Sive Morten
Special Consultant to the FPA
- Messages
- 18,659
Fundamentals
As Reuters reports - The dollar fell across the board on Friday, as the latest comments by U.S. President Donald Trump complaining about the strength of the greenback and the rise in U.S. interest rates squashed a rally that took it to a one-year high the previous session. Just in the beginning of the week, Powell talked about strength of US economy and supporting of fed rate hiking course - D. Trump by few words has stopped this euphoria.
The U.S. currency extended losses in afternoon trading after CNBC reported that Trump was worried the Federal Reserve will raise interest rates twice more this year.
Trump earlier told CNBC that a strong dollar put the United States at a disadvantage and he was ready to place tariffs on $500 billion of imported goods from China.
Analysts said the rise in the U.S. dollar this year was due in part to the president’s growth-oriented policies, which have bolstered the Federal Reserve’s case for raising rates.
The fiscal stimulus provided by tax reform is expected to lead to additional inflation and tighter labor markets, said Mazen Issa, senior FX strategist at TD Securities in New York.
“The Fed is responding to the inputs that have been provided,” he said.
Trump’s comments on trade pulled the Chinese yuan higher to 6.7784 per dollar in offshore trading. Over the last three months, the yuan has fallen nearly 8 percent against the U.S. dollar.
Speculative long USD positions stand near extreme high levels and D. Trump comments could crush the pyramid, if he will be persevering in this subject.
It is very interesting time that we're living at. The turbulence of great political and economical events stands on our sight. These processes will change the face of the planet - force balance, role of different countries and other crucial moments in the global life.
Last week we said on Putin - Trump meeting - we never know what they have talked about, but if we will be careful enough, we will see it from ongoing events and they are not long in coming. Events develop very fast. D. Trump behaves very actively and aggressive on external political arena in all directions. I think that D. Trump is a great leader for US and I'm sure that he will be a president for two terms.
What particular he is doing right now. It is definitely that US is on hook of China economy and major concern is high technology sector. China has 2025 plan when it intends to become a leader in high tech sphere. They have aggressive programme of student's education in US, mostly in science, technology, engineering and mathematics. China mostly uses technologies of high tech. countries, actively copying, stealing them, but sometimes buying share in US companies to get access to technologies. All US and S. Korea companies send production to China and it use this. Just take a look at car sphere, airspace crafting or simple cell phones huawei brand is a quintessence of this "hard work".
What US gets instead - toys, trunks and other stuff of this kind. It seems that US pays too high price for this.
But this would be half the trouble, if China would pay for technologies and knowledge. But they are not... Here is what US exports to China. Most technologies here are aerospace parts and motor vehicles. Other stuff is mostly has relation to social sphere - food and medicine.
Definitely D. Trump wants to re-balance and smooth this situation. US could apply tariffs on all 500Bln Chinese export to US, while US export is two times smaller and there is no room to response for China. At the same time, Trump understands that country is strongly depended on Chinese goods and he needs diversify the market, find other suppliers. Simultaneously he will resolve problem of growing China political power.
One of the possible partners in this new world is Russia and Middle East countries. US has very small trade balance with Russia but this is 150 Mln. people market. Another important direction for D. Trump is Latin America. So, he could try to press on China and at the same time starts develop mutual trade with Russia. Here what we see in news stream:
1. Trump-Putin summit could provide a ‘significant breakthrough’ on Syria, strategist says
2. Exclusive: U.S. open to lifting sanctions off aluminum giant Rusal - Mnuchin
3. Six Countries revoke recognition of Kosovo
The fact that we see US supportive rhetoric from Russia tells that they have come to some crucial agreement. Otherwise, Russia would take the course on US accusing in terrorism support in Syria etc.
EU leaders also work to enter this sphere:
France and Russia to jointly deliver humanitarian aid to Syria
But they act too slow, while Trump takes aggressive position trying to take lead role in global political processes and get most advantage from this. Besides, US has everything to achieve this.
