
Now is the brief view on coming week:
US
Friday brings the first U.S. jobs release of the decade. While it will be hard to beat the 2010s for growth and equity gains, the December 2019 figures could extend year-end bullishness and amplify campaign braggadocio from President Donald Trump.
Leading up to November’s election, he seems to have little to worry about on the economic front. November’s 3.5% jobless rate was the lowest in half a century and the 266,000 jobs added were the most in 10 months. Last month’s hiring is forecast to have eased to 165,000, still well above the 100,000-a-month rate needed to keep up with growth in the working age population.
The labour picture suggests Trump’s trade war with China has not had much impact on the broader economy, which clipped along at a 2.1% pace in the third quarter. Manufacturing hiring did take a hit but hopes are high for a Phase 1 trade deal on January 15. If payroll numbers meet or beat expectations, Trump won’t miss an opportunity to repeat tweet “JOBS, JOBS, JOBS.”
Impeachment process stands in stalemate situation by far. As you know, the Democratic-controlled House of Representatives voted in December to impeach Trump for pressuring Ukraine to investigate former Vice President Joe Biden, a potential rival in the 2020 presidential election. At the same time, Senate Majority Leader Mitch McConnell, a Republican, said that in any case the trial could not start without the articles of impeachment, which House Speaker Nancy Pelosi has not yet sent to the Senate. The actual impeachment trial in the Senate would need a two-thirds majority vote for a conviction, requiring more than 20 Republicans to break with their party to remove the president.
UK:
For some, the New Year brings fresh resolutions, for Britain’s parliament it brings back a Brexit withdrawal bill. Lawmakers reconvene on Jan 7 and will debate the divorce deal Prime Minister Boris Johnson has agreed with Brussels. The bill goes to parliament’s upper house on Thursday and should allow Johnson to fulfil his pledge to “get Brexit done” by Jan. 31.
But the no-deal Brexit concerns that weighed on UK markets in 2019 haven’t dissipated and sterling is back below $1.31, from December highs above $1.35. Once parliament approves the agreement, the clock starts ticking on Britain’s future trade relationship with the EU. If an agreement isn’t reached by end-2020, the outcome may yet be that Britain is cut loose without trade arrangements in place.
However, with one Brexit step likely taken by the end of the month, sterling could react more than last year to economic data. Reuters polls predict the final reading of December’s UK services activity on Monday will reveal a slight uptick though stay in contraction territory below 50. House price data on Wednesday could also offer clues on Britons’ willingness to splash out on property now that there is a bit more Brexit clarity.
China
Nearly two years of brinkmanship, stop-start negotiations and tit-for-tat tariffs could end on Jan. 15, the date that President Trump says will see Beijing and Washington ink a Phase 1 trade deal. But China’s leadership has kept schtum on the subject and investors don’t know for sure what the deal text will actually say, keeping global markets on edge.
In recent days, Chinese markets have basked in the afterglow of upbeat retail sales data, solid manufacturing gauges and fresh stimulus measures with the central bank slashing banks’ reserve ratio requirements. But what next? Services PMIs published on Monday will be crucial, as will Thursday’s inflation figures. Tuesday will bring data on central bank reserves, indicating whether Beijing’s $3 trillion war chest is growing or diminishing.
Also, guys I would like to add just common thoughts on EUR... As previously we keep bullish view on gold market despite downside action within 2-3 months because of stubborn keeping big long positions by investors as now we warn you about the EUR. Take a look at CFTC chart - investors stubbornly keep net short position through the whole 2019 year despite any talks on US problems and EU improving. Even on a background "PMI and CPI improving" this week - no changes have happened here. It means that currently is very difficult to count on real rally on EUR. And position should start to change first before major action will start. Even on GBP investors have closed a lot of shorts in recent few months, while on EUR situation stands stubbornly stable.
