Forex FOREX PRO WEEKLY, January 17 - 21, 2022

Sive Morten

Special Consultant to the FPA
Messages
16,092
Fundamentals

This week the combination of different data was thrilling. The week has started with encouraging J. Powell's speech that calms down investors a bit, but later there are more negative information has appeared. Spreading of omicron variant, rather high inflation data, mixed banks financial earnings results in the IVQ leads to drying of optimism a bit. In fact, this week we've got an important combination of data, the one that we've talked about in the last report - inflation stands high, around 5.5-6%, while Sentiment has dropped, and even more important - Retail Sales numbers were significantly below the expectations. The core ones were even worse. Of course, we can't conclude on just a single case, but, it is naked the possible contradiction that we've mentioned and that could become the headache for the Fed - high inflation and weak economic growth. Fed has to raise rates because of inflation and can't rise it because of economic weakness at once. This is the primary subject that we have to keep an eye on.

Market overview

The dollar started the week with support as traders bet U.S. inflation data and appearances from several Federal Reserve officials would bolster the case for higher interest rates. U.S.-Russia talks over rising tension in Ukraine also have traders on edge as the two sides seem far apart and failure risks an armed confrontation on Europe's doorstep.
The dollar had met with some selling late last week after a weaker-than-expected headline U.S. job-creation figure squeezed traders out of long dollar positions. But analysts said better-than-expected unemployment numbers still made a good case for hikes sooner rather than later. Fed funds futures have priced an almost 90% chance of a rate hike in March and a more than 90% chance of another one by June and U.S. yields have been surging higher.

Sterling was also marginally weaker on the dollar but has been rallying with bets that the Bank of England (BOE) is likely to be hiking in tandem with the Fed. It was last at $1.3590, near a two-month high, and close to last week's two-year peak on the euro .

Strategists at MUFG reckon traders are too hawkish on their rates expectations in Britain but still think sterling will hold its own. "We still expect two rate hikes by the BOE which should keep EUR/GBP under modest downward pressure, which will result in GBP/USD advancing to around the 1.4000 level," they said in an outlook note published over the weekend.

"A number of sell-side firms have revised their Fed forecasts after the NFP (nonfarm payroll) report on Friday," Brad Bechtel, global head of FX at Jefferies, said in a note. With the unemployment rate below 4%, the Fed could probably declare their job on employment 'completed' which does indeed set us up for an even faster period of taper potentially," Bechtel said.

Goldman Sachs expects the Fed to raise interest rates four times this year and begin the process of reducing the size of its balance sheet as soon as July. The investment bank, which earlier predicted the Fed would raise rates in March, June and September, now expects another hike in December.

Goldman Sachs' predicted rate is only modestly above market expectations for 2022, "but the gap grows significantly in subsequent years," chief economist Jan Hatzius wrote in a note published on Sunday.

J.P.Morgan on Friday brought forward its forecast for the first rate hike since the pandemic began to March from June, and sees hikes every quarter this year.

"We believe Fed officials are coming to the same conclusion that the labor market is very tight, making it a tough sell to hold off on the first hike until June, our prior call," the bank's U.S. chief economist Michael Feroli wrote in a note.

Deutsche Bank also said on Friday it expects a total of four Fed rate hikes this year after December jobs data while falling short of market expectations, showed more progress towards maximum employment. The German bank expects Fed's balance sheet runoff to begin in the third quarter.

Rising Treasury yields - the benchmark U.S. 10-year Treasury yield rose to its highest level in almost two years on Monday - also supported the greenback. The yield on 10-year Treasury notes was up 0.9 basis points to 1.778% after climbing to 1.808%, its highest since Jan. 21, 2020. The 10-year yield has risen for seven straight days, its longest streak of gains since an eight-day run in April 2018, and last week had its biggest weekly rise since September 2019.

"It is stalling out a bit, it is just a carryover from last week and we will either get reconfirmation of that when Powell speaks tomorrow or it could go the other way," said Jim Barnes, director of fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania. "We have had a pretty big run-up here over the past week and part of me thinks it is kind of overdone – we get it, it is a hawkish Fed at this point, they are projecting four rate hikes this year."

