Sive Morten
Special Consultant to the FPA
- Messages
- 18,748
Fundamentals
This week guys doesn't show a lot of events. Mostly everything is turning around the same stuff - US government shutdown, China negotiations and Fed policy adjustment.
As Reuters reports - the dollar rose against the euro on Friday, boosted by technical factors after the single currency hit key resistance levels, even as the greenback’s outlook remained bleak amid cautious signals from the Federal Reserve about further rate hikes.
“It seems like we’re getting some model and stop-loss buying on the dollar after the euro hit resistance on the upside,” said John Doyle, vice president of dealing and trading at Tempus Inc in Washington.
“The sharpest move was in euro/dollar and it has become this across-the-board buying of the dollar,” he added.
That said, investors remained wary of pushing the dollar a lot higher.
This week’s Fed minutes, which underscored the U.S. central bank’s flexibility on monetary policy, triggered dollar selling that lifted the euro as high as $1.1581 and propelled it past a 100-day moving average for the first time in three months.
Greg Anderson, global head of FX strategy at BMO Capital Markets in New York, said the Fed’s rate outlook was just one factor for the dollar’s weakness so far in January.
The Fed chairman said on Thursday in a forum at the Economic Club of Washington that the U.S. central bank intends to shrink its balance sheet further, suggesting it is not done tightening monetary policy just yet.
Markets, however, are pricing in no further rate hikes by the Fed this year.
Data showing U.S. consumer prices in December fell for the first time in nine months in December had little impact on the market, but it backed the Fed’s cautious stance about raising rates this year.
Aside from the Fed’s dovish rate outlook, Shaun Osborne, chief FX strategist, at Scotiabank in Toronto, cited cyclical, structural and secular trends, which could also pressure the dollar in 2019.
“The outlook for relative central bank policy has reached its climax in terms of offering the U.S. dollar support, and widening fiscal and current account deficits are expected to deliver medium-term weakness in the currency,” Osborne said.
Speaking on Fed policy guys, it is really tricky theme. At the surface, this policy seems dovish and weak as market doesn't expect any rate change in 2019 and some analysts even suggests rate cut in early 2020. This sentiment is confirmed by Fed Fund rate:'
Source: cmegroup.com
So as you can see, markets now price-in only ~15% of another 0.25% rate hike by the end of 2019. But, at the same time, Fed has the program of reducing it's balance sheet, which has reached 4.5 Trln in 2015 by the end of QE cycle. Following the schedule announced by Fed, balance should reach pre-QE levels of ~2-2.5Trln by the end of 2021.
But, draining liquidity off the market in situation when overall debt amount is rising and more and more money is needed for its service works equally as rate hike. According to economists, draining around 200Bn off the Fed balance equals approximately to 0.3-0.4% rate hike. In 2017 Wells Fargo released excellent report on this subject, which shows Fed plans on its balance reducing:
It means that even without rate change, draining of liquidity will act as tighten policy by the Fed. Despite, as we've said last week, Fathom consulting sees big underestimation of Fed which, as they suggest, rate will increase at least twice in 2019. Putting its all together - it is too early dismiss dollar strength. And it is really negative surprises could catch up those who blindly puts the bet on its weakness.
Today guys, we take a look at CAD. As we've mentioned in first weekend of new year, loonie provides great trading setups as it gives us direction for long-term period.
Despite Canadian dollar weakened against its U.S. counterpart on Friday as oil prices fell, but the loonie still advanced for a second consecutive week after the Bank of Canada said the challenges facing the economy were temporary.
The price of oil, one of Canada's major exports, fell on worries about a global economic slowdown. U.S. crude oil futures settled 1.9 percent lower at $51.59 a barrel. Still, oil has rebounded about 22 percent since slumping in December to an 18-month low.
"Oil is interesting; super volatile fourth quarter, nice rebound thus far this year. It is still the hot factor," said
Greg Anderson, global head of foreign exchange strategy in New York. "The CAD move (today) is almost tick for tick."
The three-month correlation between the Canadian dollar and oil has climbed to about 90 percent, according to Refinitiv Eikon data, indicating the currency and the commodity move mostly in the same direction. For some months in 2018 the correlation was negative.
