FOREX PRO WEEKLY January 25-30, 2014

[Sive Morten]

Fundamentals
Reuters reports euro fell to fresh 11-year lows against the dollar on Friday following the European Central Bank's announcement on Thursday that it would pump a trillion euros into the euro zone economy to revive sagging growth and ward off deflation.
After a similar tumble on Thursday, the euro was down over 7 percent since the start of the year and was on track for its biggest monthly fall since the depths of the financial crisis in early 2009. The euro fell over 3 percent against the dollar this week.

"What the ECB is trying to do is enough to drive the euro below parity by the end of this year," said Shaun Osborne, chief foreign exchange strategist at TD Securities in Toronto. He said the euro could hit 96 cents by the end of 2015.

The euro is set for another trial as global markets await snap Greek elections on Sunday. A win for the leftist Syriza party could trigger a standoff with Greece's EU/IMF lenders. Analysts said the uncertainty added to the euro's weakness.

The dollar appeared to be headed higher given the Federal Reserve's path toward tighter monetary policy in contrast with the looser policies of other developed market central banks such as the ECB and the Bank of Japan, analysts said.

"The name of the game is that the dollar will continue to appreciate against currencies of central banks that are easing,” said Mark McCormick, currency strategist at Credit Agricole in New York.

CFTC data shows increasing of open interest and faster growth on short position. Right now speculative shorts stand for 225’167 and increased for 10K contracts past week vs. longs of 48’677 – almost the same as previously. Thus, our ratio has increased to 82,22% and gradually approaches to crucial numbers when market will need some pause or pullback to reduce this number.

Open interest:

Shorts:

Longs:

Here guys, I will keep our previous thoughts and discussion because it is still important and actual. But today I would like to add some new object for discussion. Is it possible some secret agreement to support value of US Dollar. I know that these talks on huge american debt and sooner or later dollar should fail are old. Still, it seems suspicious that dollar appreciates across the board particularly when emerging markets start to take steps in direction of expelling of US dollar in mutual trading. Of cause these steps are not quite evident and not advertised very wide, still they exist. It is difficult to judge how successful they are, but this work is continuing. For example, today Central Bank of Iran announced denying of USD and its application in international transactions. The same steps come from many other countries – China, Brazil, Russia and others. Currently they do not exclude USD totally, but softly “replace” it partially in mutual trading.
And we see very suspicious action on all financial markets. Crude Oil has dropped and pressed CAD, gold has dropped and pressed AUD. EU has started QE, while Japan takes these steps for long period already. Could this be some collective measures to support USD and keep it as major reserve currency? Turmoil and instability triggered by US across the world increases uncertainty and makes investors come to safe haven. Artificial pressing on crude oil and gold makes them to believe that USD is high value currency and only USD could protect their wealth. This is not a statement, we just call you to discussion, but this is really looks suspicious when you see that all markets and west countries take steps for dollar support…
Recently guys, we’ve put our thoughts on SNB action. We think that major reason stands beyond European QE. QE is just small add-on but not major factor. To better understand what really has happened we need to take a look at Switzerland economy. Economy stands near recession, struggles with deflation, SNB reduces rates and right now it stands at -0.75%. To understand what usually country does in this kind of situation – take a look at Japan. Here we see massive government spending and lending programs, massive easing program and steps of stimulation of consumption and spending. Significant steps to stimulate inflation and reduce the value of national currency to pump export.
But the trick is Switzerland stands in the same situation – export oriented country falls in recession but what they do – increase the value of franc for 30% to USD and 20% to EUR. Why? What for? My college has spent Xmas time in Switzerland and brought me a present – Swiss “Lindt” chocolate sweets. Small box costs around 11 francs! Even in Russia I can buy the same sweets cheaper in German “Metro” store.
So, we were able to find only one explanation of this SNB step. They intend to buy something. This is single logical explanation why SNB took this step in current economic conditions. And we suspect that this “something” will be gold.
As you know among other events we’re tracking geopolitical situation and try to catch some relations that we see there. Of cause, geopolicy is most blur sphere of international relations and nobody could say definitely what is really going on. But still, we think that situation in Ukraine, terrorist attack in France and across the Europe, crude oil prices, gold and SNB action is the part of the same chain.
If you will monitor, say, Germany newspapers and recent media you’ll see that Ukraine almost totally disappeared from major news. As we’ve mentioned previously shooting in France has happened when Hollande gave hints on warming relations with Russia.
Recently NATO Stoltenberg has come to Germany trying to get additional financing and frighten Europe with “Russian menace”. He treads that US right now has contracted possibilities while Germany and France are rather rich and they could do much more for NATO. Otherwise they will be one-on-one with dreadful Putin. The major background for this “speech” was September conference when NATO members have decided to increase spending to 2% of GDP of each member.
But what result of this meeting, I mean recent visit of Stoltenberg… Germany said “nein”. But you may ask what about G7 meeting, Russia was not invited, what about sanctions prolongation etc… We would say that we should take in consideration not speeches but deeds and facts:
Merkel has banned on the use of nuclear energy to generate electricity, which she has pushed despite the resistance of the industry, putting the economy heavily dependent on Russian gas, the failure to increase investment in the defense industry, failure of Ukraine in the financial assistance and other moments.
Anyway, now we can try to collect puzzle. It is obvious that EU attitude to situation is changing and it becomes healthier. This comes in contradiction with US policy who tries to keep globe dominant power as economical as political. Gradually world starts to doubt real reliability and safety of US dollar and US has applied unprecedented steps to keep it. Subprime crisis in 2008, mass wars across the Globe to spread instability and sow chaos across the planet, to convince global financial society that only US dollar worthy to be an absolute protection again globe turmoil. Then drop in crude oil price and gold should prove that US dollar is strong and expensive. Right now nobody has any doubts that crude oil drives not by economical law of demand and supply.
When they saw that Europe is trying to be on her own mind – they start to frighten it, triggering terror, hinting that it will become worse if you will continue this line. Right in this moment war in Ukraine has activated again and turns to hot stage. And right now SNB cancels the cap… and gold shows unprecedented rally. This is the part of the same chain. SNB decision looks negative for US, especially if they will start to buy gold… Franc now becomes a rival for US dollar. Franc is not yen, because Japan totally depends on US export, keeps huge volumes of US debt and now applies mass money printing. Other words, yen stability is based on US stability. CHF is a quite another tune.
There is a rumor on the market that US keeps gold price low by selling its own gold storages. Nobody knows any details, and to be honest I have real doubts on this, but this is what I’ve heard on the markets. Still it does not seem as absolutely impossible.
As Europe still stands on its way to make its own policy and try to become real member of geopolitical game – US will continue somehow to press on it. Thus, we can’t exclude some bad events in EU of any type – either economical, may be again some social turmoil that we already see. Besides, 25th of January Greece will take voting on its future.
In economy sphere we mostly watch for two major events – details on ECB QE that should be announced on 22nd of January, second – impact of Fed rate policy on EUR. The major concern here how EUR will behave in this whitewater of financial events and Greece voting on 25th of January.
Probably we need to explain a bit. At first glance it seems all simple – US will start rise rate and hence EUR should fall even deeper. But this is not quite so. We suspect that this will be true only till the moment of first rate hiking by Fed. We suspect that starting of QE program by ECB will attract a lot of investors who will want to make easy money. As US experience of QE shows, real Central Bank money mostly was put in equities but not in long-term loans of real industrial sector, population, manufacturing and etc. This has led to huge bubble on US equities. We suspect that something of this sort could appear on EU equities. Initially it will be gradual. But as soon as Fed will start to increase rates capital will start to flow to EU. As amount of money will increase this will lead to additional demand on EUR and here drop of EUR could stop, or at least will loose its pace, despite opposite courses in rate policy…
Currently it is very difficult to predict how definitely this will happen; we just mention common view on this situation. But what we do know that this will not be as simple as “US rising rates while EU not, hence USD will dominate over EUR”.
And finally couple of words on QE. It will start in March for 60Bln per month and will last till 2016. As we have suggested EU stocks and bonds will start to rise and they are started. Probably gold and EU assets will show best growth in nearest 6-12 months.
Technicals
Monthly
So, January is dreadful month for EUR. We have plunge that we haven’t seen since 2008 crisis. Now euro stands at the eve of most interesting action. I do not know whether we will find anything interesting on intraday charts, but monthly looks very cool. You, guys, probably see everything by yourself already. Yes, EUR has passed through YPP and YPS1 with a blink of an eye – it needs just 3 weeks to pass through yearly barrier. But right now currency stands at rock hard support area – monthly oversold, major 5/8 Fib level, AB=CD target and 1.27 extension target. It should be upside retracement, guys!!! It needs absolutely unprecedented power to push EUR lower. It is interesting that all four recent legs down have approximately the same length. So, it seems that EUR is also at the peak of harmonic swing.
At the same time after retracement (if it will happen of cause) downward action will continue. EUR has dropped to 1.27 butterfly target too fast. Odds suggest continuation to 1.618 extension. By the way, the same suggestion we could make based on AB-CD. CD leg is also too fast. But where does it stand? Right – at 1.0 point, parity. Bingo… This will be next destination point when and if market will pass through 1.11-1.12 area. Also we need to say that we knew about 1.11-1.12 and we have discussed it here and even pointed on it as possible “long-term” target. But it has appeared that it is not “long-term”. That’s why we’re talking of scale increasing on EUR. Right now EUR passes for week distances that previously it has passed for months. When I see this, I recall “three black crows” pattern that we’ve discussed 3-4 months ago and it seems not bad pattern to me…