Richmond Fed President Thomas Barkin said on Monday it is conceivable the central bank could hike in March, according to the Wall Street Journal. On Friday, San Francisco Federal Reserve Bank President Mary Daly said she could see the Fed shrinking its balance sheets after raising rates once or twice.

The dollar edged lower against a basket of currencies on Tuesday after Federal Reserve Chair Jerome Powell's testimony signaled that while the Fed will be normalizing policy it has not made a decision on reducing its nearly $9 trillion balance sheet. Powell noted that policymakers were still debating approaches to reducing the fed's balance sheet, and said it could sometimes take two, three, or four meetings for them to make such decisions

Powell's overall message on Tuesday was less hawkish than some investors had expected, especially in light of recent commentary from some other Fed speakers, analysts said.

"We are going to have to be humble but a bit nimble". Arguably not much of a hint on the timing of rate hike lift-off but investors seemed happy enough with Federal Reserve Chair Jerome Powell's congressional hearing yesterday to eagerly buy the dip on Wall Street.

High inflation and a strong recovery will require the Federal Reserve to raise interest rates at least three times this year, beginning as soon as March, and warrant a rapid rundown of Fed asset holdings to draw excess cash out of the financial system, Atlanta Fed President Raphael Bostic said on Monday.

"Powell defied the hawkish commentary of others on the Fed’s rate-setting committee, suggesting that a quantitative tightening decision will come in the next two to four meetings, with bonds allowed to roll off in an organic manner - as opposed to actively selling securities into the market," said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto. This is lifting global risk appetite and spurring flows into yield-sensitive currencies like the Canadian dollar."

The dollar fell to a two-month low against a basket of currencies on Wednesday after data, which showed an expected surge in U.S. consumer prices in December, fell short of offering any new impetus for the Federal Reserve's policy normalization efforts.
The consumer price index increased 0.5% last month after advancing 0.8% in November, the Labor Department said on Wednesday. In the 12 months through December, the CPI surged 7.0%, the biggest year-on-year increase since June 1982. Economists polled by Reuters had forecast the CPI gaining 0.4% and shooting up 7.0% on a year-on-year basis. But it was within forecasts, which appeared to reassure investors.
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"The U.S. economy appears ready for interest rate lift-off to start in March," said Joe Manimbo, senior market analyst at Western Union Business Solutions. "The dollar's problem though is that the market already has highly hawkish expectations for Fed policy this year. So as hot as today's CPI price was, it merely reinforced what's already baked in for the dollar and Fed policy," Manimbo said.

"(It's) just a case of the market currently getting too ahead of itself with Fed normalization; we will need to see this inflationary impact from Omicron really play out for the Fed to hike four times and embark on quantitative tightening this year I think," said Simon Harvey, senior FX market analyst at Monex Europe. While we don’t think today’s CPI release will derail the Fed’s likely liftoff in March, continued reports of narrow inflation pressures will likely lead markets to trim expectations of the normalization cycle across 2022 as a whole, which will undoubtedly result in sustained USD depreciation," Harvey said.

Traders have priced in an about 80% chance of a rate hike in March, according to CME’s FedWatch tool.

"Today's inflation report continued to reinforce the theme that gaudy price gains are not standing in the way of demand," said Rick Rieder, BlackRock's Chief Investment Officer of Global Fixed Income and Head of the BlackRock Global Allocation Investment Team. We don't think the Fed will overreact to this condition," Rieder said, adding that he expected the Fed to raise rates in March.

Fed fund futures are predicting nearly four rate hikes this year, a seismic change from a few months ago. Long-term rates have been relatively steady. U.S. interest rate pricing is peaking at 1.5% by the third quarter of 2024, far lower than previous U.S. rate tightening cycles.

The dollar fell against a basket of currencies on Thursday to a two-month low, a day after data that showed an expected surge in U.S. consumer prices in December fell short of offering any new impetus for the Federal Reserve's policy normalization efforts.

"Coming into the new year the dollar positioning was very much skewed to being long," said Mazen Issa, senior FX strategist at TD Securities. Yesterday's inflation numbers, in conjunction with (Fed Chair Jerome) Powell's testimony for his nomination hearing, were basically just in line with what markets had already positioned for," Issa said. "There wasn't anything materially new."

