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Forex FOREX PRO WEEKLY, January 07 - 11, 2019

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Jan 5, 2019.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals

    Well, guys, US government shutdown, caught over us as well -

    "December 22, 2018: During the shutdown of the federal government, the Commitments of Traders report will not be published. When the federal government operations return to normal, CFTC will resume publication of the Commitments of Traders report." Heh, ;)

    Although this is well-known thing, but particularly this one could set the sentiment for the whole coming week.
    10-year yields has reversed up on Friday and jump from 2.53 back to 2.68%. This is solid one day move, and this definitely should provide some support to US dollar, at least in the beginning of the week.

    Major event of last week was J. Powell press conference in Atlanta Fed Bank. As Reuters reports - the U.S. dollar retreated against the euro on Friday, giving up all the gains logged after a robust U.S. jobs report, following comments from Federal Reserve Chairman Jerome Powell that the U.S. central bank will be sensitive to the downside risks the market is pricing in.

    “We will be patient as we watch to see how the economy evolves,” Powell told the American Economic Association on Friday.

    Powell said the Fed is not on a preset path of interest rate hikes and suggested that it could pause its policy tightening as it did in 2016.

    “Powell’s comments that the Fed is prepared to alter policy expectations quickly and flexibly are weighing on the U.S. dollar and giving risk sentiment a boost,” said Eric Viloria, FX strategist at Credit Agricole in New York.

    “Overall, Powell’s tone is cautious which is contributing to U.S. dollar softness,” Viloria said.

    Dollar rose on Friday due NFP report, following data that showed U.S. employers hired the most workers in 10 months in December while boosting wages.

    The data contrasts with reports this week signalling the global economy is slowing. China posted data showing factory activity contracted for the first time in 19 months in December, and there is evidence of weak manufacturing across much of Europe and Asia.

    “I think he (Powell) was not as forceful as some people, myself included, expected him to be. That is what took a bit of the wind out of the sails of the dollar, especially after a somewhat solid nonfarm payroll report,” said Alfonso Esparza, senior currency analyst at OANDA in Toronto.

    Here is, guys you also could find a lot of opinions of traders of big companies on recent Powell's speech.

    President Donald Trump and Democratic leaders failed to strike a deal on Friday to end a partial shutdown of the U.S. government as they fought over Trump’s request for $5 billion to fund a wall on the border with Mexico, lawmakers said.

    The greenback, which had slipped against the safe-haven Japanese yen in recent days amid worries about a slowdown in global growth, found support earlier in the session after China announced new measures to support its economy and hopes grew that upcoming U.S.-China trade talks would make some progress.

    Market sentiment improved when China confirmed that trade talks with the United States would be held in Beijing on Jan. 7-8.

    China’s central bank slashed the amount of cash that banks must hold as reserves for the fifth time in the past year, the latest effort to free up new lending and reduce the risk of a sharp economic slowdown.

    “News of trade talk with China was welcome and a powerful jobs report provided a double shot of espresso to the market to wake up investors today. Investor sentiment has been in the cellar … so anything that’s slightly positive would be viewed as good news", - Jack Ablin said, chief investment officer, Cresset wealth Advisors, Chicago.

    Now guys, we're coming to most interesting thing that could be decisive in coming, 2019 year. First is let's take a look at market expectations of rate change in 2019. We could see that market prices in only 5% of rate change in 2019 by far, based on Fed fund rate:

    upload_2019-1-5_13-54-27.

    By softer expectations, some traders treat as 30% probability of rate hike:

    “What did change was the probability of a rate cut happening this year which was also something the markets had been pricing in, which dropped to 30 percent from 50 percent. This shows that the markets want to move towards a neutral rate,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.


    At the same time, according to expectations of Fathom consulting on 2019 year - they expect 2-3 rate hikes:

    "We correctly predicted four fed hikes throughout 2018, a strongly out-of-consensus call. We expect two or three further hikes during 2019 — which is strongly out-of-consensus again, with markets judging a cut to be more likely than a hike, according to Bloomberg.

    We expected that the US would be alone among developed economies in hiking rates materially, so that both policy rates and long bond yields would decouple between the US and the rest of the developed world. This has also transpired. We expect further decoupling during 2019."


    So, this could be major driving factor for US dollar and could be most mispriced factor in global fundamental model. Other expectations from Fathom suggest further CNY depreciation, rising of US inflation in 2019 and keeping global recession in 2020 on table:
    [​IMG]

    Thus, it seems we are entering funny year and dollar weakness that stands on the surface could change very soon. So, we must be careful with any long-term bearish expectations about US dollar. At the same time, Fathom suggests no deep retracement on US stock market and positive performance in 2019, in general, which also doesn't correspond to big dollar appreciation. It seems, that we will see a lot of volatility in coming year, but not much direction.