Weekly
So guys, we could discuss here? We just see downward action without any hitch – very smooth. EUR stands at oversold here as well (who would doubt) and it passed through YPS1. I do not have monthly pivots here, guys, because market already has passed through all of them. All that we could do here is probably to watch for DiNapoli directional patterns, because all that we have here is perfect thrust down…

Daily
EUR is obviously oversold here. If upside retracement will start somehow then it probably will stop initially at 1.1670 area. It includes overbought level and Fib resistance. Some surprises could happen, say Greece voting. Right now EUR probably already has priced-in fears of Greece exit, although with small percent. Or may be some other negative moments for union currency on coming Greece elections…

Hourly
Finally, we have something to discuss on intraday charts. As market has reached strong support area, we could start to get some bullish setups although they could appear to be false either. Anyway, here we could get DRPO “Buy” pattern on Monday. Probably we should not treat it in relation with daily or even monthly charts, since it looks to small. It is better to treat is as just separate scalp setup. If it will be confirmed and work – it could lead market at least to 1.1380 area.

Conclusion:
In 2015 it will be interesting to watch on EUR, since overall situation around EU as political as economical is very sophisticated and potentially in carries a lot of opportunities.
In long-term perspective we will be watching for patterns and events that we’ve mentioned in “Monthly” part of our analysis.
In short-term we mostly wonder, whether market will response on current support and will we get some retracement before market will start move to next target…



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.

 

[Sive Morten]

FX Daily Update, Tue 27, January 2015

Good morning,


Reuters reports today euro steadied versus the dollar on Tuesday, after having bounced off an 11-year trough the previous day as investors decided to take profits on extremely bearish positions.

Investors sold the euro first thing this week after the Greeks voted in a new hardline, anti-bailout government led by Alexis Tsipras.

However, the euro has since managed to regain some footing, as investors booked some profits on their euro bearish bets.

Given that the euro had slid by about five U.S. cents in the wake of the European Central Bank's decision last Thursday to launch quantitative easing and the elections in Greece, it was not surprising to see some short-covering in the euro, said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

Market participants are now probably looking for opportunities to put such euro bearish bets back on, he said.

"If the euro rises further, I think there will be lots of people who will look for opportunities to sell into the rally," Murata said, adding that the ECB's bond-buying programme is likely to weigh on the euro going forward.

Investors will also be keeping an eye on Greece's forthcoming negotiation with international lenders.

"Perhaps the market rightly or wrongly is pinning some hopes on Mr Tsipras being more conciliatory," David de Garis, senior economist at National Australia Bank, wrote in a note to clients. "In any case, the market will be paying close attention to news that could well see more euro volatility for now at least."

"Markets now wait for details on Tsipras's policies and how much compromise he is willing to embrace in his dealings with international creditors," he wrote.

The U.S. Federal Reserve starts a two-day policy meeting on Tuesday and investors are keen to hear its take on the rash of policy easings from the euro zone to Canada and Switzerland.

The general assumption is the Fed will acknowledge the uncertain global outlook and stick to its promise to be patient on tightening. Yet expectations remain that it will start raising rates by mid-year, a trajectory that implies further broad-based gains for the dollar.

One key development on Monday was Standard & Poor's decision to cut Russia's sovereign credit rating to junk status, bringing it below investment grade for the first time in a decade.


