Forex FOREX PRO WEEKLY, January 25 - 29, 2021

Sive Morten

Special Consultant to the FPA
Messages
15,315
Fundamentals

Although this week was relatively quiet with just couple of events in focus - Inauguration and ECB meeting, but next week promises us the bumpy ride. Fed meeting, GDP reports in US and EU, and a lot of other important statistics should shake the markets. Besides, few political events also could become important, such as final J. Yellen appointment.

Overall background of this week

President Joe Biden said on Friday the U.S. economic crisis was deepening and that the government needs to take major action now to help struggling Americans.
More than 400,000 Americans have died from the virus and millions of jobs have been lost.

“It’s not just to meet the moral obligation,” Biden said in remarks at a White House event to sign two executive orders. “This is an economic imperative. Biden said his stimulus package to address the economic effects of the pandemic has support from business, labor, Wall Street and Main Street.

“A lot of America is hurting. The virus is surging. ... Families are going hungry. People are at risk of being evicted. Job losses are mounting again. We need to act. No matter how you look at it, we need to act,” Biden said.


A major pillar of the Biden plan is greatly increasing the number of people who are being vaccinated against the novel coronavirus. In December, Biden set a goal of 100 million vaccinations in his first 100 days in office and on Friday he spoke of exceeding that number.

The U.S. Senate Finance Committee on Friday unanimously approved Janet Yellen’s nomination as the first woman Treasury secretary, indicating that she will easily win full Senate approval, but Republicans called for her to work with them in developing economic policies. The full Senate will vote on Yellen’s nomination on Monday, Senate Majority Leader Chuck Schumer said on the Senate floor late Friday, which would allow her to get to work promptly on President Joe Biden’s economic agenda.

Biden has proposed a $1.9 trillion coronavirus relief plan and has pledged to invest here $2 trillion in infrastructure, green energy projects, education and research to boost American competitiveness.

Yellen’s confirmation hearing on Tuesday highlighted some Republican lawmakers’ concerns about her role in executing Biden’s economic policies, including a bigger federal debt burden and repealing parts of their signature 2017 tax cuts. Yellen told senators they needed to “act big” on the proposed $1.9 trillion stimulus package or risk a longer recession and long-term economic scarring, job and revenue losses.

Yellen, appearing before the Senate Finance Committee on Tuesday, urged lawmakers to “act big” on the next coronavirus relief package, adding that the benefits outweigh the costs of a higher debt burden.

“It looks like risk appetite is in better support today. Expectations go back to the idea of a swift fiscal U.S. stimulus,” said Simon Harvey, senior FX market analyst at Monex Europe in London. “There is an ongoing understanding that there is support for a large fiscal stimulus and wide bipartisan support in the Senate, as opposed to a lengthy reconciliation process,” he added.

Yellen also said the dollar’s value should be determined by market forces, adding that the United States should oppose attempts by other countries to artificially manipulate currency values to gain trade advantage. That contrasts with outgoing Republican President Donald Trump, who often railed against dollar strength.

Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a research note, however, that Yellen’s comments on the dollar won’t be able to reverse its weakening trend. He cited the Fed’s expansive monetary policy, which has kept interest rates at zero and likely to stay there for years, as one reason for the greenback’s expected weakness in 2021.



Her remarks represent a new attitude toward government debt among some economists and policymakers: Focus on the interest rate being paid and the returns it will generate, rather than the overall amount borrowed. In recent months, Treasury’s interest outlays have fallen from pre-pandemic levels due to lower rates.

The dollar dropped on Tuesday as investors prepared for U.S. Treasury Secretary nominee Janet Yellen to talk up the need for major fiscal stimulus and commit to a market-determined exchange rate when she testifies later in the day. But most analysts are sticking with their calls for a weaker greenback from here.

“On fiscal policy, Yellen is to suggest that the US “act big” and make use of the low borrowing costs. On the dollar, it should be reiterated that the new administration is committed to the market determined exchange rate. Both are in line with our weak USD outlook,” ING analysts wrote.

“We’ve seen comments from Janet Yellen that she won’t be pursuing a weak dollar policy per se, but that doesn’t mean that the overall impact of Fed policy won’t keep the dollar weakening,” said Michael McCarthy, chief strategist at CMC Markets in Sydney. I suspect what we’ve been seeing in the dollar at the moment is a minor corrective rally in an overall downtrend.”


