Sive Morten
Special Consultant to the FPA
- Messages
- 18,699
Fundamentals
(Reuters) The dollar posted its largest one-day percentage fall against a basket of major currencies since February on Friday, after a weak U.S. jobs report cast doubt on whether the Federal Reserve would raise U.S. interest rates soon.
Against the euro, the dollar registered its largest one-day percentage fall in six months with investors betting weak economic data were likely to keep rates on hold in the coming months.
Higher U.S. interest rates increase the yields for dollar-denominated assets such as U.S. Treasuries, which make the dollar more attractive to investors.
Nonfarm payrolls increased by just 38,000 jobs last month, the smallest gain since September 2010, the Labor Department said on Friday.
Meanwhile, a survey by the Institute for Supply Management showed a significant cooling in services sector activity.
"Today’s data ... means the Fed is on hold, isn’t going to tighten in June, certainly not in July and they probably won’t even consider tightening until after the presidential election," said Jonathan Lewis, chief investment officer at Fiera Capital Inc in New York.
Fed funds futures rates showed traders see only a 6 percent chance the U.S. central bank will raise interest rates at its June 14-15 policy meeting, down from a 21 percent chance on Thursday, according to CME Group's FedWatch tool.
FedWatch also showed investors had reduced the probability of a rate increase in July to 33 percent from nearly 60 percent on Thursday.
The probability of two or more hikes also dropped significantly with only a 25 percent chance of two increases currently priced into the market.
A Reuters survey of primary dealers, the large banks authorized to transact directly with the Fed, found that nine out of 15 respondents anticipate only one rate hike in 2016.
The dollar index .DXY fell 1.6 percent to 93.989, its lowest since May 12. That was the biggest one-day percentage drop for the index since Feb. 3. For the week, the dollar index fell by about 1.5 percent.
Against the yen the dollar fell 2 percent on Friday to 106.74, having earlier touched its lowest since May 6. The dollar fell more than 3 percent against the yen for the week.
The euro rose by 1.7 percent against the dollar, touching a high of $1.1349, its highest level since May 13. It was the largest single-day gain for the euro since December 3. For the week, the euro rose just over 2 percent.
COT Report
Speculators favored the U.S. dollar for a second straight week, with net longs rising to their largest in more than two months, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.
The dollar benefited from recent hawkish rhetoric from Federal Reserve officials that seemed to suggest an impending interest rate increase this summer.
The value of the dollar's net long position rose to $4.86 billion in the week ended May 31 from $3.73 billion the previous week. But this was before NFP release, guys...
Actually it will be interesting what data we will see next week, after NFP numbers...
Today we will take a look at NZD. I will explain why. NZD is forming very clear setup with definite targets and entry areas. At the same time from NZD analysis we could understand what to expect on other currencies due to their relation to USD. Our last week setup as on EUR as on AUD, have been completed. EUR - has shown 50% upsward action right from the area that we've suggested. AUD DRPO "Buy" pattern has worked.
Now we need some time to understand what continuation will follow after initial jump.
On NZD, conversely, recent rally has become a part of larger picture on weekly chart and its analysis right now looks more interesting.
CFTC data on NZD shows very interesting picture that in general supports our idea. Now we do not interest with most recent changes in speculative positions. Yes, we see that net long position slightly increased and this is good for our situation, but now we're mostly interested in relation between open interest and net position. Take a look that open interest stands at all time high (almost), but net speculative position, although it is positive, but rather far from maximum level. It means that investors hold large short positions and they do not close them, despite on fact of upward action on NZD.
Another important moment is limitation of long positions. Although net long position is small, but it has no room to grow since open interest (total positions as long as shorts) stands at maximum level. It means that there no investors who could take any position on NZD they are mostly full.
This combination is mostly supportive to our analysis. Keeping of shorts by investors, despite on upside action on NZD tells that they expect reversal or do not believe in current bullish ambitions. Limitation of net long position significantly diminishes upside potential of NZD.
Also you can re-read COT analysis from our last report on NZD here:
NZD Report May 16
It tells approximately the same and points on indecision situation on NZD, when minor action could trigger big wave of opposite position closing.
Technicals
Monthly
So, today we will take a look again at NZD that has long-term interesting setup.
In huge time scale perspective (this is probably not even monthly chart), we have big AB=CD pattern. NZD has turned to downward action in summer 2014 and has not reached it's target. It means that sometime it will turn to upside action again and could hit estimated 0.92 area.