Nevertheless, traders do not see these inflation readings as urgently shifting an already hawkish Fed too much. With at least three interest rate hikes already in the market price, some investors pared bets on further dollar gains. U.S. producer price inflation slowed in December as the cost of goods fell amid signs that stretched supply chains were starting to ease, hopeful signs that inflation has probably peaked.

As continued high inflation eats further into Americans' pocketbooks, Federal Reserve Governor Lael Brainard on Thursday became the latest, and most senior, U.S. central banker to signal that the Fed is getting ready to start raising interest rates in March.

Philadelphia Federal Reserve Bank President Patrick Harker said he would currently support three interest rate hikes this year, starting from March, and would be open to more if inflation worsens. In an interview with Financial Times, Harker said the central bank had few tools to combat the supply chain problems fuelling inflation, but it should act to slow some of the demand. Harker's remarks echoed the Fed's turn towards inflation-fighting, a shift cemented at a December meeting, where it signaled three rate hikes in 2022.

TD Securities' Issa attributed part of the selling pressure on the greenback to technical factors, with the euro on Wednesday rising above the $1.14 level for the first time since mid-November. "Once we got through that $1.14 level, momentum players likely flipped to sell dollars on that move," he said.

International Monetary Market speculators exited 2021 with a net long position in the dollar that was close to the largest it has been in two years.

"The scale of the dollar sell-off must surely be partially indicative of positioning," MUFG analyst Derek Halpenny wrote in a research note.

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"Investors appear to be taking the view that the USD has peaked and that Fed tightening moves are priced in and the likes of the euro offer better potential returns down the road," Scotiabank foreign exchange strategists said in a note. We do not concur but have to acknowledge that the USD has suffered a setback — psychologically, at least — by breaking with supportive yield spreads versus its peers and by breaking below the base of its recent consolidation range," they said.

Hedge fund dollar positioning close to the highest levels since early 2020 has added to the selling pressure on the dollar this week, analysts said. U.S. retail sales dropped by the most in 10 months in December, likely the result of Americans starting their holiday shopping in October to avoid empty shelves at stores.

U.S. consumer sentiment soured in early January, falling to the second-lowest level in a decade as Americans fretted about soaring inflation and doubted the ability of government economic policies to fix it, a survey showed on Friday.

The University of Michigan said its preliminary consumer sentiment index fell to 68.8 in the first half of this month from a final reading of 70.6 in December. Lower-income households held a more negative outlook than wealthier ones, with sentiment dropping by 9.4% among households with total incomes below $100,000, but rising by 5.7% among households above that threshold.

The sharper-than-expected drop in sentiment comes as Americans face various headwinds despite an overall strong economy, with inflation topping the list of concerns amid a record level of COVID-19 cases due to the Omicron variant that could in turn prolong high prices.

"While the Delta and Omicron variants certainly contributed to this downward shift, the decline was also due to an escalating inflation rate," Richard Curtin, the survey director, said in a statement. Three-quarters of consumers in early January ranked inflation, compared with unemployment, as the more serious problem facing the nation," he added.

At a current annual rate of 7.0%, inflation is near a 40-year-high, outstripping wage gains. Consumer price increases have broadened from a handful of pandemic-sensitive categories while supply chain disruptions have continued.

Elsewhere in the survey, consumers raised their expectations for medium-term inflation, another measure the central bank is closely monitoring to ensure that inflation expectations remain anchored.

"We continue to believe liftoff in March is increasingly likely. How these debates are settled will likely have implications for post-liftoff rate hikes," Nomura economists said in a report, referring to U.S. monetary policy. In particular, we believe comments regarding earlier runoff and less aggressive rate hikes support our view that the Fed will slow the pace of rate hikes to two per year in 2023."

Policymakers noted that the recent surge in infections caused by the Omicron COVID-19 variant could slow economic growth and prolong the supply chain disruptions that contributed to overly high inflation. The Fed needs to raise interest rates to reduce demand to bring it better in line with crimped supply, said San Francisco Fed President Mary Daly.

"We are going to have to adjust policy to ensure we achieve price stability," Daly said during a New York Times interview on Twitter Spaces. "We want to bridle the economy a little bit."

Williams said the U.S. economy could grow 3.5% this year, a stepdown from the surge in 2021 but still solid.