However, many analysts still expect the currency to eventually resume its march lower during 2021. An improving economic outlook under increased fiscal spending and accelerated vaccinations, along with ultra-easy monetary policy, will scupper any attempt for a more sustained rally, Commonwealth Bank of Australia analyst Kim Mundy wrote in a note.

The greenback has also been helped recently by an unwinding of bearish bets, with data showing that hedge funds piled up the biggest net short position since May 2011 in the week ended Jan. 12. Such large positions suggest that traders would be relatively more inclined to reduce their positions than add to already big bets.

The euro clung to its gains after the European Central Bank stuck to its monetary policy while expectations of a massive U.S. stimulus package fuelled market optimism and sapped demand for safe-haven currencies like the dollar. The ECB, which kept interest rates steady on Thursday, also pledged to provide more support for the economy if needed.
The FX market showed little reaction to Lagarde’s comments, as market participants continued to focus on what seemed like an improving global economic outlook and a nearly $2 trillion U.S stimulus package proposed by new Democratic President Joe Biden’s administration.

“While the idiosyncratic euro story remains unexciting (the euro zone will not outperform the U.S. economy this year and any ECB policy normalisation is a very distant story), we expect the bearish dollar dynamics to dominate”, ING strategists said prior to the ECB announcement.

U.S. data showed an economy slowly getting some traction, with slightly better-than-expected initial jobless claims, upbeat housing starts data, and a higher factory index for the mid-Atlantic region.

“Across asset markets, optimism about growth is high and I think it’s appropriate,” said Anujeet Sareen, global fixed income portfolio manager at Brandywine Global Investment Management in Philadelphia. “We see the dollar going lower because global growth will get better, the trade balance is deteriorating, and the Federal Reserve is going to keep its easy monetary policy,” he added.

The dollar typically loses out against its major peers in times of global expansions, when investors are inclined to take on more risk.

That said, TD Securities global head of FX strategy Mark McCormick noted that there is a brewing shift for a lower euro against the dollar because of delays in the vaccinations in the euro zone compared with that of the United States.



“These delays will result in a slower timeline to herd immunity. The downside for markets is that it’s also likely to have an immediate impact on the mobility and growth trends,” McCormick wrote in a research note.

Indeed, AstraZeneca Plc has informed European Union officials on Friday it would cut deliveries of its COVID-19 vaccine to the bloc by 60% to 31 million doses in the first quarter of the year due to production problems, a senior official told Reuters. The decrease deals another blow to Europe’s COVID-19 vaccination drive after Pfizer Inc and partner BioNTech SE slowed supplies of their vaccine to the bloc this week, saying the move was needed because of work to ramp up production.

“The market has probably one eye on the Fed meeting next week, where they will likely throw a little bit more caution in the marketplace given the slower vaccine rollout and prolonged virus uplift globally. The Federal Reserve next week will hold its first monetary policy meeting of the year and strategists expect the Fed to stay dovish, and officials “will probably note signs of slowing in the economy since the December meeting,” NatWest Markets said in a research note.

CV-19 situation

The UK government has targeted 14 million vaccinations by mid-February, with the aim of providing initial doses to key workers, the clinically extremely vulnerable and the over-70s. To date, just over 2.8 million doses have been administered, approximately 20% of what would be required under a one-dose strategy (or 10% on the double-dose approach). If doses continue at the current rate of 1.4 million per week, that goal could be achieved by the middle of March, a month later than targeted. Of course, the rate ought to pick up as mass vaccination sites come on stream, and so mid-March may well be a pessimistic prediction. Meanwhile, early data from Germany and France suggest that it may take longer to administer the vaccine to the most vulnerable, and this may delay the reopening of the EU’s largest economies.
1611389452869.png


In the meantime, and until the spread of the disease can be brought back under control, lockdowns are likely to remain in place. For Europe, data up to December suggest that economic sentiment remained relatively robust (actually ticking up slightly) and that the economy weathered this shock better than it did the first round of lockdowns last spring. But virus-fighting measures do have an impact on the real economy and Fathom now expects lockdowns to both last longer and be more severe than in November. As a result, the near-term outlook has undoubtedly deteriorated, especially in Europe.