Our discussion of this setup has started as soon as market has reached major 5/8 monthly Fib support @ monthly Oversold (not shown). Logical bounce up mostly has done. The speed of this action suggests that we do not have any new bulltrend but mostly are dealing with just technical retracement and respect of strong monthly chart. May be later situtation could change to something promising to NZD, but currently we do not see any signs of it. Besides, overall fundamental situation around NZD has not real advantages to USD.
Last two months Kiwi has reached strong resistance area. Although this is not overbought, but still it is a Yearly Pivot and major 3/8 monthly resistance. Somewhere around we would like to switch from bulilsh to bearish trading. The precise point and time for short entry we will have to estimate on lower time frames.
The most important issue, of course, is testing of YPP, especially failure to break it up. It means that by pivot framework NZD should drop to YPS1, which matches to former lows around 0.60. Currently it is difficult to imagine what reasons could help NZD to break through 0.7150 and to estimate long-term bullish sentiment by moving above YPP.
Right now upside action reminds bearish pennant pattern. As you know our major concern on NZD stands around completion of major targets right around anticipated reversal point. Bad NFP data has made reaching of these targets possible again.
That's being said, we probably will watch for bearish reversal patterns and try to take medium-term short position.
Weekly
This is the most important picture that shows all our trading context for few weeks ahead. Last time our major concern was around starting point of downward action. This was really the question, whether market will drop immediately or it will try to complete major targets. Now we have new inputs from bad NFP that signifcantly increases chances on normal ending of patterns that we have here.
This is turn, gives the hint on what to expect on other currencies. As NZD has untouched upside target and suggests further upward continuation, it means that on other dollar related currencies we also should get upside continuation of recent rally, although different degree on each currency. That's why we've chosen NZD since other currencies have no such targets above and hence, couldn't confirm neccessity of upside continuation.
Weekly chart shows that we have not just YPP and Fib level, but also weekly K-resistance and Agreement. Right now market stands in upside AB=CD action and "D" point has not been reached for few pips. As CD leg is significantly slower than AB - this confirms possible reversal in point "D".
Last time market has formed bullish grabber that suggests final leg up and washing of the tops. Theoretically this should let kiwi to complete AB=CD pattern and finalize bearish setup. Although theoretically this grabber has failed, since price has shown close below its lows, but current action suggests the opposte. Right now it is not important either this upward action stands due grabber or due some other reason. Major thing is to get completion of AB=CD pattern right around rock hard resistance. This will be our moment for short entry.
Currently NZD has all chances to do it on coming week...
Daily
Daily chart looks very positive. Market has started preparation to upside breakout with forming of fallen wedge pattern. After price has reached 50% support reversal has happened.
Right now, on a way up market has broken all major Fib levels and stopped probably only due overbought and almost has reached MPR1.
Moving above MPP suggests existing of bullish sentiment. Currently most porbable pattern that could be formed here is butterfly "sell". 1.27 extension of most recent swing down points on 0.7150 level - and this is precisely weekly K-resistance and AB=CD target.
Second - butterfly is reversal pattern and it will confirm bearish reversal from 0.7150 area. Finally, as market stands at overbought some retracement probably will happen, and it will become right shoulder of this pattern.
4-hour
This chart shows very nice picture. On a way up market has reached 1.618 extension of wedge swing down and daily OB, as we've said above. Also you can see here our B&B "Buy" trade that we've done on Thu. Yes, B&B is a continuation pattern and sometimes leads to significant continuation above its minimal target.
Another important detail here is moving above 0.6840 support/resistance area. This was neckline of Double Top pattern and right now price has returned back inside its body. This suggests upward continuation at least to its top around 0.7055 and WPR1.
But first market probably will turn to retracement down. Theoretically any retracement is acceptable until price stands above 0.6675 low. Most common for butterfly is 50-61.8% retracement. In our case they correspond to K-support around WPP and WPS1. Still overall situation suggests that moving only to WPP is more probable, just because of breakout through neckline. Drop below it again will be not logical currently.
At the same time, as market stands at OB on daily chart - too small retracement also seems less probable. That's why odds suggest 0.6850 level as destination of downward bounce.
Conclusion:
Long-term view on NZD currently looks bearish. As technical patterns as fundamental situation shows nothing that could support Kiwi right now or turn it up. Thus, we mostly will be looking for chance to sell a rally and get bearish position. Currently we hope for getting chance to sell around 0.7150.
On coming week we will monitor upside continuation due strong impulse from NFP poor data. Now we count that this will enough to complete major targets and create great chance for short entry.
