Forex FOREX PRO WEEKLY, January 08 - 12, 2024

Sive Morten

Special Consultant to the FPA

As usual, in the beginning of the year we do not have a lot economical events and numbers. Yes, we've got few - NFP in the US, CPI in EU and some others here and there. But mostly all eyes were on Epstein documents publication, so, a kind of hype, you know... Yes, we also have mentioned the fact of release in our Telegram, but we're not interested with content of these documents. Our interest is purely practical - how it will impact on political balance, and what consequences might be to financial markets. Now the dust is not settled yet around, we do not see big reasons to comment it. We intend just briefly mention this topic tomorrow in gold report, as it is more political rather than economical.

Meantime, our suggestion seems to be correct - recent news stream confirms that recent dollar strength is due changing of market expectations on future Fed policy. If you remember, in the beginning of the week we were a bit surprised with fact of drastic shift in dollar without any news releases. This perfectly fits to our previous report content - "who said that ECB will be behind the Fed in rate cut?" Although it was basic market view just two weeks ago...

Market overview

Euro zone inflation jumped as expected last month, supporting the European Central Bank’s case to keep interest rates at record highs for some time, even as markets continued to bet on a rapid fall in borrowing costs. Inflation across the 20-nation bloc jumped to 2.9% in December from 2.4% in November, just shy of expectations for a 3.0% reading.

The data is in line with the ECB's prediction that inflation bottomed out in November and will now hover in the 2.5% to 3% range through the year, well above its 2% target, before falling to target in 2025. Still, recent disruption of shipping via the Suez Canal has pushed up transportation costs.

"Where higher costs are shipping specific, as at the moment, the inflation impact is very small," Paul Donovan at UBS Wealth Management said. It is not the value of goods shipped, but the changing cost of shipping the goods that matters. Globally, shipping by sea accounts for less than 0.3% of global economic activity."

The inflation jump comes as investors and policymakers appear to be drawing different conclusions about price trends and their implication for interest rates. Investors are betting that the ECB will cut rates six times this year with the first move coming in March or April while policymakers argue that it might take until mid-2024 to gain the confidence that inflation is indeed under control.

Investors argue that the ECB is too optimistic on growth and also point to a sharp drop in producer prices -- down 8.8% in November -- as evidence of cooling price pressures.

"Inflation is far from being defeated," Commerzbank economist Christoph Weil said. "The ECB is likely to cut its key interest rates significantly less than the market currently expects."
Nordea economists Anders Svendsen and Tuuli Koivu think the ECB is wrong again and they see inflation below 1.5% by the end of the summer, well below the ECB's own projections.
"If inflation prints continue to come in on the soft side, risks of an earlier cut and/or a faster pace of cuts compared to our current baseline of quarterly 25bp rate cuts increase," they said, adding that the first cut could come in June.

Ahead of Friday's December employment report, Thursday's data diary throws up ADP's private sector jobs reading and Challenger's layoff numbers for the same month - as well as weekly jobless claims. But as many eyes may be on the New York Fed's global supply chain pressure index - with fears of an escalation of the Middle East conflict increasing jitters about shipping supply chains and oil prices.

Some analysts pointed to the steep drop in daily takeup of the Fed's "reverse repo" money draining facility and said it would be "appropriate" to begin discussing the factor that may lead the central bank to slow the balance sheet runoff and halt QT. The effect of the Fed minutes combined with news that U.S. job openings fell to nearly a three-year low in November as the labor market gradually cools and an ISM manufacturing survey showing another month of contracting activity and falling input prices.

Investors ploughed $123.1 billion into cash in the seven days to Wednesday, marking the largest such inflow since March 2023 and a record for the first week of a year, Bank of America said in a report published on Friday.

The dollar was little changed on Friday after a rally in response to mixed data that suggested the world's largest economy showed pockets of weakness but remained resilient overall. The greenback earlier rallied after data showed the U.S. economy created 216,000 new jobs in December, exceeding the consensus forecast of 170,000. The unemployment rate was steady from November at 3.7%, compared with expectations of a rise to 3.8%, while average earnings rose 0.4% on a monthly basis, against forecasts of a 0.3% gain.