What stands in the nearest future


Here we come to most interesting moment, guys. Next week we will get EU and US GDP. If you remember our suggestion is negative numbers for IVQ data. And we have first bells already. UK GDP fell by 2.6% in November. The UK’s monthly estimates of economic output have provided a timely measure of the impact of lockdowns during the COVID-19 pandemic.

1611389735966.png


As earnings reports started, IBM Corp slumped 9.91% and was the top drag on the Dow Jones Industrial Average after it missed estimates for quarterly revenue, hurt by a rare sales decline in its software unit. Intel Corp slipped 9.29% as new Chief Executive Officer Pat Gelsinger’s post-earnings comments suggested the lack of a strong embrace of outsourcing. Europe’s STOXX 600 firms are expected to report a 26% earnings drop during the Q4 season which has just got under way.

The coming week brings preliminary Q4 GDP data from France, Spain and Germany. Okay, the data is outdated and we already know the first quarter will show an activity dip from lockdown extensions. But let’s not be too hasty in dismissing the end-2020 numbers. If the economies fared better than expected, it provides a cushion for the blow coming this quarter - that is the conclusion some reached after 2020 growth in powerhouse Germany turned out less bad than feared.

Also pay attention to Germany’s January inflation numbers, out Thursday. Those could show that a reversal in VAT cuts is easing the downward pressure on prices. In short, amid the pain inflicted by lockdowns, some positives might well lurk.

1611389987392.png



So US IV Q GDP is expected around 4.0%, while we suspect that it might be released worse, even negative. The same story is for EU numbers. Investors sentiment now is very unstable. As we mentioned it, opinions are divided in two opposite groups. First group suggests that dovish Fed policy and a lot of stimulus keeps negative impact on USD and improving global economy increases demand for riskier currencies and assets. The second ground suggests that vice versa - big stimulus and better than in EU vaccination pace should trigger economy activity, boost consumption and spending, which in turn, improves economy conditions, makes Fed to tight policy gradually, reducing spending and support the dollar.

The weak moment in second camp background is substitution the wish for the reality, as their suggestion is based on economy improvement and vaccination performance. Right now we have neither first nor second. It means that until we get first signs of that we can't take the serious bet on this scenario. Besides, as we need confirmation - it needs time, so, if even this is the correct suggestion, we will get the first signs only in IQ or even IIQ of 2021. It means that first camp probably keeps domination at least for nearest 2-3 months. Especially because we suggest that coming data should support existed downside trend on USD. Not only GDP but NFP in February as well.

If data will be totally positive and beat expectations - first camp gets defeat and dollar could start turning up more actively. If you're interested with this subject - please, re-read previous report where we have in-depth discussion on this two major opinions. Coming data is big test for both camps. As many markets shows leading performance, based on expectations, such as interest rates, negative data could turn them back to reality. Conversely, if dollar keep rising despite worse data, it could mean that recent jump in interest rates and dollar are not just "speculative" expectations. They have solid background and that could demand adjusting of long-term view from us.

COT Report

This week we do not have significant changes in sentiment. After solid drop of positions last week, now investors have added few longs, but their amount is small, just around of 8K contracts, when the total open interest stands for ~ 720K:

1611392124389.png


Technicals
Monthly

Monthly picture mostly stands the same as markets across the board wait for important events. The existed tendency mostly stands intact, keeping bullish context.

As we've said previously EUR feels some resistance pressure as it is entering zone of 1.25 Fib level and natural support/resistance area. Trend is bullish here, market is not at overbought. Technical picture suggests that we could accept any pullback with no problems to bullish context while it stands above 1.16 lows. The invalidation point, by the way, agrees with Yearly Pivot point that has special meaning to us. Although it is preferable to the market to stay above 1.20, just to keep short-term bullish context either.

