Sive Morten
Special Consultant to the FPA
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Fundamentals
Last week mostly was full of political events and most important were D. Trump meeting with EU leaders in Brussels, NATO summit and $200 Bln. of new tariffs on the table against China. The most important coming event, of course, is Putin-Trump meeting on Monday.
Would we like or not, but we have to touch politics in today's discussion because it has tight relation to the financial future of global markets and EUR in particular. GBP also will not escape some impact, I suppose.
Some long-lasting driving factors will continue to work, no doubts, such as Fed/ECB policy disbalance and the overall difference in economic performance of EU and US. All these factors we've discussed in details in previous reports.
I have to talk again about Putin-Trump meeting and some results on Brussels meeting, mostly sentiment results.
Somehow it is a common opinion that Russia and US can't have consensus on any subject in foreign policy. Their targets are diametrically opposite. But this is not true. Of course, they have contradictions in many spheres, in some moments they are rivals, but they also have a lot of common targets. Since we're talking on EUR/USD, let's take a look at EU as a bureaucratic organization under control of Brussels bureaucracy. Who has created it and for what purpose? This supra-national authority was created with one major purpose - to relieve all countries of EU its independence. What country could decide something above EU government approvement? No one. What's the point to discuss something with Germany, Italy, France, etc. if they can't decide by themselves and anyway have to put any decision through EU parliament. But this EU polity harms not just government but EU citizens as well. They use human, national resources of every EU country (especially developed ones) and utilize them by their own interests without any attention to indigenous citizens, mooch them, but they could do nothing, can't impact on any decision and external policy. This EU government was made just with a single aim - control EU, and use its resources for its masters.
What do we see right now? EU tries to change this situation. The bright example is Austria and its chancellor S. Kurz. He is the first person who has started independent policy, refusing any EU obligations put on Austria. He is the first who placed interests of own people in the first place. Here we see decisions on migrations, sanctions and other moments.
Now we see that other countries try to make steps in the same direction - to escape the control of Brussels. Italy is the most active after Austria here. Germany, due its leading role in EU, is most difficult to do this, as it is involved in all Brussels processes and hardly controlled by bureaucrats. This is the major donor. Poor Germans... They carry the vast burden of EU parasites on their backs. But there is nothing that they could do. They elect government, but it can't do something because Brussels bureaucracy stands above this government and it's absolutely doesn't matter who will win on Germany lefts or rights - people's life will not become better.
Why I'm talking about it? Because as Putin as Trump is interested in the same thing - the destruction of Brussels polity and give each country independence. It seems that EU countries themselves also tend to this. They need new markets for growth and development, but all of them are closed by US sanctions and road to them stands on the East through Russia. At the same time, there are more and more problems with the US in trading sphere. Last time we've mentioned separate negotiations between Trump and Macron.
This makes me think that EU will be re-organized and should become just the union of independent countries but without a common government. Brussels government could be held, but they will control some minor spheres. The same probably will happen with NATO.
Definitely this will take a heavy toll on EUR. Before EU has a new order, it could be involved in the soft political chaos of reorganization. Brexit is the first bright step in this process. Hardly this will be positive for EUR.
Speaking on China, US worries on China 2025 programme that suggests taking the leading role in high technologies and defense sphere. Since they use a lot of US intentions, Trump tries to get some money for that and stop China progress. I think that Putin could step aside and do not affect this process. After all, China always stands aside at the major points of global policy and usually joins to the winner.
But who is really will appear in a difficult situation - Eastern Europe puppet governments, Saudi Arabia and Israel. It will be a hard time for them. Trump is turning to save mode; he needs money to raise the domestic economy and reduce the debt burden. He will not spend money anymore on color revolutions, puppet governments. Saudi Arabia has a big part of US national debt, and destruction it as a government for debts write-offs look attractive. Besides, It has stuck in terrorists support in Syria and Yemen, and it will be easy to do it, despite how cynic this sounds.
As the US leaves the Middle East, Israel will be one-on-one with Iran, Lebanon, Syria and other countries and against UN decision on East Jerusalem. This will be a tough time. But this is a different story.
That's being said, our discussion today mostly takes political direction, although we do not like this. But, since coming processes will make a strong impact on the economy and EUR, in particular, we just can't ignore this.
We foresee restructuring of EU from political block to just economic union of truly independent countries, but this restructuring will be painful because Brussels' guys will not deny power voluntary. On Monday Putin and Trump should agree not only major questions on power balance in the world but also decide what public events will be taken to cover real processes. Everything should look natural for public and in media.
It means that we could get some relief on EUR/USD from time to time, but overall trend probably will remain bearish. Despite the greenback’s stalling on Friday, prospects for a strong dollar remain intact.
“It’s hard to see what’s going to dethrone the dollar,” said Paresh Upadhyaya, director of currency strategy at Amundi Pioneer Investments in Boston.
“Trade war concerns amplify the downside risk on global growth. That tends to be positive for the dollar and puts a drag on other currencies,” Upadhyaya said.
Upbeat comments on the U.S. economy from Federal Reserve Chairman Jerome Powell also stoked earlier demand for the dollar, analysts said.
Recent data showing China’s trade surplus with the United States swelled to a record in June could further inflame tensions. U.S. President Donald Trump this week pledged to impose tariffs on $200 billion more in Chinese imports. Beijing has vowed to retaliate.
Escalating trade tensions have not dented the U.S. economy, which on is its second longest expansion on record.
On Thursday, Fed chief Powell said in a Marketplace radio interview he believes the U.S. economy remains in a “good place,” with recent government tax and spending programs likely to boost growth for perhaps three years.
The Fed released its semiannual report on monetary policy before Powell’s testimony to Congress next Tuesday and Wednesday. The report showed solid U.S. economic growth and the Fed expecting to keep raising rates gradually.
We also think that China is more depended from the US in mutual trading. Mostly due poor domestic social policy - no pension plans for retired persons, low unemployment payments (~200$), a big part of craft industry which is very sensitive to any difficulties in the economy. So, under the tariffs and reducing of demand, a lot of craft producers could fall under bankruptcy and provoke chain reaction which keeps hazard of social catastrophe and fast burning of national reserves.
The US could print dollars; China is not.
Here is another great diagram from Reuters on China/US trading balance.
COT Report
So, net long EUR position is still dropping by recent CFTC report:
Despite total open interest has decreased - take a look at non-commercial (speculative) positions. New shorts where opened while longs have been closed slightly:
It means that EUR sentiment still stands moderately bearish.
Technicals
Monthly
For two recent weeks market stands in tight daily triangle consolidation. Thus it makes no impact on monthly/weekly charts and our analysis stands the same either.
July has no impact yet on overall monthly picture because it stands as inside candle by far. June, in turn also was an inside for May candle. As trading range is narrowing - it means that market turns to some consolidation around major support of YPP and Weekly K-support area.
Since we have bearish view on EUR in a perspectives of 6-12 months, major concern stands not around direction, but around manner of price action. Particularly speaking - whether we will get our 1.20 bounce before turning south or, EUR will continue down immediately.
Position of grabber also looks interesting, because it contradicts to other inputs. Grabber suggests action above 1.26, but this scenario doesn't agree with ECB policy and investors sentiment that we see from COT report. Since they are mutually exceptive scenarios - one of them should fail.
Also, long-term price behavior stands bearish. Reversal down has happened after completion of harmonic swing and around YPR1. The fact that EUR has failed to break through YPR1 tells that upside rally from 1.03 to 1.26 was just a retracement within larger bear trend. Now it is particularly interesting how EUR will behave around YPP. Drop below it will open road to YPS1 at ~1.09 which corresponds to our fundamental 1.10 target.
It means that to make grabber work we need to get strong positive fundamental factor. Current inputs that we have definitely are not sufficient for drastic upside reversal on EUR.
Weekly
Weekly chart also mostly stands the same. We see that upside action is started, but it seems it feels some difficulties as it goes heavy. No fast acceleration up from neckline. May be it will follow a bit later, but what we really need to worry about - may be it has not started yet, and some minor dive will happen before real upside action will start. This is what we're interested in short-term.
In broader picture EUR still keeps chances on H&S scenario as price holds well around major support and potential neckline.
Just to remind you, our basic scenario suggests upside bounce back to 1.20-1.21 area, where market should form right arm of our H&S pattern. If, by that time, when arm will be completed, no major shifts in EU/US balance will happen - drop to 1.10 could become a reality. Whole action will take approximately 6 month. 1.09 - 1.10 area is major 5/8 Fib support and YPS1.
Alternative scenarios, such as immediate downside breakout and failure of H&S pattern in 1.20 area, if EUR
will not stop but continue upside action now look less probable as both of them need extra strong political or economical driving factors which we do not have on a table yet.
Here we need to keep our concern of untouched major support area. EUR has turned up but major supports still has not been touched.I would prefer testing of weekly support first just because untouched is perfect situation for traps of different kind and fake downside breakouts. Everything could happen, of course, but it is better to get stronger signs of upside action to be sure that it is indeed tending to 1.20...
Finally, EUR is coming to flirt with MACDP line next week. We should keep an eye on possible bearish grabber which could become very important pattern in current situation. .
Daily
So, this picture is well-known to us as we've worked with it through the whole previous week. Our "222" Sell has done well as EUR has shown 3/8+ drop down which lets us to treat "222" pattern as completed.
As we've said on Friday - next step stands in relation to 5/8 support. While market stands above it, it keeps chances to re-establish upside action, and only its breakout could let us speak on daily butterfly and 1.1450 target again.
Currently its not the case yet. Besides, as you can see we've got bullish grabber on Friday, which suggests upward action above 1.18 top. It seems that there will be another attempt of upside breakout on next week.
Intraday
Here is again, guys, we have classic reversal process. On 4H chart market has dropped to major 5/8 and shows strong bounce up from it. This is good sign for bulls. Of course, I would prefer XOP target been hit as well, but, this has not happened.
On Monday we should keep an eye on 1H reverse H&S pattern, and particular to right arm bottom. This is the point where we understand whether H&S will work or fail. H&S failure will bring nothing good, because it means that daily grabber will fail either.
But, as upside action was rather strong, it's a good chances to get real upside action. Target probably will be more extended, above, 1.18 because H&S is just a pattern that reverses market, while we also have daily grabber...
Conclusion:
Right now we do not see any changes in fundamental background and even more - some US efforts for EU destabilization, it has big chances for negative effect in long term perspective for EU.
Thus, 1.20-1.21 retracement still stands on the table, but, danger is threatening EU and re-establishing of long-term bear trend after retracement is very probable.
In shorter-term perspective we mostly will deal with the same daily triangle pattern and attempt of upside breakout again.
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.
Last week mostly was full of political events and most important were D. Trump meeting with EU leaders in Brussels, NATO summit and $200 Bln. of new tariffs on the table against China. The most important coming event, of course, is Putin-Trump meeting on Monday.
Would we like or not, but we have to touch politics in today's discussion because it has tight relation to the financial future of global markets and EUR in particular. GBP also will not escape some impact, I suppose.
Some long-lasting driving factors will continue to work, no doubts, such as Fed/ECB policy disbalance and the overall difference in economic performance of EU and US. All these factors we've discussed in details in previous reports.
I have to talk again about Putin-Trump meeting and some results on Brussels meeting, mostly sentiment results.
Somehow it is a common opinion that Russia and US can't have consensus on any subject in foreign policy. Their targets are diametrically opposite. But this is not true. Of course, they have contradictions in many spheres, in some moments they are rivals, but they also have a lot of common targets. Since we're talking on EUR/USD, let's take a look at EU as a bureaucratic organization under control of Brussels bureaucracy. Who has created it and for what purpose? This supra-national authority was created with one major purpose - to relieve all countries of EU its independence. What country could decide something above EU government approvement? No one. What's the point to discuss something with Germany, Italy, France, etc. if they can't decide by themselves and anyway have to put any decision through EU parliament. But this EU polity harms not just government but EU citizens as well. They use human, national resources of every EU country (especially developed ones) and utilize them by their own interests without any attention to indigenous citizens, mooch them, but they could do nothing, can't impact on any decision and external policy. This EU government was made just with a single aim - control EU, and use its resources for its masters.
What do we see right now? EU tries to change this situation. The bright example is Austria and its chancellor S. Kurz. He is the first person who has started independent policy, refusing any EU obligations put on Austria. He is the first who placed interests of own people in the first place. Here we see decisions on migrations, sanctions and other moments.
Now we see that other countries try to make steps in the same direction - to escape the control of Brussels. Italy is the most active after Austria here. Germany, due its leading role in EU, is most difficult to do this, as it is involved in all Brussels processes and hardly controlled by bureaucrats. This is the major donor. Poor Germans... They carry the vast burden of EU parasites on their backs. But there is nothing that they could do. They elect government, but it can't do something because Brussels bureaucracy stands above this government and it's absolutely doesn't matter who will win on Germany lefts or rights - people's life will not become better.
Why I'm talking about it? Because as Putin as Trump is interested in the same thing - the destruction of Brussels polity and give each country independence. It seems that EU countries themselves also tend to this. They need new markets for growth and development, but all of them are closed by US sanctions and road to them stands on the East through Russia. At the same time, there are more and more problems with the US in trading sphere. Last time we've mentioned separate negotiations between Trump and Macron.
This makes me think that EU will be re-organized and should become just the union of independent countries but without a common government. Brussels government could be held, but they will control some minor spheres. The same probably will happen with NATO.
Definitely this will take a heavy toll on EUR. Before EU has a new order, it could be involved in the soft political chaos of reorganization. Brexit is the first bright step in this process. Hardly this will be positive for EUR.
Speaking on China, US worries on China 2025 programme that suggests taking the leading role in high technologies and defense sphere. Since they use a lot of US intentions, Trump tries to get some money for that and stop China progress. I think that Putin could step aside and do not affect this process. After all, China always stands aside at the major points of global policy and usually joins to the winner.
But who is really will appear in a difficult situation - Eastern Europe puppet governments, Saudi Arabia and Israel. It will be a hard time for them. Trump is turning to save mode; he needs money to raise the domestic economy and reduce the debt burden. He will not spend money anymore on color revolutions, puppet governments. Saudi Arabia has a big part of US national debt, and destruction it as a government for debts write-offs look attractive. Besides, It has stuck in terrorists support in Syria and Yemen, and it will be easy to do it, despite how cynic this sounds.
As the US leaves the Middle East, Israel will be one-on-one with Iran, Lebanon, Syria and other countries and against UN decision on East Jerusalem. This will be a tough time. But this is a different story.
That's being said, our discussion today mostly takes political direction, although we do not like this. But, since coming processes will make a strong impact on the economy and EUR, in particular, we just can't ignore this.
We foresee restructuring of EU from political block to just economic union of truly independent countries, but this restructuring will be painful because Brussels' guys will not deny power voluntary. On Monday Putin and Trump should agree not only major questions on power balance in the world but also decide what public events will be taken to cover real processes. Everything should look natural for public and in media.
It means that we could get some relief on EUR/USD from time to time, but overall trend probably will remain bearish. Despite the greenback’s stalling on Friday, prospects for a strong dollar remain intact.
“It’s hard to see what’s going to dethrone the dollar,” said Paresh Upadhyaya, director of currency strategy at Amundi Pioneer Investments in Boston.
“Trade war concerns amplify the downside risk on global growth. That tends to be positive for the dollar and puts a drag on other currencies,” Upadhyaya said.
Upbeat comments on the U.S. economy from Federal Reserve Chairman Jerome Powell also stoked earlier demand for the dollar, analysts said.
Recent data showing China’s trade surplus with the United States swelled to a record in June could further inflame tensions. U.S. President Donald Trump this week pledged to impose tariffs on $200 billion more in Chinese imports. Beijing has vowed to retaliate.
Escalating trade tensions have not dented the U.S. economy, which on is its second longest expansion on record.
On Thursday, Fed chief Powell said in a Marketplace radio interview he believes the U.S. economy remains in a “good place,” with recent government tax and spending programs likely to boost growth for perhaps three years.
The Fed released its semiannual report on monetary policy before Powell’s testimony to Congress next Tuesday and Wednesday. The report showed solid U.S. economic growth and the Fed expecting to keep raising rates gradually.
We also think that China is more depended from the US in mutual trading. Mostly due poor domestic social policy - no pension plans for retired persons, low unemployment payments (~200$), a big part of craft industry which is very sensitive to any difficulties in the economy. So, under the tariffs and reducing of demand, a lot of craft producers could fall under bankruptcy and provoke chain reaction which keeps hazard of social catastrophe and fast burning of national reserves.
The US could print dollars; China is not.
Here is another great diagram from Reuters on China/US trading balance.
COT Report
So, net long EUR position is still dropping by recent CFTC report:
Despite total open interest has decreased - take a look at non-commercial (speculative) positions. New shorts where opened while longs have been closed slightly:
It means that EUR sentiment still stands moderately bearish.
Technicals
Monthly
For two recent weeks market stands in tight daily triangle consolidation. Thus it makes no impact on monthly/weekly charts and our analysis stands the same either.
July has no impact yet on overall monthly picture because it stands as inside candle by far. June, in turn also was an inside for May candle. As trading range is narrowing - it means that market turns to some consolidation around major support of YPP and Weekly K-support area.
Since we have bearish view on EUR in a perspectives of 6-12 months, major concern stands not around direction, but around manner of price action. Particularly speaking - whether we will get our 1.20 bounce before turning south or, EUR will continue down immediately.
Position of grabber also looks interesting, because it contradicts to other inputs. Grabber suggests action above 1.26, but this scenario doesn't agree with ECB policy and investors sentiment that we see from COT report. Since they are mutually exceptive scenarios - one of them should fail.
Also, long-term price behavior stands bearish. Reversal down has happened after completion of harmonic swing and around YPR1. The fact that EUR has failed to break through YPR1 tells that upside rally from 1.03 to 1.26 was just a retracement within larger bear trend. Now it is particularly interesting how EUR will behave around YPP. Drop below it will open road to YPS1 at ~1.09 which corresponds to our fundamental 1.10 target.
It means that to make grabber work we need to get strong positive fundamental factor. Current inputs that we have definitely are not sufficient for drastic upside reversal on EUR.
Weekly
Weekly chart also mostly stands the same. We see that upside action is started, but it seems it feels some difficulties as it goes heavy. No fast acceleration up from neckline. May be it will follow a bit later, but what we really need to worry about - may be it has not started yet, and some minor dive will happen before real upside action will start. This is what we're interested in short-term.
In broader picture EUR still keeps chances on H&S scenario as price holds well around major support and potential neckline.
Just to remind you, our basic scenario suggests upside bounce back to 1.20-1.21 area, where market should form right arm of our H&S pattern. If, by that time, when arm will be completed, no major shifts in EU/US balance will happen - drop to 1.10 could become a reality. Whole action will take approximately 6 month. 1.09 - 1.10 area is major 5/8 Fib support and YPS1.
Alternative scenarios, such as immediate downside breakout and failure of H&S pattern in 1.20 area, if EUR
will not stop but continue upside action now look less probable as both of them need extra strong political or economical driving factors which we do not have on a table yet.
Here we need to keep our concern of untouched major support area. EUR has turned up but major supports still has not been touched.I would prefer testing of weekly support first just because untouched is perfect situation for traps of different kind and fake downside breakouts. Everything could happen, of course, but it is better to get stronger signs of upside action to be sure that it is indeed tending to 1.20...
Finally, EUR is coming to flirt with MACDP line next week. We should keep an eye on possible bearish grabber which could become very important pattern in current situation. .
Daily
So, this picture is well-known to us as we've worked with it through the whole previous week. Our "222" Sell has done well as EUR has shown 3/8+ drop down which lets us to treat "222" pattern as completed.
As we've said on Friday - next step stands in relation to 5/8 support. While market stands above it, it keeps chances to re-establish upside action, and only its breakout could let us speak on daily butterfly and 1.1450 target again.
Currently its not the case yet. Besides, as you can see we've got bullish grabber on Friday, which suggests upward action above 1.18 top. It seems that there will be another attempt of upside breakout on next week.
Intraday
Here is again, guys, we have classic reversal process. On 4H chart market has dropped to major 5/8 and shows strong bounce up from it. This is good sign for bulls. Of course, I would prefer XOP target been hit as well, but, this has not happened.
On Monday we should keep an eye on 1H reverse H&S pattern, and particular to right arm bottom. This is the point where we understand whether H&S will work or fail. H&S failure will bring nothing good, because it means that daily grabber will fail either.
But, as upside action was rather strong, it's a good chances to get real upside action. Target probably will be more extended, above, 1.18 because H&S is just a pattern that reverses market, while we also have daily grabber...
Conclusion:
Right now we do not see any changes in fundamental background and even more - some US efforts for EU destabilization, it has big chances for negative effect in long term perspective for EU.
Thus, 1.20-1.21 retracement still stands on the table, but, danger is threatening EU and re-establishing of long-term bear trend after retracement is very probable.
In shorter-term perspective we mostly will deal with the same daily triangle pattern and attempt of upside breakout again.
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.