While most currencies are trying to show some reaction on recent plunge, we again will take a look at Yen. But we hope that either EUR, GBP or some other will form something interesting on this week, may be after FOMC...
Daily JPY still keeps valid butterfly pattern. Grabber that has formed previous was not triggered, but has not failed yet either. Although you can see that market also has formed couple of bullish grabbers as well. Other bullish moments, such as hidden divergence also stays intact. So, chances on upward leg, based on butterfly are still exist:

4-hour picture, as market has held above WPP on previous week, holding above it on current week and stands above 50% support look bullish. In fact, as yen has not started action due bearish daily grabber and has not moved below major supports keeps hopes on upward continuation. Especially if we will get bullish grabber on current candle...

Current consolidation that takes shape of pennant or flag on daily chart here looks as triangle. Thus, downward breakout will significantly reduce chances on success of upside action, because this triangle is "bullish" and opposite breakout will be bad sign.
Still situation shows that nothing was lost yet and overall picture looks not bad at all from upside potential point of view:

 

[Sive Morten]

FX Daily Update, Wed 28, January 2015

Good morning,


Reuters reports dollar stepped back from an 11-year peak against a basket of currencies after soft spending data and disappointing earnings cast doubt on underlying optimism about the U.S. economy, but it found some support against Asian currencies.

Investors took profits from recent gains in the U.S. currency ahead of a Federal Reserve policy announcement later on Wednesday, which some think could show a more dovish bias due to the recent plunge in oil prices.

"I would say the dollar selling we've seen so far is just position adjustments ahead of the major (Fed) event," said Bart Wakabayashi, head of forex at State Street Bank.

"But I am a bit nervous that the dollar may have a further leg to go down if the Fed says something negative (about the U.S. economy), given that the market is still very long in the dollar on the whole," he added.

It last stood at 94.30 as the greenback gained a slight boost in Asia after surprise monetary easing by Singapore lifted the U.S. currency against the Singapore dollar and other Asian currencies.

Betting on the dollar has been a winning trade since the second half of last year, as investors expected the Fed to start raising rates this year on the back of a solid U.S. economic recovery.

But the currency's big gains - almost 18 percent in the dollar index since June - have raised concern about profits at U.S. firms.

Earnings from major U.S. firms have disappointed investors, with multinationals from DuPont and Caterpillar to Microsoft Corp complaining that the strong dollar was hurting profits.

Data on Tuesday showed U.S. non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell unexpectedly for a fourth straight month in December.

It marked the longest downward stretch since 2012, stoking worries that slowing global growth and cheap oil prices were curbing business spending in the United States, one of the brightest spots in the global economy.

"U.S. economic indicators are losing a bit of momentum lately, whether it is caused by a strong dollar or not," said a trader at a major Japanese bank.

While other U.S. data, such as consumer spending and home sales, were more robust, traders are getting worried the Fed could turn even more cautious in its guidance on future rate rises, given the plunge in oil prices is cooling any inflationary pressure.

Elsewhere, the Australian dollar jumped 0.7 percent to $0.7988 after higher-than-expected core inflation led investors to sharply scale back expectations of an interest rate cut next week.



Finally we can take a look at EUR short-term charts. As EUR has reached very solid support area on monthly chart, daily one starts to show some reaction on this event. Action still looks rather shy but it should become more strong after FED statement. As we see in comments above - Fed could bring some dovish surprise, although chances are not very high.
Anyway, right now we're mostly interested in daily chart and all conditions for patterns have been formed. Thus, market at support, thrust down is perfect and we should watch for directional patterns. It is more logical to expect DRPO "Buy" here, since we stand and monthly support and usually reaction on daily is extended and visible and DRPO leads to stronger upside action than B&B "Sell". Anyway, despite what pattern will be formed - any of them will become just starting point for some larger pattern.

On hourly chart we do not see anything interesting yet. Market stands in upside channel, action is gradual and reminds retracement. Probably this is normal, since investors wait for Fed. EUR has completed AB=CD pattern. Interesting, is that 1.618 point of AB=CD coincides with daily resistance - WPR1 and overbought. This is probaby ceil for current week, if Fed will not bring any dovish surprises, of cause... That's being said, our major interest on EUR is some daily pattern...

 

[Sive Morten]

FX Daily Update, Thu 29, January 2015

Good morning,


Reuters reports today The New Zealand dollar pared some losses but remained near a four-year low on Thursday as investors priced in a greater chance of rate cuts there, while U.S. dollar bulls focused on the positive in the Federal Reserve's latest policy statement.