Drop below 1.16 breaks the normal market mechanics as major retracement and reaction to COP is done. Thus, another deep retracement here is not logical and should not happen. Besides, action below 1.16 means appearing of bearish reversal swing. It is not necessary leads to bearish collapse and drop below 1.02 but deeper downside action happens and we would have to forget about bullish positions on lower time frames.

eur_m_25_01_21.png


Weekly

Last week market has formed more signs pointing on deeper downside action -close was on tail, turning MACD trend bearish without any hint on the grabber. And we've got bearish divergence instead. Now price stands at first Fib support of 1.2060 area, where we see upside reaction as suggested. At the same time we should not be deceived by this pullback that at first glance seems strong. It could happened just because of strong upside momentum on EUR that makes price to show good reaction on support levels. The pace of recent sell-off still keeps door open for another drop to major weekly support area - 1.19 K-support and oversold level. And from technical point of view it is more attractive for position taking, as it is based on K-support area and weekly oversold level.

eur_w_25_01_21.png


Daily

On daily chart we already said on Friday, that overall dynamic is not sufficient to interpret this action as upside continuation. Market spends too many time in too small area. Intraday action is choppy and slow. In fact we have bearish flag pattern, with bearish trend still valid. As you could see - next week MACDP line steps in and again we need to be careful to potential grabbers here as well:
eur_d_25_01_21.png


Intraday

Here, on 1H chart we have a tricky moment. As we've suggested on Friday, indeed - EUR feels pressure as it stands on resistance area. Clear AB=CD shape is a good sign to treat this action as retracement with major downside tendency. At the same time, market could bring some tricks around the point of downside reversal. Take a look that we have clear pennant and signs of bullish dynamic pressure on MACD. It means that it could some spike up, maybe wash & rinse before downside action, or something of that sort.

So, as it is definitely not the point for long entry, because of resistance where market stands right now, it is tricky to go short as well, since market shows signs of possible volatility around this level. That's why, it seems that bulls need upside breakout of daily flag pattern and erasing of potential bearish grabber, while bears need the opposite stuff - resolving short-term hints on upside spike somehow and appearing of daily grabber. That's what we intend to watch and that is what should help us to get the direction.

eur_1h_25_01_21.png
 

JOELIBOK

Private, 1st Class
Messages
41
Fundamentals

Although this week was relatively quiet with just couple of events in focus - Inauguration and ECB meeting, but next week promises us the bumpy ride. Fed meeting, GDP reports in US and EU, and a lot of other important statistics should shake the markets. Besides, few political events also could become important, such as final J. Yellen appointment.

Overall background of this week

President Joe Biden said on Friday the U.S. economic crisis was deepening and that the government needs to take major action now to help struggling Americans.
More than 400,000 Americans have died from the virus and millions of jobs have been lost.

“It’s not just to meet the moral obligation,” Biden said in remarks at a White House event to sign two executive orders. “This is an economic imperative. Biden said his stimulus package to address the economic effects of the pandemic has support from business, labor, Wall Street and Main Street.

“A lot of America is hurting. The virus is surging. ... Families are going hungry. People are at risk of being evicted. Job losses are mounting again. We need to act. No matter how you look at it, we need to act,” Biden said.


A major pillar of the Biden plan is greatly increasing the number of people who are being vaccinated against the novel coronavirus. In December, Biden set a goal of 100 million vaccinations in his first 100 days in office and on Friday he spoke of exceeding that number.

The U.S. Senate Finance Committee on Friday unanimously approved Janet Yellen’s nomination as the first woman Treasury secretary, indicating that she will easily win full Senate approval, but Republicans called for her to work with them in developing economic policies. The full Senate will vote on Yellen’s nomination on Monday, Senate Majority Leader Chuck Schumer said on the Senate floor late Friday, which would allow her to get to work promptly on President Joe Biden’s economic agenda.

Biden has proposed a $1.9 trillion coronavirus relief plan and has pledged to invest here $2 trillion in infrastructure, green energy projects, education and research to boost American competitiveness.

Yellen’s confirmation hearing on Tuesday highlighted some Republican lawmakers’ concerns about her role in executing Biden’s economic policies, including a bigger federal debt burden and repealing parts of their signature 2017 tax cuts. Yellen told senators they needed to “act big” on the proposed $1.9 trillion stimulus package or risk a longer recession and long-term economic scarring, job and revenue losses.

Yellen, appearing before the Senate Finance Committee on Tuesday, urged lawmakers to “act big” on the next coronavirus relief package, adding that the benefits outweigh the costs of a higher debt burden.