But that report was offset by data later in the session that indicated the U.S. services sector slumped last month. The Institute for Supply Management (ISM) said its non-manufacturing index fell to 50.6 last month, the lowest reading since May, from 52.7 in November. The services industry accounts for more than two-thirds of the economy. Economists polled by Reuters had forecast the index little changed at 52.6.

More importantly, the ISM's measure of services sector employment plunged to 43.3 last month, the lowest since July 2020 when the economy was reeling from the first wave of the pandemic. The index was at 50.7 in November.

"At the end of the day, this is about market positioning," said Marc Chandler, chief market strategist at Bannockburn Forex in New York. "I see big outside days in the dollar index and I see net little changed on the day. The market lacks conviction and we should expect some broad consolidation maybe within today's range for the next few days."

Analysts said the jobs report suggested that the Federal Reserve would probably be in no rush to cut interest rates over the next few months. In the end, the futures market would likely come around closer to the Fed's forecast of about 75 bps of rate cuts in 2024, they noted.

"Overall, I think the market is a bit ahead of itself here...I call March about a 50/50 meeting, and I wonder if we don't stick around there for a little while as the data rolls in," said Adam Button, chief currency analyst at ForexLive in Toronto. Inflation numbers will look really good by about June, but asking for that in March is aggressive. If the numbers start to turn I think the Fed isn’t going to hesitate, I think they've indicated that now, but this one jobs report - is this a game changer or not? I don’t think it's a game changer."

Average hourly earnings rose 0.4% in December, matching the prior month's gain. That raised the year-on-year increase in wages to 4.1% from 4.0% in November.
Wage growth is well above its pre-pandemic average and the 3-3.5% range that most policymakers view as consistent with the Fed's 2% inflation target.


Financial markets initially reduced the probabilities of a March rate cut to around 53% but later boosted them to about 65% as traders digested the mixed employment report. Attention now shifts to December's consumer inflation report, scheduled to be published next Thursday.

So, the U.S. dollar's recent slide appears to be short-lived as some speculators have already reduced bets for aggressive Federal Reserve interest rate cuts this year, according to a Reuters poll of strategists who still say it will be weaker in a year. Market expectations that the Fed will start easing policy as early as March were tempered when minutes from December's policy meeting showed most policymakers agreed borrowing costs need to remain high for some time, suggesting a March cut is less likely.

"In the short run, we think the dollar could gain a bit, mainly because we think the market is being too aggressive at pricing in Fed rate cuts...our base case is the Fed will wait until May before cutting," said Brian Rose, senior economist at UBS Global Wealth Management. We have seen the dollar rebounding a bit in recent days and the dollar could be stable or maybe a bit higher in the near term."

Making clear the dollar has not yet been decisively knocked off its perch, a majority of analysts, 36 of 59, said the greater risk to their three-month forecast was the dollar trades stronger against major currencies than they currently predict. The remaining 23 said the risk was it could trade weaker. However, most said the dollar will slip against major currencies in 12 months as the Fed's latest dot plot predictions show three interest rate cuts by year-end.

"Beyond the very short term, we still expect a further dollar decline to materialise this year as the deterioration in the economic outlook forces (a) large (amount of) Fed cuts," said Francesco Pesole, FX strategist at ING. But any depreciation in the first half of this year will be moderate compared with the last couple of months, he said.

The euro , which rose over 3% last year, its first yearly gain since 2020, was expected to capitalise on narrowing interest rate differentials and rise over 2% to trade around $1.12 in 12 months. It was trading at $1.09 on Thursday.

Among other major currencies, the Japanese yen , which has dropped about 30% in the past three years, was forecast to gain 6.6% to change hands at around 135/dollar in a year.

, which had a strong showing last year, gaining over 5.0%, was predicted to rise over 1.5% to $1.29 by year end. The Aussie and New Zealand dollars were expected to strengthen around 4% and 2.2%, respectively.