"Once the Omicron wave subsides, the economy should return to a solid growth trajectory and these supply constraints on the economy should ebb over time," Williams said during a virtual event organized by the Council on Foreign Relations.

The Fed official said he expects the labor market to continue healing as the economy grows, forecasting that the unemployment rate will drop to 3.5% this year.

Pricing pressures may ease as economic growth slows and supply constraints are resolved, Williams said, adding that he expects inflation to drop to around 2.5% this year and close to 2% in 2023. Consumer prices posted their biggest annual rise in nearly 40 years last month. Williams said "gradually" raising interest rates would be the next step in removing accommodation, but the exact timing and pacing of those rate hikes will depend on what happens with inflation and the economy.

The Omicron surge appears to be slowing in areas of the country that were hit first. In the last week, the average daily tally of new cases has risen only 5% in Northeastern and Southern states compared with the prior seven-day period, according to a Reuters analysis. In Western states, by contrast, the average number of infections documented every day has climbed 89% in the past week compared with the previous week. Overall, the United States is still tallying nearly 800,000 new infections a day amid record numbers of hospitalized patients with COVID-19.

Australia has likely neared the peak of its Omicron wave, authorities said on Saturday, but warned daily infections will linger near record levels for "the next few weeks" after more than 100,000 cases were reported for a fourth straight day. More than 1.2 million infections have been recorded this year, compared with 200,000 for 2020 and 2021 combined.

CFTC Report

In general, Speculators increased their net long U.S. dollar positions in the latest week, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday. The value of the net long dollar was $19.34 billion in the week ended Jan. 11, compared with a net long of $18.87 billion the previous week.

Speaking on EUR, this week we do not have any decisive changes in overall position. Net longs slightly increase, but on a background of open interest dropping. Besides, overall changes are rather small:

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To be continued...
 
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Sive Morten

Special Consultant to the FPA
Messages
16,092
When Central Banks will start to dry the liquidity?

As speculation grows about when the Federal Reserve will begin reducing the size of its balance sheet, some analysts say the era of "quantitative tightening" has already started. Central bank balance sheets ballooned after the pandemic struck in 2020, but with economies rebounding and inflation soaring above target, central bankers are preparing markets for a reversal to their bond-buying stimulus.

While the rate of expansion in the overall central bank liquidity pool has been slowing since mid-2021, an outright reduction of balance sheets is not expected until late-2022 or even 2023.
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BofA strategists expect major central bank balance sheets to stabilise rather than shrink in 2022, although as a percentage of GDP they estimate the major central banks will see a decline versus 2021 levels. Steve Donzé, senior macro strategist at Pictet Asset Management, estimates the Fed, ECB, Bank of Japan, Bank of England, People's Bank of China and the Swiss National Bank will collectively expand their balance sheets by $600 billion in 2022 -- far below the post-financial crisis average of $1.8 trillion and 2021's $2.6 trillion, but still a net addition.

However, he says that the $600 billion forecast could turn negative if the Fed tightens faster than anticipated today.

And a stronger dollar meant that for global investors, the five biggest central banks actually withdrew more stimulus in the three months to the end of December than they injected versus the preceding three months -- the first quarter-on-quarter reduction since before the pandemic, according to his calculations.

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Donzé reckons Fed tightening, driven by the end of quantitative easing, rate hikes and then QT, will result in a 4.7 percentage point rise in a U.S. "shadow" real policy rate to -1.8% by the end of 2022. This shadow rate rose 6 percentage points during the last tightening cycle, but that was over five years, between 2014 and 2019.

With central bank balance sheets towering above a huge $25 trillion, many observers say that even after some tightening liquidity will remain plentiful and rates historically low. Negative inflation-adjusted bond yields suggest the party will continue but as Citi's Matt King notes central bank stimulus flows are falling fast and "markets follow flows, not levels".

JP Morgan strategists point out that excess money supply -- the balance of gross money supply versus money demand -- has been falling since May by one measure, and the decline in "excess liquidity" is set to accelerate this year.

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They also calculate that money supply growth will decline from a $7.5 trillion per annum pace in 2021 to $4.5 trillion in 2022 and $3 trillion in 2023 -- a level last seen in 2010.

