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Forex FOREX PRO WEEKLY, January 28 - 01, 2019

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Jan 26, 2019.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals

    So, yesterday most part of the session everything was calm as we've suggested but, closer to the end of Friday D. Trump has shaken trading society by signing temporal shutdown of US shutdown :)

    Earlier, on Thu, ECB President Mario Draghi warned that a dip in the euro zone’s economy could be more pronounced than thought a few weeks ago, comments seen as signalling a delay in the bank’s first interest rate hike.

    The euro weakened broadly on his comments and fell to a two-month low against the dollar of $1.1289. But on Thursday the single currency recovered, rising 0.3 percent to $1.135.

    “A relatively dovish performance from Draghi was already in priced in,” said John Hardy, head of FX strategy at Saxo Bank. “The overriding issue of the U.S.-China trade talks is keeping traders sidelined on committing to USD trades until the outcome is known there,” he added.

    Markets are pricing in an interest rate rise only for mid-2020 as the euro zone economy is suffering its biggest slowdown in more than half a decade, with no recovery in sight.

    Indeed, a key German business morale indicator fell for the fifth straight month in January.

    The euro, which has traded in a range of $1.12 to $1.16 for the past three months and analysts expect it to underperform in the near term as monetary policy is expected to remain accommodative for now.

    EUR has hit our weekly 1.13 target accurately Friday morning, before rally starts.

    Despite we intend to speak on EUR, a few words on GBP. As we've suggested Cable continues upside action by fundamental and market sentiment reasons that we've mentioned in our updates. As a result our OP target around 1.3185 area has been hit as well.
    Reason for that was the same D. Trump initiative and earlier the Sun publication that Northern Ireland’s Democratic Unionist Party had privately decided to offer conditional backing for Prime Minister Theresa May’s Brexit deal next week.

    Closer to US session open on Friday, market turns attention to next week. The dollar fell on Friday from
    its three-week highs in the previous session, as traders' focus shifted to the Federal Reserve's policy meeting next week when the U.S. central bank is expected to leave interest rates unchanged.

    "While the Fed next week may not sound overtly dovish, its tone might emphasize caution and thus do little to alter very low expectations for policymakers to raise rates this year," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

    Later in the session, U.S. President Donald Trump announced a tentative agreement with lawmakers to end a partial U.S. government shutdown for three weeks. Trump’s announcement briefly pared the dollar’s losses, but traders said the currency reaction was not as strong as expected.

    The agreement called for three weeks of stop-gap funding and a senior Democratic aide said the money the president demanded for a border wall is not included. Trump had previously insisted on the inclusion of $5.7 billion to help pay for a wall along the vast U.S.-Mexico border in any legislation to fund government agencies.

    “The dollar’s reaction has not been super strong because the uncertainty remains,” said Juan Perez, senior currency trader, at Tempus Inc in Washington. “And it’s also a temporary reopening. He was also actually adamant that a permanent solution should be made,” Perez added.

    The shutdown dragged on for 35 days, affecting 800,000 furloughed workers. In one of the many effects of the shutdown, hundreds of flights have been cancelled or delayed at airports in the New York area and Philadelphia.

    Paul Ashworth, chief U.S. economist, at Capital Economics in Toronto, said Trump caved “presumably ... because of the damage the shutdown is having on his own approval ratings, particularly now that the shutdown is beginning to have a wider impact.”

    So, guys, the major event of coming week is Fed meeting and NFP report on Friday, on the 1st of February. The impact of shutdown is yet to be estimated and something tells me that hardly it will please financial society.

    Just a confirmation of this guess-work, Fathom consulting updates its view on Fed policy in 2019 and makes it more dovish. I'm strongly recommend to read it, its not too large, but it brings very important and valuable insight. Here we put just some most interesting extractions:

    "Taken in the round, this position (previous position of Fathom of aggressive 4 rate hikes in 2019 and other strong expectations of US economy) is looking increasingly untenable. Investors have undergone something of a reappraisal in recent weeks, and so must we.
    What we did not foresee, however, was a sudden slowdown in economic activity towards the end of the year, particularly in Europe. Nor did we expect such a dramatic reappraisal of Fed policy, reflected in a flattening of the yield curve, and a 40 basis point reduction in the two-year US Treasury yield from its peak in mid-November. Where does all of this leave our 2019 call?"