“It looks like risk appetite is in better support today. Expectations go back to the idea of a swift fiscal U.S. stimulus,” said Simon Harvey, senior FX market analyst at Monex Europe in London. “There is an ongoing understanding that there is support for a large fiscal stimulus and wide bipartisan support in the Senate, as opposed to a lengthy reconciliation process,” he added.

Yellen also said the dollar’s value should be determined by market forces, adding that the United States should oppose attempts by other countries to artificially manipulate currency values to gain trade advantage. That contrasts with outgoing Republican President Donald Trump, who often railed against dollar strength.

Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a research note, however, that Yellen’s comments on the dollar won’t be able to reverse its weakening trend. He cited the Fed’s expansive monetary policy, which has kept interest rates at zero and likely to stay there for years, as one reason for the greenback’s expected weakness in 2021.



Her remarks represent a new attitude toward government debt among some economists and policymakers: Focus on the interest rate being paid and the returns it will generate, rather than the overall amount borrowed. In recent months, Treasury’s interest outlays have fallen from pre-pandemic levels due to lower rates.

The dollar dropped on Tuesday as investors prepared for U.S. Treasury Secretary nominee Janet Yellen to talk up the need for major fiscal stimulus and commit to a market-determined exchange rate when she testifies later in the day. But most analysts are sticking with their calls for a weaker greenback from here.

“On fiscal policy, Yellen is to suggest that the US “act big” and make use of the low borrowing costs. On the dollar, it should be reiterated that the new administration is committed to the market determined exchange rate. Both are in line with our weak USD outlook,” ING analysts wrote.

“We’ve seen comments from Janet Yellen that she won’t be pursuing a weak dollar policy per se, but that doesn’t mean that the overall impact of Fed policy won’t keep the dollar weakening,” said Michael McCarthy, chief strategist at CMC Markets in Sydney. I suspect what we’ve been seeing in the dollar at the moment is a minor corrective rally in an overall downtrend.”


However, many analysts still expect the currency to eventually resume its march lower during 2021. An improving economic outlook under increased fiscal spending and accelerated vaccinations, along with ultra-easy monetary policy, will scupper any attempt for a more sustained rally, Commonwealth Bank of Australia analyst Kim Mundy wrote in a note.

The greenback has also been helped recently by an unwinding of bearish bets, with data showing that hedge funds piled up the biggest net short position since May 2011 in the week ended Jan. 12. Such large positions suggest that traders would be relatively more inclined to reduce their positions than add to already big bets.

The euro clung to its gains after the European Central Bank stuck to its monetary policy while expectations of a massive U.S. stimulus package fuelled market optimism and sapped demand for safe-haven currencies like the dollar. The ECB, which kept interest rates steady on Thursday, also pledged to provide more support for the economy if needed.
The FX market showed little reaction to Lagarde’s comments, as market participants continued to focus on what seemed like an improving global economic outlook and a nearly $2 trillion U.S stimulus package proposed by new Democratic President Joe Biden’s administration.

“While the idiosyncratic euro story remains unexciting (the euro zone will not outperform the U.S. economy this year and any ECB policy normalisation is a very distant story), we expect the bearish dollar dynamics to dominate”, ING strategists said prior to the ECB announcement.

U.S. data showed an economy slowly getting some traction, with slightly better-than-expected initial jobless claims, upbeat housing starts data, and a higher factory index for the mid-Atlantic region.

“Across asset markets, optimism about growth is high and I think it’s appropriate,” said Anujeet Sareen, global fixed income portfolio manager at Brandywine Global Investment Management in Philadelphia. “We see the dollar going lower because global growth will get better, the trade balance is deteriorating, and the Federal Reserve is going to keep its easy monetary policy,” he added.

The dollar typically loses out against its major peers in times of global expansions, when investors are inclined to take on more risk.

That said, TD Securities global head of FX strategy Mark McCormick noted that there is a brewing shift for a lower euro against the dollar because of delays in the vaccinations in the euro zone compared with that of the United States.



“These delays will result in a slower timeline to herd immunity. The downside for markets is that it’s also likely to have an immediate impact on the mobility and growth trends,” McCormick wrote in a research note.