Source: cftc.gov
Charting by Investing.com
Technicals
Monthly
Last time we have discussed everything that relates to longer-term scenario. Thus, we said, that monthly time frame is the one where technical factors meet fundamental once. We've considered possible bullish scenario, which could take place if we're wrong about US tariffs on EU and if EU economy will show at least some improving. Right now investors keep net short positions on EUR (by the last CFTC report), understanding the same risks that we've mentioned previously and this is reasonable. Positive shifts in EU economy have to become stable and regular with no US tariffs on horizon.
From the technical point of view, we have October reversal month and 2019 Yearly Pivot Support 1. This year it holds downside action. We know the major feature of pivot supports - it has to hold downside action if this is a retracement. This is particular what we have right now and this is potentially bullish sign.
October candle is still valid and keeps its reversal features, as lows stand intact. Now everything depends on EUR itself. It has to show more active upside performance. The vital point which determine everything is 1.09 lows. It seems that it is just two weeks till the new year, but lows also stand just 150 pips from current market.
Conversely - sudden drop below 1.09 area and YPS1 will unlock our bearish view and downside continuation back to 1.03 lows. EUR has to show breakout either above 1.12 area or below 1.09 to unleash larger time scale setups. Until we stand in this range - we deal with tactic short-term setups on daily and intraday charts.
Finally, the grabber that we've talked last week - has been confirmed. Sometimes grabbers appear occasionally, just by natural price action and cares no features of real grabber. But the problem is you can't know it in advance. Right now, this grabber is a risk factor. Additional tricky moment comes from new 2020 Pivot point - it has been tested already and it coincides with the top of the grabber, bringing more resistance to upside action.
EUR has to move above YPP to erase the grabber and prove its strength. This is what we will watch here. Besides, market just completes harmonic upside pullbacks so it is no reasons for self-congratulations yet.
Weekly
It is tough time for EUR on weekly chart as well. In addition to YPP, here price meets Fib level and upper border of the channel. And the breakout of this level is crucial for bullish scenario.
To support monthly scenario weekly chart has to form bullish reversal, and preferably by some clear pattern. Currently it seems that we should focus on reverse H&S pattern. Current AB-CD pattern has XOP around 1.1450 Fib resistance and potential neckline. Right arm should be formed later around 1.1150 area.
This anticipated pattern is also useful as we could make judgement on EUR direction by comparing how it matches to the H&S project. While it follows it - it keeps bullish scenario. But if something goes wrong - this will be clear signal that sentiment changes and EUR turns downside.
Here is the low of "C" point has vital meaning, as drop below it tells that market destroys H&S setup. This will mean just one things - market will drop and put under question monthly bullish scenario as well.
Daily
Here, on daily we still focus on retracement as we search chance for long entry. Now market hits first support area, where potentially it could turn up. Next week it will flirt with MACDP line. Appearing of the bullish grabber here will be welcome.
Intraday
So on Friday EUR has dropped more, right to 4H 5/8 Fib support at 1.1130 area. 4H chart shows that this is K-support as well. The pattern that we were watching around on Friday finally could be formed here. Overall price action and upside bounce looks not bad, taking the shape of engulfing action:
1H chart shows that EUR has reached OP target directly of our Friday's AB-CD pattern, creating an Agreement support with 4H Fib levels. Minor retracement back inside the body of engulfing pattern is done already, and we could consider long entry from one of these Fib levels against 1.1125 lows. If EUR is still bullish it has to show upside action, keeping lows intact.
Conclusion:
EUR keeps chances on upside continuation on all time frames by far. But it is vital to start show upside action as soon as possible, because price stands not too far from crucial levels. Besides, situation becomes more complex as political events involves again and could make impact directly on USD value.
This week we do not have a lot of important events, at least in economy sphere. Political ones is a quite different tune. But on economy we see improving PMI and inflation statistics in EU, while US has shown so-so data. As a result as EU as GBP have shown mixed action. Still, setups that we consider right now are still valid.
