Forex FOREX PRO WEEKLY, July 13 - 17, 2020

Sive Morten

Special Consultant to the FPA
Messages
13,914
Fundamentals

This week repeats the previous one - a bit more activity but empty fundamental background. The headlines again stand around virus and try to explain any market action by new Covid cases. Still, data shows that despite hard epidemic situation in US and Latin America, world slowly but stubbornly returns to normal life. Chances on 2nd wave of pandemic are melting and V-shape recovery becomes more probable.

The dollar dropped to two-week lows on Wednesday, showing reduced safe-haven appeal for now, as U.S. tech stocks rallied and commodity prices firmed, even as sentiment remained cautious amid a resurgence of new coronavirus cases globally, particularly in the United States. The euro, meanwhile, rose to three-week highs against the dollar, while commodity currencies such as the Australian, New Zealand, and Canadian dollars gained.

The NASDAQ index gained 0.8% on the day, reversing Tuesday's loss, feeding the currency market's risk appetite. America Inc. kicks off its second-quarter earnings season from Tuesday and Refinitiv data predicts a 44.1% slump - the biggest since the 2008-9 crisis. Coronavirus-linked shutdowns will have wiped out profits especially in the energy, consumer discretionary and industrials sectors. Back in January when the pandemic was yet to make headlines, Q2 earnings were seen growing 7.2%.

There may be silver linings. Recent equity rallies imply investors are disregarding Q2 reports and focusing on the outlook. And a “substantial earnings beat” is likely, say BofA analysts, citing economic data improvements in May and June. More importantly for markets, companies will offer “very positive forward guidance”, BofA predicts.

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"Investors are growing more confident that this stock market rally is not going to end any time soon," said Edward Moya, senior market analyst, at OANDA in New York. "And that's pretty much based on expectations that you're going to continue to see a strong global stimulus response over the coming weeks and months."

That said, the U.S. Centers for Disease Control and Prevention (CDC) on Wednesday reported 2,982,900 cases of new coronavirus, an increase of 50,304 cases from its previous count. It said the number of deaths had risen by 932 to 131,065.

Against a basket of its rivals, the dollar dropped 0.5% to 96.448 in early afternoon trading. A decline in the dollar earlier this week set off the so-called "Death Cross," a bearish technical formation that occurs when the 50-day moving average crosses below the 200-day moving average. Past occurrences of the Death Cross have been followed by dollar weakness eight out of nine times since 1980 when the 200-day moving average has been declining, as it is now, analysts at BofA Securities said.

Sterling shrugged off earlier losses and rose 0.6% to $1.2588, after British finance minister Rishi Sunak promised 30 billion pounds ($37.7 billion) to head off an unemployment crisis by paying companies to bring back furloughed workers and cutting taxes for hospitality firms and homebuyers.

The dollar slipped on Friday, as its safe-haven allure diminished, on hopes of a potential vaccine for the novel coronavirus that outweighed concerns about the surge in infections in the United States and around the world. The U.S. currency posted its largest weekly percentage loss against a basket of major currencies in a month.

On Friday, Gilead Sciences Inc said additional data from a late-stage study showed its antiviral remdesivir reduced the risk of death and significantly improved the conditions of severely ill COVID-19 patients. That helped a rally in U.S. stocks and pushed the dollar lower.

“When we talk about the dollar these days, it’s about the correlation with risk and that’s still happening now,” said John Doyle, vice president for dealing and trading, at Tempus, Inc. in Washington. “I think the vaccine news is offsetting the surge in cases,” he added.

More than 60,500 new COVID-19 infections were reported across the United States on Thursday, according to a Reuters tally, the largest one-day increase in any country since the pandemic emerged in China last year. But analysts said currency investors may be looking forward to the treatments being developed for the virus.

As Fathom consulting reports - “So far, so V” as Euro area retail sales rose by 17.8% in May, following a 12.1% plunge in April. That left total sales down 5.1% year-on-year. While still a large gap, it was better than the consensus forecast (-7.5%) among economists polled by Reuters. On average across countries in the chart below, sales recovered two-thirds of their falls from February. Meanwhile, in some, including Denmark and Germany, retail sales were back above their February levels.

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It is clear from these figures that there was pent-up demand in May. The question is whether that represents a one-off spending spree following weeks of lockdown, or is evidence that consumers will have less psychological scarring from the recent epidemic than some had feared. It is hard to be definitive, but daily untested data, of the kind referred to by Mr Haldane, continues to point to recovery. Average visits to retail and recreation stores have continued to rise through June, with average visits per day improving at a faster rate in June than in May. How well that translates into retail sales remains to be seen.

Liquidity measures to be continued
Part of this strong consumer rebound reflects large fiscal support packages that protected workers’ pre-crisis wages. One key risk is that support will be withdrawn too quickly. Indeed, the OECD recently warned that furlough schemes should be wound down in order to encourage a reallocation of labour from industries that are unlikely to exist in our new normal. However, with re-openings still fresh in Europe and on pause in the US, it is still too early to judge which industries are viable in the medium term. It seems premature to withdraw fiscal support already. Indeed, it is one way the world could quickly move from a V-shaped recovery to a U, or L. Governments appear to be erring on the side of caution. News reports from DC suggest the Trump administration is aiming to deliver another package, worth $1 trillion dollars, by August. That should help to support economic activity given headwinds from rising new cases.
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About the virus
As the US shows, another key risk to a V comes from the virus itself; in particular, a further sharp increase in cases that prompts a return to national lockdowns. The US may be closest to that risk among the large economies. However, as we have previously outlined, the increase in new cases stateside is concentrated in states that never had a large outbreak to begin with and so this should be considered a further continuation of the original outbreak, and not a second wave. The current situation looks pretty dire. However, if these states follow the same pattern as those worse hit during the initial outbreak, or that of countries in Europe, then the situation may end up looking a lot better a few weeks from now.

There are threats of rising cases internationally, too. Part of Australia has returned to a six-week lockdown, after a spike in cases in Melbourne. Meanwhile, Israel has also reversed course after successfully navigating its ‘first wave’ following an uptick in community transmission. Both examples highlight the difficulty of completely suppressing the virus indefinitely and suggest that it is still too early for judgments about which country has most successfully managed this health crisis.

Political situation

A recent editorial in the official China Securities Journal calling for a healthy bull market fuelled an equity buying rush, lifting stocks 14% already in July. But open some more newspapers and the state-sponsored editorial begins to take on the air of a distraction. Factory-gate prices are falling and payrolls were cut for the sixth straight month, a private business survey shows.

Then there’s politics. Western pushback against Hong Kong’s new security law is gaining momentum, with Washington imposing sanctions on several Chinese officials. Canada and Australia have suspended extradition treaties and Britain opened a citizenship pathway for Hong Kongers. India has banned dozens of Chinese social media apps after border clashes. Beijing’s response has been bluster - but investors should be wary. It may not be just the yuan and Chinese shares building up a head of steam.

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The Trump administration on Friday announced additional duties of 25% on French cosmetics, handbags and other imports valued at $1.3 billion in response to France’s digital services tax, but would hold off on implementing the move for up to 180 days.

The U.S. Trade Representative’s office said delaying the start of the tariffs would allow further time to resolve the issue, including through discussions in the Organisation for Economic Co-operation and Development (OECD). The decision also reflected France’s agreement to defer collection of its 3% tax on digital services.

The United States has initiated similar Section 301 investigations of digital services taxes adopted or being considered by 10 other countries, including Britain, India and Turkey, which could result in tariffs against their goods. Last month, U.S. Treasury Secretary Steven Mnuchin caught European countries by surprise when he suggested a pause in the OECD talks given the lack of progress there.

A spokesman for the European Union told Reuters earlier that Brussels could propose its own solution if the OECD talks failed to produce an agreement. He urged Washington to resume the talks.

COT Report

Speculators decreased their net short dollar positions in the latest week, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Monday. The value of the net short dollar position fell to $13.91 billion in the week ended June 30, compared with a net short of $16.83 billion the previous week.
On EUR we do not see big shifts in net position and mostly it confirms existing of moderate bullish sentiment. Recent data shows small increase as in open interest as in net speculative position. As a result, its net value has increased from 99 to 103.6K contracts this week. Hedgers also have increased shorts as protection against anticipated EUR growth:
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Next week events

ECB meeting


Southern European bonds and the euro have rallied hard in the two months since France and Germany mooted a 750 billion-euro ($848 billion) post-COVID-19 recovery fund. On July 17-18, European leaders meet to hammer out details. But differences remain on whether the fund should be based on loans or grants; if the proposal stumbles, markets will take it badly.

Even a watered-down deal would be significant as it will allow the bloc to move towards mutualising debts. It could mark Europe’s “Hamilton moment” - a reference to the first U.S. Treasury Secretary Alexander Hamilton who in the 1790s engineered a deal allowing the federal government to assume the debts of individual states, selling Treasury bonds to fund them.

The European Central Bank, meanwhile, meets on Thursday. Decisive EU action to revive the economy would ease pressure on the bank to deliver more stimulus. It might then consider buying more supranational debt for its asset-purchase scheme, as a recovery fund would help make the EU the region’s biggest supranational issuer.

OPEC+ meeting
With the world economy seemingly past its worst and energy demand slowly recovering, OPEC and its ally Russia are expected on July 15 to whittle down the 9.7 million barrels-per-day production cut made in June to protect crude prices from collapse. Effective August, the cut will then stand at 7.7 million bpd. The question now is to what degree the relentlessly rising U.S. coronavirus count hampers economic recovery. The news isn’t good elsewhere either; India’s June fuel demand, for instance, fell 7.9% versus year-ago levels. OPEC moves to release more crude onto markets will come amid renewed oversupply fears. Oil market risks are “almost certainly to the downside” the International Energy Agency warns.
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The bottom line
In general we treat current fundamental background as friendly to EUR and do not see reasons to change our opinion on medium-term perspective. Indeed, in all components EU shows better performance than US. Europe shows better virus control, especially in Germany, economy statistics shows good dynamic, liquidity measures are also stand. EU has better political environment as inside the country as externally, while we can't say this about US. Our opinion that EU now stands in very important moment where it could turn the tables on US if they will be quick enough and release its money printing machine on higher level of capacity. Yes, EU economy is smaller than US but their domestic debt is smaller in times and increasing it they could provide necessary liquidity not only to their own economy but on international markets and bite a piece of world reserves that belong to US now. In two words speaking - EU bureaucrats should not fart around in rooms but act bravely and show a bold front in this work.
That's why we treat coming ECB meeting and EU printing money activity as decisive measures to EUR currency perspective. If they miss this moment EUR appreciation is doubtful in long-term perspective and start to fade as soon as US out of multiple crisis, somewhere after elections, closer to winter.


Technicals
Monthly


This week again - minor changes to technical picture. Thus, we keep analysis mostly the same - where price was last week, here it stands this week as well. July range is very small by far.

In June market turns to motion. Although it is too early to talk about major breakout but here we see attempt to go higher and maybe our grabbers will work. Currently we see the pullback below Pivot again, but we have objective reasons for that and they are mostly technical. Overall sentiment stands positive on the market.

In longer-term perspective major direction still depends on breakout of the huge March doji. But side-by-side grabbers set bullish context and point on its invalidation level - grabbers' lows. This fact changes technical picture on EUR as trend on monthly chart remains bullish.

Interestingly, that doji levels coincide with Pivots support and resistance levels as well. Downside breakout opens road to the parity, while upside break should open road for equal doji distance to upside - somewhere to 1.23 area. As EU and particularly ECB has provided strong driving factors, we hope that they will be enough to keep EUR on a road to 1.15-1.16 area and YPR1 level. At least, March top has chances to be re-tested.
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Weekly

Weekly picture also stands the same. One more spiky week. As there are a lot of them around, it means that EUR vitally needs some strong factor that could push it out there.

This picture shows that we were correct when warned that it is too early to bet on the rally, and now we see how deadly combination of K-resistance and overbought level hold EUR. Long tails with few consecutive weeks tells that this level is very important for long-term traders as a lot of sellers step in here, holding EUR from further appreciation. This fact, from the other side, also tells that in a case of upside breakout rally could be furious. Conversely, despite sellers' activity - price doesn't start deeper pullback, forming tight consolidation. Traders call this situation as "churning" when a lot of currency changes the hands in very tight range. This type of activity has special meaning and usually leads to explosive breakout.

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Daily

Here bulls have got a relief on Friday as reaction on "222" Sell wasn't lasting too long. Besides, we've got bullish grabber as well that gives some hope that indeed, EUR could continue upward action next week. Still, we do not cancel our attention to specify levels on intraday charts. Grabber is only the half of the scenario that we've discussed on Friday in relation to 1H H&S pattern:

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Intraday

Friday trading plan has started accurately. Indeed, once XOP has been completed, EUR has turned up, confirming our idea of potential H&S pattern. The major thing that we intend to monitor next week is the destiny of this pattern. Particular speaking, bulls needs to get failure confirmation of H&S. With daily grabber on the back, price has to climb above 1.1345-1.1350 target to erase the pattern. In this case odds will be better on further EUR continuation.

As you can see 1.1347 is a minor XOP target of upside action that matches to the top of the left arm. Bears instead, want to get signs of downside reversal there. Hardly it will be a lot of time to wait, so decision should be made on position taking right around xop. But stop order will be just above "A" that gives 20+pips risk, which is very small.
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Sive Morten

Special Consultant to the FPA
Messages
13,914
Morning guys,

EUR shows rather choppy performance that could rise some doubts about bullish perspective. Still, I think that it is too early to worry about it. Despite slow and choppy action market absorbs all bearish supply that appears around 1.14 area. While long tails stand on weekly chart - EUR stands flat and even shows slow upside action. This is the sign of hidden bullish activity. Besides, now market is preparing to ECB meeting on Thu.

Thus, on daily our grabber is completed as new top has been formed. Trend stands bullish, price is outside of flag - no bearish signs yet:
eur_d_14_07_20.png


On 4H chart market shows whipsaw action with deep pullbacks, but it goes higher anyway. Now again the new top has been formed. Next target is 1.1410-1.1420 area and it is question about pullback's depth. Why we keep bullish view? Well take a look at Friday action, in fact, we've got fast sell-off from the top in a shape of large compounded bearish engulfing pattern. But yesterday this action has been erased totally. Besides, the H&S pattern that we've discussed on 1H also has been cancelled:
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This is the reason why we still keep our bullish view on EUR. Now it is a question of retracement and how deep it will be. Currently price stands at K-support level. This is the first area where it is possible to go long and move stops to breakeven as soon as possible. If deeper retracement happens - watch for major 5/8 Fib support and place stops below the long harmonic swing lows. Or, just skip first level and wait when long harmonic swing will be formed. It just no guarantee that minor one will be instead. Nearest target is OP at 1.1380
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Sive Morten

Special Consultant to the FPA
Messages
13,914
Greetings everybody,

So, EUR behaves well, confirming our bullish view. In recent few days more signs of acceleration appear on the chart and it seems that EUR is gradually is coming out from churning action of recent few weeks. Maybe investors hope for positive ECB statement. We've discussed this in our weekly report. Now on daily chart we could appoint new targets. Actually they are not quite new as we already talked about them.

As market is not at Overbought, next daily destination point is XOP and 1.618 Butterfly extension around 1.1550 area:
eur_d_15_07_20.png


Using the same butterfly and inner AB-CD pattern, intermediate target stands around 1.1475-1.1480:
eur_4h_15_07_20.png


As market shows signs of acceleration, any retracement now should not be deep. Thus, today we could accept the pullback not below than 1.1360 K-support, but it might be even smaller. Yesterday we've talked about it when discussed using of harmonic swings for retracement. As a result upside action has started after minor harmonic swing and right from specified K-support. Now market aimed to challenge the top and on this desire it shows more straight forward action usually:
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Robban68

Corporal
Messages
97
Greetings everybody,

So, EUR behaves well, confirming our bullish view. In recent few days more signs of acceleration appear on the chart and it seems that EUR is gradually is coming out from churning action of recent few weeks. Maybe investors hope for positive ECB statement. We've discussed this in our weekly report. Now on daily chart we could appoint new targets. Actually they are not quite new as we already talked about them.

As market is not at Overbought, next daily destination point is XOP and 1.618 Butterfly extension around 1.1550 area:
View attachment 55707

Using the same butterfly and inner AB-CD pattern, intermediate target stands around 1.1475-1.1480:
View attachment 55708

As market shows signs of acceleration, any retracement now should not be deep. Thus, today we could accept the pullback not below than 1.1360 K-support, but it might be even smaller. Yesterday we've talked about it when discussed using of harmonic swings for retracement. As a result upside action has started after minor harmonic swing and right from specified K-support. Now market aimed to challenge the top and on this desire it shows more straight forward action usually:
View attachment 55709
Hoppfuly it will hit the 1.155 to complete the monthly grabber before a deeper pullback.
G/U seems to have some room to reach the 1.27-1.275 area, play a short from this area with the monthly bearish grabber in the back can to be good trade.
To sum up, a stronger dollar may be on its way.
 

Sive Morten

Special Consultant to the FPA
Messages
13,914
Greetings everybody,

So, today in fact, we need to take a look only on 1H chart as other time frames stand the same as yesterday.
On 1H chart the reason why market takes the pause in upside action is our AB=CD target. Now price stands in reasonable respect to it. We suggest that downside retracement should not be deeper than K-area of 1.1375 level. Then, theoretically EUR should continue upside action.

Still, do not forget that today is ECB. We could build a lot of "technical" plans but mostly situation depends on what they will say. If everything will be as we suggest - EUR could even reach 1.1550-1.16 target till the end of the week. If not - then our 1.1475 4H target could be reached on volatility spikes, but then reversal might happen.

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Sive Morten

Special Consultant to the FPA
Messages
13,914
Morning folks,

So, miracle has not happened... as usual, ECB provides anemic comments, but thankfully is promised to keep existed measures in the future. As a result, investors were slightly disappointed and this you can see on the chart. Still, it doesn't mean change of the sentiment. EUR probably will turn up again next week, but overall momentum becomes slower and this happens from lower levels, I suppose:
eur_d_17_07_20.png


On 4H chart you can see crucial range for bullish context 1.1330-1.1375. It includes 2 K-areas and natural support/resistance zone. It is vital for bulls. Until market stands above it - we could consider long entries.
eur_4h_17_07_20.png


On 1H chart I have some feeling that price could drop more, to XOP target and the bottom of our area, 2nd Agreement support. Using common sense, recent plunge indicates disappointment. EUR was ready to go up, but ECB hasn't approved expectations and price dropped. So major driving factor is lost for this week, which means, that EUR could show deeper retracement.
That's why, theoretically it is possible to buy at current K-support area, but it demands active managing and stop moving to b/e asap. More calm strategy is to wait for XOP on next week:
eur_1h_17_07_20.png
 
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