    Technicals
    Monthly


    Despite thrilling fundamental setup, technical picture doesn't reflect it yet, as no decisive steps been done by Fed. Today we set new yearly pivots for 2019. They haven't changed too much, compares to 2018, especially YPS1:

    YPP = 1.1740
    YPS1 = 1.0936
    YPR1 = 1.2264


    Other picture mostly stands the same. December month shows very small range and has no impact on monthly picture at all. Here we mostly wait for clarity - either downside breakout and start action to 1.08 and later to 1.03 or ability of the EUR to hold above 1.12 and turning up. Market stands at support area around major 5/8 Fib level. In case of upside action, YPP will be important target , because, as a rule, market tends to touch YPP through the year.

    Indirect technical factors point on market's weakness, at least in long-term perspectives, as EUR can't jump out from strong support within more than 5-6 months and just lays upon it. Trend stands bearish here.

    Monthly situation shortly could be described as indecision with light gravitation to the downside. In fact, long standing around Yearly Pivot confirms things that we've discussed above. MACD trend stands bearish here.
    Thus we keep valid our downside COP target around 1.03 by far.

    eur_m_07_01_19.

    Weekly

    Weekly chart looks more bullish picture rather than bearish, despite that setup itself looks weak. The only bright pattern that we have here is bullish divergence at major 5/8 support area. Also market never closed below June 2018 lows.
    Again, taking in consideration fundamental background, it is difficult to bet on immediate downside breakout. All this stuff makes me think even about possible flat reverse H&S pattern, with round head. Maybe its just simple occasion, but its target stands right around new YPP...

    So, despite that it is not clear yet with H&S target, overall situation doesn't support long-term bearish view. Some daily/intraday setups could be completed probably, but no reasons yet to bet on 1.12 breakout...

    eur_w_07_01_19.

    Daily

    Daily picture still stands tricky, guys. NFP data trigger downside reaction that we've expected on intraday charts, but it has not reached COP target. Although market doesn't show upside continuation by far, but I suggest that we should not take any new shorts by far. If you grabbed the profit on Friday - this is good, if not and you have stop at breakeven - its OK. But do not take new shorts by far. Here is why.
    Chart doesn't bring new patterns, but action around pivots looks bullish. Market has tested MPS1 and price action was held by it, now it pulled back to MPP. This is bullish action.

    Second - take a look at Dollar Index. We have daily bearish grabber here:
    upload_2019-1-5_15-16-36.

    Finally, let's recall what we have on weekly, so it might be starting point of something...

    eur_d_07_01_19.

    Intraday

    So, here we see good downside reaction, according to our setup with NFP background. But later it was turn opposite due Powell's speech. Now bearish setup stands in relation to recent lows. If market will drop below it, then maybe we will see downside continuation. But the same lows, actually, is bullish grabber. This is another reasons why its bottom is so important for bearish setup:
    eur_4h_07_01_19.

    For the bulls situation stands a bit simpler. First is all bullish stuff that we've discussed above and 4H grabber. Second - potentially we could get this pattern, at least, even ignoring possible further upward action according to our theoretical weekly H&S pattern:
    eur_1h_07_01_19.

    In fact, we have a kind of bullish engulfing here, which is 4H bullish grabber. Bulls could narrow the focus and watch just for minor retracement, maybe it will be "222" Buy with stops against recent lows. First target is 1.1450. Currently it seems that this scenario has more points in its favor.

    Conclusion:

    We expect that major driving factor in 2019 will be undervaluation of Fed hawkishness, as market right now supposes no rate increase in 2019.
    In shorter-term perspective we continue our trading in the range, but also keep an eye on possible action to 1.1740 area within few months as something like H&S pattern is forming on weeky, 1.1740 is new YPP and in the beginning of the year background is not dollar supportive.


    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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  2. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    Let's continue our EUR trading setup. So, the one that we've specified in weekend has worked perfect. Indeed, upside AB=CD action is completed. Now market turns to retracement but it keeps chances on upside continuation, and our next destination point there is 1.1530 - MPR1 and 4H XOP target:
    eur_d_08_01_19.

    On 4H chart we have perfect "222" Sell" pattern, which suggests at least 30% retracement right to 1.14 area. This is potential level where we could start searching signals to buy. If, of course, no collapse will happen.
    Appearing of bullish grabber will be specially welcome:
    eur_4h_08_01_19.