If central banks start draining the money pool to stop an overspill buoying sky-high inflation, the assessment of just how much liquidity is 'excess' becomes critical to world markets.

But more pressing for many in financial markets are Fed signals that it's already time to siphon off some of the money it flooded into the banking system via emergency bond-buying - money aimed at keeping the wider economy afloat during the shocking pandemic lockdowns. Surprising many investors, the Fed's discussion on shrinking its bloated $8.7 trillion balance sheet began at its December policy meeting while it agreed to gradually end new bond-buying in the first quarter of 2022.

While the apparent urgency to start shrinking its balance sheet seems odd against plans to keep adding more to it until March, many Fed officials have already this year insisted the process needs to start soon. But when and how fast?

In an interview with Reuters this week, Atlanta Fed chief Raphael Bostic was most explicit. Bostic reckoned the runoff - which would at first just involve allowing the Fed's bond holdings to mature without reinvesting the proceeds - should start shortly after the first interest rate rise in March. But he also said this so-called 'quantitative tightening' (QT) should be forceful at $100 billion a month, twice the monthly pace of the last balance sheet reduction in 2017-2019, and he identified $1.5 trillion of pure 'excess liquidity' that needed to be taken out before assessing the impact at that point.

It wasn't clear where Bostic plucked the $1.5 trillion figure from, but it's roughly equivalent to what the Fed has been forced to drain from the money markets every day in recent weeks via overnight 'reverse repo' operations.

On Wednesday, Cleveland Fed chief Loretta Mester went one further by saying the Fed should not exclude the option of actively selling its assets. So, the Fed appears pretty serious about this all of a sudden and market number crunchers have been working overtime.
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JPMorgan's flows and liquidity specialist Nikolaos Panigirtzoglou and team conclude that the peak of what they see as global 'excess money supply is now far behind us and its proxies for broad liquidity will shrink significantly over the next two years.

The JPM team now sees Fed QT in July after the second rate rise and, assuming it reaches a $100 billion monthly runoff pace of Treasury and agency bonds by the end of this year, then the market would need to absorb an additional $350 billion of new debt from government and agency borrowers in the second half of 2022 and about $1 trillion in 2023.

Fanning that out to its measure of net global bond supply versus demand - it now sees that position deteriorating by some $1.3 trillion this year relative to 2021. And based on historical correlations, JPM reckons that should typically see yields on global bond aggregate indices rise by an additional 35 basis points.

As a result of a drop in central bank bond-buying flows and slowing world loan demand from pandemic peaks, they see their estimate of global money supply growth more than halve to $3 trillion in 2023 from a $7.5 trillion pace last year and returning to annual money growth levels not seen since 2010.

Will this have burnt off estimates of 'excess'? Looking at global proxies for 'excess' measuring world money growth against nominal GDP or the ratio of cash held as a share of household equity and bond holdings, JPM reckons the excess is already gone.

All under control? Will this be enough to rein in inflation and runaway markets?

Amundi's Chief Investment Officer Pascal Blanque believes we will see a new inflationary regime like the 1970s mainly because governments will simply have to assume greater control of money and borrowing rates from their central banks - with post-COVID reconstruction and climate change demanding fiscal expansion.

"In this new regime, governments will take over the control of money while maintaining widespread and double-digit monetary growth for several years, as part of a broader transition from free-market forces, independent central banks, and rule-based policies to a command-orientated economy."

Blanque reckons the reason the rising money supply did not spur inflation over the past decade was that a plunge in the so-called velocity of money - or the rate at which one dollar is used in transactions - in the real economy merely transferred to financial assets.

Taking real and inflation spheres as one, then velocity may have been as stable as monetary theories assume, he wrote, and ongoing money pumping will prove inflationary eventually - even coincidentally for periods in both consumer and asset prices, as now.

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That's being said, now it is becoming clear that we get a double-direction setup. First is, the fragile balance of inflation and economic recovery, which could set the Fed in a difficult position, especially if we will see any signs of weakness, such as Retail Sales this week. Second - drying of excess liquidity, which should become a headwind for EUR as it directly supports dollar demand and leads to rising of the interest rates. The QT pace supposedly should be closely watched among other Fed points at any meeting. These two factors cluster determine the trend of the currency market.