Indeed, AstraZeneca Plc has informed European Union officials on Friday it would cut deliveries of its COVID-19 vaccine to the bloc by 60% to 31 million doses in the first quarter of the year due to production problems, a senior official told Reuters. The decrease deals another blow to Europe’s COVID-19 vaccination drive after Pfizer Inc and partner BioNTech SE slowed supplies of their vaccine to the bloc this week, saying the move was needed because of work to ramp up production.

“The market has probably one eye on the Fed meeting next week, where they will likely throw a little bit more caution in the marketplace given the slower vaccine rollout and prolonged virus uplift globally. The Federal Reserve next week will hold its first monetary policy meeting of the year and strategists expect the Fed to stay dovish, and officials “will probably note signs of slowing in the economy since the December meeting,” NatWest Markets said in a research note.

CV-19 situation

The UK government has targeted 14 million vaccinations by mid-February, with the aim of providing initial doses to key workers, the clinically extremely vulnerable and the over-70s. To date, just over 2.8 million doses have been administered, approximately 20% of what would be required under a one-dose strategy (or 10% on the double-dose approach). If doses continue at the current rate of 1.4 million per week, that goal could be achieved by the middle of March, a month later than targeted. Of course, the rate ought to pick up as mass vaccination sites come on stream, and so mid-March may well be a pessimistic prediction. Meanwhile, early data from Germany and France suggest that it may take longer to administer the vaccine to the most vulnerable, and this may delay the reopening of the EU’s largest economies.
View attachment 61395

In the meantime, and until the spread of the disease can be brought back under control, lockdowns are likely to remain in place. For Europe, data up to December suggest that economic sentiment remained relatively robust (actually ticking up slightly) and that the economy weathered this shock better than it did the first round of lockdowns last spring. But virus-fighting measures do have an impact on the real economy and Fathom now expects lockdowns to both last longer and be more severe than in November. As a result, the near-term outlook has undoubtedly deteriorated, especially in Europe.

What stands in the nearest future


Here we come to most interesting moment, guys. Next week we will get EU and US GDP. If you remember our suggestion is negative numbers for IVQ data. And we have first bells already. UK GDP fell by 2.6% in November. The UK’s monthly estimates of economic output have provided a timely measure of the impact of lockdowns during the COVID-19 pandemic.

View attachment 61396

As earnings reports started, IBM Corp slumped 9.91% and was the top drag on the Dow Jones Industrial Average after it missed estimates for quarterly revenue, hurt by a rare sales decline in its software unit. Intel Corp slipped 9.29% as new Chief Executive Officer Pat Gelsinger’s post-earnings comments suggested the lack of a strong embrace of outsourcing. Europe’s STOXX 600 firms are expected to report a 26% earnings drop during the Q4 season which has just got under way.

The coming week brings preliminary Q4 GDP data from France, Spain and Germany. Okay, the data is outdated and we already know the first quarter will show an activity dip from lockdown extensions. But let’s not be too hasty in dismissing the end-2020 numbers. If the economies fared better than expected, it provides a cushion for the blow coming this quarter - that is the conclusion some reached after 2020 growth in powerhouse Germany turned out less bad than feared.

Also pay attention to Germany’s January inflation numbers, out Thursday. Those could show that a reversal in VAT cuts is easing the downward pressure on prices. In short, amid the pain inflicted by lockdowns, some positives might well lurk.

View attachment 61397


So US IV Q GDP is expected around 4.0%, while we suspect that it might be released worse, even negative. The same story is for EU numbers. Investors sentiment now is very unstable. As we mentioned it, opinions are divided in two opposite groups. First group suggests that dovish Fed policy and a lot of stimulus keeps negative impact on USD and improving global economy increases demand for riskier currencies and assets. The second ground suggests that vice versa - big stimulus and better than in EU vaccination pace should trigger economy activity, boost consumption and spending, which in turn, improves economy conditions, makes Fed to tight policy gradually, reducing spending and support the dollar.

The weak moment in second camp background is substitution the wish for the reality, as their suggestion is based on economy improvement and vaccination performance. Right now we have neither first nor second. It means that until we get first signs of that we can't take the serious bet on this scenario. Besides, as we need confirmation - it needs time, so, if even this is the correct suggestion, we will get the first signs only in IQ or even IIQ of 2021. It means that first camp probably keeps domination at least for nearest 2-3 months. Especially because we suggest that coming data should support existed downside trend on USD. Not only GDP but NFP in February as well.

