Forex FOREX PRO WEEKLY, July 01 - 05, 2019

Sive Morten

Special Consultant to the FPA
Messages
12,727
Fundamentals

This week was relatively quiet, the whole market and EUR in particular spends time in very tight range. If somewhere we had some setups - they were mostly short-term and tactical. Low volatility on the FX market is not something new - it is dropping since the last year, and now it becomes the factor that investors pay more and more attention to.

It is needless to say that silence on the market was due lack of important statistics and mass expectation of G20 results and news. Definitely there is a lot of new information ahead. Personally for me the shock news is that V. Putin takes tea in its own thermos mug. This is silent scandal, just imagine what does it mean and what shadow this incident puts on Japan as invite side. It is serious reasons stands behind and promise nothing good to them.
But official news - is restarting of US/Sino tariffs negotiations. Our soap opera continues. Anyway, restarting of conversation doesn't mean the deal. Negotiations between the world’s two largest economies have been fraught, however, and traders and analysts caution that a resolution at the G20 summit is far from certain.

“I’m personally quite pessimistic on any deal being made,” said Jordan Rochester, G10 forex strategist at Nomura. However, any falls in the dollar are unlikely to become sustained and so “the euro at $1.14 is a sell,” Rochester said.

This story gradually turns to some backstage noise as it shows no visible impact on US economy, working more like a theoretical factor, but somehow everybody sure that it definitely makes negative impact. Thus, it seems that the line of US dollar bearish factors becomes thinner. And now we have just two of them - Iran turmoil and Fed dovish policy. Iran topic is done - as we've said nothing happens. Eliminating of US/China tension should bring some relief as on Gold market as theoretically on EUR, because it was rising as well on a background of potential weakness of US economy due tariffs . At least this is how investors were treating this.

Friday PCE data was in a row with expectations but markets still take it as confirmation of rate cut in July.

The core U.S. personal consumption expenditure price index rose 0.2% in May, as expected, reinforcing investor expectations that the Federal Reserve will cut rates by 25 basis points to 2.25% at the next meeting.

“In the big themes today, the data doesn’t change the July cut,” said Kenneth Broux, head of corporate research at Societe Generale.

While inflation expectations in the United States and Europe have declined in recent weeks, as measured by forward-starting swaps, U.S. gauges have stabilised after the Federal Reserve opened the door to rate cuts last week.

In comparison, policy interest rates in Europe are already in negative territory and Europe’s most widely watched measure of inflation expectations - the five-year, five-year forward rate - has started declining again.

“The elbow-room for the ECB to ease policy is far more limited than the (U.S.) Fed and that is weighing on the euro,” said Esther Reichelt, FX strategist at Commerzbank.

Now is about volatility - take a look the chart first. FX market volatility stands at record lows.

Currency volatility near 4-1/2 year lows

Some trading veterans said it reminded them of conditions before the 2008 global financial crisis erupted.

Deutsche Bank’s Currency Volatility Index has declined since 2017 to its lowest in 4-1/2 years and currently stands at about two-thirds its levels of early 2019 and less than half the peaks of three years ago.

Low ‘vol’, shorthand for implied volatility gauges embedded in options markets, reflects relative order in exchange rates — markets without the big pricing gaps that offer money-making opportunities and increase demand for hedging products.

Just how resistant currency markets are to shake-ups was evident on June 18, the day European Central Bank President Mario Draghi shocked markets by signalling more rate cuts may be coming. He sent 10-year German bond yields to record lows, while French borrowing costs fell below 0% for the first time and European shares jumped 2%.

But the euro? It slipped 0.4%, a tiny move by historical standards and only its fourth-largest daily change in June.

Euro/dollar, the world’s biggest currency pair, has not traded below $1.10 or above $1.16 since October, a range of little more than 4%, even with trade war and recession threats and the U.S. Federal Reserve’s U-turn on interest rates.

In contrast, volatility in U.S. Treasuries has surged to its highest since April 2017, while the equity market “fear” index VIX remains above multi-year lows plumbed in 2017.

“The Fed is totally in play and rates are moving drastically and there’s no translation to FX. It’s odd to see,” said Russell LaScala, Deutsche Bank’s co-head of foreign exchange. “It’s become this very sleepy asset class.”

One question is whether this unusual calm could end in panic, as in March 2008 when Deutsche’s volatility index rocketed to over 12, after spending most of 2007 stuck below 7.

Options show little sign of that. One-year implied euro-dollar vol has slumped to 6, from nearly 8 in January.

But while there’s no shortage of political and economic uncertainties arguing for a volatility resurgence, the change of market behaviour could sow the seeds of its eventual end. Mostly low vol leads to decrease volumes of hedge trades, increasing "sell" options strategies to earn the options's premiums while market stands in predefined range.

Low volatility has been bad for bank earnings. Daily average currency trading volumes have been down about 10% annual from last year in recent months on platforms such as CLS.

“You can’t make any money out of something that doesn’t move. Low volatility is fine but very low volatility is not,” said Richard Benson, head of portfolio investments at asset manager Millennium Global.

With investors on the sidelines, traders are spending more time at client lunches and less time transacting.

James, an FX trader for a British bank who asked for his surname not to be used, sometimes listens to music at his desk.

“Looking at these stubbornly stable prices on my screen ... It’s like watching paint dry,” he lamented.

Despite that vol is dropping for considerable time already - we suggest that this is temporal moment. US is coming to elections and any result - as D. Trump win ( as we sure will happen) as D. Trump loss should make a lot of political noise and volatility will rise. Closer to the end of 2nd term of D. Trump presidency we expect big collapse on US Dollar and shake for the global currency system, so keep an eye on Gold...

CFTC data puts the doubt under recent EUR rally as net short position has increased slightly this week. Actually short position has not dropped too much, even on recent upside rally. It means that investors are skeptical on upside reversal and doubt on the term of this rally. This data doesn't let us to conclude on positive mood on the market.

upload_2019-6-29_12-52-56.png

Source: cftc.gov
Charting by Investing.com


Finally, fresh comments on recent ECB decision from the Fathom Consulting.

Fathom’s Economic Sentiment Indicators (ESIs) distill GDP numerous measures of economic confidence into a single composite indicator for each economy. In May, the euro area ESI rose to 0.5%, up from 0.3% in the previous month, although the indicator remains some way below the levels we saw through 2017 and the early part of last year.



Encouragingly, the ESIs for the currency bloc’s four largest economies all firmed last month; the indicator for Italy rose 0.3 percentage points and climbed out of negative territory for the first time since January.

Euro area GDP growth rebounded to 0.4% in the first quarter of this year and, while the currency bloc may struggle to maintain this rate for the remainder of the year, there are signs that growth has stabilised, and that the expansion is likely to continue.

Nevertheless, core inflation remains weak and continues to hover around 1%. This weakness looks to have pushed the ECB towards action and in a dovish speech last week, the central bank’s President Mario Draghi signalled a potential change in policy stance. While previous forward guidance had suggested that the central bank would act if the outlook deteriorated, Mr Draghi stressed a need to act unless inflation rises. Following his remarks, bond yields fell across the currency bloc.

While rising wages and tight labour markets suggest that underlying inflation will eventually firm, it is likely to remain substantially below target in the near term and
Fathom now expects the central bank to act sooner rather than later.



If the central bank does to choose to ease, then it retains a number of options ranging from pushing out the expected timeline for future rate hikes, to cutting the deposit rate further, or even bolder moves such as restarting asset purchases or cutting the main refinancing and marginal lending rates.

Technicals
Monthly


As you understand, quiet standing brings nothing new to our technical view, especially on longer-term charts. We hope that coming NFP data, IIQ GDP in July and Fed meeting will shake the market a bit.

Monthly chart creates no new range and stands inside one that was formed in the beginning of the month. So the intrigue still stands around major support where price stands right now.

Our nearest culmination point is Fed July meeting which should clarify whether we right or wrong in our hypothesis. Our plan (according to fundamental issues) tends to idea of downside breakout.

As we've said last week, changes are still look insignificant, trend stands bearish. Monthly chart is rather large and any upside action will have retracement feature, until 1.26 area breakout. The first meaningful resistance here stands around YPP of 1.1740 area, which approximately agrees with 3/8 Fib resistance.

eur_m_01_07_19.png


Weekly

Just take a look at the range of this week and everything becomes clear, nothing new we could say on weekly chart as well.

Price still stands around nearest Fib resistance level on 1.1376

As investors hew to Fed policy, we keep scenario with potential bullish reversal pattern on weekly chart, first time we introduced few weeks ago. This is reverse H&S pattern. As road to the head's bottom was choppy as upside road to neckline also could be choppy.

Weekly trend stands bullish and market hits our first Fib resistance level of 1.1376. Still, major upside target is neckline around 1.16 K-resistance area.

The specific of H&S pattern is its dual character. It keeps door open for both scenarios. Upside scenario is based on reverse H&S while downside scenario could be confirmed by its failure, which happens around Right arm bottom. But now we're on the way to the neckline.

eur_w_01_07_19.png


Daily

Daily chart shows bore picture at first glance. Flat standing for the whole week, forming inside sessions. Still, what we really could get from this? First is, standing in tight range means contraction, the process of energy building which sooner rather than later should lead to expansion - energy relief. It means that stand at the eve of breakout. in fact, the shape of the flag tells the same. Besides, all candles inside the flag are high waves.
Second - too weak reaction on strong daily resistance. Market has not reached even 1.1320 area, which is not too deep and absolutely natural comfortable support in current situation. We were waiting for the whole week when market shows this final downside swing, but this has not happened.

Although we've applied 3-period rule and called to not keep any shorts anymore, but current situation mostly tells on indecision or waiting for something. Speculative short positions were increased this week. This is the game till the breakout as market will follow in the same direction. Standing inside the flag gives us no suggestion on direction. It means that we will have to act right in the moment of breakout or when it already will happen. July Pivot stands at 1.1313
eur_d_01_07_19.png



Intraday

It is very difficult to offer something here. "222" Sell pattern, which was formed is almost done as minimal target has been hit. I keep OP @ 1.1325 for some case, if AB=CD pattern still will be formed. Overall situation leads us to following conclusion - conservative approach suggests do nothing until breakout. For active traders we see only one way. As we do not have any patterns inside the flag, stop entry orders could be used outside its border. Thus, "Buy Stop" order could be placed slightly below A point, while "Stop Sell" - around "B" point. That should led to step in during breakout.

Alternatively, as overall technical picture doesn't look very attractive on EUR, you could search more transparent setups on other currencies.
eur_4h_01_07_19.png


Conclusion:

EUR/USD situation now is more interesting in long-term perspective, while in short-term perspective it doesn't show any clear setup yet. As a result, our today's report is mostly dedicated to fundamental issues.


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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Deltoid88

Sergeant
Messages
167
Update on EUR. Wave 3 looks completed, and we are now in wave 4. Although price action to downside was slow I think there is still room to downside, and that wave 4 is not completed yet. Since wave 3 was shorter then wave 1, that means wave 5 will be shorter then wave 3, because of the rule that wave 3 can not be shortest one. That caps gains to upside by length of wave 3. Exact price will be known when wave 4 to downside finishes. Look at charts bellow.

Daily chart: We are now in wave 4 of wave C of red wave B which is upside correction on large, red wave A. Strong bearish action could start in 1.145-1.1550 zone when red wave B will be completed and red wave C should start with targets under 1.1106 lows.

EURUSDmDaily.png


1H chart: Here I want to show what shape wave 4 is forming in my view. I think that we have just completed complex wave B of wave 4 which had shape of WXY correction. That explains why EUR did not proceeded lower sooner, but should proceed lower now. Target zone for wave C of wave 4 is 1.1285-1.1325, and that is zone where bullish action in wave 5 should start.

EURUSDmH1.png


How to trade this?

1st position: Short entry in zone = 1.137-1.1385, SL1=1.1395, SL2=1.1415, TP zone = 1.1285-1.1325
2nd position: Long entry in zone = 1.1285-1.1325, SL=1.1180, TP zone = 1.1450-1.150
 

Deltoid88

Sergeant
Messages
167
Update on EUR. Wave 4 looks completed now. It had shape of WXY complex correction. Wave W - ZigZag, Wave X - WXY correction, wave Y - ZigZag. My expectations are that wave 5 should start immediately, all important extensions have been hit, and fib levels as well.

1H chart:

EURUSDmH1.png


How to trade this?

Long entry in zone 1.1285-1.13, SL zone = 1.1180-1.1250, TP zone = 1.1420-1.1485
 

Sive Morten

Special Consultant to the FPA
Messages
12,727
Morning guys,

Let's keep up with the EUR. Indeed, new week has brought clarity, as we've suggested due some results of G20. Our count was correct, as D. Trump has talked on reboot of tariffs talks - market excludes this driving factor and play EUR back down a bit.

Still, overall retracement is deeper than perfect 1.1320 area. In fact, market stands at our vital point. From here EUR should go up, if it is bullish indeed, to 1.1550 destination. Breaking this level down in medium term perspective could lead to downside continuation and breakout of weekly 1.1185 support. So this is important moment for the market:
eur_d_02_07_19.png


On 4H chart you can see this K-support, which is also Agreement, as EUR has completed downside XOP. Now we have '222" Buy in place. As you understand, this level is strong enough to hold any retracement, if market is really bullish. If price breaks this level, it means only one thing - market stops to be bullish.
This lets us to place relatively tight stops, just below this level.
eur_4h_02_07_19.png

In addition to 4H setup, we could wait for some bullish reversal pattern on 1H chart. Here we have minor AB=CD pattern, which is completed as well. Currently nothing is formed yet. BC leg is respect of our 1st K-support, 1.1320.
eur_1h_02_07_19.png
 

Sive Morten

Special Consultant to the FPA
Messages
12,727
Good morning,

So, EUR shows upside reaction on our major support area of 1.1268-1.1290, but it was not too strong. Our entry was safe as bounce 40 pips was done, but now market turns back again. The picture that we see on GBP also doesn't add optimism.

On daily chart we do not see yet the reaction of the market that reverses upside. After first bounce price drops back where it was. So, the question on upside trend continuation still stands open. Trend here, on daily, stands bearish. Now it is big stake on the table, which depends on this level. Not just upside continuation but big weekly bullish reversal pattern as well:
eur_d_03_07_19.png


On 4H chart we have our major level, which is also our indicator. K-support and Agreement is strong enough to hold any retracement, if market indeed is bullish. Breakout of this level puts the shadow on bullish sentiment, and increase odds on downward continuation. At the same time level holds by far, and it is rather wide, giving market room to breath. Although we have the grabber here, this is not the final verdict yet.
eur_4h_03_07_19.png


For example, we could get butterfly pattern on 1H chart:
eur_1h_03_07_19.png


At the same time, for truth sake - I do not like situation on GBP. Our major 1.2611 area and Agreement has been broken, and it means that 4H H&S pattern coming to failure. In such situation it is difficult to suggest rally on EUR. Yes, divergence between EUR and GBP has increased now, but still they make impact on each other.
In fact you could either close position at breakeven (if you took it yesterday) and watch what will happen, maybe re-enter later. Or, let market to breath and move stops lower, to let butterfly pattern been formed.
Personally, I prefer first scenario, especially on background of GBP situation.
 

Deltoid88

Sergeant
Messages
167
Update on EUR. EUR looks ready to push higher. I think that we have reached bottom in wave 4 on 1.1268. Wave C turned out to be impulsive structure, not ABC like I suggested in my previous post. However, result should be the same. Wave 5 looks like it has started, and its targets are above 1.1415.

1H chart:

EURUSDmH1.png


How to trade this?

Long entry in zone 1.128-1.13, SL=1.1267, TP=1.1420
 

Deltoid88

Sergeant
Messages
167
Update on EUR. This is also very likely scenario at this moment. Stop loss levels for long positions should be moved to 1.1180. This scenario suggest that real upside action will start from 1.1235 level.

1H chart:

EURUSDmH1.png
 

Deltoid88

Sergeant
Messages
167
Update on EUR. I think that wave 4 is finished at 1.1268, and that is now ready to push higher to 1.1420 level. Reason I consider this as most probable scenario is wave count on 5 min chart. Look charts below.

1H chart:

EURUSDmH1.png


5 min chart: Wave 1 had shape of leading diagonal, and deep wave 2 followed. Now wave 3 of wave 5 should start going over 1.1320 easily.

EURUSDmM5.png


How to trade this?

Long entry in zone 1.1280-1.13, SL=1.1267, TP=1.1420
 

Sive Morten

Special Consultant to the FPA
Messages
12,727
Morning guys,

Today is US holiday and tomorrow we will get NFP data release, so no activity will be on the market today. Now we have just few moments to discuss on EUR. Recent ADP and sentiment data was mixed. Nothing really bad but also not impressive.

Currently on the EUR I do not like market's reaction on strong support. Daily chart shows no changings. Usually, when bullish markets hits major support - it turns up again rather fast. But here we have three days around our level. Besides, market has made two attempts to start upward action but they have failed:
eur_d_04_07_19.png


These attempts we could see here. First one was on Monday and second was yesterday, but market still stands below MPP. Our yesterday suggestion was correct. Indeed, market grabbed the stops but still stands inside K-support area.
Second thing that I do not like here is a sign of bearish dynamic pressure and appearing of bearish flag pattern. MACD shows bulltrend but price is forming lower highs and bottoms.
eur_4h_04_07_19.png


As we already have made an attempt to go long at first touch of this level and 40 pips bounce have happened - in current situation I do not want to do second attempt by far. Yes, NFP could become a driver if we will get drop in wage inflation, but pure technically market looks week and context is not sufficient for immediate long entry.
 

Deltoid88

Sergeant
Messages
167
Update on EUR. Price action is too slow to upside for this to be part of bullish wave 5. I still expect bounce, but it looks like we are not there yet.

1H chart: Wave 3 of wave C of wave 4 was expended, had 5 waves in it. After that wave 4 developed in triangle pattern, and now it looks like EUR is ready to print bearish wave 5 of wave C to finally complete wave 4, so that bullish wave 5 can start. Rectangle zone is likely zone for bullish reversal with obvious stop loss on 1.1180.

EURUSDmH1.png


15 min chart: More detail wave count in triangle wave 4.

EURUSDmM15.png


How to trade this?

Scalp sell entry in 1.1380-1.1385 zone, SL1=1.1312, SL2=1.1361, TP zone = 1.1235-1.1262
Main position, long entry in zone = 1.1235-1.1262, SL=1.1180, TP = 1.1420
 
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