The data "showed that the U.S. economy is in a healthy position," said Amo Sahota, director at FX consulting firm Klarity FX in San Francisco. "That's where everything leads down this road of resetting market expectations early this year on what the Fed's action is going to be. Wednesday's release of the minutes of the Federal Reserve's Dec. 12-13 policy meeting was viewed as modestly hawkish by market participants. Fed officials "stressed ... that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably toward the (Federal Open Market) Committee's objective. If there was going to be a hard landing in the economy, then sure, let's ramp up expectations for a quick interest rate cut early this year," Sahota said. "But that is not what the Fed is thinking and (based on the data), we're not headed for a hard landing and the economy looks pretty good."

That said, Thierry Albert Wizman, global FX and rates strategist at Macquarie in New York, does not believe dollar gains since the beginning of the year could be sustained despite a pushback in rate cut expectations.

"I do think the U.S. economy will slow, and it's going to be a consumer-led slowdown and we're going to see convergence between growth rates in the U.S. and the rest of the world this year," Wizman said. "Over the course of the first six months of the year, we can see some dollar weakness relative to the euro, sterling, and the yen."

"The biggest driver of U.S. dollar strength through this very young year is a general repricing of expectations for the Fed in 2024," said Helen Given, FX trader at Monex USA in Washington. Traders were overzealous in their expectations of as many as six 25 basis point cuts from the Fed in 2024, and through the last few days have been paring down some of those positions. We don't see the Fed cutting interest rates any time soon, as we've said since December's FOMC (Federal Open Market Committee) presser, and the minutes today seemed to confirm that," Monex's Given said.

So let's try to figure all this stuff out

First is, as the Fed minutes have become the first data, released on Wed. If you take a look at the text of the message, you'll see that the sentiment of the dovish Fed is completely vapored out - much tougher than the market expected. A rate reduction is predicted later, there is no word about curtailing QT.

Additionally economists start writing (mostly in twitter), that this is an ancient practice to issue bonds - why not to finance US Treasury directly, without placing bonds on markets? We think this is next step in QE technology. This time money will be send not to the households in a way of different social programs, but directly to Ministry of Finance that will distribute them according to their needs. In fact this topic is already under discussion, and they intend actively to do it in 2024. The logic is simple - let's buy high yield paying by low yield. Or direct financing of problem banks etc. Consequently - they will scare everybody on stock market, barb hamsters down to skin so that no one will interfere. And then the “right” people will pick up everything that is valuable for cheap.
Second - corporate income (and maybe other) taxes should raise. But this will just accelerate recession. Because:
  • It will reduce the profitability of companies, and ability to cover of growing interest on debt by profits and, therefore, increase the number of defaults;
  • Push down the stock market, which, in fact, are those very corporations;
  • Suppress demand from corporates in the economy
  • Will complicate the opportunity for competition for personnel with salaries.
Last week we've covered in details the subject of the Fed policy and why we suggest that first cut and change in policy should happen in the middle of spring, April-May. The Fed will try extend time before first rate cut to avoid inflation spike in 2024 election year. It is another exist - just let recession to happen with huge drop of households' wealth. But we suggest that this is unbelievable in election year.

Next question is employment. Here we think that two moments are worthy of our attention. First is, despite that we've got NFP upside surprise again - all previous numbers were revised down in recent few months. Second, JOLT report shows constant downside trend - number of vacations is contracting. This is new signs of recession. In fact, job openings fell to a 32-month low. If monetary and fiscal policy is left unchanged, the situation should only get worse over the next few months, and by the 2nd quarter, unemployment should begin to rise.

Finally, let's take a look at United States Average Weekly Hours. This is great indicator and we monitor it over time. It is rather conservative and very rare change, that's why it is few who pay attention to it and it is not manipulated by different statistical tricks:


As you can see from the chart, this is not the first time this low has been reached (and with some acceleration towards the end of the year), so it is quite possible that next year this level will finally be broken down. And given that this indicator is very conservative, it can be stated that it clearly demonstrates the poor state of the real sector of the economy. This explains sharp reaction on recent PMI numbers.

It should be noted that support for demand from the budget has little effect on employment: American citizens prefer to buy cheaper Chinese goods. Actually, this is the main problem of the US economy, as we have repeatedly written about. So the only question is when the US will run out of free money to support demand. At this point, you will have to stop the tight monetary policy and start issuing money.