For the week the loonie was up 0.8 percent. The Bank of Canada held interest rates steady as expected on Wednesday but said more rate increases would be necessary even though low oil prices and a weak housing market will harm the economy in the short term.
Canadian government bond prices were higher across a flatter yield curve in sympathy with U.S. Treasuries. The 10-year rose 32 Canadian cents to yield 1.948 percent. The gap between Canada's 2- and 10-year yields narrowed by 1.2 basis points to a spread of 5.9 basis points.
Technicals
Monthly
On monthly chart we mostly have tactical setup. Our previous long-term trade was AB=CD down to K-support, then we turned north and two weeks ago market has hit major target on weekly chart. Monthly trend stands bullish, price is not at overbought, but it stands at major 5/8 Fib resistance. Right at top we have monthly bearish engulfing pattern, which suggests some downside continuation:
Weekly
We already talked about weekly setup last week.Here is a lot of lines, guys, but we need all of them. First is, take a look that 5/8 Fib resistance is also an Agreement, as market has completed upside XOP target and daily Overbought.
As a result, we see sharp downside reversal and appearing of huge evening star pattern. But what is really important for us is B&B "Buy" setup. On close below 3x3 DMA market has hit Fib support level. Last week we also have got bullish grabber pattern. We do not know whether it will work or not, but theoretically it could improve B&B target, as it suggests action above previous top:
Daily
Here, on daily initially we thought that price should stop dropping a bit earlier, but, anyway, most important thing here is oversold. We do not have any other patterns. In general, situation stands a bit tricky guys.
Because on crude oil daily chart we could recognize potential reverse H&S pattern. Its right arm should coincide with our B&B pullback, but further action doesn't agree with weekly grabber. It means that either grabber or H&S on crude oil should fail.
Intraday
And here is cherry on the pie, guys. Upside reversal is taking the shape of DRPO "Buy". In general, solid support, daily oversold, weekly grabber and DRPO on intraday charts is not bad mix and worthy of our attention. So, it seems that B&B upside action will be triggered by 4H DRPO "Buy" pattern:
Conclusion:
Although we're mostly focused on tactical short-term setup on CAD, but this tactical setup stands on monthly chart. As we see right now, it provides a lot of setups on different time frames and direction could be estimated for few weeks.
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.
This week guys doesn't show a lot of events. Mostly everything is turning around the same stuff - US government shutdown, China negotiations and Fed policy adjustment.
As Reuters reports - the dollar rose against the euro on Friday, boosted by technical factors after the single currency hit key resistance levels, even as the greenback’s outlook remained bleak amid cautious signals from the Federal Reserve about further rate hikes.
“It seems like we’re getting some model and stop-loss buying on the dollar after the euro hit resistance on the upside,” said John Doyle, vice president of dealing and trading at Tempus Inc in Washington.
“The sharpest move was in euro/dollar and it has become this across-the-board buying of the dollar,” he added.
That said, investors remained wary of pushing the dollar a lot higher.
This week’s Fed minutes, which underscored the U.S. central bank’s flexibility on monetary policy, triggered dollar selling that lifted the euro as high as $1.1581 and propelled it past a 100-day moving average for the first time in three months.
Greg Anderson, global head of FX strategy at BMO Capital Markets in New York, said the Fed’s rate outlook was just one factor for the dollar’s weakness so far in January.
The Fed chairman said on Thursday in a forum at the Economic Club of Washington that the U.S. central bank intends to shrink its balance sheet further, suggesting it is not done tightening monetary policy just yet.
Markets, however, are pricing in no further rate hikes by the Fed this year.
Data showing U.S. consumer prices in December fell for the first time in nine months in December had little impact on the market, but it backed the Fed’s cautious stance about raising rates this year.
Aside from the Fed’s dovish rate outlook, Shaun Osborne, chief FX strategist, at Scotiabank in Toronto, cited cyclical, structural and secular trends, which could also pressure the dollar in 2019.
“The outlook for relative central bank policy has reached its climax in terms of offering the U.S. dollar support, and widening fiscal and current account deficits are expected to deliver medium-term weakness in the currency,” Osborne said.