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.
(Reuters) The dollar posted its largest one-day percentage fall against a basket of major currencies since February on Friday, after a weak U.S. jobs report cast doubt on whether the Federal Reserve would raise U.S. interest rates soon.
Against the euro, the dollar registered its largest one-day percentage fall in six months with investors betting weak economic data were likely to keep rates on hold in the coming months.
Higher U.S. interest rates increase the yields for dollar-denominated assets such as U.S. Treasuries, which make the dollar more attractive to investors.
Nonfarm payrolls increased by just 38,000 jobs last month, the smallest gain since September 2010, the Labor Department said on Friday.
Meanwhile, a survey by the Institute for Supply Management showed a significant cooling in services sector activity.
"Today’s data ... means the Fed is on hold, isn’t going to tighten in June, certainly not in July and they probably won’t even consider tightening until after the presidential election," said Jonathan Lewis, chief investment officer at Fiera Capital Inc in New York.
Fed funds futures rates showed traders see only a 6 percent chance the U.S. central bank will raise interest rates at its June 14-15 policy meeting, down from a 21 percent chance on Thursday, according to CME Group's FedWatch tool.
FedWatch also showed investors had reduced the probability of a rate increase in July to 33 percent from nearly 60 percent on Thursday.
The probability of two or more hikes also dropped significantly with only a 25 percent chance of two increases currently priced into the market.
A Reuters survey of primary dealers, the large banks authorized to transact directly with the Fed, found that nine out of 15 respondents anticipate only one rate hike in 2016.
The dollar index .DXY fell 1.6 percent to 93.989, its lowest since May 12. That was the biggest one-day percentage drop for the index since Feb. 3. For the week, the dollar index fell by about 1.5 percent.
Against the yen the dollar fell 2 percent on Friday to 106.74, having earlier touched its lowest since May 6. The dollar fell more than 3 percent against the yen for the week.
The euro rose by 1.7 percent against the dollar, touching a high of $1.1349, its highest level since May 13. It was the largest single-day gain for the euro since December 3. For the week, the euro rose just over 2 percent.
COT Report
Speculators favored the U.S. dollar for a second straight week, with net longs rising to their largest in more than two months, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.
The dollar benefited from recent hawkish rhetoric from Federal Reserve officials that seemed to suggest an impending interest rate increase this summer.
The value of the dollar's net long position rose to $4.86 billion in the week ended May 31 from $3.73 billion the previous week. But this was before NFP release, guys...
Actually it will be interesting what data we will see next week, after NFP numbers...
Today we will take a look at NZD. I will explain why. NZD is forming very clear setup with definite targets and entry areas. At the same time from NZD analysis we could understand what to expect on other currencies due to their relation to USD. Our last week setup as on EUR as on AUD, have been completed. EUR - has shown 50% upsward action right from the area that we've suggested. AUD DRPO "Buy" pattern has worked.
Now we need some time to understand what continuation will follow after initial jump.
On NZD, conversely, recent rally has become a part of larger picture on weekly chart and its analysis right now looks more interesting.
CFTC data on NZD shows very interesting picture that in general supports our idea. Now we do not interest with most recent changes in speculative positions. Yes, we see that net long position slightly increased and this is good for our situation, but now we're mostly interested in relation between open interest and net position. Take a look that open interest stands at all time high (almost), but net speculative position, although it is positive, but rather far from maximum level. It means that investors hold large short positions and they do not close them, despite on fact of upward action on NZD.
Another important moment is limitation of long positions. Although net long position is small, but it has no room to grow since open interest (total positions as long as shorts) stands at maximum level. It means that there no investors who could take any position on NZD they are mostly full.
This combination is mostly supportive to our analysis. Keeping of shorts by investors, despite on upside action on NZD tells that they expect reversal or do not believe in current bullish ambitions. Limitation of net long position significantly diminishes upside potential of NZD.
Also you can re-read COT analysis from our last report on NZD here:
NZD Report May 16
It tells approximately the same and points on indecision situation on NZD, when minor action could trigger big wave of opposite position closing.
Technicals
Monthly
So, today we will take a look again at NZD that has long-term interesting setup.
In huge time scale perspective (this is probably not even monthly chart), we have big AB=CD pattern. NZD has turned to downward action in summer 2014 and has not reached it's target. It means that sometime it will turn to upside action again and could hit estimated 0.92 area.
