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FOREX PRO Weekly July 18-22, 2011

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Jul 16, 2011.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals
    Well, it’s almost the month has passed since our previous look at major fundamental events. Today I offer you to discuss three major things – future FOMC fiscal policy, ECB stress test and the major question – US debt ceiling.
    Speaking about FOMC policy I just want to remind, that from time to time FOMC feels itself like world central bank. Its aggressive attempt to prevent downward price spiral could have the twofold impact, as a double edged sword. From one point of view, their QE program looks like has worked. In recent data we see some growth in retrials sales, CPI and PPI show some positive pace, although recent PPI has contracted a bit for -.4%. So, now we can say that looks like QE somehow was able to hold deflation and as Fed believes, it will prevent deeper recession. From the other point of view QE was a headache for bankers, who complain that it could lead to huge capital inflows, greater commodity prices, inflation and weak USD.
    Still Fed rhetoric that they keep QE III on the table was not met with optimism and has led to combative foreign commentaries and USD selling. Following the Bank of Korea’s monthly meeting, Governor Kim stated that another round of asset purchases would have an effect on the global economy and could trigger more inflows into South Korea. The SNB’s Jordan responded by stating that the SNB was not powerless and stressed that previous interventions were no failure. There will clearly be global resistance if the Fed opts to employ this strategy yet again.
    Now we can see that recent data does not point on necessity of any further QE. Taking into consideration banker’s grumble and growing weaken in USD, it’s hardly happen that Fed will apply some kind of QE in nearest time, so Bernanke was at backtrack on Thursday. He stated that the FOMC is not prepared at this point to take further action. This kind of statement currently is mostly consistent with expectations of market’s participants. So we can say that probably recent Bernanke’s comments will not have strong bearish impact on USD. Hence, all that we can do is to wait 2-3 another rounds of CPI, PPI and NFP just to see what data itself will tell us. If it will support necessity of another QE, then will be the time to worry.

    Now let’s shift to ECB stress tests that were released on past week. Many people think what a big deal with these tests. Meantime, they could give you early sign, where could some problem appear. Just to remind you the results will cover 91 banks representing 65% of banking assets in the EU. In order to pass, Tier 1 capital must be 5% following the worst case scenario. The adverse scenario includes for example a 15% drop in European equities, a 10% drop in US equities, a 20% drop in Japanese and EM equities, a 15% rise in EUR/USD, a 20% rise GBP/USD and a variety of increases in swap rates, haircuts on debt and credit rating downgrades. Furthermore the health of sovereign securities on the trading book and banking book will be tested.
    And now is starting the most interesting. During the past year 7 banks have not passed the test and 5 of them were Spanish Cajas. All of you know now that very much attention attracts to Italy and Spain as countries that may follow to Greece. In such circumstances failing of stress tests could make market nervous and could have not very pleasant impact on euro. A failure of Spanish banks could be reflected in their financial metrics and may put further upward pressure on yields if the market believes the Spanish government will have to step in. The government is already struggling and revenue collection has been challenged by beleaguered housing market and high unemployment. A negative announcement about these banks could immediately fuel the belief that the Spain may also need a bailout. Overall, if a number of banks fail, probably it should weigh on the euro specifically vs. the JPY, CHF, SGD and gold. Regarding the USD, it will mainly depend on the last USD risk (see below) though assuming Congress moves closer to an agreement, EUR/USD may make yet again make a run under 1.4000.
    As less time left, as more nervous situation become. Now there is an opinion exists that there is 40% probability than Republicans and Democrats will not come to compromise till 2d of August. Thursday has passed and there was no decision, although talks do continue. Now both Moody’s and S&P have put the US on review for a downgrade and are placing Congress’s feet to the fire. Obama has said that he would like a deal formulated by July 22nd as the greater struggle lies in getting the bill passed in the House and Senate. Headlines will drive trade and look for more following Obama’s 11am EDT press conference. If Congress has not reached a deal by the time the July 22nd soft deadline has expired, it would likely not bode well for USD appreciation. Though there is a chance that immediately risk unwind causes an irrational pop in USD, we would look for money to go to other safe havens, for instance CHF. But what will we see if downgrade will happen? First it leads to liquidation of dollar positions and greater demand for USD when investors will start selling of dollar denominated assets.
    If it will end optimistically then we can see appreciation of USD only if there will be not just cosmetic result to solve this problem a bit later and hike debt ceiling currently. If decision will include more than just cosmetic budget cuts then probably it will bullish for USD.

    Monthly
    Trend holds bullish, there are no many changes on monthly chart. As you know, we have two major scenarios. The first one is a move to 1.60 area, the second – deeper retracement to 1.37, but current environment absolutely does not help to resolve this problem and to answer on this question definitely.
    June month has become an inside one, as three past months in general stand in limited range. Now we can say that 1.4140 Fib support is not longer act as support, since it has been broken. Current price action makes me think, that the probability of further move down becomes weaker. First, market has hit monthly overbought, 0.88 Fib resistance, and after all it just has reached nearest Fib support at 1.4140. Second, although it seems was broken, market still has not reached Confluence support and now it looks more like W&R of previous lows. This is not very typical for situations when market really intends to move lower. It looks like the downward power is not so great, at least currently. Nearest target stands at 1.5272, but potentially it could turn to butterfly “Sell” pattern. The target of this pattern is 1.27 extension at 1.6027. Also it almost coincides with 1.27 target of recent bullish AB-CD at 1.5925.

    Still, from another point of view, if you draw trend line and link lows at 1.1874 and 1.2870, then you will be able to see that this trend line nicely holds upward move. From that perspective retracement in July to 1.37 Confluence support will be normal, since it precisely will reach this trend line.
    In general more confidence could give us with bearish bias close below 1.40. Downward possibility also implicitly confirms with market overbought. Usual retracement target during overbought is zero point of Detrended Oscillator and this level stands around monthly Confluence support. Also its worth to note here that trend will remain bullish, even if market will reach 1.37 area. Still, if market will hold on first Fib support, this will be much better for current bullish bias and Butterfly pattern.
    [​IMG]
    As an alternative scenario I want to show you a bit different picture. This scenario suggests possible reversal not at 1.60 but at 1.52 area. Also it suggests retracement to 1.37 monthly confluence support. This is 3-Drive “Sell”:
    #2
    [​IMG]
    See – for agreement of 1.618 of first drive and 1.27 of second drive market should show retracement to 1.37 before acceleration to 1.52.
    So, as conclusion to monthly chart we can say, that overbought, trend line and potential 3-Drive are support retracement to 1.37, while butterfly and standing for a long time at first Fib support level are support further move up. Still market now stands under influence of fundamental data that could lead to fast twist and turn in market’s direction after just a single word of US or EU authorities.
    Weekly
    Weekly trend holds bearish. On previous week, as you remember, situation was absolutely unclear. We had have couple of different butterflies, and it was difficult to say what will happen. Now situation has become much clearer. First, butterfly “Sell” has been cancelled by down move during recent week. Second, stop grabber has worked out perfectly – lows at 1.3963 have been cleared. Also, if you remember, we’ve said, that may be, due triggering stops just below this level, market could reach confluence support. Now we see that market almost has done this. It has not reached 1.3733-1.3760 targets of butterfly and AB-CD pattern just for 60 pips. In terms of weekly chart this is nothing.

    Now try to look at overall picture – look at the nature of up move and current move. To my mind, current action is not thrust. It looks like retracement, and probably upward move could continue. Who knows, may be current pullback is just a respect of strong support, but market has not quite reach it. That’s why it’s hardly so. I don’t know but currently personally for me this environment looks more bullish rather than bearish. Also, daily and 4-hour charts tell that reestablishing of down move is not typical. It looks more like Gartley “222” Buy with target around 1.52 as on monthly chart. But, again, all depends on nearest macro fundamental events.
    [​IMG]

    Daily
    Although trend holds bearish and during previous week we’ve said that market could continue move down from 1.4266, now a lot of signs that are not quite bearish. First, market has formed high wave pattern that tells that market indecision. It’s not very typical for continuation of the trend. If current move up is just retracement, then, when market has hit 0.618 Fib resistance it should show nice move down, but we do not see it. Second, market has moved above lows around 1.4050-1.4060. Third, recent breakout of 1.39 lows and fast return back looks like W&R of that lows, we’ve told about it already. And last thing – look at strong black bar down, then strong white bar up, after hammer pattern, some kind of morning star. This very often happens when market shift momentum. And I don’t like all these signs from bearish point of view.
    [​IMG]

    4-hour
    Trend has turned bearish, but price action is not very impressive. On Friday we’ve discussed a suspicion that this is probably not a reestablishing of downtrend. And looks like this is really so – a lot of doji, sideways move and total absence of thrusting candles. Just below the market strong support area – 1.4050-1.4086 and Pivot at 1.4058. That’s an area to keep an eye on. Analysis tells that probably on coming week we will see some up move. How far it will be I can’t say definitely, but price action absolutely does not match to continuation of bearish trend, even more this is absolutely not the trend.
    [​IMG]

    1-hour
    Here, guys, you can see excellent example of DiNapoli Rail Road Tracks (RRT) directional pattern, right on the bottom of the screen. This is by the way really W&R of previous lows – bullish pattern. Current move down confirms my concerns that this is just a retracement but not the impulse. Hence, this is not a continuation of downtrend, consequently we have to be aware of further move up. Major area to watch for is Confluence and pivot at 1.4050. You can see that different AB-CD’s have slightly different targets. One of them creates tight Agreement with 1.4050, while other stands a bit lower. Our preferable scenario is to see some flirting with 1.4050 area, may be W&R with hitting 1.4004 target, I don’t know, but personally I’ll be looking for buy patterns around 1.4050.
    Another scenario could be is that market could just break up this wedge and continue move up. In this case use most recent swing up and nearest retracement from it.
    [​IMG]

    Conclusion:
    Position traders:
    It’s better to wait till 2d of August before open long-term positions, but currently to my mind market has more bullish signs than bearish.


    Intraday and daily traders:
    1. Current price action is rather choppy, but 1.4050 is an area to watch for to establish long positions. Nearest target is 1.4266, what will be after that is difficult predict currently.


    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.
     
  2. Johnny2pips

    Johnny2pips Sergeant

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    Thanks Sive.
    If I read you correctly (between the lines) then stay out of the market for the rest of the month. Good. I will now concentrate on the FX course and try and catch up to you guys.
    I did manage to exit my short at -12$ and scalped it back to +11$. Eur/Usd has been in a tight range even making scalping difficult.
    No more popcorn for now. Study, study and study.
     
  3. signupmoney

    signupmoney Recruit

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    I see a bullish reversal coming as well, maybe a little bit more downside potential, but will turn around soon.
     
  4. Icarus

    Icarus Private, 1st Class

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    Hi Sive, I have a question about the RRTs you mentioned. I noticed this at the time but was uncertain if it signaled an upside target the length of the tracks, or if it signals a directional reversal. Or both? If I am not mistaken, we can see this pattern on the hourly, 4-hour and daily charts. Have all targets of this RRT been met on all three time frames? Also, if the downward candle is shorter than the upward candle, which length do we use to calculate the target? Or is the combination of both candle lengths? Thank you for clearing up this area for my understanding. I have had this question for awhile.
     
  5. georgeta

    georgeta Sergeant

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    NOK

    Hello Mr. Sive!
    I understand that your time is very limited, so I'll just post an analysis and hope you'll take a look. If not, take care of yourself and don't overwork!

    Monthly: Trend is bearish, price is forming ABCD retracement after strong move up, straight to 0.5 resistance from all time high. Target of ABC coincides with 1 retracement of the move up and stands inside this move.

    Weekly: Retracement after reaching of small abc 100% target and Agreement with 0.88 fib support. Problem is that trend turned bulish but the price action stands in the range of initial bulish engulfing. We have 0.382 resistance of CD leg. So, up or down?
    Preferably market will move up to weekly Confluence resistance and form Butterfly sell. Monthly trend will stay bearish precisely at that area.

    Daily: trend bulish. Price could form ABCD retracement after strong move up.

    H4: several Stop grabbers. I think price will retrace to WS1. This is 0.618 daily retracement and agreement. Also, this is the low of strong daily bar up.

    Action: I will SELL right at the opening of the market. ST just above 0.382 Weekly resistance. If price goes down I will move stops to BE an wait to see if I get any bullish pattern around 5.448 agreement area. If yes, close short positions and open longs, if not hold short.
     

    Attached Files:

    #5 georgeta, Jul 16, 2011
    Last edited: Jul 17, 2011
  6. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Hi Icarus,
    Length of bars not neccesary should be absolutely equal. If you'll see something like that - that's will be OK. The length of the bars is a nearest and high probability target, but RRT could be first signal of major reversal.
    W&R very often looks like RRT but they are not the same. RRT should have not price action to the left at the same level for 140-180 periods, while W&R could have.
    RRT could appear at any time frame. Besides, you can adjust time frame to see them clearer. For instance, on daily it looks like hammer, but on hourly - clear RRT.
     
  7. Icarus

    Icarus Private, 1st Class

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    Thank you.
     
  8. yousuf

    yousuf Private, 1st Class

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    Hi

    Hey sive,

    thanks again for your analysis. Hope your in good health.

    Quick 2 questions:

    1. Do you think it is wise to buy a straddle from current market price of 14150?

    2. You work for an european bank, did your bank pass the stress test ? =P
     
  9. davedubai

    davedubai Private, 1st Class

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    Dear Mr. Yousuf,

    At the out set I express my inability to remain silent and say sorry to Mr. Sive as I am replying some questions posted for him. My reply here is as a showcase to all forum users and also all budding learners.

    now, Mr. Yousuf ,

    Question 1 Yes its ok
    Question 2 Though the question is out of pure concern that you may have for Mr. Sive but is not correct ask as we are here as a student and not ask something personal. Its Mr. Sive's credentials that he is working for an EU bank ! Did we went to our bank and asked how much exposure our banks have in EU banks ? - No . Sorry Mr.Yousuf I dont want to hurt you for asking this question but i feel sad & Its incorrect that when something is free we take things for granted and ask beyond our cup of tea !

    I am not on advise mode to Mr. Yousuf but I am being a student who is respecting his Teacher - Mentor - Guru. So, Mr. Yousuf, please take it in right spirits. Salam Allekum.
     
    #9 davedubai, Jul 17, 2011
    Last edited: Jul 17, 2011
  10. akalou

    akalou Private

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    Trailing Stop

    Greetings Sive, Once again thanks for ur straight to the point analysis. pls would need help as to how to use trailing stop, what it is all about, and if it a better option than stop loss. please pardon me if i am drawing you backwards please, i just want to learn from you. Thanks in anticipation of ur usual support. :)
     

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