Forex FOREX PRO WEEKLY, June 08 - 12, 2020

Sive Morten

Special Consultant to the FPA
Messages
13,800
Fundamentals

This week we've got two major drivers for the markets - ECB decision and Friday's NFP release that has surprised all traders. Even our guru from Fathom consulting has missed the numbers totally. US-China tensions have taken the backseat on a background of US protests and economy. And the only major concern that stands among investors is stock market. It shows big divergence and drop out from reality. NFP release was too strong as well, especially, with ADP numbers -2.5M jobs, showing twofold positive difference that rare could happened. Thus, economists try to understand whether NFP shows real numbers and why they are so different to ADP.


The optimism persisted within markets despite growing concern over U.S.-China tensions and mass protests across the United States over the death of a black man in police custody. Traders remain hopeful that central banks will continue to buy government bonds and other financial assets to protect their economies from the coronavirus pandemic.

The Bank of Japan, ECB and the Federal Reserve have increased their balance sheets by 10%, 20% and 70% respectively since the start of this year, said Kit Juckes, macro strategist at Societe Generale.

“The strengthening of the commodity-linked currencies and the weakening of the safe havens suggest that investors’ appetite remained supported for another day,” said Charalambos Pissouros, senior market analyst at broker JFD Group. “It seems that investors continued placing bets on the prospect of a global economic recovery as governments around the globe continue to ease their lockdown measures,” Pissouros said.


The dollar index has fallen about 5% from a peak hit in March, when panic over the COVID-19 pandemic gripped the world’s financial markets, prompting investors to scramble for the safety of dollars.

George Saravelos, a currency strategist at Deutsche Bank, said he expects the dollar to weaken about 10% in narrow trade-weighted terms to fully take out the risk premium, adding that so far the currency has fallen 3%. He sees euro/dollar rising to $1.15.

Market risk sentiment was hurt only slightly on Monday when Bloomberg reported China had told state-owned companies to halt purchases of soybeans and pork from the United States, raising concern that the trade deal between the world’s two biggest economies could be in jeopardy. Later, it emerged that state-owned Chinese companies bought at least three cargoes of U.S. soybeans on Monday, even as sources in China said the government had told them to halt purchases.

Optimism has so far also survived the rising social unrest in the United States, where President Donald Trump vowed to deploy the military to halt violence if mayors and governors failed to regain control of the streets.

The euro jumped to a 12-week high against the U.S. dollar on Thursday after the European Central Bank increased stimulus to shore up economies hurt by the coronavirus pandemic.

The ECB increased the size of its Pandemic Emergency Purchase Program (PEPP) to 1.35 trillion euros ($1.52 trillion) from 750 billion euros, more than the 500 billion-euro increase most analysts had expected, and extended it until June 2021 at the earliest, with a pledge to reinvest proceeds until at least the end of 2022.

“This highlights the ECB’s commitment to strengthening the recovery,” said Jai Malhi, global market strategist at J.P. Morgan Asset Management in London. “The euro zone may well emerge from the COVID-19 recession more quickly than the U.S. and UK.”

If nine straight days of gains for the euro and the tightest Italy/Germany bond spreads in over two months are anything to go by, investors are a whole lot more confident in the euro zone outlook compared with a few weeks ago.

After an initial slow and divided response by politicians and an unfortunate comment on bond spreads from the ECB chief, European authorities suddenly found their feet — a recovery fund with some form of fiscal burden sharing is taking shape, Germany has agreed more fiscal spending and the ECB has added 600 billion euros to its emergency stimulus.

Further euro gains and tighter bond spreads appear likely, as does a selloff in German bonds as demand for safe havens wanes. The road ahead is long, no doubt. Yet for the first time in years, euro bulls have reason to hope.

1591431229392.png


M&A EU sector also stands in better shape than global M&A business on average. By denting boardroom confidence and ravaging balance sheets, the coronavirus crisis brought a multi-year deal-making boom to a halt. Global M&A activity has plunged 43% this year while global private equity buyouts are down 27%, Refinitiv data shows.

But European M&A activity is bucking the trend with a 12% rise, thanks to some mega-deals such as a 24 billion-pound merger of mobile operators O2 and Virgin Media. True, the number of announced transactions is 33% below year-ago levels, but bankers see this changing as private equity funds sniff around for troubled businesses in need of cash injections or for resilient listed firms.

A consortium of KKR, Cinven and Providence has just launched a 2.96 billion-euro bid for Spanish telecoms operator MasMovil — Europe’s first take-private attempt since the crisis struck. CVC Capital Partners is in talks with Italy’s Serie A to invest up to 2.2 billion euros into the soccer league’s broadcasting rights business, sources say.

