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Forex FOREX PRO WEEKLY, January 21-25, 2019

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Jan 19, 2019.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals

    Recent week provides not too much fundamental events and statistics, so investors try to go in habit with issues that already stand on table and new spiral of Brexit saga. Second important issue is rising concern on US government shutdown that lasts record time and as more it comes to pass as it becomes worse. So, I'm not sure that markets absolutely calm on this subject. We still yet to get results of shutdown impact on GDP in IQ of 2019.

    Still, as Reuters reports - The dollar held firm against its rivals on Friday, set for its first weekly gain since mid-December on optimism about talks to end the trade war between China and the United States.

    Media reports on Thursday and Friday suggested both countries were considering concessions ahead of a Washington visit from Chinese Vice Premier Liu He on Jan. 30 and 31 for talks aimed at resolving the trade standoff between the world’s two largest economies.


    China has offered to go on a six-year buying spree to ramp up imports from the United States in order to reconfigure the relation between the two countries, Bloomberg reported on Friday, citing people familiar with the matter.

    U.S. Treasury Secretary Steven Mnuchin discussed lifting some or all tariffs on Chinese goods and suggested offering a tariff rollback during the trade discussions scheduled for Jan. 30, the Wall Street Journal reported on Thursday, citing people familiar with the internal deliberations.

    Although a Treasury spokesman denied Thursday’s report, the positive sentiment was enough to lift the dollar index and the three major U.S. stock indexes Friday morning. Following the publication of the Bloomberg story on Friday, the dollar index added to its gains rising 0.3 percent, last at 96.352.

    “Yesterday’s WSJ headline concerning a possible rollback of the Trump tariffs was a setback for (the U.S. dollar/renminbi cross), and although it was subsequently denied, it had created confusion in the foreign exchange space,” said Stephen Gallo, European head of foreign exchange strategy at BMO Capital Markets in London.

    Stronger-than-expected U.S. industrial production numbers also helped lift the greenback. American manufacturing output increased by the most in 10 months in December, pushed up by a surge in the production of motor vehicles and a range of other goods, the Federal Reserve said on Friday.

    Going into 2019, weakness in the dollar was a consensus view among currency market traders. The bet was that the U.S. central bank would stop raising interest rates and the economy would slow after a fiscal boost last year. While expectations of a U.S. rate pause have manifested in money markets, bets on policy tightening by other major central banks have also receded, giving a boost to the dollar.

    The pound slipped against the euro and against the dollar, trimming overnight gains, as traders wagered on a second referendum vote on Britain’s EU membership.


    Recent light improve in sentiment also changes the anticipation of Fed rate. Take a look that Fed Fund rate futures of Dec 2019 rate decision has returned at the level where they was 4 weeks ago. Now 0.25% rate change by the end of 2019 increases to ~29% again:
    upload_2019-1-19_12-6-28.
    Source: cmegroup.com

    As US-China relations comes on first stage, Fathom consulting tries to analyse recent change in US economy sentiment and find major driving factors for nearest perspective.

    Particularly speaking, they wrote in recent report:

    "Our US ESI fell from 5.8% to 4.6% in December. This was the lowest reading since July 2017, and the decline during the month was large by past standards. That said, we think that too much pessimism has been priced into financial markets. Despite the fall in the US ESI last month, sentiment is still strong by historical standards and December’s blockbuster employment report suggests that the economy is still growing at a solid clip and above potential. For now, we think that external shocks, such as a slowdown in China, are likely to have a relatively small effect on the US real economy. We still think a US-led global recession is likely within the next couple of years, but that this is unlikely to happen in 2019 and it would take a much larger drop in the US ESI for us to alter this view."

    [​IMG]

    As a confirmation we see healthy inflation in hourly earnings and 200K new jobs every month on average. Indeed, it is difficult to talk about recession, having background of this kind.
    [​IMG]
    [​IMG]

    So, it seems as all news come from US. Previously they was against USD, when Fed announced pause in rate change cycle and new stage of US-China tariffs piking has started, exacerbated by US government shutdown. Now they turn to positive ones. But nothing comes from EU - France stands in long-term yellow jackets unrest, UK stuck in endless Brexit negotiations etc.
    It seems that further EUR/USD direction mostly will depend on US situation and how their problems will be resolved, as EU and ECB has nothing to add to market drivers.