    Within few hours we expect minor upside pullback, as here we have nature of B&B pattern, somewhere to 1.1460 level, and then AB-CD action is possible. OP target should stand at the same 1.14 area. This is trading plan for today's session. We have no intention to trade EUR short right now, since our context is bullish, but scalp traders could think about it, especially if we really will get "222" Sell pattern.
    eur_1h_08_01_19.
     
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  3. Stag

    Stag Sergeant

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    Greetings, guys. Let me show you my three scenarios I track this year. My best guess at time of writing is the second, we'll see. Good luck for 2019!

    EU_190108_w.
     
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  4. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Hi mate! Hopefully you had excellent holidays. I was thinking about the same on weekly chart, I mean possible reverse H&S pattern with upside target circa 1.17+. I even wrote about it in recent report ;)
    Taking in consideration fundamental background, I would bet on 1st or 2nd scenario, at least in IQ of 2019. Later situation should change.
     
  5. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    Let's keep up with our EUR journey. EUR keeps bullish sentiment and we still keep 1.1530 as our next target.
    Dollar index chart also points that action should continue:
    eur_d_09_01_19.

    Although shape that we have expected to get yesterday was perfectly completed, but there are some nuances exist. First, we haven't got any bullish grabber on 4H. This cancels idea of immediate upside continuation and makes to focus on 1.14 K-support that we've mentioned as our primary retracement target:
    eur_4h_09_01_19.

    Second, market has not completed totally AB=CD pattern and, in general, right now we do not have clear bullish continuation setup. Thus, it is prefferable to get something finished, some clear setup in place. For example, clear AB=CD down to 1.14, and "222" Buy pattern would be perfect.
    eur_1h_09_01_19.

    That's being said, despite that we keep upside context valid, for long entry we need better technical background than we have right now.
     
  6. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    Yesterday EUR and other markets have got strong push from Fed minutes. They show that some FOMC members support idea to keep rates stable in 2019 and turn Fed rate policy on hold. The conclusion we've made from Fed Fund futures rate , showing that investors do not expect rate change in 2019. Although this is not necessary will happen, but now this is the source of weakness for USD, in addition to shutdown and poor results in negotiations with China.

    So, our OP target is hit, market right now stands at strong daily resistance area of 5/8 Fib level, OP target and Overbought area. Next target is XOP at 1.1680 but currently it is logical to expect some pullback:
    eur_d_10_01_19.

    On intraday chart it is few to comment as market just has reached this area. On 4H chart our "222" has turned to butterfly and hit 1.27 target. There are two major things here. First is upside acceleration, which suggests futher upside continuation to 1.618 target around 1.1615 area. Second, 1.1470 area looks good and strong enough to become a retracement destination. Thus, appearing of "222" around it will be good scenario for us:
    eur_4h_10_01_19.
     
  7. Venelin

    Venelin Master Sergeant

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    Hi Sive and all, in my view euro is poised to go down and not able to complete ab=161.8 cd , mainly because CD leg is much slower than AB. Here is more: EUR Daily.
     
  8. Venelin

    Venelin Master Sergeant

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    USD/CAD presents nice buy opportunity on Weekly. We have BnB buy with potential Stop Grabber(needs confirmation).Good risk/reward ratio: cad.
     
  9. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Good morning,

    Yes I also saw this butterfly, definitely retracement should happen, but the most important thing right now is driving factor. Although CD leg is flat and lasts too long, but background has changed significantly in recent days. This is not about the EUR, but mostly about USD and Fed policy. That's why I still do not exclude totally chances on upside continuation within few weeks.

    Today we continue deal with retracement. As EUR stands at solid resistance area, as Dollar index - it is completed XOP target at daily OS and major 5/8 Fib support. This is one of the reasons for possible deeper retracement on EUR as well.
    dxy_d_11_01_19.


    Although our yesterday entry setup has worked perfect - we've got clear "222" Buy around K-support area and those who have taken longs now could move stops to breakeven:
    eur_1h_11_01_19.

    We still keep idea of deeper retracement on the table, due DXY daily situation. Thus, potentially we could get another AB-CD down of larger scale on 4H chart:
    eur_4h_11_01_19.

    Thus, there are two ways to act. Conservative traders should better wait for 4H AB-CD down and clear "222' Buy pattern there. While more risky trading plan suggests using Minesweeper entry tactics on 1H chart and attempt to take position on minor retracement to some Fib support against recent lows. It is more risky but potential loss also very small.
     
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