The U.S. economy unexpectedly added jobs in May, surprising economists and analysts who had forecast millions more losing their livelihoods, and raising hopes of a faster economic recovery than expected. More than 2.5 million people were newly employed last month, the Labor Department reported on Friday, but that follows a record drop of more than 20 million in April. The unemployment rate fell to roughly 13% compared to almost 15% in the prior month.

Much of the rise in jobs was centered on hardest-hit industries in food services and drinking places, which added 1.4 million jobs and accounted for about half of the employment gains. The leisure and hospitality sector overall added 1.2 million jobs. But what explains the unexpected jump and should the numbers be taken at face value?

It makes sense that more people would become employed as stay-at-home restrictions eased. More than 95% of Americans were under some form of lockdown order in the month of April. By May 19, all 50 states had begun some partial re-opening of their economies. Healthcare employment increased by 312,000 in May as dentists, doctors and other healthcare providers were able to see patients again. The construction industry also benefited with 464,000 jobs added in May, gaining back almost half of April’s drop, while retail added nearly 368,000 jobs.

Some of the jobs gains reported for May could be a reflection of the Paycheck Protection Program, the U.S. government’s forgivable loan scheme that provides funding to small businesses that keep workers on payroll, which was launched at the beginning of April. It works essentially as an unemployment benefit program funded through businesses rather than the government in order to keep workers attached to their employers during the coronavirus-related disruption. Roughly 4.5 million businesses have received a total of about $510 billion in paycheck protection loans, data from the Small Business Administration shows.

At the same time, the Labor Department has been upfront about the limitations in its data gathering for the monthly employment report due to the coronavirus epidemic. For the second month in a row, it said the true unemployment rate would be higher than currently estimated - in May, three percentage points higher - as many unemployed people are probably being misclassified as being employed. There are also those who had been employed but left the labor force when the virus hit but would otherwise have been counted as unemployed if they were actively seeking work.

Tim Ghriskey, chief investment strategist at Inverness Counsel in New York, was among those putting some of the gains down to wonky math. “Are the furloughed unemployed or not? It seems too strange to me ... it’s bizarre. At face value, April was the low and companies hired massively in May. It’s perplexing.”

Other data including the ADP private payrolls report and the Institute for Supply Management survey readings on manufacturing and service sector employment all showed employment contracting last month.

CFTC Data

Despite euphoria on FX market we do not have drastic shifts in speculative positions. While open interest on EUR shows solid growth, +38K contracts, position has not changed significantly, less than 10K contracts and mostly due closing of the shorts rather than increasing the longs. The indirect positive shifts comes from the hedgers instead, that increased shorts aware of more EUR appreciation:

1591432331671.png


1591432667663.png

Source: cftc.gov
Charting by Investing.com


As a result of these positive shifts and mood, analysts start to review their global economy recovery terms.

Earlier this week, Fathom consulting upgraded the chances of a V-shaped recovery in our central case scenario. Recent hard data has also started to improve, even if not yet as quickly as the latest trends in more timely mobility data. We already mentioned jobs data above, while consumption has arguably been the biggest casualty of the worldwide lockdowns. The latest figures from retail sales do not make for pretty reading, but they seem to have at least stabilised in April.

The glass-half-full view from the drop in consumption is that consumer savings seem to have gone up almost proportionally to the severity of the lockdown. Looking at some of the dramatic falls in consumer debt statistics across the world, the COVID-19 pandemic has all the hallmark of one great, orderly and synchronised global consumer deleveraging.

Such orderly deleveraging has been underpinned by swift and sizeable government interventions that have averted both corporate and consumer defaults and, therefore, reduced the risk of another financial crisis. So far so good and we applaud these efforts.

However, we have always contended that large government transfers underpinned by ultra loose monetary policy are not easily reversible and have real long-term costs for economies in terms of productivity, supply side and market distortions.

For now, investors across developed markets seem to be happy heaving a large sight of relief. As flagged previously, equity indices have recovered most of their early losses and are now back towards their pre-COVID levels. Our own analysis suggests that this rebound has disproportionately favoured assets primarily exposed to policy measures aimed at bolstering liquidity (i.e. assets mimicking our FLiq measure), while assets with a more direct exposure to macroeconomic fundamentals (i.e assets mimicking our FLI measure) have seen only a more subdued rebound.
1591433061212.png



That's being said guys, it seems that market stands in euphoria and really exciting of ongoing processes. Still there are few blank spots we have. First is the data. It really could happen that we will get drastic revision on June numbers in July. Besides, in July the PPP loans are ended, so the question is how reliable the data that we have. Second question is the durability of optimism in EU. 1.5Trln is great help to economy, but what's next? Only statistics through the year could tell us. CFTC data shows that despite the rally overall position in EUR has not increased too much.

