FOREX PRO WEEKLY, January 11-15, 2016

[Sive Morten]

Good morning,

(Reuters) - The dollar rose on Friday on steps taken by China to ease this week’s market turbulence and on U.S. jobs gains in December, but the rise was limited by worries over whether Beijing has done enough to calm its battered stock market.

Steep losses across global stock markets this week on fears about further slowing in the world's second-biggest economy have clouded investors' outlook on the greenback and on whether the Federal Reserve has room to raise U.S. interest rates further, if at all, in 2016, analysts said.

"The market's reaction is something between curious and concerning," Richard Scalone, co-head of foreign exchange at TJM Brokerage in Chicago said of the December U.S. payrolls report.

The dollar's rebound from Thursday's drop picked up after data showed U.S. employers added 292,000 workers in December, far above the 200,000 forecast in a Reuters poll.

The gains faded as traders focused on the absence of wage growth last month, which analysts reckoned would cause U.S. inflation to struggle to rise to 2 percent, the Fed's goal.

"This suggests inflation may be weak in 2016. It would be hard for them to deliver four hikes this year," said Charles St-Arnaud, currency strategist with Nomura Securities in New York.

U.S. interest rates futures implied traders have priced in two rate increases in 2016, half the increases hinted at by Fed Vice Chair Stanley Fischer earlier this week, according to CME Group's FedWatch program.

Against the yen, the greenback clung to a 0.2 percent gain, at 117.87 yen, bringing its weekly loss to 2.2 percent, which was the largest in four months , according to EBS data.

While traders sought to assess the impact of the latest U.S. jobs data on the Fed's rate-hike plan, they remain jittery about China, analysts said.

The yuan, down by up to 3 percent in offshore trading this week , stabilized on reports of outright intervention by Chinese state-owned banks and temporary bans on Chinese banks selling dollars.

The yuan was fixed higher by the People's Bank of China for the first time in nine days on Friday.

Sources told Reuters that PBOC is under growing pressure from policy advisers to let the yuan fall potentially by another 10 to 15 percent.

Today, guys is a big choice for weekly research, because many major currencies shows very interesting setups. Right now we should exclude AUD probably, since it almost has hit our target - 400 pips were taken very fast. To be honest, initially I've thought it will take more time...
NZD setup looks very perspective, JPY is moving to our destination point with confirmed monthly DRPO "Sell" pattern... And GBP... very interesting. EUR is not - the same stuff as on Friday, we need a wait a bit. Besides, EUR the one who shows opposite direction, all other currencies (except JPY, may be due risk aversion process) shows weakness against USD, while EUR struggles.

So, let's take a look at GBP today. NZD probably will take next week analysis...

Our long-term analysis on GBP stands on mismatching of market expectations and BoE policy. The culmination of this contradiction was in December, when BoE was stand "on hold" perpsectives of rate hiking, while market has expected the opposite decision. Fundamental analysis suggests two major moments for UK economy. First, is - weak inflation. Even 5-year forward rates do not promise reaching of 2% desirable level of inflation. Second - very significant households debt burden. Rising the rate will impact on population solvency and consumption. Also, as economists tell, recent BoE statements mostly indicates desire to postpone rate hike. So, it was difficult situation for BoE. Once they have announced more hawkish policy, but later searched reasons to cancel it. And December statistics on inflation has provided them this chance to turn into more dovish tone. Here you could read about it in details:
https://www.forexpeacearmy.com/community/threads/forex-pro-weekly-21-25-september-2015.42015/
https://www.forexpeacearmy.com/community/threads/forex-pro-weekly-november-02-06-2015.42702/
https://www.forexpeacearmy.com/community/threads/forex-pro-weekly-november-09-13-2015.42866/
These two major factors suggest further weakness in UK currency. Technically market already has reached our first target - 1.45. Two months ago it was seemed incredible. Now, let's update technical view (fundamental mostly stands the same) and see how situation has changed since our most recent analysis.

COT data shows perfect bearish sentiment. Take a look - as open interest as speculative short position grow as price falling down. At the same time as net short position as open interest still have solid reserve. Extreme points for these indicators stand rather far from current values. Thus, open interest has barely reached 200K, while it's max value was around 270K. So, here we could say that sentiment is bearish.

Technicals
Monthly

"As usual, we continue to keep our long-term analysis that we’ve made in December 2013 in our Forex Military School Course, where we were learning Elliot Waves technique.

Long Term Forecast on GBP rate


Our long term analysis suggests first appearing of new high on 4th wave at ~1.76 level and then starting of last 5th wave down. First condition was accomplished and we’ve got new high, but it was a bit lower – not 1.76 but 1.72. This was and is all time support/resistance area. Now we stand in final part of our journey. According to our 2013 analysis market should reach lows at 1.35 area. Let’s see what additional information we have right now."

Trend is bearish here, but GBP is not at oversold. Couple of months ago market has reached strong support area – Former Yearly Pivot support 1 and 5/8 major monthly Fib level. Market gradually was struggling through YPS1 but it seems that first attempt to pass through it has failed.
Our conclusion was - GBP will continue move down, but after some retracement. Right now it seems that downward action restarts. Also we have huge AB-CD pattern that specifies target with more precision. It is not quite 1.35, actually it is 1.3088.

August month has become bearish grabber that suggests taking out of 1.45 lows. So we have pattern on monthly chart that gives us clear direction for considerable time period. September has become also a bearish grabber and take a look October - as well. It means that market gradually was challenged upside action but failed within 3 recent month.

Now we see that our short-term target has been completed - grabbers have reached their destination. Still it does not mean that market should reverse to upside. Here, guys, I plot new Yearly Pivot levels - YPP and YPS1. The latter probably will become first solid support on a way down, because all other major supports already has been broken. I intentionally keep on chart 5/8 Fib level that was also former YPS1. Take a look that it also coincides with June 2010 lows @ 1.4190 area. Hence, our next support is 1.4190- 1.4220 area, i.e. 1.42 roughly. Market is not at oversold and has no other barriers on a way down except this one. Also there is no significant barriers from current level to 1.42 as well...

Weekly

On weekly chart there are two moments that important for us. Trend is bearish. Market simultaneously forms two patterns. First one is big AB=CD with minor 0.618 extension around 1.4320 area. Second one is Butterfly "Buy" with 1.27 extension at 1.4190. Also butterfly has inner AB-CD with 1.618 target around 1.4160. Guys, all these targets stand around major monthly level of YPS1 @1.42. It means that GBP probably will reach it first, but later some solid bounce could start, may be even to YPP. It doesn't mean that GBP will not reach our major 1.3350 target, but bearish trend will be interrupted for weeks or even months, probably.
On shorter term charts it will take a shape of bullish trend.

Second issue - current placement. Take a look Price stands at MPS1 and weekly oversold. We should be prepared for possible upside retracement within 1-2 weeks probably.

Daily

Daily chart places the question - if retracement will start due situation on weekly chart - how far it could push market? Usually, or at least, very often it happens that reaction equals to counter-reaction. It means that if market hits oversold on weekly, it means that GBP could reach daily overbought on a retracement up. At least we could treat overbought as some kind of "absolute level", that market hardly will break easily. Taking all these thoughts together we should watch for 1.4960-1.50 level as destination for possible retracement up.

This level is not just daily overbought. This is also MPP that has not been tested yet and, this is K-resistance area. Currently it is difficult to make better assumption, since here we do not have any patterns. And we have only one part of the puzzle.

To get second one - we should watch for patterns. Right now it seems that we could get some DiNapoli directional one, say DRPO "Buy". Thrust down is nice. Retracement that has happened in the middle was less than 30% and keeps thrust valid. May be retracement up will be smaller, but the fact that GBP has hit oversold on weekly leads us to opposite conclusion. That's why we've chosen this area as possible target of upside bounce (if it will happen at all, of cause, LOL).

So, it means that if you were keeping long-term shorts - think about taking some profit - whole or, partially at least and tight stops at the other part....

Hourly

And we could start our observation of possible retracement right from hourly chart. As you can see GBP was forming here nice downward channel. On Friday market has completed butterfly "Buy" pattern right at low border. Also price keeps nice harmonic swings for long time. So on Monday some upside action should start. First sign that retracement has started will be breakout of channel and action above WPP.

We can't call you to trade it long, because our major context is bearish and we just wait another cool place to go short. But scalp traders could do it probably. This situation could be traded differently. Aggressive traders could try take long on butterfly, safer way assumes appearing of breakout first, out of channel and above WPP and taking position at some retracement after that... But again, this is not important for us according to the scope of this research. Our major interest if good place for taking short position.

Conclusion:
During month that has passed we do not see any significant changes in our long-term view. Fundamental analysis suggests that hardly situation will improve significantly in near term, thus, GBP mostly will gravitate to downside action, especially due opposite policy on USD by Fed. Our next medium term target stands at 1.42 area.

In short-term picture market could show upside retracement to 1.50 area but mostly it will be technical.

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]

Good morning,

(Reuters) - The dollar edged down against the euro and yen in Asian trade on Tuesday, moving back toward a more than four-month low against the perceived safe-haven Japanese currency as crude oil prices continued to tumble.

Crude oil futures approached a 20 percent drop since the beginning of the year, with both U.S. crude and global benchmark Brent down more than 1 percent.

China set another firm fix for its currency on Tuesday and stepped up a verbal campaign to convince markets it remains in control. But the yuan slipped slightly in early trade despite what dealers called aggressive intervention to support the currency.

"Interest rate differentials don't mean anything at the moment. Risk sentiment, oil prices, and China - people are just focusing on that now," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

The People's Bank of China set the mid-point for the yuan at 6.5628, barely changed from the previous strong fix and higher than its late levels on Monday.

China's central bank plans to keep the yuan basically stable against a basket of currencies, and fluctuations of the Chinese currency against the U.S. dollar will increase, Chief Economist Ma Jun said on the central bank's website late Monday

However, Ma added that the yuan will not be strictly pegged to a currency basket either, though no details were given.

The Australian dollar, often used as a proxy for China plays because of because of Australia's trade exposure to China, was down about 0.1 percent at $0.6983 , remaining above a four-month low of $0.6927 touched on Monday.

The dollar edged up about 0.1 percent against its Canadian dollar to C$1.4225 after the loonie hit a 12 1/2-year low of C$1.4245 in the previous session.

Sterling stood at $1.4537 , nursing losses after a plunge to a 5-1/2-year low of $1.4491 on Monday, amid expectations that the Bank of England is in no rush to tighten policy when it meets on Thursday.

"While no changes are expected from the central bank, the drop in energy prices and the volatility in the financial markets should make policymakers more nervous," said Kathy Lien, managing director of FX strategy at BK Asset Management.

"Low inflation has been a big problem for the BOE - although the weaker currency helps to ease some of that pain," she said in a note to clients.

Analysts polled by Reuters do not expect BOE policymakers to opt for an increase in interest rates for the first time in more than eight years until the second quarter of this year. Some market participants expect the central bank to hold off even longer and refrain from hiking this year.

The BOE is seen eventually hiking its benchmark bank rate 25 basis points to 0.75 percent by the end of June, according to the consensus forecast, from a record low 0.50 percent that has stood since early 2009.


So, today we probably could take a look at EUR again, while GBP still struggling with weekly oversold and retracement has not started yet...

On daily EUR you probably see everything by yourself, we have bearish grabber, guys... The importance of this pattern is even greater, because its target stands right at invalidation point as "222' Buy pattern as potential butterfly. Other words speaking, if EUR will complete the grabber - it will simultaneously will destroy all bullish patterns that we have.

And this will be half way to 1.05 lows, since only phantom bullish hope will rest if market will drop right back down to 1.07 again.
That's why, currently is the moment when bears should make final decision, since now EUR stands in a point where you have to decide would you like to go short or you will ignore this trade. Grabber is some sort of key pattern. If it will fail - this simultaneously will mean the failure of short-term bearish setup. Last week we said while market holds below 1.0850 resistance downward reversal is still possible. Now we also have got a grabber - what else do we need? If this combination will fail this will be the end for bearish context.

So, pattern has been formed, now EUR stands in upward retracement inside it's body. It means that we could use one of Fib levels for short entry (if you would like to do it at all, of cause). Stop should be placed above the top of the grabber:

Another scenario that you could follow is to wait for 1.07 breakout. Profit potential will be limited but entry will be much safer, since if market right now will erase the grabber - you just will not get your entry... no entry - no loss....

 

[Sive Morten]

Good morning,

(Reuters) - The dollar and risk-sensitive currencies recovered ground against the yen and the euro on Wednesday after China's central bank held the yuan steady and better than expected Chinese trade data helped reduce some of bearishness toward the world's second largest economy.

The yuan and Chinese share markets regained some stability following heavy intervention by Beijing to stem falls in the Chinese currency this week, persuading traders to buy back risk assets.

Both the yen and the euro tend to gain at times of market stress because these currencies are often used as funding currencies for investment in risk assets, and consequently rise when there is a retreat from those assets.

"People had been reducing their existing exposure to risk assets. But I think that, or at least the first round of that stage is coming to an end," said a trader at a North American bank.

The People's Bank of China set the mid-point for the yuan at 6.5630 to the dollar , virtually unchanged from firm fixes on the previous two days.

The fixing came as the central bank put ae squeeze on offshore sellers of the currency by making it prohibitively expensive to speculate against the yuan in offshore markets, dampening fears of a sustained depreciation.

In addition, customs data also showed China's exports and imports in December were both better than market expectations

All of this was good news for the Australian dollar, often used as proxy for China trade because of Australia's reliance on Chinese demand for raw materials. It jumped 0.7 percent to $0.7032 , edging back from Monday's four-month low of $0.6927.

While Beijing appears to have stabilised the yuan for now, market players say its long-term policy outlook remains unclear.

"When the yuan was accepted as reserve currency for the IMF, they were asked to liberalise the market. And in the long run, that is what they are likely to be heading for. What they have been doing in recent days is the opposite," said Kyosuke Suzuki, director of forex at Societe Generale.

"In addition, there's question of how long they can keep up massive market intervention," he added.

Some market players think speculators were ready to sell the yuan again as soon as Beijing stops intervening.

"Chinese authorities have overpowered markets for now. But as soon as they stop doing so, I suspect markets will start trying to test their resolve," said Masatoshi Omata, senior client manager of market trading at Resona Bank.

Indeed, speculators are now starting to attack the Hong Kong dollar, whose peg to the U.S. dollar would become costlier for the city if the yuan continues to weaken against the dollar.

The one-year implied volatility on the Hong Kong dollar briefly rose to the highest level since August.

In the spot trade, the currency was little changed at HK$7.7592 to the U.S. dollar .

Elsewhere, the British pound was broadly weak after data showed UK industrial output suffered its sharpest fall since 2013.

The data fanned speculation among traders that Ian McCafferty, the sole member in the Monetary Policy Committee who has voted for a rate hike in recent meetings, may soften his stance to support holding rates at the Bank of England's policy review on Thursday.

That in turn is likely to push market expectations on the BoE's rate hike back further.

The pound last stood at $1.4456 , flat from late U.S. levels, having slipped on Tuesday as low as $1.4352, its lowest level since June 2010.

As we've promised, today, we will give you hint on NZD, since there is nothing to do on EUR today. Those who has wanted to go short - probably has done this yesterday, others wait for 1.07 breakout.

On NZD we see solid bearish potential. Thus, market right now shows bearish signs - acceleration down, failure to pass through 0.7 area. It keeps door open for possible big ButterflY "buy" pattern with downside potential of 500 pips.
Another important moment that right now NZD mostly is kept by oversold support, since it has no other support levels around:

So, it seems that we could use current pause for short entry. Kiwi is forming some kind of flag pattern on daily chart. But whatever position we will take -we should control it by January close price. If you will take a look at monthly chart right now - you will see that big bearish grabber could be formed and we need it will be formed, if we intend take short position.

It would be nice if Kiwi will climb to 0.6650 area. WPP has not been tested yet and this will be also major 3/8 Fib resistance. Market is oversold, so, this task does not seem impossible.

 

[Sive Morten]

Good morning,

Reuters) - The Canadian dollar fell to its lowest level since April 2003 on Thursday as oil prices extended losses, while the Indonesian rupiah slipped after militant attacks in Jakarta.

The rupiah fell about 1 percent against the dollar at one point to as low as 13,960 after several explosions and gunfire were heard in the centre of the Indonesian capital, witnesses told Reuters.

While the initial reaction among major currencies was relatively limited, market participants said this could add to the risk averse sentiment in the market, which has been roiled this month by renewed concerns about China's economic health and the outlook for global growth.

"If this turns out to be something that has occurred on a very large scale, equities could fall and spur buying of the dollar, as well as the yen," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

The dollar was last down 0.2 percent on the day at 117.47 yen .

The low-yielding yen tends to gain in times of market stress as it is often used as a funding currency for investment in risk assets, and consequently can rise when there is a retreat from such assets.

The euro edged up 0.1 percent on the day to $1.0888 .


CANADIAN DOLLAR, STERLING

The Canadian dollar slipped to as low as C$1.4382 per U.S. dollar.

Investors have taken aim at the loonie after Brent crude dipped below $30 a barrel on Wednesday for the first time since April 2004, fuelling speculation the Bank of Canada could cut interest rates as early as next week.

Brent crude extended its losses in Asian trade on Thursday and marked another 12-year low.

The market gave sterling a wide berth even though the consensus is for the BOE to leave interest rates on hold at its first monetary policy decision of the year on Thursday.

Some investors suspect the central bank may sound more dovish given the uncertain global backdrop.

Sterling eased 0.1 percent to $1.4398 . Earlier this week, it fell to $1.4352, its lowest level since June 2010.

So, today probably makes sense to prepare update on EUR. In general, guys, EUR stands in tight consolidation after rally out fom 1.05 lows. Although it has formed some bearish patterns, such as weekly bearish grabber, but standing flat after rally makes bears nervous. This is classical situation - consolidation after rally usually leads to further upside continuation. Currently we do not sure with it, since we have bearish context and some bearish patterns, but this is the source of tensions. Even take a look at our recent bearish grabber - it has been formed but no drop has followed yet.... It means that it is not as simple as patterns tell and we have to be extra careful to some nuances that we will discuss now:

In fact, EUR is forming flag pattern, on 4-hour chart it takes the shape of channel:

Although major points are the same - top of our daily grabber and 1.07 - 5/8 Fib level, but here they take special meaning, since they are extreme points of the channel as well. Also you could recognize here other patterns, say butterfly "Sell" and tell that 1.07 is also invalidation point for it. This also will be true.
But channel is rather wide and we need something else to make early notice, if something will go wrong. For this purpose we could use this triangle on hourly chart:

This is very useful pattern. If market will show upside break - it almost will mean further upside break of 4-hour channel too. So, as we still keep shorts - tight stops or even move them to breakeven.
Downward breakout will not mean absolute bearish victory yet, but will lead market to 1.07 probably, and significantly will increase chance of breakout...
That's why, let's keep watching for this triangle.

 

[Sive Morten]

Good morning,

Reuters) - The dollar edged down in Asian trade on Friday, erasing its early gains as slumping crude oil futures and Chinese shares eroded investors' appetite for risk, though it remained well above the week's lows and on track to end a volatile week modestly higher.

The greenback was about 0.1 percent lower against the Japanese currency at 117.91 yen , but still up about 0.4 for the week and holding above a four-month trough of 116.70 plumbed on Monday.

Against the yen, the euro was steady at 128.23 , after it touched a one-week high of 128.75 yen overnight. It was on track for a flat weekly performance.

"The early risk-on mood today did not last, as Shanghai shares fell, and sentiment followed," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust in Tokyo.

Chinese shares extended earlier losses on Friday after new yuan loans in December came in well below the previous month's lending, while separate data also showed that broad M2 money supply growth slowed more then expected.

China's yuan gained in early trade on Friday, though it was still down against the dollar since the start of the year.

The People's Bank of China (PBOC) set a slightly weaker mid-point rate for the yuan on Friday, but the fix has been broadly steady for more than a week, signalling a determination to hold the line against expectations of sustained depreciation. Dealers expected the yuan would resume its decline if the central bank loosened its grip. [nL8N14Y1QC]

Weaker oil prices also undercut sentiment, market participants said. Oil prices continued their downward march on Friday as investors fretted about the possibility of additional Iranian crude dragging down an already oversupplied market. [O/R]

Bank of Japan Governor Haruhiko Kuroda on Friday blamed tumbling global oil prices for Japan's low consumer inflation, and reiterated to parliament that the country's price trend was improving steadily and reflecting a moderate economic recovery.

His policymaking counterparts at the European Central Bank said they saw scope for further cuts in their bank's deposit rate, according to minutes of their December meeting, yet many of them appeared sceptical about the need for further action in the near term.

The euro took back a bit of ground against the greenback, inching up about 0.1 percent to $1.0879 , though below Thursday's session high of $1.0943, and on track for a weekly loss of 0.4 percent.

The recently beleaguered Australian dollar gave up its early gains as risk sentiment and crude oil prices sagged. The Aussie nosed over 70 U.S. cents , from a four-month trough of $0.6910 plumbed on Thursday, but was last down 0.5 percent at $0.6944.

Worries about slowing growth in China has chronically weighed down the Aussie, which is often used as a liquid proxy for China plays due to its massive trade exposure to that country. It suffered a 4.5 percent drop last week, and was down about 0.1 percent this week.

Sterling held its ground after Bank of England policymakers voted 8-1 to keep interest rates at a record low as expected and offered no great change to the bank's outlook, despite ructions on global markets.

The pound traded at $1.4402 , down about 0.1 percent but holding above a 5-1/2 year trough of $1.4352 set on Tuesday.

In contrast, growing expectations of an interest rate cut by the Bank of Canada kept the loonie under pressure. The Canadian dollar was last at C$1.4386 versus the dollar, up about 0.2 percent but not far off a new 12-year trough of C$1.4398 set overnight.

There was no major economic data out of Asia on Friday. U.S. retail sales numbers were due later in the day.

So, Today guys we probably will take a look at JPY. On EUR - market has formed another bearish grabber on daily chart, but mostly price is coiling inside our channel and no direction has been chosen yet.

On JPY we will not talk on something long-term, just 1-day setup and tactical trade. Our analysis 2-week ago assumes drop of JPY pair, since we have DRPO "Sell" on monthly and H&S on weekly chart. Thus, we've said, that first destination point should be neckline on weekly chart. But as you can see this is no just neckline. This is also Fib support and weekly oversold level:

Situation that mentioned above should increase our care on short positions. If you trade with us, guys, you probably should have shorts... Anyway current situation means that now it is not the time to take short position. But for us is more interesting pattern on daily chart:

It has not been formed totally yet, only the half in place. So, we could get perfect DRPO "Buy" pattern here. Thrust is excellent, market stands below 3/8 Fib resistance. So, if this pattern will be formed then potential target will be @ 50% level and aprox. 120 area.

So, now we need to wait for second bottom and close above 3x3 then. It could take the shape of butterfly "Buy" on 4-hour chart:

This will be my favorite type of DRPO, if we will get it...