According to a number of experts, as we've mentioned last week, this should happen in March-April. We will assume that, most likely, by mid-spring, the leadership of the US Federal Reserve System will have to significantly change its monetary policy. But it is very possible that political reasons will force the Fed to do so sooner.

Next question is inflation. We disagree with UBS analyst who said that Red Sea navigation problems makes no impact on market just because this is only 0.3% of global trade. We want to show you few charts. The global logistics market is aware of the situation in which it finds itself. Due to the blockade of the Red Sea by the Yemeni Houthis, the price of shipping a 40-foot container from Shanghai to Rotterdam has tripled, although the journey has only increased by 40%.


However, the record 15 thousand dollars for delivery of a box, 2021 prices, is still far away. Then the reason for the rise in transportation costs was a lack of infrastructure - containers accumulated in gigantic quantities in US ports: there were simply no container boxes on the world market. They rushed to America as a result of the distribution of helicopter money from Uncle Sam to the population for a speedy exit of the country’s economy from the Covid recession.

Now the situation is repeating itself: due to the lengthening of the delivery period, there is already a shortage of container ships on the market, and soon there will be a shortage of boxes. Transportation prices will continue to rise. Russian North Sea Route becomes the shortest way from Europe to Asia now, and transit there supposedly will increase exponentially already in the summer-autumn navigation of 2024.

Container shipping giant Maersk will begin redirecting all ships that were supposed to pass through the Red Sea and the Gulf of Aden to the south around Africa's Cape of Good Hope, the company press release. A new push for inflation and a problem that cannot be solved for the Americans even in two key world straits. A good gift for the elections. Nothing to say. Dry numbers point that problem is serious - since December, the cost of shipping goods from Asia to Northern Europe has increased by 173% (+$4000 per container). Just in 10 days before January 2, the number of transits through the Suez Canal decreased by 28% y/y 3.1% of world trade, but not 0.3%.

If you think that this hardly makes impact on major goods stream from China - you're wrong:

Another indirect sign of problems, we've briefly mentioned it in Telegram - signs of "shrinkflation". This topic is not new. But in recent time, the problems of previously highly profitable franchise start getting big problems, drop in defaults across the Globe.


It means that real inflation levels are undervalued and intentionally downplayed. It is usually done not by manipulating of inflation only but by all other statistics - here to put slightly better growth, here slightly lower inflation etc. to disguise the reality...
So, what is the bottom line...

So the structural crisis continues, slowly and inexorably. And, in connection with the beginning of the new year, it is necessary to say a few words about the results of the past year and forecasts for the new year. Based on the results, we can note the following.

The Fed's tight credit policy has reduced consumer inflation in the US to (almost) acceptable levels, but this is official. In reality, taking into account statistical methods that actively reduce it, it is likely that the real indicators are significantly, 5-7% higher than the official ones. The industrial sector is even worse, with persistent deflation, a sign of an industrial downturn. Which, on a scale of about 2% per year, was also recognized by the officials of the United States.

In reality, most likely (and in accordance with the theory) in the United States there is a decline in GDP, about 6-7% per year. It is offset by a sharp increase in the value of financial assets, which, in one way or another, are taken into account in GDP. Otherwise explain the sharp increase (about 5%) GDP against the backdrop of an industrial downturn is impossible. It should be noted that demand support does not have a special effect on the US domestic economy, since demand is mainly met by imported (Chinese) goods, and the service sector is rather conservative.

It should be noted that the growth of PPI against the background of deflation in the total volume of industrial output indicates that the share of imports in final demand is increasing.

The situation is similar in other developed countries. The EU recognized the scale of the industrial decline at 6%, that is, 0.5% per month! In reality, it's probably even worse. The decline in the EU, of course, is larger than in the US, but not so much, by 2 percent. That is, if in the US the decline is 6-7%, then in the EU-8-9%.

Note that the demand/money supply management model in the United States today is roughly the same as it was in Russia in 1996-98 (before the default). Demand is stimulated through the budget, but inside the economy there is a purely restrictive policy, the withdrawal of money. Therefore, the key question is when the demand support system will collapse and we will have to switch to issuing money (the US will not declare a sovereign default).