If data will be totally positive and beat expectations - first camp gets defeat and dollar could start turning up more actively. If you're interested with this subject - please, re-read previous report where we have in-depth discussion on this two major opinions. Coming data is big test for both camps. As many markets shows leading performance, based on expectations, such as interest rates, negative data could turn them back to reality. Conversely, if dollar keep rising despite worse data, it could mean that recent jump in interest rates and dollar are not just "speculative" expectations. They have solid background and that could demand adjusting of long-term view from us.

COT Report

This week we do not have significant changes in sentiment. After solid drop of positions last week, now investors have added few longs, but their amount is small, just around of 8K contracts, when the total open interest stands for ~ 720K:

View attachment 61398

Technicals
Monthly

Monthly picture mostly stands the same as markets across the board wait for important events. The existed tendency mostly stands intact, keeping bullish context.

As we've said previously EUR feels some resistance pressure as it is entering zone of 1.25 Fib level and natural support/resistance area. Trend is bullish here, market is not at overbought. Technical picture suggests that we could accept any pullback with no problems to bullish context while it stands above 1.16 lows. The invalidation point, by the way, agrees with Yearly Pivot point that has special meaning to us. Although it is preferable to the market to stay above 1.20, just to keep short-term bullish context either.

Drop below 1.16 breaks the normal market mechanics as major retracement and reaction to COP is done. Thus, another deep retracement here is not logical and should not happen. Besides, action below 1.16 means appearing of bearish reversal swing. It is not necessary leads to bearish collapse and drop below 1.02 but deeper downside action happens and we would have to forget about bullish positions on lower time frames.

View attachment 61399

Weekly

Last week market has formed more signs pointing on deeper downside action -close was on tail, turning MACD trend bearish without any hint on the grabber. And we've got bearish divergence instead. Now price stands at first Fib support of 1.2060 area, where we see upside reaction as suggested. At the same time we should not be deceived by this pullback that at first glance seems strong. It could happened just because of strong upside momentum on EUR that makes price to show good reaction on support levels. The pace of recent sell-off still keeps door open for another drop to major weekly support area - 1.19 K-support and oversold level. And from technical point of view it is more attractive for position taking, as it is based on K-support area and weekly oversold level.

View attachment 61400

Daily

On daily chart we already said on Friday, that overall dynamic is not sufficient to interpret this action as upside continuation. Market spends too many time in too small area. Intraday action is choppy and slow. In fact we have bearish flag pattern, with bearish trend still valid. As you could see - next week MACDP line steps in and again we need to be careful to potential grabbers here as well:
View attachment 61401

Intraday

Here, on 1H chart we have a tricky moment. As we've suggested on Friday, indeed - EUR feels pressure as it stands on resistance area. Clear AB=CD shape is a good sign to treat this action as retracement with major downside tendency. At the same time, market could bring some tricks around the point of downside reversal. Take a look that we have clear pennant and signs of bullish dynamic pressure on MACD. It means that it could some spike up, maybe wash & rinse before downside action, or something of that sort.

So, as it is definitely not the point for long entry, because of resistance where market stands right now, it is tricky to go short as well, since market shows signs of possible volatility around this level. That's why, it seems that bulls need upside breakout of daily flag pattern and erasing of potential bearish grabber, while bears need the opposite stuff - resolving short-term hints on upside spike somehow and appearing of daily grabber. That's what we intend to watch and that is what should help us to get the direction.

View attachment 61402
Very insightful analysis as always.Thank you for your consistency Sir Sive
 

Sive Morten

Special Consultant to the FPA
Messages
15,315
Morning everybody,

It seems activity returns right from Monday and investors run into the quality. As we've discussed in weekly research - overall context stands bearish, we've expected some tricks around 1.22 area but EUR was not able to show even minor spike there, turning down.