Our discussion of this setup has started as soon as market has reached major 5/8 monthly Fib support @ monthly Oversold (not shown). Logical bounce up mostly has done. The speed of this action suggests that we do not have any new bulltrend but mostly are dealing with just technical retracement and respect of strong monthly chart. May be later situtation could change to something promising to NZD, but currently we do not see any signs of it. Besides, overall fundamental situation around NZD has not real advantages to USD.
Last two months Kiwi has reached strong resistance area. Although this is not overbought, but still it is a Yearly Pivot and major 3/8 monthly resistance. Somewhere around we would like to switch from bulilsh to bearish trading. The precise point and time for short entry we will have to estimate on lower time frames.
The most important issue, of course, is testing of YPP, especially failure to break it up. It means that by pivot framework NZD should drop to YPS1, which matches to former lows around 0.60. Currently it is difficult to imagine what reasons could help NZD to break through 0.7150 and to estimate long-term bullish sentiment by moving above YPP.
Right now upside action reminds bearish pennant pattern. As you know our major concern on NZD stands around completion of major targets right around anticipated reversal point. Bad NFP data has made reaching of these targets possible again.
That's being said, we probably will watch for bearish reversal patterns and try to take medium-term short position.
Weekly
This is the most important picture that shows all our trading context for few weeks ahead. Last time our major concern was around starting point of downward action. This was really the question, whether market will drop immediately or it will try to complete major targets. Now we have new inputs from bad NFP that signifcantly increases chances on normal ending of patterns that we have here.
This is turn, gives the hint on what to expect on other currencies. As NZD has untouched upside target and suggests further upward continuation, it means that on other dollar related currencies we also should get upside continuation of recent rally, although different degree on each currency. That's why we've chosen NZD since other currencies have no such targets above and hence, couldn't confirm neccessity of upside continuation.
Weekly chart shows that we have not just YPP and Fib level, but also weekly K-resistance and Agreement. Right now market stands in upside AB=CD action and "D" point has not been reached for few pips. As CD leg is significantly slower than AB - this confirms possible reversal in point "D".
Last time market has formed bullish grabber that suggests final leg up and washing of the tops. Theoretically this should let kiwi to complete AB=CD pattern and finalize bearish setup. Although theoretically this grabber has failed, since price has shown close below its lows, but current action suggests the opposte. Right now it is not important either this upward action stands due grabber or due some other reason. Major thing is to get completion of AB=CD pattern right around rock hard resistance. This will be our moment for short entry.
Currently NZD has all chances to do it on coming week...
Daily
Daily chart looks very positive. Market has started preparation to upside breakout with forming of fallen wedge pattern. After price has reached 50% support reversal has happened.
Right now, on a way up market has broken all major Fib levels and stopped probably only due overbought and almost has reached MPR1.
Moving above MPP suggests existing of bullish sentiment. Currently most porbable pattern that could be formed here is butterfly "sell". 1.27 extension of most recent swing down points on 0.7150 level - and this is precisely weekly K-resistance and AB=CD target.
Second - butterfly is reversal pattern and it will confirm bearish reversal from 0.7150 area. Finally, as market stands at overbought some retracement probably will happen, and it will become right shoulder of this pattern.
4-hour
This chart shows very nice picture. On a way up market has reached 1.618 extension of wedge swing down and daily OB, as we've said above. Also you can see here our B&B "Buy" trade that we've done on Thu. Yes, B&B is a continuation pattern and sometimes leads to significant continuation above its minimal target.
Another important detail here is moving above 0.6840 support/resistance area. This was neckline of Double Top pattern and right now price has returned back inside its body. This suggests upward continuation at least to its top around 0.7055 and WPR1.
But first market probably will turn to retracement down. Theoretically any retracement is acceptable until price stands above 0.6675 low. Most common for butterfly is 50-61.8% retracement. In our case they correspond to K-support around WPP and WPS1. Still overall situation suggests that moving only to WPP is more probable, just because of breakout through neckline. Drop below it again will be not logical currently.
At the same time, as market stands at OB on daily chart - too small retracement also seems less probable. That's why odds suggest 0.6850 level as destination of downward bounce.
Conclusion:
Long-term view on NZD currently looks bearish. As technical patterns as fundamental situation shows nothing that could support Kiwi right now or turn it up. Thus, we mostly will be looking for chance to sell a rally and get bearish position. Currently we hope for getting chance to sell around 0.7150.
On coming week we will monitor upside continuation due strong impulse from NFP poor data. Now we count that this will enough to complete major targets and create great chance for short entry.
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.