In current circumstances, it seems that we should not look to far over horizon. Now we have strong upside momentum that should stay on the market for some time more. And this is enough to make trades. In fact we are with this momentum within recent two weeks, since 1.09 area by EUR/USD, but this week it has become obvious. This week EUR has broken probability law, ignoring important technical and statistics measures, such as Overbought levels, making probability tails work. This can't last too long as this is serious deviation. Still, this type of action can't happen occasionally and has to have strong background. This, in turn, lets us hope that it will last some more time and not disappear unexpectedly. EU 18-19 June meeting also should be important for longer-term perspective.


Next week we have FOMC meeting. The U.S. Fed might be watching the steepening Treasury yield curve with trepidation. The steepening — when longer-dated yields rise faster than short-tenor ones — signals a brighter growth outlook. But too fast a rise in borrowing costs can strangle economic recovery.

After the June 9-10 FOMC meeting, investors will listen for the Fed’s views on the economic outlook; an upbeat tone could further feed the stocks rally and trigger Treasury selling. That may train more attention on the curve - the 5-year/30-year segment is at the steepest since end-2017, rising around 30 bps in the past month. Few expect Fed action this month but it may well signal additional bond-buying or yield curve control measures ahead

My thought, guys, that FOMC somehow should chill out stock market. The problem is a lot of money that were provided by the Fed in a way of different loans and support programme now are tending to find the way on a stock market. Nobody wants to take credit risks and work on loan providing as it is difficult. Much easier is just to buy shares.

Consumer behaviour in markets has revealed the willingness of consumers to re-leverage. A number of brokerage houses in the US have witnessed a surge in new accounts allegedly seeking to reinvest some of the stimulus cheques received, a finding corroborated by a surge in search activity of the term ‘best stock broker’ around the time of the announcement of the ‘Economic Impact Payments’ stimulus.
1591434325762.png


Federal Reserve Chair Jerome Powell later will testify before the U.S. Congress on June 16 and 17 in hearings on the central bank’s semi-annual monetary policy report.
By statute, the Fed delivers the report providing an overview of the economy twice a year, usually in February and again in June or July, and the chair appears in successive days of hearings before the Senate Banking and House Financial Services committees. He will testify to the Senate committee on June 16 and the House panel on June 17, calendars published by the committees showed.

Technicals
Monthly


In June market turns to motion. Although it is too early to talk about major breakout but here we see attempt to go higher and maybe our grabbers will work. At least price was able to climb back above Yearly Pivot, at least temporary as June is just get started.

Thus, nothing has changed yet in a global term as EUR direction still depends on breakout of the huge March doji. But side-by-side grabbers set bullish context and point on its invalidation level - grabbers' lows. This fact changes technical picture on EUR as trend on monthly chart remains bullish.

Interestingly, that doji levels coincide with Pivots support and resistance levels as well. Downside breakout opens road to the parity, while upside break should open road for equal doji distance to upside - somewhere to 1.23 area. As EU and particularly ECB has provided strong driving factors, we hope that they will be enough to keep EUR on a road to 1.15-1.16 area and YPR1 level. At least, March top has chances to be re-tested.

It would be better to avoid longer-term forecasts - as farther we look into the future as more blur picture becomes.
eur_m_08_06_20.png


Weekly

EUR accurately has completed our targets for the week, but now situation stands "not comfortable" for the bulls. Price hits major K-resistance on weekly chart, accompanied by overbought condition. This is deadly combination for upside trend, at least in a short-term perspective. You can see what has happened last time, when price has hit it. Trend stands bullish, as well as overall sentiment on the market, but strong resistance suggests moderate pullback.

I'm not talking on diamond pattern that we have here. Actually, I'm not sure that it definitely will be formed, so, mostly I keep it for some case. But if retracement will be too deep, it could become a reality.

Thus, on a daily chart no new longs should be taken by far, at least until market stands above OB area. Scalp traders probably could keep an eye on bearish setups, but must have reversal patterns for protection. Don't forget that overall context is bullish and we talk only about retracement, not reversal.
eur_w_08_06_20.png


Daily

Despite that price has climbed almost to 1.14 - it was not able to hold there due Overbought and pulled back a bit. In fact, here we have wide "222" Sell pattern right at weekly K-resistance. It's minimal target suggests 30% retracement - right to 1.1065-1.11 K-support. This area coincides with WPS1 and previous top of "B" point. Thus, it is our primary level to consider long entry around it.