So, on daily we see normal bearish performance and moment of downside breakout of the flag. Unfortunately we haven't got the grabber. As we have bearish context on the weekly chart as well, we still consider 1.19-1.20 area as more attractive for consideration of long positions, just because this is strong level and weekly oversold:
eur_d_26_01_21.png


On 4H chart we already have AB-CD with OP around 1.20. As market has started downside action - we focus on this target:
eur_4h_26_01_21.png


Still, it is last moment that we need to check. Take a look that EUR has not broken yet major 1.21 Fib support and forming minor butterfly. Since this level is harmonic to previous lows, H&S shape could be formed. So, for short position taking, I would wait for downside breakout of this level and erasing of butterfly pattern, while for long entry - consider 1.21 as entry point with very tight stop slightly below the butterfly 1.618 extension. Although context is not in favor of long position, but risk is very small and it is high chance of bounce on 1st touch of this area. It is suitable for intraday trading.

eur_1h_26_01_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,315
Morning guys,

So, the riddle on the EUR is coming to the answer. Market stands in situation when it has to go up, if it is bullish. Although daily context still stands bearish, as price remains inside the flag and take a look - we've got bearish grabber yesterday as well. As we've said recently to change the context market has to break flag up and start upward action:
eur_d_27_01_21.png


On 4H chart bearish nearest target stands at 1.20 - OP of our AB-CD pattern:
eur_4h_27_01_21.png


And here, on 1H, it is simple to understand why EUR has no choice. Take a look, maybe it is not quite the H&S pattern that we have, but anyway - yesterday, with the drop to 5/8 Fib support, major retracement is done. Recall the butterfly that we've discussed... It means that at current point bullish market has to go up, forming extension to 1.2245 area. Otherwise, drop below 1.21 means that market is not bullish:
eur_1h_27_01_21.png


It makes context simple as for bears as for bulls. Bears could take short positions against the 1.22 top here, based on daily grabber. While bulls could go long against the recent 1.21 lows. Unfortunately right now we do not have real domination of one or another side. We could specify only vital moments. Both setups have chances to work by far.
 

RahmanSL

Major
Messages
2,852
Hi Sive....very helpful analysis & thoughts.

Is it my imagination or is there a H&S on both H4 & D1?
After all these years, I still cannot quite get technical analysis :p

All the best & stay safe!
 

Sive Morten

Special Consultant to the FPA
Messages
15,315
Hi Sive....very helpful analysis & thoughts.

Is it my imagination or is there a H&S on both H4 & D1?
After all these years, I still cannot quite get technical analysis :p

All the best & stay safe!

It seems too small shoulders, even smaller than 1.27. For me it doesn't look like H&S.
 

Sive Morten

Special Consultant to the FPA
Messages
15,315
Morning everybody,

So, as we've suggested the riddle has been resolved, market failed upward continuation and set the downside direction. As a result, on daily chart we've got another bearish grabber. Fed statement has made no reasonable impact. Context stands bearish by far, but today we should be aware of coming GDP numbers later in the session.
To consider long entry again, EUR should reach some solid support area. By our view the nearest one stands around 1.20 with 1.19 weekly K-support on the back:
eur_d_28_01_21.png


That's being said, currently we do not have good bullish context. On 4H chart I would consider this pattern, as it could finalize 4H AB-CD pattern around 1.20:
eur_4h_28_01_21.png


On the 1H chart we have the similar pattern with the same target:
eur_1h_28_01_21.png


Thus, for long entry it seems that we should wait a bit. It is possible to go short, but be aware of GDP release volatility, today it will be a bit more riskier than yesterday.
 

Sive Morten

Special Consultant to the FPA
Messages
15,315
Morning everybody,

GDP was not able to change situation and it could mean only two things. First one - economy society treats 4% GDP as positive (although it was spot on to expectations, which happens quite rare), compares to rivals - UK and Germany have negative numbers. Or, which is more probable, background of recent rally on interest rates is not of speculative nature. Market indeed could anticipate changes.

As a result, the upward action that has seemed to be started, finished very soon and price returns back. EUR keeps the same context on the daily and we do not need anything to change here, watching for the same 1.19-1.20 area:
eur_d_29_01_21.png


On 4H chart suggested butterfly also stands valid by far:
eur_4h_29_01_21.png


On 1H chart due initial GDP spike we've got "222" Sell pattern, but this is minor detail as it makes no impact on context. Alternatively we could recognize potential Double Bottom pattern here, but to return bullish context market has to climb above 1.22 area and it has to do it relatively fast. As longer price stands around current levels as more bearish short-term situation becomes.
eur_1h_29_01_21.png
 
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