    Technicals
    Monthly


    Our long term picture mostly stands the same. December month shows very small range and has no impact on monthly picture at all. Here we mostly wait for clarity - either downside breakout and start action to 1.08 and later to 1.03 or ability of the EUR to hold above 1.12 and turning up. Market stands at support area around major 5/8 Fib level. In case of upside action, YPP will be important target , because, as a rule, market tends to touch YPP through the year.

    Indirect technical factors point on market's weakness, at least in long-term perspectives, as EUR can't jump out from strong support within more than 5-6 months and just lays upon it. Trend stands bearish here.

    Monthly situation shortly could be described as indecision with light gravitation to the downside. In fact, long standing around Yearly Pivot confirms things that we've discussed above. MACD trend stands bearish here.
    Thus we keep valid our downside COP target around 1.03 by far.
    eur_m_21_01_19.

    Weekly

    On weekly chart market still keeps dual setup. Last week was bearish, but it stands in a row with recent consolidation and makes no significant impact on the chart. Here actually we have two different setups. First is our initial bearish setup, which, in fact, is continuation on the same logic that we have on monthly chart.
    Here we have downside channel. Yesterday again, market turned down from its resistance line. Since market shows very weak reaction on major 5/8 Fib support level - it brings some signs of bearish dynamic pressure, when MACD shows upside trend but price action stands flat.

    Conversely, we have MACD divergence and possible reverse H&S shape. But market has to climb back to neckline at least, to resurrect this scenario, and break the channel up. But particularly this action we do not see. It means that we could get some different action, say, fallen wedge pattern instead. Anyway, currently weekly chart doesn't support any bullish inspiration and overall price action looks mostly indecision.

    It means that again we mostly will be focused on daily/intraday tactical setups as we do not have any longer-term direction yet.
    eur_w_21_01_19.

    Daily

    Last week we deal with retracement and some intraday targets. This job is over right now and we have to acknowledge that market has shown really weak reaction on solid support area. Although it has not dropped too far down, but overall upside reaction was too small. Anyway, currently it is difficult to talk on some bullish setup.

    Nearest destination point is 1.13-1.1350 - space between MPS1 and major 5/8 Fib level. We will see whether EUR could stop and hold there. Personally I have real doubts on this subject. Close look at EU shares tells that upside rally there that has started recently should continue. In fact German DAX is oversold on monthly chart and on daily we have reverse H&S pattern, which suggest 12-15% of rally. As a rule, equity rally is accompanied by weakness of the currency. We do not need to search special example - just take a look at Friday action of DAX and EUR.

    Following to these thoughts I gravitate more to scenario where EUR could return back to 1.12 lows. Besides, 1.13-1.1350 is also a long-term trend line. Actually this is monthly flag support. Breaking of 1.13 area will be decisive moment as EUR forms downside reversal swing and could get far-going consequences.

    eur_d_21_01_19.

    Intraday

    4H chart shows that upside reaction and retracement that we were watching for, was too small. This indirect bearish sign. That was pretty nice support area and Agreement. But we've got the same puny harmonic lazy pullback, with no respect to area's strength. Yes, it was enough to move stops to breakeven and we've got no loss, but we have no satisfaction from this trade as well.

    In fact, here we have the same H&S pattern as on DAX index. Technically recent drop with acceleration increases chances on further downside action to 1.13 area where we have XOP target.
    eur_4h_21_01_19.

    Conclusion:

    We expect that major driving factor in 2019 will be undervaluation of Fed hawkishness, as market right now supposes no rate increase in 2019.
    In shorter-term perspective we continue our trading in the range, but also keep an eye on two weekly scenarios - possible action to 1.1740 area or downside breakout. Personally, I gravitate a bit more to bearish one, as EU and ECB policy stands half-and-halfer while investors gradually is turning to common sense from emotions and starts to see US economy fundamentals again.


    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.
     
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  2. Georget@

    Georget@ Recruit

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    Hello Sive!
    I find it extremely interesting that you made a correlation between EUR and DAX. Please, please talk about equity market more often.:rolleyes:
    I do not understand the correlation: rally on equity means weakness of the currency. I know that when US equity market is rallying, the dollar is rallying too, because there is more demand for the dollar in order to buy equity. Maybe someone could explain this.
    Have a profitable week!
     
  3. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Hi Georgeta, nice to see you again here. It was long time since your last visit ;)
    Well, actually the reasons stand not in the equities and not in the currency per se. It stands in interest rates and cost of financing. For example, last issue - Powell told about soft Fed policy. As a result, dollar has dropped as priced-in rate hike was cancelled, while US equities rallied because it makes equity real return stable compares to bond market and cost of capital for companies was fixed at current level and anticipation of more expensive cost of capital has been cancelled.
     