Now why we're talking about all this stuff? Political efforts definitely will make impact on economy. Fathom consulting suggests that ECB is long been prepared for policy shift, but somehow they do not do that, driving probably by some other factors:
As yet, the ECB’s asset purchases have not been sufficient to raise inflation to the central bank’s target, with headline inflation having been propped up by energy prices in recent months.However, in Fathom’s view the ECB’s policy stance is too loose, especially since we believe that the euro area economy is already operating above potential, with signs that significant labour shortages are emerging. With this in mind, Fathom expects core inflation to drift higher over the remainder of 2018.http://lipperalpha.financial.thomso...s-in-charts-the-ecb-the-beginning-of-the-end/
However, given that monetary policy only affects inflation and growth with a significant lag, it is far from certain that the ECB is currently maintaining an appropriate policy stance.
More recently, however, actual policy rates have diverged significantly from what the Taylor rule would suggest. In part, this reflects the ECB leaning against other economic headwinds, such as concerns over the viability of the currency union.
As a result Fathom suggests that ECB will start raising rates only at the end of 2019 which is very long term:
If we are right, that will pave the way for the ECB to begin hiking interest rates toward the tail end of next year.
Trump needs to out of the fiscal pit. He needs weaken US rivals, such as China and EU, increase role of domestic production and US companies in global trade using capacities that are not totally utilized yet, in Africa, Latin America, Russia and rising from the ash of war Syria, Libya and other Middle East countries.
That's being said, D. Trump does everything correct, while EU heads and minds are roped by inner contradictions and slow and heavy Brussels bureaucracy just can't react fast on ongoing processes - he (Trump) takes aggressive way of action trying to provide US better place and opportunities in modern world and be the first among western countries who will wide road to the east. Just meeting is done - he already invites Putin in September to visit Washington. This is just 2 months and this tells that processes stand really fast.
These US efforts will have negative effect on EU, I suppose and could lead to EU restructuring as financial as political. Last time we've explained while existing of EU as it stands right now doesn't suit as US as Russia. This makes us think that hardly EUR position will strengthen in nearest 6-12 months. Only if US will change the course and makes Fed policy more dovish.
COT Report
Recent CFTC data doesn't provide a lot of new information. Net long EUR position has contracted a bit more, telling that any rally right now is mostly short term and is driving by some emotional reaction rather than fundamental investment policy by investors.
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. But we see that volatility is rising because of political comments and events, and it is rising right around major technical level, while trading range stands the same. This usually leads to strong action in one or other direction.
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...
Last week we were waiting for MACDP reaching, that maybe grabber will be formed. But, despite impressive Friday's rally it was not enough to touch the line. Thus, we will wait the same next week.
Daily
Last week in our regular video we've said that it will be crucial to see how market will response on "222" pattern appearing. Whether it will be just minor reaction or EUR will try to make another attempt of upside breakout. As you can see, Friday's start looks not bad, but it is not enough yet to say that we are on a road to 1.20.
Take a look that within three recent challenges of triangle border - market can't break through it. It can't even reach 1.18 K-resistance and all this time stands inside the range of big June plunge.
Taking in consideration that no real purchases stand behind and recent rally is emotional mostly, it makes difficult to take on trust that this is upside breakout. Besides, here we've got bearish grabber, the weaker type of it, but still...
Intraday
Here, what we will be watching for next week. Now our major concern on upside breakout. As we see 4H chart, market forms something like flag that it can't break with last two weeks. Thus, we need to get it, to be sure with upside continuation:
Now chances look a bit better than last week. Market shows upside acceleration and as you can see our Friday idea with reverse H&S pattern was nice and it already has hit OP target. Still, market just has completed harmonic swing and still keeps lower-high, lower-lows tendency. First step that EUR has to achieve is to break this tendency and proceed to XOP target, form bullish reversal swing here. If this will happen - we will start to talk on more extended targets.
Finally, be prepared to minor bearish retracement on Monday, as some reaction on OP target should be taken:
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 price action could be described as indecision as EUR just can't get started any action out of daily triangle.