In the near-term, as the Fed policy is more or less clear and it is a few months till the QT starting point, we should get more or less quiet time. The data that we've got in recent two weeks - inflation, NFP, and Retail Sales show minimum changes in numbers that were seen before. So, some dollar overpricing and Omicron fears should ease a bit that could let EUR complete the upside retracement that is started. Still, we suppose that this is just a retracement, temporal relief before downside trend continuation. Military tensions around NATO and Ukraine are also not good for EUR sentiment.

Technicals

Monthly

Despite upside action last week, it is too small still to make an impact on the monthly picture. Although last time we've said that YPP @ 1.1634, could have a special meaning as it might be the first approximation of medium-term upside retracement.

All other things mostly stand the same. The trend is bearish here, downside CD leg speed is faster than AB, which doesn't let us count on upside reversal. Besides EUR has broken all meaningful support levels here and YPP of 2021. December becomes the inside month, showing the consolidation after reaching of major COP target. The monthly chart suggests the next long-term destination point after retracement will be over is around the 1.09-1.10 area - the combination of YPS1 and the trend line. The market is not oversold, the key rules of financial strategy are set, and with no strong support areas below - the reaching of 1.10 seems to be a question of time.

With the common anticipation that the first-rate change should come in March, it is the real achievement that might be if EUR reaches YPP, albeit we see big changes in statistics that shake Fed's purpose.

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Weekly

The weekly time frame has two subjects. In the short term, the current upside bounce might be treated as B&B "Sell" setup, because the 1.1908 top drop looks like a thrust and has a sufficient number of bars. Thus, the downside pullback should reach the daily 5/8 support area. This is important information for us.

In the longer term, if EUR appears to be strong enough to keep going higher 1.16-1.1630 area is the next strong level to watch. Besides K-resistance, this is also YPP.

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Daily

On the daily time frame, EUR starts anticipated retracement as the market was standing at strong resistance area of K-level and Agreement, accompanied by daily Obought. This, in fact, gives us a bearish "Stretch" pattern, suggesting the pullback. On Friday's action, we also have got the Tweezer top, which also short-term bearish sign. Now our task is correctly to estimate the potential target of the retracement. The weekly chart suggests that it could be a 5/8 drop:
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Intraday

The 4H chart is a goldmine of information for us. First is - sell-off is rather strong, suggesting that EUR should reach 1.1360 K-area at least. At the same time, which is the 2nd moment - the price now stands at 1.14 K-support area, making more probable AB=CD shape of action, rather than direct downside breakout.

The third is - major trendline support here agrees with the area of 50% major support that is the favorite one for EUR. Thus, I would consider as ultimate retracement target the level of 1.1330 rather than major 5/8 1.13 support.

Finally, to keep the best way for bullish context I prefer to see that EUR stands above double-K area. Just because if EUR drops two side-by-side K-areas down, chances that just a single Fib level holds it are minimal.

That's being said, we're watching for 1.1370-1.1385 area for long entry by far.
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Sive Morten

Special Consultant to the FPA
Messages
16,092
Morning folks,

This week probably will be wobble a bit as we do not have any important statistics or speeches. And only some geopolitics issues and UK/EU statistics could add some fuel. As we've said in weekly report, we're watching for a bit deeper retracement on EUR but hope that price will be able to stay above major 5/8 support area of 1.13 that seems as absolutely crucial for short-term term bullish setup.

By looking at other markets - Dollar index stands in upside pullback, while 10-year yields are going to the new top and the next target stands around 1.9% area. This might become a headwind for the EUR and supports our view on a bit deeper retracement. Besides, MACD line on daily chart also stands lower, so maybe this is also positive sign:
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Our major chart is the 4H one. EUR was challenging the 1st K-support area yesterday, but for now our support cluster of two K-areas works fine.
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The next step will be to get some bullish reversal pattern, which we do not have yet. On 1H chart some kind of wedge or flag consolidation is forming and we see solid black candles inside. So, no pattern here by far and we need to wait a bit more.
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On other markets - keep watching on the GBP daily thrust, as something could be formed with it soon. on AUD we're still moving with 3-Drive "Sell" pattern. Hopefully, Aussie completes it.
 

