Forex FOREX PRO WEEKLY, JULY 15 - 19, 2019

Sive Morten

Special Consultant to the FPA
Messages
12,629
Fundamentals

Well, as it is everything clear concerning longer term perspective - markets wait for IIQ GDP report and Fed July statement. Both these events should clarify major trend, at least, as markets expect. This week volatility was not too strong and everything mostly was turning around Powell statement, Fed June minutes protocol and US inflation data.

As Reuters reports - Federal Reserve Chairman Jerome Powell set the stage for a rate cut later this month, vowing to “act as appropriate” to ensure the world’s biggest economy will be able to sustain a decade-long expansion.

In testimony to Congress, Powell pointed to “broad” global weakness that was clouding the U.S. economic outlook amid uncertainty about the fallout from the Trump administration’s trade conflict with China and other nations.

Adding to a generally dovish tone in his testimony, the minutes from the Fed’s previous policy meeting showed many policy makers thought more stimulus would be needed soon, reviving speculation of an aggressive rate cut.

KEY POINTS:

** Powell says it appears trade uncertainties and concerns about global economy continue to weigh on U.S. economic outlook;

** Powell repeats that Fed will act “as appropriate” to sustain economic growth;

** Baseline outlook is for U.S. economic growth to remain solid, labor markets to stay strong and inflation to move back up to central bank’s 2% target - Powell;

** Powell says there is a risk weak inflation will be even more persistent than Fed currently anticipates;

** U.S. economic growth appears to have moderated in Q2; economic momentum appears to have slowed in some major foreign economies in recent months, Powell says

“A rate cut in July is completely sealed now. But on the other hand, Powell dropped little hint on what he would do after that, as he sounded quite optimistic on the economy,” said Kyosuke Suzuki, director of forex at Societe Generale.

“That uncertainty, I think, will most likely keep the dollar in fairly tight ranges in coming weeks,” he said.


Here is in Reuters article, you could find more comment on Powell's speech. The one thing that attracts my attention is many investors also think about "insurance rate cut" and treat it not as starting point of the dovish cycle but as single standing event:

“There continues to be uncertainty around economic growth outside the US and trade concerns linger. This alone may support a cut in rates if only for insurance.”

“Powell’s really making the case that an insurance rate cut is important so July is looking much more likely despite the fact we had a pretty good jobs report. Because of that both stock and bond markets are reacting.”

Next day we've got US inflation data - CPI and yesterday is PPI. Both indexes show 0.1% better than expected results:

Stronger-than-expected U.S. inflation data tempered the prospect of an aggressive Federal Reserve interest rate cut later this month.

The core U.S. consumer price index excluding food and energy components rose 0.3% in June, the largest increase since January 2018, data on Thursday showed.

The signs of a pick-up in underlying inflation, along with separate data on weekly jobless claims showing the labour market remained solid, curbed financial market expectations of a more aggressive 50 basis point cut at the Fed’s July 30-31 meeting.

Markets are still fully priced for a quarter percentage point cut as U.S. policymakers seek to support a slowing economy.

“The dollar bounced back as the strong U.S. CPI got the market to question the Fed’s view on prices and whether inflation was really as weak as projected,” said Takuya Kanda, general manager at Gaitame.Com Research Institute.

“Expectations for a 50 basis point cut had risen after Powell’s comments but were lowered again by the CPI. Until the Fed’s meeting later this month, the prospect of a 50 basis point cut will continue ebbing back and forth on each major data release.”


Comments by Chicago Fed President Charles Evans scheduled later on Friday and New York Fed President John Williams due on Monday will provide a chance to gauge how dovish the central bank really is, said Masafumi Yamamoto, chief forex strategist at Mizuho Securities.

“If these Fed officials are not as dovish as Powell, and if the New York Fed’s manufacturing survey on Monday prove stronger than forecast, they could show that the dollar weakening in response to Powell’s congressional testimony was overdone.”


The dollar briefly trimmed losses after U.S. data showed producer prices rose slightly in June, up 0.1% following a similar gain in May. In the 12 months through June, the PPI rose 1.7%, the smallest gain since January 2017.

Joe Manimbo, senior market analyst, at Western Union Business Solutions in New York said the PPI increase should not shake U.S. rate cut expectations.

Until the Fed’s preferred gauge of inflation, the core personal consumption expenditures price (PCE) index, shows convincing signs of heating up from a low 1.6%, the Fed is unlikely to change its stance on cutting rates this month, he added.


The producer prices data followed a report on Thursday showing the core U.S. consumer price index, excluding food and energy, rose 0.3% in June, the largest increase since January 2018.

The CPI reading pushed U.S. Treasury yields higher, but money markets still indicated one rate cut at the end of July and a cumulative 64 basis points in cuts by the end of 2019, especially after Fed Chairman Jerome Powell flagged such a move in his two-day testimony before Congress this week.

That should be dollar-negative in general, analysts said.

But Jane Foley, head of FX strategy at Rabobank in London, believes dollar weakness will not be as severe as many anticipated because other major central banks are easing as well.

“The dovish stances of most other G10 central banks is offsetting the impact of potential Fed action on the U.S. dollar crosses,” Foley said, noting, for instance, that she expects the European Central Bank to cut its discount rate further into negative territory at its September meeting.


Our forecast on GBP starts to work, as BoE changes its view on UK economy perspectives:

GBP is down on the week as the British currency has been dogged by Britain’s economic gloom and a fast-approaching Brexit deadline.

A raft of dismal UK data and the risk of crashing out of the European Union without agreeing transitional trade arrangements have forced the Bank of England to change its upbeat assessment of the economy.

CFTC data shows that speculators keep net bearish position on EUR and it slightly has increased this week. Net short position has dropped significantly since May and has become 3 times smaller. But now it seems this trend has stopped as some doubts appear on durability of Fed dovish view.

upload_2019-7-13_12-32-58.png

That's being said, taking in consideration recent events, it seems that market will show no reaction on 25 b.p. rate cut and could turn in opposite direction as soon as event will happen, if Fed will not provide new dovish drivers. Our view we discussed many times here - we had careful hope that may be no rate cut still possible on July, but it seems it would be too much for markets' psyche and Fed has to cut rate to keep market calm, despite wants it or not.
Once this calm injection will be done, we hope that facts will take control over emotions and good job market, moderate inflation and personal spending, especially if GDP will be good, turn situation to normal way.
Otherwise, US economy will turn to clear overheat stage, and Fed will have to make the same steps later that it tries to escape right now, but in different worse environment. Rate hike will have to be done aggressively with stronger negative impact on economy. Right now it is still possible to do it smooth, avoiding dovish rate cut cycle and finish it by just single rate cut.
As markets hungry for blood from the one side and my expectations that no dovish comments will be on July meeting from another one - leads us to only one direction on EUR/USD pair in August. Down.

Technicals
Monthly


Technical part of research is not as interesting as fundamental one this week. We hope that coming IIQ GDP in July and Fed meeting will shake the market a bit.

July month still stands inside one to the June, so the intrigue still stands around major support where price is 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.

As market has minor drivers, situation changes only on lower time frames - daily and below.
eur_m_15_07_19.png

Weekly

Here we have two potential patterns. The short-term "Evening star" pattern is interesting with two nearest weeks, as it is mostly tactical and doesn't suggest big price swings. On coming week we get two good drivers - Retail sales on Tue and Michigan on Friday. They could be strong enough to complete the target of this pattern. In general, "Evening Star" suggests downside continuation, which usually takes the shape of AB=CD pattern on daily/4H chart.

But it is not everything clear with the second pattern, which is reverse H&S. It is just two weeks - two candles, till the end of July, but chart tells that it should be much more to complete the shape of the pattern. Currently it is unclear how to combine this facts. Either it will be upside reaction to 1.15 as a result of Fed meeting, then downside retracement later. Or H&S will be erased by downside breakout of 1.1150 area.

For us any direction will be good, as 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.

eur_w_15_07_19.png

Daily

On Friday, we've made cross market analysis, involving DXY chart, as usual. Picture on Dollar Index stands a bit more clear, showing the same pattern on weekly chart, but on daily one the shape of H&S pattern looks better:
eur_d_15_07_19.png
Following to pattern's harmony, it seems that USD should drop a bit more, to reach 96 Fib support level, which agrees with the bottom of right arm. Drag&drop this situation on EUR - it suggests some upside continuation to 5/8 Fib resistance before reversal.
Daily chart tells that weekly "Evening star" pattern takes the shape of H&S on daily chart, and action to the target will take the shape of AB=CD pattern, based on the head and right arm points, as usual. This is at least something that we could use as a background for trading.

Intraday

Keeping the logic of daily chart, here, on 4H we could suggest the first stage of our trading plan. EUR has to reach and form the top of right arm. Our last week setup is done well, as EUR has shown ab=cd reaction on K-resistance. Now we have "222" Buy pattern here, "C" point is also an engulfing pattern. It is interesting guys, that you could find cross-market divergence on 4H chart with Dollar index. As on EUR as on DXY - it was downside AB-CD reaction on K-area, which stands supportive to upside EUR action.
eur_4h_15_07_19.png

This situation tells that we should not search for deep retracement on 1H chart and focus just on minor pullback as upside action could continue. We do not exclude the chance that it again could be minor reverse H&S on top:
eur_1h_15_07_19.png
Conclusion:

So, on coming week we continue our "tactic" trading with weekly 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.
 
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Sive Morten

Special Consultant to the FPA
Messages
12,629
Morning guys,

So let's keep up with our conception of H&S pattern on EUR. As we've said in weekly report - it looks clear on dollar index, so, as EUR actually is 70% of dollar index, situation here could be the same.

The first stage of our trading plan suggests completion if the right arm. Somehow EUR should rise to 1.1325 area and complete harmonic swing around MPP. Although probability exists that shoulder will be small and market could turn down right from here, but we keep classical shape until we get clear signs that this will not happen:
eur_d_16_07_19.png

You can't see it clear on EUR, but on 1H dollar index we have bright bullish setup, which suggests some upside action. This means that on EUR, in turn, market probably will show a bit more downside action, before (as we think) upside action starts:
dxy_1h_16_07_19.png

On EUR we could keep an eye on 1.1235 area of 50% Fib level, where AB=CD target stands:
eur_1h_16_07_19.png

It means that in general, our plan looks like follows. Let's keep this shape by far. Later, depending on how accurately market will follow it, we make adjustments.
eur_4h_16_07_19.png
 

Sive Morten

Special Consultant to the FPA
Messages
12,629
Morning guys,

It seems that we need to make adjustment to daily trading plan while our plan for the week stands intact. The reason is - too fast drop yesterday. Weekly "morning star" pattern that actually, we trade now doesn't determine the depth of upside bounce. We thought that it should be a bit higher, as we recognize H&S shape as on EUR as on DXY. But smaller retracement doesn't harm the pattern and this is the reason why weekly setup stands the same. We expect downside expansion and breakout of 1.11 lows. Here is everything stands the same.

If we suggest that downside is already started - then OP target stands at 1.1060:
eur_d_17_07_19.png

Theoretically, we could imagine that market could turn up again, rise from the ash and reach 1.1325 area by AB=CD pattern. But there are few things that I do not like. Price stands below as WPS1 as MPS1. On daily chart we see strong sell-offs in last 4-5 weeks. Recent drop was too fast for retracement as well. Although EUR hits XOP and stands above recent lows (forming "222' Buy"), but personally I do not want to go long here:
eur_4h_17_07_19.png

We could keep an eye on two moments. First, is upside bounce, somewhere to 1.1240 area. Gradual slow upside action will let us to consider short entry there. Besides, market could form 1H DRPO "Buy" here:
eur_1h_17_07_19.png

Or, breakout of recent lows on 4H chart also will mean that downside action should continue. Only fast upside rally here could change situation. In this case we could suggest daily upside AB=CD and Double Bottom on 4H chart. But somehow I suppose that markets start to suspect something, that Fed will not start any dovish cycle and make just single rate cut. And investors start preparation to this statement.
 

Robban68

Corporal
Messages
95
Morning guys,

It seems that we need to make adjustment to daily trading plan while our plan for the week stands intact. The reason is - too fast drop yesterday. Weekly "morning star" pattern that actually, we trade now doesn't determine the depth of upside bounce. We thought that it should be a bit higher, as we recognize H&S shape as on EUR as on DXY. But smaller retracement doesn't harm the pattern and this is the reason why weekly setup stands the same. We expect downside expansion and breakout of 1.11 lows. Here is everything stands the same.

If we suggest that downside is already started - then OP target stands at 1.1060:
View attachment 43362

Theoretically, we could imagine that market could turn up again, rise from the ash and reach 1.1325 area by AB=CD pattern. But there are few things that I do not like. Price stands below as WPS1 as MPS1. On daily chart we see strong sell-offs in last 4-5 weeks. Recent drop was too fast for retracement as well. Although EUR hits XOP and stands above recent lows (forming "222' Buy"), but personally I do not want to go long here:
View attachment 43363

We could keep an eye on two moments. First, is upside bounce, somewhere to 1.1240 area. Gradual slow upside action will let us to consider short entry there. Besides, market could form 1H DRPO "Buy" here:
View attachment 43364

Or, breakout of recent lows on 4H chart also will mean that downside action should continue. Only fast upside rally here could change situation. In this case we could suggest daily upside AB=CD and Double Bottom on 4H chart. But somehow I suppose that markets start to suspect something, that Fed will not start any dovish cycle and make just single rate cut. And investors start preparation to this statement.
The structure looks like it needs to take out the 1.118 level before a bounce will happen.In that case it will open the road to the 1.106x target as well. 1.116 may provide some bounce supported by June’s open level.

Looking at EUR/GBP it looks ready for a more decent lower correction, in that case GBP/USD seems to be a better long than EUR/USD If playing any bounce.
 

Sive Morten

Special Consultant to the FPA
Messages
12,629
Morning guys,

Despite that EUR starts to look more bearish and we still think that downside action is more probable, it was some fundamental background that let market to jump up a bit. US Real Estate data was mostly negative as Permissions have dropped for 6%. IMF also has released the report where it tells that USD is overvalued for 6-12%. Opposed to that EU CPI was 0.1% better than expected. All this stuff triggered bounce on FX market.

Now our task is to estimate what this bounce is - either CD leg of daily AB=CD retracement, or minor pullback on intraday charts:
eur_d_18_07_19.png

On 4H chart we do not have something new. "222" Buy pattern works but it already has hit mininal target. No other patterns present here by far:
eur_4h_18_07_19.png

Thus, we have to focus on 1H chart. By the way , It really was DRPO "Buy" yesterday... So, now we have upside extensions - XOP stands around 1.1244, while larger AB=CD target creates an Agreement with 1.1251 major 5/8 Fib level. This area is also WPP (look at 4H chart) and natural resistance area.
eur_1h_18_07_19.png

It means that if EUR will break it up, this will be clear sign that upside action continues and this is not just intraday retracement. While downside reversal at 1.1244-1.1251 confirms our view of downside continuation.

Personally, guys, somehow I gravitate to second scenario. Overall action looks slow and fundamental background looks weak, but I'm not pretending on absolute opinion, make your own judgements. So, bears could watch for this area to go short, while bulls have to wait when this area will be broken up.
 

Sive Morten

Special Consultant to the FPA
Messages
12,629
Good morning,

Yesterday was absolutely crazy session. And as always, when you see crazy action, it means that somebody intrudes outside. It was J. Williams comments, the president of NY Fed Bank on rate policy. Market treats it as hint on possible 50 points cut and reacted correspondingly. Gold market, in particular.

Here is what he said:
"The greenback fell broadly on Thursday after Williams’ remarks bolstered bets that the Fed would cut interest rates by 50 basis points, rather than 25 basis points.

Williams said when rates and inflation are low, policymakers cannot afford to keep their “powder dry” and wait for potential economic problems to materialise.

That is especially true with neutral rates that would neither restrict nor accelerate the U.S. economy “around half a percent,” he said. When adjusted for inflation, the neutral rate is near the Fed’s current policy rate, which is in a range of 2.25-2.50%.

Financial markets quickly reacted, with money market futures pricing in almost a 70% chance of a 50 basis point cut at its policy meeting on July 30-31 at one point"

As a result market resurrect possible upside AB-CD action. Although it makes no impact on our major setup - large H&S and downside direction, it changes plans in short-term as EUR could proceed higher to complete the top of right arm:
eur_d_19_07_19.png

On 4H chart we have upside AB-CD. OP target stands slightly above K-resistance area while XOP around 1.1340:
eur_4h_19_07_19.png

In fact, our day has started very nice, as EUR started collapse at predefined area on hourly chart. Happy was lasting till the US session and ended as Mr Williams has started to talk. Now we have strong rally, completed XOP and retracement. Here multiple patterns could be formed - downside AB-CD, butterfly, "222" Sell". So we need to keep an eye which one we will get. But one thing is clear - all downside targets stand above major 5/8 Fib level of 1.1230. Thus, downside breakout probably tells us that speech effect was short-term. This is a signal border. While EUR stands above this level, forming clear patterns - upside action is possible.
eur_1h_19_07_19.png
 

Robban68

Corporal
Messages
95
Good morning,

Yesterday was absolutely crazy session. And as always, when you see crazy action, it means that somebody intrudes outside. It was J. Williams comments, the president of NY Fed Bank on rate policy. Market treats it as hint on possible 50 points cut and reacted correspondingly. Gold market, in particular.

Here is what he said:
"The greenback fell broadly on Thursday after Williams’ remarks bolstered bets that the Fed would cut interest rates by 50 basis points, rather than 25 basis points.

Williams said when rates and inflation are low, policymakers cannot afford to keep their “powder dry” and wait for potential economic problems to materialise.

That is especially true with neutral rates that would neither restrict nor accelerate the U.S. economy “around half a percent,” he said. When adjusted for inflation, the neutral rate is near the Fed’s current policy rate, which is in a range of 2.25-2.50%.

Financial markets quickly reacted, with money market futures pricing in almost a 70% chance of a 50 basis point cut at its policy meeting on July 30-31 at one point"

As a result market resurrect possible upside AB-CD action. Although it makes no impact on our major setup - large H&S and downside direction, it changes plans in short-term as EUR could proceed higher to complete the top of right arm:
View attachment 43388

On 4H chart we have upside AB-CD. OP target stands slightly above K-resistance area while XOP around 1.1340:
View attachment 43389

In fact, our day has started very nice, as EUR started collapse at predefined area on hourly chart. Happy was lasting till the US session and ended as Mr Williams has started to talk. Now we have strong rally, completed XOP and retracement. Here multiple patterns could be formed - downside AB-CD, butterfly, "222" Sell". So we need to keep an eye which one we will get. But one thing is clear - all downside targets stand above major 5/8 Fib level of 1.1230. Thus, downside breakout probably tells us that speech effect was short-term. This is a signal border. While EUR stands above this level, forming clear patterns - upside action is possible.
View attachment 43390
Potential for a Stop grabber on Daily, If closing below 1.1245
 
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