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.
As Reuters reports - The dollar fell across the board on Friday, as the latest comments by U.S. President Donald Trump complaining about the strength of the greenback and the rise in U.S. interest rates squashed a rally that took it to a one-year high the previous session. Just in the beginning of the week, Powell talked about strength of US economy and supporting of fed rate hiking course - D. Trump by few words has stopped this euphoria.
The U.S. currency extended losses in afternoon trading after CNBC reported that Trump was worried the Federal Reserve will raise interest rates twice more this year.
Trump earlier told CNBC that a strong dollar put the United States at a disadvantage and he was ready to place tariffs on $500 billion of imported goods from China.
Analysts said the rise in the U.S. dollar this year was due in part to the president’s growth-oriented policies, which have bolstered the Federal Reserve’s case for raising rates.
The fiscal stimulus provided by tax reform is expected to lead to additional inflation and tighter labor markets, said Mazen Issa, senior FX strategist at TD Securities in New York.
“The Fed is responding to the inputs that have been provided,” he said.
Trump’s comments on trade pulled the Chinese yuan higher to 6.7784 per dollar in offshore trading. Over the last three months, the yuan has fallen nearly 8 percent against the U.S. dollar.
Speculative long USD positions stand near extreme high levels and D. Trump comments could crush the pyramid, if he will be persevering in this subject.
It is very interesting time that we're living at. The turbulence of great political and economical events stands on our sight. These processes will change the face of the planet - force balance, role of different countries and other crucial moments in the global life.
Last week we said on Putin - Trump meeting - we never know what they have talked about, but if we will be careful enough, we will see it from ongoing events and they are not long in coming. Events develop very fast. D. Trump behaves very actively and aggressive on external political arena in all directions. I think that D. Trump is a great leader for US and I'm sure that he will be a president for two terms.
What particular he is doing right now. It is definitely that US is on hook of China economy and major concern is high technology sector. China has 2025 plan when it intends to become a leader in high tech sphere. They have aggressive programme of student's education in US, mostly in science, technology, engineering and mathematics. China mostly uses technologies of high tech. countries, actively copying, stealing them, but sometimes buying share in US companies to get access to technologies. All US and S. Korea companies send production to China and it use this. Just take a look at car sphere, airspace crafting or simple cell phones huawei brand is a quintessence of this "hard work".
What US gets instead - toys, trunks and other stuff of this kind. It seems that US pays too high price for this.
But this would be half the trouble, if China would pay for technologies and knowledge. But they are not... Here is what US exports to China. Most technologies here are aerospace parts and motor vehicles. Other stuff is mostly has relation to social sphere - food and medicine.
Definitely D. Trump wants to re-balance and smooth this situation. US could apply tariffs on all 500Bln Chinese export to US, while US export is two times smaller and there is no room to response for China. At the same time, Trump understands that country is strongly depended on Chinese goods and he needs diversify the market, find other suppliers. Simultaneously he will resolve problem of growing China political power.
One of the possible partners in this new world is Russia and Middle East countries. US has very small trade balance with Russia but this is 150 Mln. people market. Another important direction for D. Trump is Latin America. So, he could try to press on China and at the same time starts develop mutual trade with Russia. Here what we see in news stream:
1. Trump-Putin summit could provide a ‘significant breakthrough’ on Syria, strategist says
2. Exclusive: U.S. open to lifting sanctions off aluminum giant Rusal - Mnuchin
3. Six Countries revoke recognition of Kosovo
The fact that we see US supportive rhetoric from Russia tells that they have come to some crucial agreement. Otherwise, Russia would take the course on US accusing in terrorism support in Syria etc.
EU leaders also work to enter this sphere:
France and Russia to jointly deliver humanitarian aid to Syria
But they act too slow, while Trump takes aggressive position trying to take lead role in global political processes and get most advantage from this. Besides, US has everything to achieve this.