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  4. Georget@

    Georget@ Recruit

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    It is good to be back! I feel like 25 again...
    :p

    Here is my entry on NZD. Small WR on H1. Maybe it will work...
     

    Attached Files:

    #4 Georget@, Jan 21, 2019
    Last edited: Jan 21, 2019
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  5. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    Let's take a look at EUR again. It was not very active session, still we have some new inputs. Partially, flat standing could be explained by stock market. EU stock market is overbought right now and yesterday it also has shown flat action. But this is temporal situation. As we've said in weekly report, EUR mostly look bearish due the price action and its response to strong support levels and targets.

    Taking in consideration DXY chart, especially weekly one and untouched major COP target at 98.30, I'm not exclude the chance of EUR action back to 1.12 lows within few weeks. Harmonic swing was exceeded as well:

    eur_d_22_01_19.

    On intraday charts I also do not see yet any good bullish setup. Current situation has the features of bearish dynamic pressure as well - trend stands bullish, but price action is not. Reaction on OP target was very shy, we've got only minor harmonic retracement.
    So, it seems that reaching of 1.1295 XOP target becomes probable and is just a question of time.
    eur_4h_22_01_19.

    More detailed analysis stands in the video with DAX and DXY charts etc. Here is mostly just the bottom line.
     
  6. Stag

    Stag Sergeant

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    ...and that's why the direction is not so obvious:

    EU_191121_long-term.
     
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  7. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    As EUR shows anemic action, we update our NZD setup. Just to remind you, on weekly chart we have solid bullish grabber pattern, which suggests action above recent top, but as we think, it should be somewher to 0.71 area - OP target of AB-CD pattern. If, of course, it will happen at all. ;)
    nzd_w_23_01_19.

    Last time, when we've started discussion of this setup, we've suggested pullback due daily OB and reaching of COP target. Also we've got bearish engulfing on weekly, which means that either market will show deeper retracement down, or it will erase it by straight upward action. I suppose everything is clear with the latter, so let's discuss the former scenario.
    nzd_d_23_01_19.

    On 1H chart we see our previous analysis, where we've suggested the end of the first leg down should be around 0.6714, now upside pullback stands. It is easy to recognize reverse H&S pattern. Upside action stands strong. It means that if downside action will start, it probably will happen from higher level:
    nzd_1h_23_01_19.

    In this case, overall shape of downside action could look like follows:
    nzd_4h_23_01_19.

    It means that here are a lot of setups could be formed. Scalp long trade, based on H&S on 1H chart, scalp short trade, based on daily AB-CD. Major long trade, based on "222" Buy and weekly grabber...

    Conversely, if no downside action will happen and market jumps above recent top - we turn to second scenario of position taking using simple pullback to one of the Fib levels.
     
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  8. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    So, both our setups on NZD and GBP are still valid and it seems that they are working properly. Let's take a look what is going on on EUR. Not much activity though. Our view is EUR stands a bit depressed right now. Technically it shows too weak reaction on strong support area to speak about bullish market. And it seems that chances on downside continuation right now look a bit better than on upside reversal

    As we've suggested, EUR should spend some time around 1.13-1.1350 area, as this is strong support and very important technical range. Breaking of 1.13 means breakout of monthly flag pattern and open way to the 1.12 lows.
    eur_d_24_01_19.

    On 4H chart we keep valid our suggestion on reaching of XOP target. Market shows signs of bearish dynamic pressue. While we see clear sell-off action, upside reaction stands not impressive and it is difficult to call it as new bullish rally. So, context now is insufficient for taking any long position.
    eur_4h_24_01_19.
     
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  9. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    Today we expect relatively quiet session as major events have happened yesterday, I mean ECB statement. It was dovish, as Draghi suggests weaker than expected EU fundamentals in first half of 2019. This statement should have long lasting action and hardly stop occasionally. Thus, chances on further drop on EUR hold.

    Technically, market has dropped below trend line and major 5/8 Fib support. Now EUR is on at OS on daily chart. As it stands at the middle of second harmonic swing - chances on reaching 1.12 lows again are significant.
    eur_d_25_01_19.

    On 4H chart our major XOP target has been hit. Today we do not expect strong action in any direction:
    eur_4h_25_01_19.

    Most probable reaction is re-testing of broken trend line around 1.1350 Fib resistance area. Maybe EUR will form '222" Sell.
    eur_1h_25_01_19.
     

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