    [​IMG]
    [​IMG]
    "The reassessment of global economic prospects that took place during the final months of last year, in the minds of investors at least, looks to have been driven by:

    1. Fears that there would be an end to cheap money, as the Fed continued to tighten at a steady pace
    2. Fears that escalating trade disputes would seriously harm global growth
    3. Fears that a sharp, domestically-driven slowdown was in train in China
    As a consequence of the above, and although there remains some disagreement regarding the cause, the idea that there will be a global recession, either this year or next, is now close to consensus. We have warned clients of just such an outcome for almost a year. Specifically, we have been concerned that an overheating US economy would trigger a monetary policy tightening sufficient to tip the US into recession. With the policy tool cupboard almost bare in most major economies, the rest of the world would follow suit. The fact that the consensus has shifted so decisively in our direction has caused us to pause for thought."

    [​IMG]

    "We have changed our Fed funds rate forecast. We no longer look for four hikes this year, and instead expect only two, probably in June and December."

    "If the FOMC does slow the pace of tightening, as it has indicated, then we could see a meaningful rally in equity markets during the first half of this year, as fears that escalating trade disputes would seriously harm global growth start to fade. In this world, there is time for one last party. Indeed, the party may already have begun."

    For us, every conclusion of this article is important. Still, we're mostly are interested in estimation of long-term direction on EUR/USD based on fundamental background. It is clear that ECB policy stands anemic, showing total lack of initiative. I do not know how this will change in the future, but currently the obvious statement is ECB has no major impact on EUR/USD rate, except for negative one.
    Thus, it means that rate probably will be driven mostly by things that already have been priced-in the rate and by changing of investors' opinion on these things. Mostly these things are USD fundamental background in all spheres of US political and economical life - China relations, domestic political turmoil, US economy statistics, Fed policy etc.
    Currently, despite that Fed policy forecast was qualified a bit to just double rate hikes in 2019, this is still more than market expects. Sooner or later, when it comes to surface - this should provide additional dollar support. Also we need to take close look at first 2019 statistics, as result of shutdown becomes visible.

    First hints we could get already on next week, on J. Powell press conference. In general, despite what will happen in US, it seems it still holds dominant role and EU is dependent variable of US ongoing processes. Thus, at current moment, USD positions looks preferable compares to EUR in perspectives of 3-5 months.

    Technicals
    Monthly



    Despite high volatility of the market last week, EUR holds inside the monthly flag pattern and our long term picture mostly stands the same.

    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_28_01_19.

    Weekly

    On weekly chart market still keeps dual setup. This week has bullish sentiment while previous week was bearish, but it stands in a row with recent consolidation and makes no significant impact on the chart. Weekly ranges are overlap on 70%. 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.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. Precisely this type of action we do not see yet. 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_28_01_19.

    Daily

    On daily chart market behaves so as it knows what Fed will say and this should be something really dovish. Anyway, upside momentum of Friday action is strong and we could try to use it in the beginning of the week.

    Market stands not at Overbought and we've got two bullish signals. First is classic engulfing pattern, second - fake breakout of the trend line. Both suggest some upside continuation.

    Finally, upside reversal has happened right at MPS1 and price moved above MPP, which also looks bulilsh. MPR1 stands 1.1530 area.
    eur_d_28_01_19.

    Intraday

    So, combination of bullish reversal pattern here, on 4H chart and bullish engulfing pattern on daily, lets us count on deep retracement on Monday, guys, and, consequently, on reverse H&S pattern. So, our first trading setup is waiting for retracement to WPS1 and 5/8 Fib support, also watching for "222" Buy pattern.
    eur_4h_28_01_19.

    Another setup is just minor add-on. Since upside action was rather fast - we also could get hourly B&B "Buy" setup. It's not the fact that it will be formed, but it could. DRPO "Sell" is also possible instead, as we expect that deep retracement will be formed.

    eur_1h_28_01_19.

    Conclusion:

    Investors and analysts across the board make adjustments of their previous forecasts of economic fundamentals and make them softer. It seems that EUR/USD will be driven by mismatch of what has been priced-in with current EUR/USD rate and what we will get in reality.


    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. Venelin

    Venelin Master Sergeant

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    Hi Sive and all, here is my 2 cents on the euro. Price is still contained in channel and tomorrow i will be watching closely the Daily close for possible stop grabber: 2019-01-28 13-18-49.
     
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  3. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning everybody

    So, let's take a look at EUR again. In weekend we've discussed our trading plan and first step should be downside pullback. As we could see, EUR has not started retracement yet and continued upside action on Monday.

    Still, it comes to solid resistance area, and retracement could start today. On daily chart this is 5/8 Fib level.
    eur_d_29_01_19.