This should give us DiNapoli B&B "Buy" trading setup as well. Potentially, EUR could proceed to XOP target of the same AB-CD pattern. Take a look, it stands around previous top and agrees with YPR1 level - 1.1550.

eur_d_08_06_20.png


Intraday

Here is nothing to comment yet and it seems that bears should wait a bit more as no clear patterns are formed here. EUR accurately holds trend line since 1.09 area. So, to hint on possible reversal it has to break it, at least. As we've said above - to keep any short position here we must get clear bearish reversal pattern. Without the pattern it might be very expensive journey - to sell against major tendency.

eur_1h_08_06_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,800
Morning everybody,

We keep going with our trading setups on EUR. While we're waiting for 1.11 area where we could consider taking of long position for extended trade, today we focus on minor trading setup, as by-product of our expectation ;)
I'm talking about B&B "Buy" from 1.12 area. As market has formed some shape on 4H chart we could bring some new details to intraday charts.
eur_d_09_06_20.png


Here we see that our daily 3/8 Fib level is also the K-area here, on 4H. Now we also have minor AB-CD pattern, with OP right at the same area. Thus, we have Agreement at K-support - what else do we need?
Of course Fed could shake the markets a lot, but currently overall price performance looks very good:
eur_4h_09_06_20.png


Thus, our first setup is potential Buy trade around 1.12 area with target around 5/8 resistance of whole ab-cd action. I suppose, it should be circa 1.13-1.1330, not bad potential for intraday trade.
 

Sive Morten

Special Consultant to the FPA
Messages
13,800
Morning guys,

Today we focus on GBP, but first one update on EUR. As market doesn't go to Fib level, it means that downside action could start by different pattern - DRPO "Sell". It doesn't change overall price shape and our trading plan, but it changes a bit the starting point of the retracement.

Now on GBP. In general, as we said, our context is bullish and potentially we're watching for 1.33 target within few weeks or months. Now we want to come aboard, as CD leg of our big AB-CD pattern is started. Our stake on possible reverse H&S pattern and pullback from 1.25-1.26 area has not been realized. Price has passed through it and now is coming to COP target around 1.2830. COP is not alone. This is major weekly Fib resistance. Weekly overbought stands at 1.29 now. So, it means that chances on retracement are really high:
gbp_d_10_06_20.png


On 4H chart we could watch for the same 1.25 area as potential target of retracement. This is K-support now:
gbp_4h_10_06_20.png


Upside target could be hit by butterfly pattern on 1H. I'm not sure that it definitely will be formed, but, at least it has the same target as daily COP - 1.2840.
gbp_1h_10_06_20.png


So, if you have longs - you're in a good shape and could keep them, just manage stops and control profit around target. For those who're bullish and want to buy - do nothing and wait for pullback somewhere to 1.25.
For the bears is the same thing - first when GBP hits daily COP target, then wait for clear bearish reversal pattern on intraday chart. And only after that it will be relatively safe to sell.
 

Sive Morten

Special Consultant to the FPA
Messages
13,800
Morning guys,

So, GBP has hit mostly COP and now we could just wait. Let's talk about EUR again. EUR clearly shows inability of upward continuation due weekly overbought and strong resistance above. The scenario that we would like to get is pullback to 1.1187 or better to 1.11 that lets us to get good entry.

In general price action now is friendly to reversal action - it could DRPO "Sell" or, other patterns on intraday charts that you will see. But, the major thing that we should keep an eye on is a way how market response to the top. Our scenario suggests relatively fast downside action, but now you can see that price mostly is coiling around the top, showing anemic reaction on Fed statement. This is the sign of bullish sentiment. If everything will stay the same - no pullback will happen and EUR jumps up right from current consolidation. That's what we need to control:
eur_d_11_06_20.png


On 4H chart I suggest two possible patterns. First is H&S, second - 3-Drive "Sell". Now I'm more tending to 3-Drive, with 3rd Drive around 1.1470 area because market stands too long at the top, not showing the slope of the head.
eur_4h_11_06_20.png


Thus, for the daily traders nothing has changed, as current level is not suitable for entry, so anyway we need the pullback. For bears - be aware of tight standing around the top. If so - avoid short positions. Take position only when clear bearish pattern will be in place.
 

Sive Morten

Special Consultant to the FPA
Messages
13,800
Morning everybody,

We're keep watching on the EUR, because it is interesting what pattern will be formed there. Yesterday we already said that situation is not as simple as it might seem at first glance. Yes, EUR stands at strong resistance and probably sooner rather than later downside reaction will follow. But, since we're at weekly resistance, it is wide and lets market to flirt inside of it. This makes possible appearing of different patterns.

