Forex FOREX PRO WEEKLY, July 08 - 12, 2019

Sive Morten

Special Consultant to the FPA
Messages
12,727
Fundamentals

So first July week is over. Despite it was short due Independence Day in US, we've got some important information for our long-term setups as on EUR as on GBP. Everything is twisted around recent statistics, because right now it depends on numbers whether we right or wrong.

Let's start with GBP first, as it is more simple situation around it. Last week we put extended discussion on UK fundamentals and updated our long-term view on GBP. Although major points of our conception are valid, we brought some new details. In particular, investors do not believe to BoE and have different, more dovish view, despite BoE comments. This week we've got fresh data which supports our long-term bearish view. Next week UK will release GDP numbers for June that also promise to be important.

As Reuters reports - Sterling and gilt yields fell on Wednesday as economic data reinforced money markets’ view that the Bank of England would join its central bank counterparts in cutting interest rates to shore up a worsening economic outlook.

The U.K. composite purchasing managers’ index fell to 49.7 in June from 50.9 in May, slipping into contraction territory for the first time since mid-2016 due to gloomy manufacturing and construction PMIs. Services PMI just stayed around 50, coming in below-forecast

The data “underpins the type of concerns that (Mark) Carney is projecting,” said Jane Foley, senior forex strategist at Rabobank.

“The 90 level (in euro-sterling) looks a little more vulnerable than it did before,” said Foley, noting the level had been unsuccessfully tested recently. “Psychologically, 90 for euro-sterling is very important.”

UK government bond yields fell sharply on Tuesday after BoE Governor Mark Carney flagged uncertainties stemming from trade disputes and Britain’s departure from the European Union.

Markets interpreted the comments as dovish, pushing 10-year British government bond yields under the BOE policy rate of 0.75% for the first time in a decade. Participants have nearly priced in a 25 basis-points rate cut in the next 12 months.

In another sign of market concern, two-year yields fell below the five-year one for the first time since August 2008, a curve inversion that can herald an economic downturn.

“It looks like the BoE is lining up a more realistic view on Brexit. If Brexit is delayed again it looks like Carney is potentially teeing up a rate cut,” said Colin Asher, senior economist at Mizuho.

Markets also remain concerned over Britain’s chances of striking a Brexit withdrawal deal with the EU before the Oct. 31 departure deadline.

The governing Conservative Party is due to name either Boris Johnson or Jeremy Hunt as its new leader on July 23, but analysts say whoever then becomes prime minister is unlikely to have enough time to renegotiate a deal with Europe before the Halloween deadline.

The new prime minister would also have to deal with Ursula von der Leyen, the German nominee to become European Commission president. Von der Leyen has been scathing about the referendum campaign run by Brexit-leaning UK politicians.

“It looks like she isn’t going to give an inch in respect to” the new British prime minister trying to renegotiate a deal with Europe, said Rabobank’s Foley.

So, it seems that Brexit negotiations could go harder if Von der Leyen will become EC President. All these new perfectly match to our long-term puzzle and keeps long-term bearish view valid.

Now let's turn to our second topic - change in Fed policy, recent NFP data and EUR/USD.

The U.S. dollar gained against a basket of currencies to its highest levels in 2-1/2 weeks on Friday after data showed that U.S. job growth rebounded strongly in June.

Non-farm payrolls increased by 224,000 jobs last month, the most in five months, and well above the 160,000 jobs forecast by economists.

The strong gains came after job growth slowed sharply in May. The economy created 11,000 fewer jobs in April and May than previously reported, the government said on Friday.

“You look at the U.S. number for today and there’s quite a bit of sticker shock with that,” said Bipan Rai, North America head of fx strategy at CIBC Capital Markets in Toronto. “We think the sticker shock and thin liquidity is enough to drive the dollar a little bit firmer for today.”

The data came as many traders and investors were away, a day after the July 4 holiday and ahead of the weekend.

Moderate wage gains in June, however, added to evidence that the economy is slowing while the increase in jobs was not enough to offset weakness in May.

“You did get a massive upside surprise but again that’s coming after a month in which you had a massive downside miss,” Rai said. “If you take the two numbers together you are still averaging at a clip that’s slower than prior years’ growth.”

Average hourly earnings rose 6 cents, or 0.2%, after gaining 0.3% in May. That kept the annual increase in wages at 3.1% for a second straight month.

The dollar has weakened from a two-year high reached in May on growing expectations that the Federal Reserve is closer to cutting interest rates.

U.S. economic growth continued “at a solid pace” in the first half of the year though it likely weakened in recent months as higher tariffs depressed global trade and business investment weakened, the Fed said on Friday in its semi-annual report to Congress.

The euro also came under pressure on Friday after data showed that German industrial orders fell far more than expected in May, and the Economy Ministry warned that this sector of Europe’s largest economy was likely to remain weak in the coming months.

A relentless slide in European government bond yields has forced investors to look for higher-yielding assets elsewhere, which is holding back a sustained euro rally against the greenback.

The data that we've got perfectly match to our concern on Fed policy, that we've discussed two weeks ago. Guys, if 160K net NFP and 3.1% of wage inflation is bad data - what would you call as good data? The story repeats as market again was waiting for 0.1% inflation more than it was. This happens again and again and every time TV tells that data misses expectations and this explains that it is bad. We still think that this is absurd.

Now market prepares to IIQ GDP report in July and next Fed meeting on 31st of July. Next week seems as not very important but we will get FOMC meeting of last June session and different US inflation data. So, it also is interesting.

Finally, last week we've said, it is interesting what Fathom thinks on our suggestion that US economy is not in recession and Fed should not cut the rate by purely economical reasons. Here is what they think:

We think that investors are overestimating the probability of the Fed cutting rates this year (one 25 basis point cut now seems possible, although not three as priced in by the market) — last week’s ESI reading supports that view. Admittedly, inflationary pressures have remained somewhat subdued and we think that GDP growth is set to slow from an annualised pace of 3.1% in Q1, but we do not think that it will slow enough to warrant a rate cut, or to spur the Fed into imminent action, as many investors seem to expect.


So, Fathom takes careful position. In general, it agrees with our doubts but in longer-term perspective. Indeed, according to CME Fed watch tool, market shows 95% expectation of rate cut in July. As it stands too few time till the Fed meeting, it is difficult to take opposite opinion and state that Fed will not cut the rate. It is even more difficult, knowing that Fed tries to follow the market when it is possible. But, still I think that flat decision in July is still possible as no objective reasons stands for rate cut now.

In longer-term perspective we see clear signs of USD undervalue as market is priced-in too dovish Fed policy. Thus, NFP test has passed and I would treat it's result as supportive to our view rather than contradictive. But major tests are still ahead - GDP and Fed meeting.

Technicals
Monthly


As you understand, quiet standing brings nothing new to our technical view, especially on longer-term charts. We hope that coming 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_08_07_19.png


Weekly

Our longer-term patterns here stand the same as no major breakouts have happened.

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.

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.

Meantime, we've got clear Evening star pattern. As markets still have two weeks till major events, EUR could spend this time working with this pattern. It suggests downside continuation, which usually takes the shape of AB=CD pattern on daily/4H chart.
eur_w_08_07_19.png


Daily

This week EUR confirms our doubts of upside continuation as market's behavior doesn't match to common bullish market action. As a result, price has dropped below all major intraday support levels, including our major K-support and Agreement around 1.1280 area. This makes difficult to treat current market as bullish.
The only bullish hope that we could find here is harmony. Price shape to the left and right shows mirror action, and recent drop repeats mirror action to the left. So, keeping this choppiness EUR theoretically could keep upside direction. But, as you understand this is not sufficient background.

Thus, next week we think we could try to play weekly candlestick pattern. Now EUR stands at major daily support, MPS1 and near daily oversold. Since market was relatively thin this week, the next one should start with upside bounce:
eur_d_08_07_19.png


Intraday

We have two levels that are suitable for short entry. First one is K-support around WPP 1.1277-1.1284, and second one is 5/8 resistance around WPR1 and 1.1330 level. Right now we do not have yet any reversal patterns on 1H chart.

On Monday morning EUR could drop a bit more first, just to complete OP target and then start retracement up. It is not forbidden, as usual, taking any long trade, if you see good background, but scale of this trade is too small for periods of our updates. Thus, we mostly keep an eye on daily/4H setups and here our context is bearish. We intend to use possible upside bounce for short entry but do not trade it.
eur_4h_08_07_19.png


Conclusion:

Recent NFP data supports our doubts on Fed dovish policy and shows that market undervalues USD, pricing in too dovish Fed policy.
Now EUR has two weeks of "free action" till major events and we could focus on tactical setup, which is weekly bearish candlestick pattern.


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

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

EUR confirms our doubts on bullish perspective as reaction on daily support looks weak and no signs of reversal is forming. Yesterday it was inside session. Usually, bullish market ends retracement fast, quickly responses on support areas. We do not see it right now.

Besides, our GBP setups works well and Cable is tending lower, 4H H&S has failed. This is indirect indicator that EUR could follow it:
eur_d_09_07_19.png


On 4H chart we have OP slightly below the market, so let's see whether some response will happen, as soon as it will be reached. But, anyway, we do not expect some revolution, and expect just tactic bounce up, if any.
This week we will get FOMC minutes of June session and CPI, PPI data. May be it brings some volatility. Actually now we do not have any clear patterns on EUR.
eur_4h_09_07_19.png


On 1H chart triangle is forming, showing signs of bearish dynamic pressure:
eur_1h_09_07_19.png


Currently we do not have any reasons to go long on EUR. Let's see whether we will get any reaction on 4H OP. If EUR will form some bearish continuation patterns, such as "222" Sell, it will be possible to take short position. Currently we do not have clear bearish patterns as well.
 

Robban68

Corporal
Messages
95
Both EUR and GBP in an support area. Could be worth a bounce for ~100pips. GBP in a possible wave III leg, then a bounce to->leg IV~1.257, and then a final -> leg V 1.235, before a larger correction.
At least a plan....
 

Sive Morten

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

So EUR doesn't show too much activity. Personally I suspect that investors have some doubts on dovish Fed perspectives and take "wait and see" position. It seems that nothing revolutionary will follow until the end of the July. Today we have two important issues - UK GDP release and J. Powell speech+Fed minutes June protocol.
This could add some volatility on US session.

On daily chart, indeed, EUR drifts slightly lower but stands above "C" point which is important for us. If EUR will drop below it - it erases AB=CD pattern and forms bearish reversal swing. Actually, standing below 5/8 Fib level is already negative moment, but as price is not too far from it, we let it to breath.
eur_d_10_07_19.png


On 4H chart our suggestion was correct and market has dropped lower a bit due bearish dynamic pressure, but OP target still stands untouched. It means that another drop down should happen. This price action reminds 3-Drive Buy pattern:
eur_4h_10_07_19.png


As you know 3-Drives very often consist of two side by side butterflies. Thus, on 1H chart we could get one:
eur_1h_10_07_19.png


So we have weak bullish setup here. If you really want to buy EUR - you could try to work with it today. No clear bearish setups exist right now. But, for truth sake, bullish setup is for minor pullback only. Currently we do not see it potentially could turn EUR to upside trend, maybe to minor retracement only. Overall situation on EUR is not very attractive for trading. Too low volatility, too blur patterns.
 

Sive Morten

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

Indeed, the only external driving factor was able to push market higher. This was a J Powell comments. In general, things that he has said agree with short-term market expectations and no doubts on July rate cut exists right now. But, also he was positive on US economy situation in general. As we see some mismatch between dovish Fed policy and US economy data, we suggest that rate cut will be single issue, with no dovish rate cut cycle. This is a compromise ot satisfy market expectations and do not change overall policy too much.

Market reaction also is moderate. Yes, we see pullback up from our support area, but it is not too strong. MACD trend still stands bearish:
eur_d_11_07_19.png


4H chart shows that EUR stands at K-resistance and WPP:
eur_4h_11_07_19.png


Taking parallel analysis with GBP, we could suggest some retracement here (as on GBP reverse H&S pattern is forming). Thus, if we would get "222" Buy pattern, we could try to go long probably. Still, we have to say, within two weeks, till Fed meeting and GDP release we do not expect starting of new trend and any serious breakouts. It means that any setup or pattern that we will get is tactical, with nearstanding target. On 1H chart we could consider 1.1240 support area, where may be we will get something:
eur_1h_11_07_19.png
 

Robban68

Corporal
Messages
95
Both EUR and GBP in an support area. Could be worth a bounce for ~100pips. GBP in a possible wave III leg, then a bounce to->leg IV~1.257, and then a final -> leg V 1.235, before a larger correction.
At least a plan....
So far so good, let’s see If the bounce was enough.
 

Deltoid88

Sergeant
Messages
167
Update on EUR. I am dropping my bullish stance on EUR. All upside action looks weak and corrective. On daily chart with top on 1.1415 I think that EUR has completed flat correction, red wave B, and that we have started printing wave 1 of wave C to downside. I believe that we are now in wave 4 of that wave 1 and its most probable shape is triangle in my view.

Daily chart: Blue wave C which was final leg of red wave B is likely finished on 1.1415. There are clear 5 waves in that wave C.

EURUSDmDaily.png


1 H chart: Full wave count and expectation for likely triangle in wave 4.

EURUSDmH1.png


15 min chart: More detailed wave count. Here I want to show you that recent upside action is not impulse, but corrective ABC pattern. It had shape of ZigZag in that wave A, now we are printing wave B which is likely to be deep and also ZigZag.

EURUSDmM15.png


How to trade this?

1st position sell entry in zone 1.1250-1.1260, TP zone = 1.12-1.1220, SL = 1.1287
2nd position buy entry in zone 1.120-1.1220, TP zone = 1.1260-1.1270, SL=1.1179
3rd position sell entry in zone 1.126-1.1270, TP zone = 1.1220-1.1240, SL = 1.1287
4th position buy entry in zone 1.1220-1.1240, TP zone 1.1245-1.1255, SL = 1.1179
5th main position sell entry in zone 1.1245-1.1260 TP zone < 1.11, SL = 1.1287
 

Sive Morten

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

As we've said, we do not expect any revolutionary breakout within two weeks until Fed meeting by the end of the July. It means that EUR should move under impact of technical factors and we need to recall what actually we have.

Our weekly report shows perfect morning star pattern on weekly chart, which suggests large downside AB=CD. Following this logic, it seems that now EUR is forming BC upside leg. Taking the parallel view on dollar index chart, we could recognize clear reverse H&S pattern, (here it is also visible) and now market is forming the right arm.
Taking in consideration the harmony of the pattern, it seems that EUR should climb slightly higher before downside action starts:
eur_d_12_07_19.png


Yesterday we correctly suggested minor pullback out from K-resistance and WPP point, but it is also possible that pullback takes AB=CD shape. In this case we could get "222" Buy Pattern:
eur_4h_12_07_19.png


On 1H chart our entry point has been reached, as price dropped to our K-support area. Now EUR even has completed minor upside XOP target:
eur_1h_12_07_19.png


That's being said, our primary object to watch is the top of right arm of daily pattern, which should be formed around 5/8 Fib resistance @ 1.1325 area. There we consider short entry first, but in the case of upside continuation - it will mean H&S failure, which gives us a bullish signal.

The shape of upside action to 1.1325 level has minor meaning for us. If we get '222" Buy - that's good, and we could ride up as well. If not and market starts upside action right now - this is not the tradegy as well.
 
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