The euro, the pound and a clutch of trade-sensitive currencies rallied as the dollar slid to a six-month low on Tuesday, with investors confident that global growth prospects are improving and U.S.-China trade relations significantly better. After staying strong for much of 2019 thanks to the relative outperformance of the U.S. economy and investors’ preference for a safe-haven currency amid the trade dispute between Washington and Beijing, the dollar’s gains for the year have shrivelled in December.
The buoyant end-of-year sentiment enocouraged investors to buy up currencies linked to trade and global growth, sending many such as the Australian dollar, Chinese yuan and Scandinavian crowns to multi-month or multi-week highs against the greenback.
In thin volumes on the last day of the decade, currencies were also more volatile than many had expected.
Analysts did not attribute the moves to any specific new developments.
“I can’t see much reason for the movement in the FX market except end-year position squaring, or just being careful and cutting positions ahead of the New Year’s holiday and the start of 2020. As a result I wouldn’t draw any big conclusions from it,” said Marshal Gittler, currency analyst at ACLS Global.
Chinese Vice Premier Liu He will visit Washington this week to sign a Phase 1 trade deal with the United States, the South China Morning Post reported on Monday.
U.S. President Donald Trump said on Tuesday that Phase 1 of trade deal with China would be signed on Jan. 15 at the White House, but uncertainty surrounds details of the agreement.
Signs that the euro zone economy may be stabilising have lifted the common currency in recent weeks as investors unwound short positions, though the currency has shed around 2% of its value against the dollar in 2019. Latest CFTC data shows that hedge funds held $9.16 billion of euro shorts, far less than the $14.84 billion seen in May.
MUFG analysts saw a “bearish technical development for the U.S. dollar that signals an increasing risk of further weakness ahead”. “Weakness in the U.S. dollar towards the end of this year has coincided with the renewed expansion of the Fed’s balance and the paring back of pessimism over the outlook for global growth,” they said.
Sterling hit new two-week highs against the dollar, although the possibility of a ‘no-deal’ Brexit at the end of 2020 means the currency is still not close to where it was on Dec. 12, the day Prime Minister Boris Johnson won the British election.
In terms of data, final purchasing managers indexes painted a slightly brighter than expected picture across much of Asia and Europe, with final French, German and euro zone readings a touch better than advance PMIs. However, they confirmed euro zone activity contracting for the 11th straight month .
The euro strengthened 1.8% to the dollar last month but the PMIs failed to lift it further even though bond yields extended their rise and inflation expectations rose to the highest since July.
But Societe Generale analysts wrote: “Higher bond yields are likely to keep the euro’s micro-rally going, wildfires will keep a lid on Aussie dollar, and PMIs and oil are supporting Norwegian, Swedish and Canadian currencies.”
Investors rushed into safe-haven assets on Friday after U.S. air strikes in Iraq killed a senior Iranian military official, sending the Japanese yen to a three-month high, while the U.S. dollar index was knocked by the weakest domestic factory activity in a decade.
U.S. Treasuries, German bunds and gold rallied after the overnight air strike in Baghdad killed Qassem Soleimani, Tehran’s most prominent military commander and the architect of its growing military influence in the Middle East.
“Overall, geopolitical risk premia have risen substantially overnight,” said Karl Schamotta, chief market strategist at Cambridge Global Payments. Investors were “really looking for safe havens and a port in the storm,” he added.
The U.S. manufacturing sector contracted in December by the most in more than a decade, with order volumes crashing to a near 11-year low and factory employment falling for a fifth straight month, according to a report from ISM released on Friday.
“That is a depressing number,” said Schamotta.
It suggests “trade war-related uncertainty has actually damaged the manufacturing sector on a sustained basis and that points to weakness in GDP, particularly in the coming quarter because what you’re likely to see is an inventory drawdown as opposed to continued build.”
The longer-term effects on the dollar are unclear. Though it weakened Friday, the greenback may ultimately benefit if slower U.S. manufacturing dents hopes for global growth in 2020.