In fact, as EUR stands above WPP, doesn't show even minor drop to 1187 support, tells that another leg up is possible. And on daily chart - take a look, we could get bullish grabber today. If we will, it confirms this scenario - possible action to 1470 before retracement starts:
eur_d_12_06_20.png


On 4H chart I draw first possible pattern - 3-drive "Sell". If daily grabber will be formed, this pattern gets better odds to happen, compares to another one. In this case downside action should start from 1470 - top of 3rd drive:
eur_4h_12_06_20.png


Alternative scenario - H&S pattern. At current moment it has equal chances to happen, because, take a look - the sell-off that we were waiting finally has happened. XOP target stands near neckline. Drop to neckline put under question as 3-Drive as daily grabber:
eur_1h_12_06_20.png


And what we should to do? Well, despite that patterns are vary, they make no impact on trading setups. For the bears - anyway you have to wait for patterns to be in place. If we get 3-Drive - you sell from 1.1470, of H&S - from the top of the right arm. But patterns will be in place already, and you do not need to foresee them.

For the bulls the same story - market has not shown any healthy retracement yet. Our first trade could be only from 1187 and we do not care too much, what particular pattern triggers downside action.
 

Emekajohnson

Private
Messages
17
Morning everybody,

We're keep watching on the EUR, because it is interesting what pattern will be formed there. Yesterday we already said that situation is not as simple as it might seem at first glance. Yes, EUR stands at strong resistance and probably sooner rather than later downside reaction will follow. But, since we're at weekly resistance, it is wide and lets market to flirt inside of it. This makes possible appearing of different patterns.

In fact, as EUR stands above WPP, doesn't show even minor drop to 1187 support, tells that another leg up is possible. And on daily chart - take a look, we could get bullish grabber today. If we will, it confirms this scenario - possible action to 1470 before retracement starts:
View attachment 54585

On 4H chart I draw first possible pattern - 3-drive "Sell". If daily grabber will be formed, this pattern gets better odds to happen, compares to another one. In this case downside action should start from 1470 - top of 3rd drive:
View attachment 54586

Alternative scenario - H&S pattern. At current moment it has equal chances to happen, because, take a look - the sell-off that we were waiting finally has happened. XOP target stands near neckline. Drop to neckline put under question as 3-Drive as daily grabber:
View attachment 54587

And what we should to do? Well, despite that patterns are vary, they make no impact on trading setups. For the bears - anyway you have to wait for patterns to be in place. If we get 3-Drive - you sell from 1.1470, of H&S - from the top of the right arm. But patterns will be in place already, and you do not need to foresee them.

For the bulls the same story - market has not shown any healthy retracement yet. Our first trade could be only from 1187 and we do not care too much, what particular pattern triggers downside action.
Okay thanks Sive... So, for bulls we should wait to get to 1.1187 before we enter and for bears wait for 1.1470 to enter?
Morning everybody,

We're keep watching on the EUR, because it is interesting what pattern will be formed there. Yesterday we already said that situation is not as simple as it might seem at first glance. Yes, EUR stands at strong resistance and probably sooner rather than later downside reaction will follow. But, since we're at weekly resistance, it is wide and lets market to flirt inside of it. This makes possible appearing of different patterns.

In fact, as EUR stands above WPP, doesn't show even minor drop to 1187 support, tells that another leg up is possible. And on daily chart - take a look, we could get bullish grabber today. If we will, it confirms this scenario - possible action to 1470 before retracement starts:
View attachment 54585

On 4H chart I draw first possible pattern - 3-drive "Sell". If daily grabber will be formed, this pattern gets better odds to happen, compares to another one. In this case downside action should start from 1470 - top of 3rd drive:
View attachment 54586

Alternative scenario - H&S pattern. At current moment it has equal chances to happen, because, take a look - the sell-off that we were waiting finally has happened. XOP target stands near neckline. Drop to neckline put under question as 3-Drive as daily grabber:
View attachment 54587

And what we should to do? Well, despite that patterns are vary, they make no impact on trading setups. For the bears - anyway you have to wait for patterns to be in place. If we get 3-Drive - you sell from 1.1470, of H&S - from the top of the right arm. But patterns will be in place already, and you do not need to foresee them.

For the bulls the same story - market has not shown any healthy retracement yet. Our first trade could be only from 1187 and we do not care too much, what particular pattern triggers downside action.

I greet the... Sive the commander of pips. Your analysis of the market is top notch. I am presently on Long position in GBPUSD. I have a buy limit waiting for EURUSD @ 1.1187.

Thanks for the good work. I hope to catch on both positions profitably.

High regard.
 
Top