Forex FOREX PRO WEEKLY, July 12 - 16, 2021

Sive Morten

Special Consultant to the FPA

This week market was following to routine factors - some statistics as from EU as from US and Fed minutes. Long-term sentiment mostly stands intact, as overall trading range was relatively tight. Despite nice upward action on Friday, EUR was not able to break major tendency by far.

Market overview

The dollar dipped against a basket of major currencies on Monday, after hitting a speed bump when last week's mixed bag of U.S. labour data allayed investor fears about a faster end to monetary stimulus. While the headline June job creation figure beat forecasts, unemployment ticked higher and workforce participation didn't budge - suggesting positive progress, but space for the Federal Reserve to wait before tapering asset buying or hiking rates.

"Friday's NFP jobs report gave something for everyone in terms of an above-consensus NFP gain, but also an above-consensus unemployment rate," strategists at ING said in a note to clients.

Data from the Institute of Supply Management showed that U.S. services industry activity moderated in June, likely restrained by labor and raw material shortages, resulting in unfinished work continuing to pile up. The ISM survey's measure of service employment fell to a reading of 49.3 in June from 55.3 in May

Disappointing data out of Europe sent the euro towards a three-month low against the dollar. Investor sentiment in Germany, the euro zone's biggest economy, remains at a high level but fell sharply in July, the ZEW economic research institute reported, while data showed orders for German-made goods posted their sharpest slump in May since the first lockdown in 2020.

The ZEW economic research institute said its survey of sentiment among investors fell to 63.3 points from 79.8 in the previous month. A Reuters poll had forecast a fall to 75.2. But a separate ZEW gauge of current conditions surged to 21.9 from -9.1 points in June, moving into positive territory for the first time in two years and easily beating a consensus forecast for 5.0 points.

"The economic development continues to normalise," ZEW President Achim Wambach said in a statement. "In the meantime, the situation indicator for Germany has clearly overcome the coronavirus-related decline. The financial market experts therefore expect the overall economic situation to be extraordinarily positive in the coming six months."

Separate data on Tuesday from the Federal Statistics Office showed that orders for German-made goods posted their sharpest slump in May since the first lockdown in 2020. That reflected weaker demand from countries outside the euro zone and fewer contracts for machinery and intermediate goods.

Orders for industrial goods fell 3.7% on the month in seasonally adjusted terms -- the first drop in new business this year.

Carsten Brzeski of ING said the decline largely reflected supply chain disruptions, delivery delays and lack of materials and intermediate goods. Today's disappointing industrial orders are no reason to be concerned," he wrote in a note. "Order books are more than richly filled and reducing backlogs is a bigger problem for German companies than acquiring new orders."

European Central Bank policymakers are in the middle of debating a new strategy, with many now backing the notion of letting inflation surpass 2% for a while after it lagged below that level for most of the past decade.

The dollar traded near its highest in three months versus major peers on Thursday after minutes of the Federal Reserve's June policy meeting confirmed the world's biggest central bank is moving toward tapering its asset purchases as soon as this year.

Fed officials said substantial further progress on economic recovery "was generally seen as not having yet been met," although participants expected progress to continue and agreed they must be ready to act if inflation or other risks materialize, according to the minutes of the Federal Open Market Committee (FOMC)'s June policy meeting.

"Various participants" at the session still felt conditions for curbing the bond-buying that is supplying markets with cash would be "met somewhat earlier than they had anticipated," while others saw a less clear signal from incoming data, the minutes showed.

Still, "a substantial majority" of the officials saw inflation risks "tilted to the upside," and the Fed as a whole felt it needed to be prepared to act if those risks materialized.

"Participants generally judged that, as a matter of prudent planning, it was important to be well positioned to reduce the pace of asset purchases, if appropriate, in response to unexpected economic developments, including faster-than anticipated progress toward the Committee’s goals or the emergence of risks that could impede the attainment of the Committee’s goals," the minutes stated, referring to the policy-setting Federal Open Market Committee (FOMC).

The minutes did little to clarify when the Fed will begin to change the monthly bond purchases and near-zero interest rates it put in place in the spring of 2020 to support the economy through the coronavirus pandemic and associated recession.

But it did show debate over those policies beginning in earnest, with Fed officials laying out a broadly divergent set of views about the risks the economy faces, the level of uncertainty, and even delving into details like whether to curb the purchase of mortgage-backed securities faster than that of U.S. Treasury bonds.

"Monetary policy recalibration is now on the table," wrote Bob Miller, BlackRock's head of fixed income for the Americas, noting the "substantial dispersion of opinions" at the central bank.


At its meeting last month, the FOMC shifted towards a post-pandemic view of the world, dropping a longstanding reference to the coronavirus as a constraint on the economy and, in the words of Fed Chair Jerome Powell, "talking about talking about" when to shift monetary policy as well.

The start of that discussion, along with interest rate projections showing higher borrowing costs as soon as 2023, caused investors to anticipate the Fed will move faster than expected to end its support for the economy.

Long-term Treasury yields are near five-month lows, and the gap between those and shorter-term yields has been narrowing, a development often associated with skepticism about the outlook for longer-term economic growth.

In this case, Cornerstone Macro analyst Roberto Perli wrote recently, "the market views the perceived Fed shift as harmful to the long-term prospects for the U.S. economy," with the Fed's stated commitment to getting back to full employment seen as weakening in the face of higher-than-anticipated inflation

What investors are wondering is how fast the discussion will spool out and when the actual "taper" may begin. Several regional Fed policymakers have since said they felt the economy was near the point where the central bank should pull back. However, even some of them have indicated it will take several meetings to develop and announce a plan for reducing the bond purchases.

The FOMC meets eight times a year, with the next two meetings scheduled for July 27-28 and Sept. 21-22. In the interim, the central bank will hold its annual research conference in Jackson Hole, Wyoming, a setting that Fed chiefs have often used to signal policy changes.

Economists polled by Reuters expect the Fed to announce a strategy for tapering its asset purchases in August or September, with the first cut to its bond-buying program beginning early next year.

"The FOMC remains one of the more hawkish central banks under our coverage," and will begin to discuss a taper at the policy meeting at the end of this month, Commonwealth Bank of Australia strategist Carol Kong wrote in a client note. We therefore expect the USD to trade with an upward bias."

While the dollar initially rose in early London trading, the euro jumped across the board as the selloff gathered pace as some hedge funds unwound some of their large bets against the single currency versus some other majors.

"This is a classic unwind of risky positions in currency markets with yield chasing trades reversing and flows reversing from current account deficit countries to surplus nations," said a trader at a U.S. bank in London.

While minutes of the U.S. Federal Reserve's June policy meeting confirming it was moving towards tapering its asset purchases as soon as this year were widely blamed for the selloff, some traders saw an extension of the unwinding of the reflation theme seen in the global bond markets this week.

"The risk off theme is clear across all markets, especially in currencies with the strongest risk DNAs including the Aussie, Canadian dollar and the Kiwi," said John Marley, CEO of forexxtra, a London-based FX consultancy. This feels very much as though this is a washout of positions which could have some real potential in a market which has already felt very thin this week," he said.

The euro held on to earlier gains after the European Central Bank set a new inflation target and claimed a role in fighting climate change after a strategy review.
With inflation having undershot its target for nearly a decade, ECB President Christine Lagarde has driven an 18-month deep dive into the inner workings of the bank, challenging even core principles of central banking in the hopes of resetting strategy and bolstering credibility.

In the key conclusion of the review, the central bank of the 19 countries that share the euro set its inflation target at 2% in the medium term, ditching a previous formulation of "below but close to 2%", which had created the impression it worried more about price growth above the target than below it.

"We believe the 2% target is clearer, simpler to communicate and a good balance," Lagarde told a news conference. "We know that 2% is not going to be constantly on target, there might be some moderate, temporary deviation in either direction of that 2%. And that is OK."

The widely expected changes left markets unfazed but analysts said the sum of the measures pointed to an even longer period of central bank stimulus, even after emergency measures adopted to fight the COVID-19 pandemic are phased out.

"The new framework is largely in line with expectations, but with a dovish tilt," Berenberg economist Holger Schmieding said. "It enshrines the flexibility which the ECB had granted itself anyway."

More importantly, few economists appeared to conclude that the new strategy would have a fundamental impact on policy in the near term, and the ECB's 1.85 trillion euro Pandemic Emergency Purchase Programme is still likely to be wound down early next year.

Inflation in the euro zone is unlikely to overshoot and the current increase in price growth driven by the coronavirus pandemic will be temporary, European Central Bank board member Isabel Schnabel was quoted on Saturday as saying.

“I am sure that we will not experience any excessively high inflation,” Schnabel told the Frankfurter Allgemeine Sonntagszeitung in extracts from an interview released ahead of publication.

Schnabel’s comments come a day after the accounts of the ECB’s June policy meeting revealed growing concerns among conservative policymakers that the rise in inflation may be more durable than now predicted.

Commenting on the ECB’s new, symmetric goal for inflation of 2%, Schnabel said: “On the one hand, the increase in the inflation target is minimal. On the other, the goal of 2% has an important function: It creates additional room for our monetary policy to have a stabilising effect.”

She added that interest rates would not remain low for ever and it was vital for European governments to ensure that the large amounts of stimulus spending they have deployed paves the way for a return to a sustainable growth path.

The global spread of COVID variants has added to fears that there could be some disappointment in terms of economic growth in the coming months, said Mazen Issa, senior FX strategist at TD Securities.

"While we are cautious in interpreting price action at a time of the year when liquidity is not as plentiful, we think markets are contemplating a potential growth scare as the Delta variant spreads and infections rise," he said.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits rose unexpectedly last week, an indication that the labor market recovery from the COVID-19 pandemic continues to be choppy.

"It's an indication that if these numbers continue not to be anything stellar, or that we're not moving towards full employment, that leaves the Fed room to just take it
easy and not necessarily think about a tapering timeline," Juan Perez, senior currency trader at Tempus Inc, said of the data.

Some recent soft U.S. data, along with a surge in COVID-19 cases in many parts of the world, has fueled concerns that the global economic recovery was running out of steam, leading to an eight-day streak of declines for the 10-year Treasury yield that ended on Friday.

"This week was all about the bond market and the collapse in treasury yields," said Edward Moya, senior market analyst for the Americas at OANDA. "Some of that move was probably overdone."

The greenback's decline was likely due in part to profit-taking ahead of key U.S. inflation data for June due next week, said Joe Manimbo, senior market analyst at Western Union Business Solutions. "Dollar bulls are just pulling some chips off the table," he said.

A stocktake on the global recovery
(By Fathom Consulting)

As we enter the second half of the year, here is a stocktake on the state of the virus and the path of the global recovery.

The worst of the spike in COVID-19 cases in Asia appears to be over. The new and more transmissible delta variant of the virus which was first reported in India had spread rapidly. Case numbers in Asia have since fallen, which, given low vaccination rates, is likely to be due to non-pharmaceutical interventions such as lockdowns and voluntary social distancing, offering the virus fewer susceptible hosts. However, the variant is now spreading more widely round the globe, with the World Health Organisation tracking cases in 96 countries.


At current vaccination rates, Fathom expects most major economies to have offered at least one dose of a COVID-19 vaccine to all adults by the end of the year. Anti-vaccine sentiment remains a problem in some countries, however, with survey data suggesting that only 72% of Americans and 71% of the French are willing to be vaccinated.

As of 2021 Q1, world GDP has returned to its pre-crisis level — largely thanks to strong growth in China. Across the board, however, only 22 per cent of countries have fully recovered to pre-crisis levels of output. The US is within a whisker of reaching this mark, after easing restrictions. During the worst of the pandemic households accrued vast savings. How quickly those savings are spent is likely to be key in determining the future path of output for those countries that are yet to fully recover.


In Fathom’s view, a large proportion of those savings is likely to be spent as restrictions ease. Survey evidence from the Bank of England and New York Fed supports this view, suggesting that around a quarter of savings in the UK and US may be spent. Timely monthly indicators, such as retail sales related to activities restricted during lockdown, vehicle sales and the number of domestic airline passengers, have already risen sharply as confidence has returned to normal levels. However, other sectors are yet to show signs of recovery. International travel restrictions remain in place, impacting the level of bookings for tourism destinations. As the vaccine rollout continues and countries establish cross-border travel agreements, Fathom expects a further boost in economic confidence and global output.


Overall, as expected the global ‘V’ shaped recovery is complete. But what will happen next as economies continue to reopen? Fathom expects that — unless there is a resurgence in the virus — economic growth will surge over the rest of this year as the money built up in savings is spent by households. This would drive inflation above central bank targets, and would pose central bankers the dilemma of how best to respond. The orthodox approach would see monetary policy tightened in the short term to bring inflation back under control. Alternately, higher inflation might be accommodated, even welcomed; and then embedded, by
setting a higher inflation target down the line. As Fathom has long noted, there are strong theoretical grounds for adopting the second approach.

COT Report

Despite upward action on EUR this week, CFTC data shows that bearish sentiment stands intact by far. Recent data shows opening large amount of new short positions, as open interest has increased as well:


As a result, net long position is decreasing for 5 consecutive weeks.

Charting by

Next week to watch

Looking forward, U.S. retail sales numbers for June are also due next week, along with U.S. bank earnings.

Adding to the busy week ahead, U.S. Federal Reserve Chair Jerome Powell is scheduled to appear before Congress, and rate decisions by central banks in Japan, Canada and New Zealand are on tap.

On Wednesday and Thursday, Federal Reserve chief Jerome Powell has one of his twice yearly get-togethers with U.S. Congress and it couldn't be more timely.
His view on why bond markets seem to have suddenly given up on the reflation trade is what every global investor is currently trying to work out, so tune in.

Elsewhere the Bank of Japan is unlikely to shift away from ultra supportive policies when it meets Friday.

Though the Bank of Canada is expected to trim its $3 billion Canadian dollar a month bond buying programme to $2 billion CAD. In emerging markets, the focus will be on Turkey on Wednesday, with searing inflation making it tough for its central bank governor to deliver the rate cuts President Tayyip Erdogan hired him for.

As a bottom line

So, as Fathom tells - "The US economy has nearly recovered to pre-crisis levels of GDP as the easing of COVID-19 restrictions has led to a pickup in the consumption of goods. During the pandemic, higher incomes and lower spending caused households to build up excess savings worth close to 10% of US GDP by the end of 2021 Q1. In Fathom’s view, around 25% of these forced savings will be spent within the next twelve months. If this happens then we are likely to see a boom in the service sector and ultimately higher inflation."

Based on global economy statistics and analysis, we see no doubts in our long-term view. Performance in different industrial and social spheres shows recovery that statistics confirming. It means that no doubts but we will get higher inflation, which Fathom Consulting confirms either. New virus variants have limited impact as on economy performance as on sentiment by far and currently we do not see any reasons why this impact could exacerbate and become vital later. Modern vaccines have no total protection from Delta and other variants but they smooth the way of disease, making it softer.

The new factor that gradually becomes evident is competition among central banks. This is what was standing under cover previously. Now, as RBA as RBNZ have better situation with pandemic, they are also aimed on stimulus reducing and tapering, which makes kiwi and aussie especially attractive currency for carry. Recent price action and unwinding of hedge fund positions that triggered dollar drop tells, that investors seriously consider this investing opportunity. It is difficult to say how far it goes right now, but faster action from RBA, for example could keep pressure on USD, especially if US rates remain flat. Maybe this factor becomes the major one that let dollar index to complete its long term downside target around 87.4.

That's being said, we make no changes by far to our long term view, while in shorter term volatility could rise and upward pullbacks against USD could become stronger because of combination weaker US statistics, flat interest rates and hawkish statement from the rivals. Although major tendency should not be broken.

Technical analysis stands in next post below.

Sive Morten

Special Consultant to the FPA

July performance is too small to make impact on monthly picture by far. Despite that some EUR positive issues exists, technically we have bearish tail close in June and unconfirmed bearish trend on monthly chart. Monthly action makes no impact on long-term direction by far, as price mostly stands in wide 1.16-1.23 consolidation. But breakout in any direction could become a decisive. In general, with June performance, it is difficult to count on sharp reversal in July.

Theoretical targets mostly stands the same. Taking the parallel view on Dollar Index - EUR has corresponding upside AB-CD with 1.2860 OP, standing near Yearly Pivot Resistance of 1.26. If our suggestion is correct - 1.26-1.28 is an area that corresponds to DXY 87.40 target. But it is unclear what factors could let EUR to get there.

Technically vital area for monthly bullish setup is 1.16 lows that we've discussed earlier. As we've explained already - deep retracement here is not reasonable, especially if price drops below YPP. The pullback that already has happened was a reaction on COP target. Thus, as reaction already is done, market has to follow up. Another deep retracement here will be clear bearish sign.

On coming month we suggest EUR spends time in the same range of 1.16-1.23, as it will be silence before Aug-Sep storm from the Fed. Besides, now is vacation time, and seasonally markets become wobbling and slower these days.


Here situation stands evident, at least from technical point of view. Bullish trend will be over for EUR, once it breaks below 1.16 K-area, forming bearish reversal swing and out of triangle consolidation. Hence, until it holds inside - it keeps chance to proceed higher. Of course, it is rhetoric question whether EUR is possible to complete butterfly. Now it looks more like theoretical scenario.

This week action shows that market stops right at weekly oversold area. Minor pullbacks in recent two weeks suggest that market doesn't see the reasons and has no drivers that could trigger more or less significant upside retracement. This week EUR has got unexpected support from hedge fund position unwinding, but it is a question how long this effect will last. Recent strong sell-off makes picture looks bearish. So, for conservative traders, it is not the time to act yet.

Still, we can't ignore the moment that price stands very close to recent lows and butterfly invalidation point and it is big temptation to take part with it. Risk is high, but if you're ready to accept it - this is best moment to take position with the butterfly pattern, as it provides outstanding risk/reward ratio.


Here we have few moments to clarify. First is, in relation to butterfly above, on weekly chart. Currently it is unclear the duration of supportive effect of unwinding hedge fund positions. But, if it lasts longer, then here we could consider possible reverse H&S pattern, if price returns back to 1.20 K-resistance area. The H&S provides more solid background for possessing with weekly bullish butterfly.

On shorter-term, despite seemed upward wedge pattern breakout EUR is not broken yet the bearish tendency, as no reversal swing has been formed. Second - price has not reached even near standing resistance around 1.1915 area. It is still the question how market response on it, and, especially on 1.20 area. By the way, with this recent performance may be we get reasons to talk about short entry around 1.20 again.



Since we have tricky foundation of current rally, coming to Fed meeting within two weeks, it would be better to use clear patterns for taking positions, especially on the long side. Our Friday setup with "222" pattern is done well, triggering upward action. Now it takes the shape of AB-CD pattern with target at 4H K-resistance area of 1.19-1.1915.
If market intends to go higher, it should prepare some background to larger scale rally. As 1.19 level is rather strong resistance - bounce out of there has big chances to happen. And this makes us to consider possible H&S pattern as well. It means that next long entry chance could appear around 1.1825-1.1830 on a way back out from neckline and right at the right arm's bottom - everything is as usual.
As price has broken through mentioned 1.1850-1.1860 level, we do not consider any new short positions until we see signs of bullish failure and breakout of current context. For example, if H&S starts to fail. Only scalp short positions from neckline could be considered by far.



Hi Sive.... as usual, great analysis and report. Thank you.

I am out of EUR/USD and is in WTI as it is more volatile than usual. Nonetheless, I will be keeping a watch on EUR/USD for any opportunities.

Cheers and all the best!

Sive Morten

Special Consultant to the FPA
Morning everybody,

So, we're still watching for bullish confirmation on EUR and, as we've said in weekend - we need clear pattern that could assure us with bullish ambitions here. But - recent day was inside one and brings nothing new to daily picture. EUR still stands in hanging position - not dropping but also keeping bearish tendency valid.

On 4H chart action was choppy, market mostly stands in the same area and, take a look - we've got minor grabber here, suggesting drop to 1.1830 level:

On 1H chart we haven't got our OP target around 1.1909. Price hits just COP and turns to choppy action. Now we have few scenarios of action. First is - butterfly that I've drawn here. Its target perfectly agrees with OP. Alternatively, (since we have the grabber on 4H chart), we could get downside AB-CD now to 1.1830 and potentially "222" Buy pattern.

If you consider long entry here - whatever pattern you choose, stop is better to place below 1.1820 level initially. "C" point of our AB-CD pattern is a vital level. In a case of breakout, short-term bullish context will be broken and EUR keep going down on daily chart.

But all these minor patterns is just a tactic detail in a bigger picture. Our major target here is - reverse H&S pattern that could confirm bullish ambitions. Once 1.1910 level will be completed - we start watching for right arm's bottom to consider long entry here:

Sive Morten

Special Consultant to the FPA
Morning everybody,

So, everything was going nice until CPI data has been released. Numbers just crushed short-term bullish context. Although it is expected from our daily trading plan point of view, but, as we've got no clear patterns on intraday charts through the week, and market was trying to climb higher - we were considering higher standing resistance levels as potential reversal points. As a result of CPI, bullish tendency is bogged down.
Recent reversal could start pushing EUR to major 1.1620 target on daily chart. We do not expect that JP tells something breaking in Congress. It is not necessary to push markets in chaos just week ahead of July meeting.

On 4H chart nearest downside target stands around 1.1750 in a shape of 3-Drive pattern. Personally I have no intention to trade it, but, depending on your own trading plan, you could make different decision. Theoretically it should move EUR back to 1.20, if it works as it should, but now it is a big question what factor could be strong enough to erase recent drop.

It is more logic in current situation just to consider strong resistance areas and watch for possibility to Sell. Now the first level stands at 1.1810 area - K-resistance on 1H chart. If we get, say "222" Sell, this will be the pattern to consider here.

Sive Morten

Special Consultant to the FPA
Morning everybody,

So, market goes a bit crazy under external impact of different factors, such as CPI report etc., as a result, we see a bit chaotic action on intraday charts, making difficult any analysis and forecasting. Still, overall action stands in tight range and makes no impact on bigger picture - on daily chart. Here is context still stands bearish and we still need to understand how far EUR could climb with retracement before it turns down again:

On 4H chart sharp reversal has happened even before price hit 3-drive lows. This is another sign of external intruding in natural process of swing forming. Since upward push was strong enough recently and market forms a kind of flag pattern - we could suggest reaching of upper border at least. So, we wouldn't be hurry with short entry by far:

On 1H chart market jumps directly to 5/8 Fib resistance and now we see no background for short entry by far, as no bearish context is formed here. But to be honest - we have the same on the bullish side as well. Market forms swings without preparation, i.e. patterns just reacting on external data. This type of action has no time to prepare context. And this is what we see now - upward swing exists but nothing behind it.
The only thing that maybe we could consider, if you intend to go long - if EUR forms some downside retracement and trying to create steep reverse H&S pattern. This is the only possibility that I see here that could provide at least some background for long entry around 1.1800 area. But in general - situation doesn't inspire to trade at any side by far.

Sive Morten

Special Consultant to the FPA
Morning everybody,

Finally, this curious weeks is coming to an end. Actually we were talking more than trading, because market was showing just immediate reactions on news and data releases without any background, that makes difficult to plan any trades.

On daily chart we have nothing new, as recent three sessions stands inside of CPI sell-off. The only setup that we see for today is 4H bullish grabber right around the support area that we talked about yesterday:

It is difficult to say, whether it works, but it provides small risk - just around 20 pips and if you're thinking about buying EUR, you could consider this one. Its target stands at 1.1850 recent top.

On 1H chart, hardly we could treat price shape as reverse H&S - it looks too ugly. Although we can't not sign that current low stands harmonic to the one form the left. Price now is around 5/8 Fib support. Grabber is valid until price is above the current lows:

Unfortunately that's all that we have for now. Downside breakout of 1.18 and grabber's failure could become first bell of continuation on daily chart.


...."Actually we were talking more than trading"....

And if we have a family, friends, or we like nature, now it's time to...Live.

Thank you, Sive.


Hi Siv, i would be interested in your opinion on this article.

Why Don't Bonds Reflect CPI Alarm About Inflation?​

Does the Fed see inflation somewhat differently than we do?
Thank you.