Now why we're talking about all this stuff? Political efforts definitely will make impact on economy. Fathom consulting suggests that ECB is long been prepared for policy shift, but somehow they do not do that, driving probably by some other factors:
As yet, the ECB’s asset purchases have not been sufficient to raise inflation to the central bank’s target, with headline inflation having been propped up by energy prices in recent months.However, in Fathom’s view the ECB’s policy stance is too loose, especially since we believe that the euro area economy is already operating above potential, with signs that significant labour shortages are emerging. With this in mind, Fathom expects core inflation to drift higher over the remainder of 2018.http://lipperalpha.financial.thomso...s-in-charts-the-ecb-the-beginning-of-the-end/
However, given that monetary policy only affects inflation and growth with a significant lag, it is far from certain that the ECB is currently maintaining an appropriate policy stance.
More recently, however, actual policy rates have diverged significantly from what the Taylor rule would suggest. In part, this reflects the ECB leaning against other economic headwinds, such as concerns over the viability of the currency union.
As a result Fathom suggests that ECB will start raising rates only at the end of 2019 which is very long term:
If we are right, that will pave the way for the ECB to begin hiking interest rates toward the tail end of next year.
Trump needs to out of the fiscal pit. He needs weaken US rivals, such as China and EU, increase role of domestic production and US companies in global trade using capacities that are not totally utilized yet, in Africa, Latin America, Russia and rising from the ash of war Syria, Libya and other Middle East countries.
That's being said, D. Trump does everything correct, while EU heads and minds are roped by inner contradictions and slow and heavy Brussels bureaucracy just can't react fast on ongoing processes - he (Trump) takes aggressive way of action trying to provide US better place and opportunities in modern world and be the first among western countries who will wide road to the east. Just meeting is done - he already invites Putin in September to visit Washington. This is just 2 months and this tells that processes stand really fast.
These US efforts will have negative effect on EU, I suppose and could lead to EU restructuring as financial as political. Last time we've explained while existing of EU as it stands right now doesn't suit as US as Russia. This makes us think that hardly EUR position will strengthen in nearest 6-12 months. Only if US will change the course and makes Fed policy more dovish.
COT Report
Recent CFTC data doesn't provide a lot of new information. Net long EUR position has contracted a bit more, telling that any rally right now is mostly short term and is driving by some emotional reaction rather than fundamental investment policy by investors.
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. But we see that volatility is rising because of political comments and events, and it is rising right around major technical level, while trading range stands the same. This usually leads to strong action in one or other direction.
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...
Last week we were waiting for MACDP reaching, that maybe grabber will be formed. But, despite impressive Friday's rally it was not enough to touch the line. Thus, we will wait the same next week.
Daily
Last week in our regular video we've said that it will be crucial to see how market will response on "222" pattern appearing. Whether it will be just minor reaction or EUR will try to make another attempt of upside breakout. As you can see, Friday's start looks not bad, but it is not enough yet to say that we are on a road to 1.20.
Take a look that within three recent challenges of triangle border - market can't break through it. It can't even reach 1.18 K-resistance and all this time stands inside the range of big June plunge.
Taking in consideration that no real purchases stand behind and recent rally is emotional mostly, it makes difficult to take on trust that this is upside breakout. Besides, here we've got bearish grabber, the weaker type of it, but still...
Intraday
Here, what we will be watching for next week. Now our major concern on upside breakout. As we see 4H chart, market forms something like flag that it can't break with last two weeks. Thus, we need to get it, to be sure with upside continuation:
Now chances look a bit better than last week. Market shows upside acceleration and as you can see our Friday idea with reverse H&S pattern was nice and it already has hit OP target. Still, market just has completed harmonic swing and still keeps lower-high, lower-lows tendency. First step that EUR has to achieve is to break this tendency and proceed to XOP target, form bullish reversal swing here. If this will happen - we will start to talk on more extended targets.
Finally, be prepared to minor bearish retracement on Monday, as some reaction on OP target should be taken:
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 price action could be described as indecision as EUR just can't get started any action out of daily triangle.
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.