Speaking on Fed policy guys, it is really tricky theme. At the surface, this policy seems dovish and weak as market doesn't expect any rate change in 2019 and some analysts even suggests rate cut in early 2020. This sentiment is confirmed by Fed Fund rate:'
Source: cmegroup.com
So as you can see, markets now price-in only ~15% of another 0.25% rate hike by the end of 2019. But, at the same time, Fed has the program of reducing it's balance sheet, which has reached 4.5 Trln in 2015 by the end of QE cycle. Following the schedule announced by Fed, balance should reach pre-QE levels of ~2-2.5Trln by the end of 2021.
But, draining liquidity off the market in situation when overall debt amount is rising and more and more money is needed for its service works equally as rate hike. According to economists, draining around 200Bn off the Fed balance equals approximately to 0.3-0.4% rate hike. In 2017 Wells Fargo released excellent report on this subject, which shows Fed plans on its balance reducing:
It means that even without rate change, draining of liquidity will act as tighten policy by the Fed. Despite, as we've said last week, Fathom consulting sees big underestimation of Fed which, as they suggest, rate will increase at least twice in 2019. Putting its all together - it is too early dismiss dollar strength. And it is really negative surprises could catch up those who blindly puts the bet on its weakness.
Today guys, we take a look at CAD. As we've mentioned in first weekend of new year, loonie provides great trading setups as it gives us direction for long-term period.
Despite Canadian dollar weakened against its U.S. counterpart on Friday as oil prices fell, but the loonie still advanced for a second consecutive week after the Bank of Canada said the challenges facing the economy were temporary.
The price of oil, one of Canada's major exports, fell on worries about a global economic slowdown. U.S. crude oil futures settled 1.9 percent lower at $51.59 a barrel. Still, oil has rebounded about 22 percent since slumping in December to an 18-month low.
"Oil is interesting; super volatile fourth quarter, nice rebound thus far this year. It is still the hot factor," said
Greg Anderson, global head of foreign exchange strategy in New York. "The CAD move (today) is almost tick for tick."
The three-month correlation between the Canadian dollar and oil has climbed to about 90 percent, according to Refinitiv Eikon data, indicating the currency and the commodity move mostly in the same direction. For some months in 2018 the correlation was negative.
For the week the loonie was up 0.8 percent. The Bank of Canada held interest rates steady as expected on Wednesday but said more rate increases would be necessary even though low oil prices and a weak housing market will harm the economy in the short term.
Canadian government bond prices were higher across a flatter yield curve in sympathy with U.S. Treasuries. The 10-year rose 32 Canadian cents to yield 1.948 percent. The gap between Canada's 2- and 10-year yields narrowed by 1.2 basis points to a spread of 5.9 basis points.
Technicals
Monthly
On monthly chart we mostly have tactical setup. Our previous long-term trade was AB=CD down to K-support, then we turned north and two weeks ago market has hit major target on weekly chart. Monthly trend stands bullish, price is not at overbought, but it stands at major 5/8 Fib resistance. Right at top we have monthly bearish engulfing pattern, which suggests some downside continuation:
Weekly
We already talked about weekly setup last week.Here is a lot of lines, guys, but we need all of them. First is, take a look that 5/8 Fib resistance is also an Agreement, as market has completed upside XOP target and daily Overbought.
As a result, we see sharp downside reversal and appearing of huge evening star pattern. But what is really important for us is B&B "Buy" setup. On close below 3x3 DMA market has hit Fib support level. Last week we also have got bullish grabber pattern. We do not know whether it will work or not, but theoretically it could improve B&B target, as it suggests action above previous top:
Daily
Here, on daily initially we thought that price should stop dropping a bit earlier, but, anyway, most important thing here is oversold. We do not have any other patterns. In general, situation stands a bit tricky guys.
Because on crude oil daily chart we could recognize potential reverse H&S pattern. Its right arm should coincide with our B&B pullback, but further action doesn't agree with weekly grabber. It means that either grabber or H&S on crude oil should fail.
Intraday
And here is cherry on the pie, guys. Upside reversal is taking the shape of DRPO "Buy". In general, solid support, daily oversold, weekly grabber and DRPO on intraday charts is not bad mix and worthy of our attention. So, it seems that B&B upside action will be triggered by 4H DRPO "Buy" pattern:
Conclusion:
Although we're mostly focused on tactical short-term setup on CAD, but this tactical setup stands on monthly chart. As we see right now, it provides a lot of setups on different time frames and direction could be estimated for few weeks.
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.