The kiwi had tumbled to $0.7314 , its lowest level since March 2011, after the Reserve Bank of New Zealand opened the door to a possible cut in rates, having only last month flagged that further tightening was needed.

Traders said the move to a neutral stance was expected, but giving an allowance for rate cuts was not.

"For the NZ dollar, a further repricing of RBNZ rate expectations will imply a period of under performance against the G10 crosses, especially given that a number of markets have already undergone a significant repricing of policy expectations in recent months," JPMorgan analyst Sally Auld said.

While the RBNZ was unambiguously dovish, the Fed had something for everyone. The hawks latched on to its upbeat outlook for the economy, while the doves interpreted a reference to global markets as suggesting it might delay any interest rate hike.

The Fed said it would take "financial and international developments" into account when determining when to raise rates, referring to global markets for the first time since January 2013

U.S. Treasuries had rallied on Wednesday, with the 30-year Treasury yield setting a record low of 2.273 percent . The U.S. 30-year bond yield last stood at 2.298 percent.

Overall, the Fed's current stance is a supportive factor for the dollar, especially at a time when currencies such as the euro have come under pressure, said Teppei Ino, analyst for Bank of Tokyo-Mitsubishi UFJ in Singapore.

"The stance seems to be that they are sticking to a path toward the normalisation of monetary policy," Ino said.

Greece's newly installed leftist prime minister, Alexis Tsipras, challenged international creditors on Wednesday by halting privatisation plans agreed under the country's bailout deal, prompting a third day of heavy losses on financial markets.


Today guys, we will take a look at GBP for 2 reasons. First is we've not spoken on it since Scotland voting and second and more important is that it stands at some level that could provide patterns on lower time frames.
First - take a look at weekly chart. As you can see market has reached solid support area of Yearly Pivots support1 and oversold. Although market stands in solid bearish trend and actually we've talked about it in our Forex Military school where we've provided long term forecast for GBP on monthly chart with EW tool. It suggests that market should create new lows as it stands in 5th last wave down of a big pattern.
But right now we're mostly interested in shorter perspective:

On daily chart we already see some reaction on this moment - GBP has formed divergence with MACD and bullish grabber right at bottom. Upside action right now mostly is held by overbought and solid previous momentum down:

This action takes the shape of butterfly "Buy" pattern, which in turn could turn to H&S and tirgger 300 pips upside retracement. So, right now we should watch for appearing of right shoulder...

 

[Sive Morten]

GBP/USD Daily Update, Fri 30, January 2015

Good morning,

Today, guys, we again will talk on GBP. EUR right now also shows hints on possible uspide continuation, but patterns on GBP are clearer.

As we've said yesterday market stands at strong tactical level - weekly oversold and Yearly PS1. This could provide support in short-term perspective and trigger valuable retracement ~300 pips on daily chart.

Most probable reversal pattern that we could get is reverse H&S. Daily chart also shows bullish divergence with MACD:

As we've expected - market has reached 1.5050 area that is crucial for short-term bullish scenario. If it will fail here - GBP will drop lower and downward action will continue. If GBP will find neccesary power and will creat H&S - this could lead to 1.53 action.

Currently we do not have reversal patterns on hourly chart that could confirm upside action, and it would be nice if we will get it.

 

[Brett Reynolds]

Your Ramblings on 'Geopolitics' are akin to a 'Cold War' Spy Novel Sive! I prefer 'exo-politics' and the Military Industrial Complex Illuminati theory myself! Hmm!..would that 'fatten' my Forex Account however!? I doubt it....so i'll just rely on my 'own Trading Plan'!

 

[PatrykM]

HI thanks for your work, I start to observe what is going on on the market, also reading forex military school now working with lines and reading Tom DeMark book which you reccomend and tomorrow I will start learn japanese candlestick ofcourse still continue learning lines
With each topic it becoming more and more interesting for me, thanks once again.

 

[onenikos]

Just to get the pix right with the Greek debt vs other EU states (and ofcourse total) note that: Lux= 1.99 Tril, Hol= 3.78 Tril, GB= 9,08 Tril, Belg= 1.35 Tril, Austr= 808 Bl, FR= 5.021, Germany= 5.028 Tril, and Greece= 552 Bl. I will not do the addition...leave it to you

 

[stelore]

Dear Sive,
nothing at all about EURUSD???

Few words (not the all analysis...) would have been appreciated

Sorry for the question .................. and thanks for all your job!!!
Kind Regards
stefano