    On 4H chart unfortunately we do not have any clear upside AB-CD's, so it is difficult to estimate possible target of upside action. But, we have alternative way - we use extension of previous leg down. As you can see, market reacted on 1.27 level, while 1.618 coinsides with the same 1.1460 area. Here also we have WPR1.
    eur_4h_29_01_19.

    On 1H chart the only pattern that we could recognize is potential 3-Drive "Sell". So, may be it will trigger downside retracement, that we're waiting for. If it will be 1.618 3-Drive, then its 3rd drive stands precisely at the same 1.1460 area:
    eur_1h_29_01_19.
     
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  4. greaseball

    greaseball Private

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    I have this awful feeling this is a bit of a bull trap. Reasoning:
    1. Weak Dynamic pressure on weekly TF
    2. Major 61.8 support on monthly held on first test. I always except wash and rinse of these areas before actual reversals because so many retail traders would hide stops under there.
     
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  5. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    So, EUR doesn't show something new. Our intraday 3-Drive has worked, but retreacement was minimal and EUR has not reached yet major 5/8 resistance level.
    That's why today we will take a look at our NZD scenario that we're trading within recent 2-3 weeks.

    Last time, when we talked about NZD - we've discussed bearish engulfing pattern on weekly chart, which suggested deeper downside retracement. But, as market now stands above its top, this pattern mostly is cancelled.
    Our major scenario here is huge bullish grabber that should lead market to 0.71 area:
    nzd_w_30_01_19.

    On daily chart we have important 0.69 level. This is combination of Pivot Resistance1 and major daily COP target.
    nzd_d_30_01_19.

    It is interesting that intraday charts also point on the same 69 area. Thus, on 4H chart we have smaller AB-CD with the same target and butterfly pattern:
    nzd_4h_30_01_19.

    While on 1H chart we have the same reverse H&S pattern. OP targe has been hit, but due reaction on this target, we suggest that market has good chances to go to XOP next, which also stands in the same area:
    nzd_1h_30_01_19.

    Of course, the distance of upside action mostly will depend on dovishness of Fed statement. NZD is not very volatile currency, so 50+ pips is normal reaction, if Fed will support upside trend.
     
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  6. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    So, Fed indeed has provided dovish statement that pushed USD down. As a result, as NZD as EUR move up and hit short-term targets. Now let's appoint another ones.

    On EUR, market is coming to 1.1530-1.1550 area which is historically important. Although it incudes MPR1 and OB level, but major value is natural support/resistace area since May 2018. Thus, today we should treat it as possible ceil.

    Next short-term target is 1.1585 Fib resistance. Depending on NFP data this level could be hit either tomorrow or next week.
    eur_d_31_01_19.

    On 4H chart we come to the same 1.1565-1.1580 area. Here we have OP target that creates Agreement with daily Fib level.

    Market just hit COP target, so, minor pullback is possible, but I'm not count on deep retracement. Most probable it will be nearest 3/8 or 5/8 Fib supports. COP has been hit fast, and we have good upside momentum as on AB leg as on CD leg. Thus, chances are good for upside continuation to OP:
    eur_4h_31_01_19.
     
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  7. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    So, quiet session is finished, now we again are coming to volatility - NFP stands on the horizon today. It will be very important NFP, because it is the first one after Fed policy adjustments. Market expects 165 K and 3.2% y/y of wage inflation. If you bet on NFP statistics - these numbers are average expecations today.

    On daily chart we have nothing really new. Yes, indeed pullback to 1.1430 that we've discussed yesterday has happened:
    eur_d_01_02_19.

    As we've esimtated yesterday. Technically, this was reaction COP target. Our K-support area that we've appointed as possible target also has been hit.
    Now, if we wouldn't have any NFP today, I would say that we have bullish setup and level that suitable for long entry. It is strong enough to push market up at least for 30 pips. And this, in turn, is enough to move our stops to breakeven. So, oversall setup is not very risky.
    But, in current circumstances - NFP drives market and it makes overall situation is more risky for trading.
    Anyway, if market is really bullish - it will stand above this area and continue upward action. Breaking of K-support and drop below "C" point will cancel short-term bullish setup, erase our AB-CD pattern and creates bearish reversal swing.
    eur_4h_01_02_19.

    Here is how retracement could be over. We have small H&S pattern at top and XOP target stands at 1.1426, creating Agreement support with 4H K-area. Downside action could be finalized by 1.618 butterfly - perfect setup for long entry.
    So, if you're searching chances to buy EUR - you could think abou this setup:
    eur_1h_01_02_19.
     

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