“The idea that other countries that are large exporters to the U.S. might see a large rebound in the near term - that idea is losing traction here,” said Schamotta.
Now is the brief view on coming week:
US
Friday brings the first U.S. jobs release of the decade. While it will be hard to beat the 2010s for growth and equity gains, the December 2019 figures could extend year-end bullishness and amplify campaign braggadocio from President Donald Trump.
Leading up to November’s election, he seems to have little to worry about on the economic front. November’s 3.5% jobless rate was the lowest in half a century and the 266,000 jobs added were the most in 10 months. Last month’s hiring is forecast to have eased to 165,000, still well above the 100,000-a-month rate needed to keep up with growth in the working age population.
The labour picture suggests Trump’s trade war with China has not had much impact on the broader economy, which clipped along at a 2.1% pace in the third quarter. Manufacturing hiring did take a hit but hopes are high for a Phase 1 trade deal on January 15. If payroll numbers meet or beat expectations, Trump won’t miss an opportunity to repeat tweet “JOBS, JOBS, JOBS.”
Impeachment process stands in stalemate situation by far. As you know, the Democratic-controlled House of Representatives voted in December to impeach Trump for pressuring Ukraine to investigate former Vice President Joe Biden, a potential rival in the 2020 presidential election. At the same time, Senate Majority Leader Mitch McConnell, a Republican, said that in any case the trial could not start without the articles of impeachment, which House Speaker Nancy Pelosi has not yet sent to the Senate. The actual impeachment trial in the Senate would need a two-thirds majority vote for a conviction, requiring more than 20 Republicans to break with their party to remove the president.
UK:
For some, the New Year brings fresh resolutions, for Britain’s parliament it brings back a Brexit withdrawal bill. Lawmakers reconvene on Jan 7 and will debate the divorce deal Prime Minister Boris Johnson has agreed with Brussels. The bill goes to parliament’s upper house on Thursday and should allow Johnson to fulfil his pledge to “get Brexit done” by Jan. 31.
But the no-deal Brexit concerns that weighed on UK markets in 2019 haven’t dissipated and sterling is back below $1.31, from December highs above $1.35. Once parliament approves the agreement, the clock starts ticking on Britain’s future trade relationship with the EU. If an agreement isn’t reached by end-2020, the outcome may yet be that Britain is cut loose without trade arrangements in place.
However, with one Brexit step likely taken by the end of the month, sterling could react more than last year to economic data. Reuters polls predict the final reading of December’s UK services activity on Monday will reveal a slight uptick though stay in contraction territory below 50. House price data on Wednesday could also offer clues on Britons’ willingness to splash out on property now that there is a bit more Brexit clarity.
China
Nearly two years of brinkmanship, stop-start negotiations and tit-for-tat tariffs could end on Jan. 15, the date that President Trump says will see Beijing and Washington ink a Phase 1 trade deal. But China’s leadership has kept schtum on the subject and investors don’t know for sure what the deal text will actually say, keeping global markets on edge.
In recent days, Chinese markets have basked in the afterglow of upbeat retail sales data, solid manufacturing gauges and fresh stimulus measures with the central bank slashing banks’ reserve ratio requirements. But what next? Services PMIs published on Monday will be crucial, as will Thursday’s inflation figures. Tuesday will bring data on central bank reserves, indicating whether Beijing’s $3 trillion war chest is growing or diminishing.
Also, guys I would like to add just common thoughts on EUR... As previously we keep bullish view on gold market despite downside action within 2-3 months because of stubborn keeping big long positions by investors as now we warn you about the EUR. Take a look at CFTC chart - investors stubbornly keep net short position through the whole 2019 year despite any talks on US problems and EU improving. Even on a background "PMI and CPI improving" this week - no changes have happened here. It means that currently is very difficult to count on real rally on EUR. And position should start to change first before major action will start. Even on GBP investors have closed a lot of shorts in recent few months, while on EUR situation stands stubbornly stable.