Now let's move on to the short forecast
. Analysts suggest, that the key trend in 2024 is to continue the decline at the same pace. However, most likely, it is in the beginning of the year that the US monetary authorities will be forced to abandon the tight monetary policy and switch to issuing. At the same time, during the election campaign, financial markets may collapse.

We do not deal with political issues here, but all experts say that with a high probability neither Biden nor Trump will reach the final of the election race. As soon as the first of them comes down, it will inevitably cause powerful socio-political, and therefore financial perturbations. Therefore, without saying anything about the timing, it is argued that it is highly likely that in the spring and summer of 2024, which begins, financial markets will fall sharply with an increase in the dollar exchange rate against other currencies and a change in the Fed's monetary policy towards strong easing (issuance).

At the same time, in the real sector, most likely, there will not be a sharp decline! The structural crisis may accelerate slightly (in the US from 6-7% to 8-10%), but all processes will continue. But the structure of demand will begin to change more intensively in favor of the transition of the "middle" class to poverty. In any case, the corresponding processes will take several more years, so everyone who is ready for such perturbations will be able to quickly adapt to them.

So, let's take this basis as our general scenario, and see what will happen...


Although this week performance was rather active, especially on Friday - it remains in the same range as week before, making no impact on monthly chart. The only thing that we could do here is update Pivot levels for 2024.

Take a look at YPP has been tested right in first days of a New Year. YPR1 drops down from 1.16 level in 2023 to 1.13+ in 2024, which makes perfect resistance area together with K-level around 1.1238-1.14... Now it is an interesting question whether EUR will be able to stay above YPP and keep bullish sentiment.


Here general context remains bullish. We could talk about "Evening star" pattern if price would close slightly lower. Now it looks not perfect. At the same time, weekly picture is big enough to let market drop more without breaking the major tendency. As within previous weeks - we mostly will be busy on daily and intraday charts:


We could say here that market has completed all patterns and targets that we've discussed. At the same time, it was done in very sophisticated manner, which has given very low chances to make intentional trades in desirable direction.

As a result, we've got not very exciting "High wave" pattern right at daily K-support. I would say that our "Stretch" pattern mostly is done, as price has shown ~ 3/8 upside bounce and not at oversold anymore. The major support now comes from K-area. Following HW pattern - direction depends on breakout now.

Bearish divergence stands in place still. So, since we have bullish weekly trend, we have to keep an eye on patterns around. Good bullish pattern on 1H or 4H chart tells that we could consider long entry at daily K-area. No patterns and choppy, gradual heavy action will stand in favor deeper downside action, which is also not restricted by weekly picture - MACD potential cross point stands significantly lower:


On 4H chart we've got freak DRPO "Buy", when confirmation and target hit has happened in a single bar. But let's not regret about this. Here is more interesting thing to come. I would consider H&S pattern. It is interesting in terms of weekly "Evening star".

Correspondingly we get first "vital" area - 1.10. Upside breakout and moving back to top significantly increase chances on upside continuation and breakout. Meantime, OP stands near 1.07 lows, which is not critical for weekly bullish trend direction:

On 1H chart as well - EUR has completed everything. First is, it has destroyed H&S, as we've suggested and completed butterfly. Second - jumped right to K-resistance again, competing our upside target - neck of larger H&S that we've discussed on Friday. Personally I was not able to step in in time...

Anyway, we have few setups in place. Bulls have scenario only 1H chart, because daily chart is bearish. Here is idea with our H&S, and market right at the point where potentially it could start (or not start).

Bears have two options as usual - try to use step by step entry or wait for upside target of H&S pattern around 1.10. Each of them have its own pros. and cons.

Important sign happens if EUR will start dropping back to 1.09 lows, ignoring recent upside momentum. It could mean that downside action starts.
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Morning everybody,

So, last time we've agreed that overall context is bearish, but we need to be sure that intraday PMI momentum is done. On daily chart we do not see big changes. We already explained few times why this performance is bearish.

Despite that High wave pattern is not broken yet, we could say that tight consolidation that we see here obviously is not bullish either.