Sive Morten

Special Consultant to the FPA
Messages
16,092
Morning everybody,

So, it seems that our worries were not in vain as EUR has dropped again. Supposedly anticipation of hawkish adjustment of Fed rhetoric, climbing higher yields and geopolitical tensions, earnings reports from the Banks, as well - are making pressure on financial markets, and EUR is not an exception now.

Well, of course recent drop hardly could be called as a positive issue for the bulls, as it increases chances of downside major drop below the recent lows. But, still, we could get market the final chance. Anyway, it stands at last support area already.

On daily chart we've got no grabber unfortunately, and market is not at oversold by far. So, theoretically it could slip a bit lower:
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On 4H chart - all major support areas were broken and sell-off is rather fast, which is major risk factor. Now price stops at the 50% level and trendline support, that we've mentioned, trying to show the bounce. But, chances are high that 1.13 level could be tested (or even broken) still. Because, Dollar Index has not reached the same 5/8 resistance by far and interest rates still need to climb a bit higher to hit 1.91% butterfly target that we've discussed as well. It means that EUR also could follow to the same tendency:
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Taking it all together and untouched XOP here as well, we suppose that the best thing is to wait for bullish reversal pattern around 1.13-1.1330 area. Most probable that it is H&S, that also could started from butterfly. If we get what we want - that should be at least something to consider for long entry. If not and market breaks 1.13 - be prepared for the new lows on higher time frames charts and action to 1.10 area:

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Sive Morten

Special Consultant to the FPA
Messages
16,092
Greetings everybody,

So, EUR shows anemic behavior and it seems that another downside action should happen, to complete 1H XOP and daily 1.13 support area. That's the things that we were talking about yesterday.

Today we take a look at AUD, where we need to clarify important moment. If you take a look at retail broker FX chart (in my case this is FX Choice) - you find no potential daily grabber. But, take a look at CME AUD Futures -
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Minor detail, but it drastically changes the whole trading setup. Yes, this pattern is not confirmed yet as session is not closed. But potentially - if we would get this pattern, with huge evening star pattern and uncompleted 3-Drive target, this becomes solid bearish continuation context.

On 4H chart we have upside bounce where AUD has completed COP target and Agreement 5/8 resistance area:
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So, if you're interested in this, the only thing that you have to decide is to whether anticipate grabber or wait for it.
 

Vokin

Private, 1st Class
Messages
25
On the 4 hour chart we are in the middle of a nice canal. Personally, after the publication of unemployment data, I lean to the top, but the harmony of Siv's chart is discouraging.
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Sive Morten

Special Consultant to the FPA
Messages
16,092
On the 4 hour chart we are in the middle of a nice canal. Personally, after the publication of unemployment data, I lean to the top, but the harmony of Siv's chart is discouraging.
AUD dropped as suggested, but indeed, it was a bit cunning action recently with another loop around the COP top.
 

Sive Morten

Special Consultant to the FPA
Messages
16,092
Morning guys,

Yesterday was strong action across the board, but mostly on the stocks and interest rates. Real interest rates are rising that potentially is a barrier for EUR. Anyway, market has dropped as we've suggested yesterday, and now we have to decide what to do next.

Daily chart brings bad surprise to the bulls, forming bearish reversal session yesterday:
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On the 4H chart price stands at "the last bullish outpost", which is trend line and major 5/8 Area. Maybe we do not have very reliable context and upside potential is arguable right now, but if you still want to buy EUR - this is an area where it is comfortable to do. Because it gives you the chance to minimize the risk and place very tight stop.
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In fact, here we have just the single option. Take a look, the butterfly is in place, XOP is completed and we have bullish divergence here. What's the problem? the problem is with daily reversal action, too fast collapse, in general and too small upside bounce previously. Based on these moments, I wouldn't withdraw the chance to see 3-Drive "Buy" pattern instead.
It means that you could take position right now, but anyway you have to place stops somewhere under 1.1280 extension. Alternatively - do nothing and wait for more patterns, either 3-Drive, or reverse H&S. This is actually the only thing that you need to decide, if you want to buy EUR, in general.
But, even appearing of 3-Drive doesn't guarantee upside reversal now. The reason why we are considering bullish setup at all - is abitility to place very tight stop, we have very small risk. And with this moment, it might be possible to take it. But, this is personal...
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