Source: cftc.gov
Charting by Investing.com
Technicals
Monthly
Last time we have discussed everything that relates to longer-term scenario. Thus, we said, that monthly time frame is the one where technical factors meet fundamental once. We've considered possible bullish scenario, which could take place if we're wrong about US tariffs on EU and if EU economy will show at least some improving. Right now investors keep net short positions on EUR (by the last CFTC report), understanding the same risks that we've mentioned previously and this is reasonable. Positive shifts in EU economy have to become stable and regular with no US tariffs on horizon.
From the technical point of view, we have October reversal month and 2019 Yearly Pivot Support 1. This year it holds downside action. We know the major feature of pivot supports - it has to hold downside action if this is a retracement. This is particular what we have right now and this is potentially bullish sign.
October candle is still valid and keeps its reversal features, as lows stand intact. Now everything depends on EUR itself. It has to show more active upside performance. The vital point which determine everything is 1.09 lows. It seems that it is just two weeks till the new year, but lows also stand just 150 pips from current market.
Conversely - sudden drop below 1.09 area and YPS1 will unlock our bearish view and downside continuation back to 1.03 lows. EUR has to show breakout either above 1.12 area or below 1.09 to unleash larger time scale setups. Until we stand in this range - we deal with tactic short-term setups on daily and intraday charts.
Finally, the grabber that we've talked last week - has been confirmed. Sometimes grabbers appear occasionally, just by natural price action and cares no features of real grabber. But the problem is you can't know it in advance. Right now, this grabber is a risk factor. Additional tricky moment comes from new 2020 Pivot point - it has been tested already and it coincides with the top of the grabber, bringing more resistance to upside action.
EUR has to move above YPP to erase the grabber and prove its strength. This is what we will watch here. Besides, market just completes harmonic upside pullbacks so it is no reasons for self-congratulations yet.
Weekly
It is tough time for EUR on weekly chart as well. In addition to YPP, here price meets Fib level and upper border of the channel. And the breakout of this level is crucial for bullish scenario.
To support monthly scenario weekly chart has to form bullish reversal, and preferably by some clear pattern. Currently it seems that we should focus on reverse H&S pattern. Current AB-CD pattern has XOP around 1.1450 Fib resistance and potential neckline. Right arm should be formed later around 1.1150 area.
This anticipated pattern is also useful as we could make judgement on EUR direction by comparing how it matches to the H&S project. While it follows it - it keeps bullish scenario. But if something goes wrong - this will be clear signal that sentiment changes and EUR turns downside.
Here is the low of "C" point has vital meaning, as drop below it tells that market destroys H&S setup. This will mean just one things - market will drop and put under question monthly bullish scenario as well.
Daily
Here, on daily we still focus on retracement as we search chance for long entry. Now market hits first support area, where potentially it could turn up. Next week it will flirt with MACDP line. Appearing of the bullish grabber here will be welcome.
Intraday
So on Friday EUR has dropped more, right to 4H 5/8 Fib support at 1.1130 area. 4H chart shows that this is K-support as well. The pattern that we were watching around on Friday finally could be formed here. Overall price action and upside bounce looks not bad, taking the shape of engulfing action:
1H chart shows that EUR has reached OP target directly of our Friday's AB-CD pattern, creating an Agreement support with 4H Fib levels. Minor retracement back inside the body of engulfing pattern is done already, and we could consider long entry from one of these Fib levels against 1.1125 lows. If EUR is still bullish it has to show upside action, keeping lows intact.
Conclusion:
EUR keeps chances on upside continuation on all time frames by far. But it is vital to start show upside action as soon as possible, because price stands not too far from crucial levels. Besides, situation becomes more complex as political events involves again and could make impact directly on USD value.
...and you Sive is still tirelessly giving your daily & weekly analysis which no doubth have helped many Traders here at this site...and I for one would like to say:
