Sive Morten
Special Consultant to the FPA
- Messages
- 18,771
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.
(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.