On 4H chart it is the only more or less clear pattern that we have - H&S. The same one you could find on DXY, by the way. Performance of right arm is also bearish - despite that we got DRPO "Buy" here last week, market barely was able to complete its minimal target with the spike. So, with high degree of certainty we suggest that the top of right arm is in place. So, if you would like to go short in general - this is not bad moment, at least for taking 30-40% of your total position:

Still, if you would like to catch reversal... on 1H chart we already said, that higher pullback is possible if reverse H&S works. Take a look, theoretically EUR should get the symmetry with action to ~1.09 area. Then, it might be "222" Buy and higher upside action, based on this H&S pattern.

But for the truth sake, we say that first is - chances of this "combination" are not too high. Second - if even we get this upside action, EUR could reach ~1.1025, level that makes not a big difference in the scale of 4H or daily time frame. If even upside action starts right now - it gonna be 1.1043 upside target...

So, think, decide... would you use gradual entry, wait for higher upside bounce or not consider short entry at all...
Morning everybody,

It seems that people were busy a bit with ETF chaos, made by the SEC yesterday and just had no time for all other markets... Today, in fact, we need to consider only 1H chart...

On daily one - everything stands the same. No big changes, but as we already have explained few times - picture looks bearish here:

On 4H chart everything is OK with H&S pattern, EUR has moved slightly lower yesterday. So, if you've stepped in, now you could move stops to breakeven:

On 1H chart EUR indeed has formed "222" Buy pattern around 5/8 support area. Now we just need to see whether EUR will be able to move with it. For bears it is nothing to do - move back to 1.1030 just should give another chance to enter.

If you have taken long position - place tight stop, around 1.0890 area. Normal bullish market has to start upward action. Otherwise - it is bearish.
Hi Sive,

I think it's been almost 14 years since I've started following you religiously. And everyday, I still learn more.

I hope you have been well and had a WONDERFUL Christmas. I wish you and your family great health and prosperity.

I don't know if it is just me feeling this way, but it seems like recent years, as of late, have been particularly difficult to trade. Fib and K-levels felt like it held up stronger in prior years. Patterns seem to be more tricky. There seems to be more "washing and rinsing". Trends for daily traders seem difficult to grasp.

Thank you for all the work you've done for the community. Thank you for your teachings all these years.

All the best.
Hi Sive,

I think it's been almost 14 years since I've started following you religiously. And everyday, I still learn more.

I hope you have been well and had a WONDERFUL Christmas. I wish you and your family great health and prosperity.

I don't know if it is just me feeling this way, but it seems like recent years, as of late, have been particularly difficult to trade. Fib and K-levels felt like it held up stronger in prior years. Patterns seem to be more tricky. There seems to be more "washing and rinsing". Trends for daily traders seem difficult to grasp.

Thank you for all the work you've done for the community. Thank you for your teachings all these years.

All the best.
Yes mate... indeed. The trading algorithms are becoming more sophisticated, automatic code trading (so called robots) are taking larger part, while manual trading part is decreasing. This is especially so as you've described on intraday charts. All this stuff makes impact. But, this is not new issue. Many people have studied this phenomenon and, at least for now, yes robotic trading increase the noise level, volatility, washing and smoothing signals so they become not as bright and more difficult to recognize them, but still everything is working by far. Because any robotic system always breaks after some time. While human brains are adapted and have ability for abstraction thinking. This gives manual trading advantage. Live traders react and assess price action and how it is changing in real time. While robots just execute the code and it is some lag until it breaks miserably. I've read this kind of explanations. Seems like true.
Morning everybody,

So, today is CPI... let's see what will happen. Meantime, although we were sceptic a bit about it, but our 1H H&S is working. At least price was able to reach neckline again. Here is the lesson - don't believe and gut feeling, just follow the real patterns. So, bulls now could move stops to breakeven. If CPI numbers will not bring any shock then we could consider upside OP around 1.1030:

Our former bearish position is closed at breakeven. So, now we consider another potential chance for entry. On 4H chart 1.1010-1.1040 are two levels that envelope 1H OP target. Thus, somewhere around 1.1030 we will be watching for bearish signs. As you could see - even upside action to 1.1040 doesn't break the bearish context and 4H H&S shape. So, from that standpoint it is too early to say that bearish context is broken: