FOREX PRO WEEKLY July 20-24, 2015

[Sive Morten]

Fundamentals


Reuters reports dollar rose on Friday, ending its best week of gains since May, on strong inflation and housing data that encouraged bets on a U.S. interest rates hike by the end of the year.

U.S. consumer prices rose for a fifth straight month in June, while housing starts jumped last month and building permits surged to an eight-year high, according to separate government reports.

The Federal Reserve has kept its short-term interest rate near zero for more than six years, and most economists believe the Fed will initiate rate hikes in September. Fed Chair Janet Yellen this week said an interest rate increase was likely this year.

The euro was off 0.25 percent on Friday to $1.0850, a level last seen on May 27 and down more than 2 percent on the week as currency investors shifted attention from the Greek crisis to economic fundamentals that favor the United States.

Most traders and strategists reckon the diverging policy outlook between the euro zone and the United States should see the euro continue to weaken, with many betting that it will fall below $1 in the next year.

"The focus is turning to the U.S. rate cycle, and (the market reckons) a September rate hike is still, if not probable, at least possible," RBC Capital Markets global head of FX strategy, Adam Cole, said. "From now the euro goes down primarily because the dollar is going up."

Sterling hit a 7-1/2-year high against the euro of 0.6992 pounds after Bank of England Governor Mark Carney gave his strongest hint yet on the timing of a UK rate rise, saying a decision would come into focus around the end of 2015.

Looking forward, Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, said, "The dollar’s outperformance, coupled with a slow start to America’s economic calendar next week, could leave it prey to profit-taking."

The Canadian dollar extended its losses against the U.S. dollar on Friday following a slew of economic data that signaled higher U.S. interest rates, while Canada's benchmark rate just dropped.
The currency retreated 2.5 percent this week to its weakest level since March 2009. Its biggest dive came on Wednesday after the Bank of Canada announced a 25 basis point rate cut for the second time this year after data showed the economy likely contracted during the first half of the year.
"In terms of small moves, the move on Friday is a very impressive one... Any other time, this would be a perfect opportunity to square your positions ahead of weekend," said Adam Button, currency analyst at ForexLive in Montreal.
"Yet, there is very little of that taking place in Canadian dollar trading ... Right now you have a perfect storm for the Canadian dollar. The Bank of Canada isn't a one day, or even a two-day event."
The loonie finished at C$1.2987 to the U.S. dollar, or 77 U.S. cents, weaker than the Bank of Canada's official close on Thursday of C$1.2970, or 77.10 U.S. cents.
On the data front, Canada's annual inflation rate edged up to 1 percent in June, led by higher food prices, but the rate was tempered by cheap energy prices.
Recent CFTC data shows impressive growth in open interest on CAD. As short as long positions have shown growth last month, but last week small growth was only in shorts. So, sentiment mostly supports bearish view on CAD. At the same time, short positions are exceeding long ones too much. Take a look, we have 80K contracts on short side and only 35 K on long side. If we will calculate the ratio we will see that shorts stands near 80% of total amount of speculative positions. It means that market could move slightly higher in near-term perspective, but probably it will take some pause prior it will reach major 1.3470 target. Also it will be interesting to see numbers on next week, after rate cut that has happened last week, because right now we have data that was before rate cut happened.
Open Interest:

Speculative Longs:

Speculative shorts:

Technicals
Monthly
Last week was really meaningful for CAD. Market has shown solid upside progress and long term monthly setup has entered in final stage, I suppose. At least it is not long distance rest till the target, in terms of monthly scale, of cause
CAD trend is bullish. We do not have any yearly pivots here because CAD has passed through all of them, even YPR2 at 1.23 area. Last time we’ve discussed big AB-CD pattern in progress that already has passed above 0.618 target and has major destination point at 1.3420 that creates Agreement with major 1.3470 Fib resistance. This pattern is still valid and stands as cornerstone of our analysis. Our former suggestions and reasons why we think that USD/CAD should continue move up looks like were correct and have been confirmed by price action. Of cause we couldn’t foresee rate cut, but technical picture suggested upside continuation.
Market is not at overbought any more, and price has broken up as through upper border of the flag as through 50% Fib resistance. On monthly chart CAD has no barriers till our major target and now it seems that it should be hit with high probability. As CAD fundamental data as crude oil prices are supportive for further CAD weakness.
So, monthly picture mostly stands in favor of upside continuation in long-term perspective to our major long-term target 1.3470 – Agreement with major Fib resistance level.

Weekly
On weekly chart currently situation is relatively simple. Trend is bullish, but market stands very close to overbought and even we could say at overbought. At the same time there is 100 pips more to first 1.27 extension of butterfly. Recall that CFTC shows a bit overextended short positions and agrees with possible retracement here.
So, our conclusion on weekly chart – market probably will reach 1.3050 area before any meaningful retracement will happen. But after that we expect some bounce down to provide relief to the market. At the same time we do not expect too deep retracement since our major target has not been hit yet. It would be perfect if market will just re-test broken top around 1.28 area. In general this corresponds with minimal 3/8 retracement that butterfly should provide.

Daily
On daily chart we have similar picture. AB=CD pattern has 1.618 extension target around 1.3150 – slightly higher than weekly butterfly. Market stands close to overbought but not at overbought yet. New WPR1 coincides with weekly butterfly extension around 1.3084 area. Currently it is difficult to say how market will hit these targets since they have solid gap between them around 100 pips. This is not small distance for daily time scale. Either it will hit them simultaneously and start retracement after that, or, may be, it will hit first target, show retracement and 1.618 AB=CD target will be hit on final way up. Anyway, we’re mostly interested in depth of retracement, since this is the chance for scale-in or for first entry for those who doesn’t have yet long position.
Let’s work on some perspective here, guys. I’ve drawn fib levels that are not based on current high but on potential AB-CD target. Just to show levels that will be at that moment. I’ve marked this top by red circle. So all Fib levels that I’ve drawn here are based on top around 1.3162. If retracement really will start from there, we like support area around former top. Take a look this is combination of WPS1, top and 3/8 Fib support. All these levels have logic. First is, retracement should be a bit deeper since market will be at weekly and daily overbought and applying of WPS1 seems correct, instead of just WPP. Reaching of WPS1 will not break the trend, since we know the rule – until WPS1 holds retracement bullish trend is valid. Using former top as support is classical tool and finally, 3/8 Fib support corresponds to minimum retracement that butterfly should trigger. Deeper retracement is possible but not welcome, since they will be totally agreed with existence of untouched major 1.3470 target.
That’s being said, let’s keep watching for 1.28 area as potential target of downward retracement on coming week.

4-Hour
4-hour chart does not give us a lot of additional information. CAD mostly stands in upside channel. Right now price stands at upper border and probably some move down is possible on Monday morning. At the same time above we’ve said that no solid retracement should happen prior reaching of weekly butterfly target and WPR1. It means that market, for example, could test WPP and then continue move up right to target and only after that turn to our 1.28 area.

Conclusion:
Long term analysis and fundamental background confirms our long-term view on CAD and its long term target around 1.3470 area. CFTC data, Crude oil prices and dollar appreciation now support upside action on USD/CAD currency pair.
In short-term perspective we expect completion of weekly butterfly and then retracement to 1.28 area that could become not bad area for taking long position.

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.

 

[Sive Morten]

Good morning,


Reuters reports today dollar hovered near five-week highs versus the yen on Tuesday after a top Federal Reserve official added to expectations that U.S. interest rates could be raised as early as September.

The dollar index was little changed at 98.036 and near a three-month high of 98.147 scaled overnight.

The greenback received a boost after St. Louis Fed President James Bullard told the Fox Business network on Monday that the central bank is likely to raise rates in September as inflation is set to climb toward its target and unemployment is poised to dip below 5 percent.

U.S. Treasury yields, notably those of shorter-dated maturities like two-year bills, rose in response to Bullard's comments and shored up the dollar.

The dollar was flat at 124.35 yen, not far from a five-week high of 124.39 reached overnight. The greenback still took another step closer to the 13-year peak of 125.86 reached in early June.

The U.S. currency has climbed steeply from a low near 120 yen plumbed at the start of the month when angst over the Greek debt crisis and sliding China shares triggered a rush toward the safe-haven Japanese currency, but the 125 threshold could be a tough ceiling to top.

"The approach to 125 yen takes dollar/yen into politically sensitive territory. Any big gains by the dollar just as the Trans-Pacific Partnership (TPP) talks are climaxing could stimulate those on both sides of the Pacific opposed to the negotiations, and the authorities would not want that," said Junichi Ishikawa, market analyst at IG Securities in Tokyo.

Ministers from the 12-nation TPP trade pact negotiations will meet July 28-31 in Maui, Hawaii, aiming to reach a broad agreement. The meeting is likely to mark the final stage in the TPP negotiations, a massive trade pact covering 40 percent of the world's economy.

REDUCED VOLATILITY

The euro treaded water at $1.0827 . The common currency hit a three-month trough of $1.0808 overnight, slipping steadily after a debt deal that will keep Greece in the euro zone for the time being shifted investor focus back to diverging U.S. and European monetary policies.

The twin themes that kept the markets on edge over the past month - the Greek debt saga and turbulence in Chinese equities - have gone on the back burner for now, as reflected in part by the decline in implied volatility.

Bets on how volatile eight major G10 currency crosses will be over the next three months are at the lowest since the Swiss National Bank removed the euro/Swiss franc floor in January, Steven Englander, global head of G10 FX strategy at CitiFX in New York, wrote.

Three-month sterling/dollar implied volatility was roughly at its lowest since January, while that of the euro/dollar was near a 4-1/2-month low. Dollar/yen implied volatility recently hit its lowest since early May.

"It is a clear signal that investors expect a quiet summer, but may also tell you something about the memory span of FX investors," Englander said.

"We think that what has happened is that the threat of an immediate rupture has dropped out of asset market pricing. What is not getting priced in is the rising risk that we see a renewed USD upward trend."

The New Zealand dollar kept its distance from six-year lows against the dollar after comments overnight by Prime Minister John Key gave the battered kiwi breathing space.

Although the Reserve Bank of New Zealand is still expected to cut rates when it meets Wednesday, Key's comments that the kiwi's 25 percent slide in the past year was faster than expected gave the market pause for thought.



Today guys we will take a look at NZD, since we see big long-term potential there. This will be some kind of trailer of possible weekly research.
So, to undertsand all precious of NZD we need to look at monhly chart.

Market stands just 200 pips above major 0.64 support area. It inlcudes major Fib level, monthly ! oversold and 1.618 AB=CD target. So we should get Agreement and oversold support area. This tells that we will get outstanding trading setup for considerable period of time, for month may be, or even longer.

On weekly chart most recent drop could lead to appearing of either B&B "Sell" or DRPO "Buy", depending on what will happen first - upside bounce or reaching 1.618 AB-CD target.

But we will be trading NZD on long side. For that purpose we need to keep an eye on 4-hour chart. Kiwi dollar stands in downside channel since April. And first bell of changing will happen as soon as it will out the channel. Probably it will happen to upside. That will be beginning of retracement and some reversal pattern. So let's keep watching, this will happen soon, jut 200 pips rest...:

 

[Sive Morten]

Good morning,


Reuters reports dollar held steady versus a basket of major currencies on Wednesday, nursing losses suffered the previous day in its biggest one-day fall so far this month.

In part the dollar was a victim of its own success, having climbed for most of the past four weeks to provide bulls with tempting profits.

"There was no obvious catalyst for the dollar pullback but USD losses coincided with a retreat in equity markets and lower U.S. front-end yields," analysts at BNP Paribas wrote in a note to clients.

Yet fundamentals favour the currency given the Federal Reserve remains on track to hike interest rates later this year.

"We expect to see good interest to buy the U.S. currency on this pullback and we remain generally bullish," say BNP.

U.S. stocks fell on Tuesday as results from IBM and United Technologies dampened optimism for the earnings season. The blow to stocks made bonds look more attractive in comparison and nudged Treasury yields lower, in turn weighing on the greenback.

On Tuesday, comments from Bank of Japan Governor Haruhiko Kuroda had helped weigh on the dollar versus the yen. Kuroda said he expected inflation to accelerate considerably in the coming months due to a tight labour market and brushed off the idea of needing more quantitative easing.

Kuroda's comments suggest that the BOJ has little desire to add to its monetary stimulus, said Masafumi Yamamoto, senior strategist for retail financial service provider Monex, Inc. in Tokyo.

"It reinforces the view that fresh yen-selling factors are unlikely to emerge from Japan," Yamamoto said.

Although the dollar could gain if the market starts to fully price in the possibility of the U.S. Federal Reserve raising interest rates twice by year-end, the greenback may struggle to rise to levels above 125.00 yen in the next month or two, he added.

Australia's benign inflation figures on Wednesday reinforced belief that the Reserve Bank of Australia (RBA) has room to lower interest rates further if needed.

RBA Governor Glenn Stevens said, however, that too much easing could lead to longer-term dangers through risk-taking and excessive borrowing, in effect setting the bar pretty high for any rate cuts.


Today we will take a look at EUR, situation here is tricky. On daily chart yesterday market has shown strong bounce up from major Fib support level with simultaneous small W&R of former lows and at first glance it seems that market could reverse up:

But it is not quite correct. On daily chart we have to watch for couple of moments - first possible bearish grabbers. If market will form any today-tomorrow we could take short position. Second - possible return right back up inside previous consolidation. If this will happen - do not take short position. Now as you can see lower border of consolidation coincides with WPP.

This upward action could become a trap for bulls. Market has technical reasons to show bounce here. First is it has completed AB=CD pattern on 4-hour chart:

Second - EUR has completed 1.27 extension of big butterfly on 4-hour chart. But, it already has completed minimal respect that is enough to treat butterfly as completed - 3/8 upside retracement. So, here market easily could continue move to next 1.618 extension.

Besides, any market has a feature to protect previously broken consolidations and EUR will do this to prevent price return back up inside the range. And it is not the fact that EUR will be able to move higher.
That's being said, currently we do not recommend take longs - better to wait returning inside the range. Second - watch for grabbers. If we will get any - we will take short position. We think that this scenario looks prefferable, since currently there are no reasons for EUR appreciation to 1.1250 area.

 

[Sive Morten]

Good morning,


Reuters reports dollar crawled off one-week lows against the yen on Thursday, while the New Zealand dollar stole the Asian spotlight and rallied after the central bank there made a smaller cut to interest rates than some investors had expected.

The kiwi dollar climbed to a peak of $0.6654, from $0.6570 before the central bank rate policy decision, and was last up 0.8 percent on the day at $0.6628, moving away from a six-year low of $0.6498 plumbed on July 14.

The Reserve Bank of New Zealand (RBNZ) trimmed rates by 25 basis points, while some investors had expected a more aggressive 50-basis-point cut to counter growing economic headwinds.

"People seem to have been caught short kiwi, and bought it back," said Kaneo Ogino, director at Global-info Co in Tokyo, a foreign exchange research firm.

"The dollar/yen, too, some people like to buy on dips, and this will support it on any moves to around the 122, 123 level," he added.

The dollar was flat on the day against the yen at 123.98 yen , holding above a one-week low of 123.57 yen touched in the previous session.

The euro inched up about 0.1 percent to $1.0943 , moving back toward a three-month low of $1.0808 set on Monday, as Greece moved closer to resolving the debt crisis that had threatened to pave the way for its exit from the euro zone.

Greek Prime Minister Alexis Tsipras faced down a revolt by rebels in his leftists Syriza party to win parliament's backing for a second package of reforms required to start talks on a financial rescue deal.

U.S. data on Wednesday showed new home resales rose to a 8-1/2 year high, bolstering bets that the Federal Reserve is on track to hike interest rates later this year. The prospect of higher rates enhanced the dollar's appeal, and propelled it to session highs.

The British pound also got a lift from the prospect of higher interest rates, and was up slightly on the day at $1.5616 .

Minutes from the Bank of England's July 8 meeting revealed on Wednesday that several policymakers are moving towards voting for the first rate increase following BOE Governor Mark Carney's recent comments that a hike might happen around the end of year.

Economists predicted that three of nine members of the BoE's Monetary Policy Committee might vote for a rate hike in August, which could put the central on track for a majority to back an increase later this year or in early 2016.


Today guys we need to adjust our view on EUR. Yesterday we mostly were wrong, but we were wrong "correctly". Sounds confusing but below you'll understands what I'm talking about.

First, on daily chart we haven't got any grabbers, trend is turning bullish and market is knocking in consolidation. If close price really will confirm this changes then odds suggest that we will be able to count on upside consolidation right to upper border of the range. This situation you can see in minor scale on 4-hour chart around our yesterday flag - market has broken it down but later return back and now moves far above it.

Also on 4-hour chart we see that EUR has moved above WPP. Next resistance stands around 1.1050 K-area. IT also coincides with WPR1 and take a look - completion of upside harmonic swing. So, it seems that this will be our short-term target and you could try to take long position on retracement with this target:

Speaking about to be wrong "correctly"... Yesterday we've said that market probably will not break this resistance around WPP and initially this really was a true, since EUR has shown solid bounce down before next attempt to break it. This bounce has happened mostly due technical reason of strong resistance. This was respect of this level. Here you can see great example of our common approach - using of strong levels for position taking. Because even we're wrong, market shows solid respect of such areas that let's us to protect position with breakeven stops, or even take some profit. This example shows two our major tools - taking position around strong level and moving stop to breakeven as market starts respect it. That's what I say to be wrong "correctly".

 

[Sive Morten]

FX Daily Update, Fri 24, July 2015

Good morning,


Recent Reuters comments - ailout, while the Australian dollar sank to a six-year low after weak China factory data.

The Aussie, often used as a liquid proxy for China trades, hit a six-year trough of $0.7295 after the flash Caixin/Markit July Manufacturing Purchasing Manager's Index showed China's factory sector contracted by the most in 15 months, deepening worries over the health of the world's second-largest economy.

Slowing Chinese growth means less demand for commodities such as iron ore, one of Australia's chief exports. The recent decline in a wide range of commodities, including oil, has weighed on currencies like the Canadian and Australian dollars.

"With commodity currencies suffering direct hits from lower commodities, the question is what to buy after you sell units like the Aussie," said Koji Fukaya, president of FPG Securities in Tokyo.

"If you believe U.S. rates will go up, the dollar is the choice. But if you do not have confidence in the global economy, the yen will be your destination," he said.

The euro stood steady at $1.0976 and within close range of a one-week high of $1.1018 struck overnight. The common currency was lifted after the Greek parliament approved a second set of reforms required to start negotiations with lenders in a bid to avoid bankruptcy.

Still, with the U.S. gearing up to raise interest rates later this year and with Greece's long-term ability to stay solvent still in doubt, analysts saw the euro declining in the long run.

"News from Greece helped, but fundamentally speaking, euro/dollar remains on a downtrend in the long run. European economic indicators and inflation data are not as strong as they were at the start of the year, and of course the U.S. is steadily preparing to hike rates," said Shinichiro Kadota, chief Japan FX strategist at Barclays in Tokyo.

While the monetary divergence theme - the Federal Reserve has its sights on raising rates while the European Central Bank and Bank of Japan are still deeply committed to monetary easing

- is widely expected to favour the dollar, the greenback hit a bump against the yen as well.

The U.S. currency poked above 124.00 yen on Thursday after stronger-than-expected U.S. jobless claims but went on the back foot as Treasury yields fell to two-week lows on a continued decline on Wall Street and deflation concerns prompted by sliding commodities.

Sterling hobbled at $1.5506 after slipping from a one-week peak of $1.5671 on Thursday, when it sank 0.6 percent.

British retail sales fell unexpectedly in June, taking some of the lustre off the pound following signs that the Bank of England was edging toward hiking rates.

The New Zealand dollar, one of the biggest-moving developed economy currencies this week, suffered collateral damage as the Aussie sank.

The kiwi was down 0.2 percent at $0.6591 , pulling away from a one-week high of $0.6695 reached on Thursday after the Reserve Bank of New Zealand (RBNZ) delivered a smaller rate cut than some had expected.

The kiwi had retreated to a six-year low of $0.6498 last week in the wake of expectations towards RBNZ easing.


Today guys we also take a look at picture on perspective. Right now we already have in our portfolio two perspective currencies - NZD and CAD. While CAD already stands in progress, NZD is yet to start our setup.
Similar situation we should get on AUD. As commodities collapse accross the board - oil, ore, precious metals, commodity currencies should follow them and are following...
on daily AUD we have butterfly in progress with destination point around 0.7145 area. Market is not at oversold and we do not have any supports between current market and butterfly destination point:

At first glance what is a big deal around this butterfly? But now I will show you monthly chart and you will understand the whole precious of situation. This is great example why we have to know where we're on a big picture:

Butterfly coincides with monthly major Fib support 0.7180 and daily oversold. Although this is not very important, but this level will be also YPS2.

For us it means that 0.7145-0.7180 area will be perfect range for taking long position, based on daily butterfly pattern. If we take as prox. smallest upside bounce on monthly chart - it stands for 600+pips. This is minimum potential of this possible trade.

 

[stelore]

Dear Sive thanks for your usefull analysis.

If you can, might you spend 2 minutes to say something about EURUSD too?

Thanks a lot for it

Stefano