FOREX PRO WEEKLY, June 12 - 16, 2017

[Sive Morten]

Fundamentals

(Reuters) - The dollar rose against a basket of currencies on Friday, helped by a sharp drop in the British pound after Prime Minister Theresa May's Conservative Party lost its parliamentary majority in national elections.

The dollar index, which tracks the greenback against six major rivals, was up 0.37 percent at 97.273, after rising to a 10-day high of 97.5 earlier in the session.

The index had fallen to a seven-month low midweek on caution ahead of U.S. Senate testimony by former FBI Director James Comey and the British election. But on Friday, it added to gains from the previous session.

Comey on Thursday accused President Donald Trump of firing him to try to undermine the bureau's investigation of possible collusion between his 2016 presidential campaign team and Russia, but did not say whether he thought the president sought to obstruct justice.

"Comey's testimony was pretty much a non-event for the markets. I think it was more of a relief (for the dollar) than anything else," said Sireen Harajli, FX strategist at Mizuho in New York.

The euro was down 0.14 percent to $1.1196 against the dollar, a day after the European Central Bank closed the door on more interest rate cuts.

"The overall sentiment is that regardless of what is going on elsewhere, the U.S. is a safe haven for investors and traders," said Minh Trang, senior currency trader at Silicon Valley Bank in Santa Clara, California.

Traders will turn their attention to next week's U.S. Federal Reserve policy meeting, where the central bank is widely expected to deliver this year's second rate hike, Harajli said.

Britain's pound tumbled after an election that denied any party a majority in parliament and fomented a sense of political chaos just days before Brexit talks begin.

The pound fell as much as 2.5 percent to $1.2635 in early European trade, its lowest level since May called the election on April 18, before recovering some ground to trade down 1.8 percent to 1.2718.

The Canadian dollar strengthened against its U.S. counterpart as strong domestic jobs data supported the view that the Bank of Canada will raise interest rates earlier than previously thought.

Here, guys new research from Fathom consulting, just to finalize UK turmoil. We've missed this, but they predicted hung parlament even before voting have happened.

Chart of the Week: Fathom’s UKESI slips to 0.4%
by Fathom Consulting

Our UK Economic Sentiment Indicator (UKESI), expanded to cover 13 consumer and business surveys from the previous 11, fell from 0.8% in April to 0.4% in May. This deterioration was broad-based, with the vast majority of survey respondents – the construction sector aside – less confident in May than in April.

The weaker-than-expected outturn for Q1 GDP may have weighed on consumer and business sentiment and, while we should not place too much weight on a single reading, we expect this weakness in sentiment to persist. Indeed, voting intention polls have narrowed significantly since many of the May surveys were conducted, and the chances of a hung parliament resulting from Thursday’s General Election have increased. Moreover, we believe that regardless of the outcome of Thursday’s vote, the outlook for the UK economy remains dire, with economic growth set to slow through this year and next.

Today, guys it is a difficult choice, what currency to choose for this research. There is the one that we discuss rather rare, but now it has good long-term setup. This is NZD. Other currencies we've covered in our daily videos.

COT Report

In March-April, NZD was strongly oversold by CFTC data, but since April situation has started to change and now COT report mostly shows moderate bullish sentiment, as speculative position from strong short is turning to natural. It means that during last 2 months a 15 000 contracts have been turned from short to long.

At the same time, NZD speculative position is far from satuartion. From this point of view, we do not have limits here. Diary prices also have recovered in 2017, and this has brought some support to NZD price.
Global Diary trade index shows some upside dynamic:

Lloyds released their International Outlook for May recently, within it they included a bearish call for the NZD/USD currency pair. Lloyds notes that both sets of data in regards to inflation and the labour market have dramatically outperformed consensus expectations in the first quarter of the year. Additional positive news for the NZD is further seen as the 2yr inflation forecast now sits at 2.2%, its highest level for nearly 3 years. One of New Zealand's most important exports, milk, is outlined as having bounced in value recently and is looking somewhat less bearish. Despite all of these positive things, Lloyds still see a dovish RBNZ being extremely cautious with its monetary policy.

The RBNZ Governor is seen as the primary risk to the New Zealand Dollar as he continues to assure the markets that there is no need for any hawkish talk despite the improving data,

“Governor Wheeler previously suggested that monetary policy will remain accommodative for a “considerable period” and reiterated that there is little need to raise interest rates at this stage, as the underlying drivers of inflation are temporary. Given the central bank’s position, we forecast NZD/USD to weaken to 0.67 at end-2017.”

If the New Zealand economy continues to outperform expectations, it seems only a matter of time before the markets begin to ignore the RBNZ. However, the recent weakness in Chinese equities may be weighing more heavily on the NZD than the central bank. As a key trading partner, economic stability in China is very important to New Zealand's success and, while China wobbles, Governor Wheeler's stance looks all the more vindicated.

May be Lloyds bank will be correct, but right now technical picture shows different perspective.


Technical
Monthly

This picture is very important right now, as it shows major details of bullish context on kiwi. If you remember our previous bearish context was based on flag breakout. But take a look what we have right now. This is brekout failure, or "bears trap". Price returns back inside the flag. Usually after some time it leads to opposite breakout.

Second - price holds above YPP. It has been tested but now we see confident upside bounce. This action confirms existence of long-term bullish sentiment. Once price was able to hold above YPP, next logical Pivot target is YPR1 at 0.7678 area.

Finally, NZD has formed bullish grabber pattern. It also suggests action above previous tops and mostly confirms possible action to YPR1.

So, currently monthly chart looks bullish and positive

Weekly

Weekly chart brings no definite patterns but some moments are exist here also. Trend is bullish here and we have not very steep bullish divergence with MACD. Price strongly stands above MPP and now is breaking through MPR1. This moment also suggests further upside continuation.

Right now NZD stands in flat sideways consolidation. Although monthly chart suggests rather far target, but based on weekly pciture we probably should think only on 0.7320 area by far, as it will be upper border of consolidation and weekly overbought:

Daily

This chart shows the reason why we've changed our view into bullish. Actually, if you remember, we've discussed previously setup, that suggested downward retracement from 0.7080 area. This was very strong resistance, actually, this was K-resistance at daily overbought. Besides, here we could recognize the shape of potential reverse H&S pattern.

In fact, NZD even has shown some minor reaction on this area and we didn't make any mistake as odds have suggested drop down.

But here culmination has happened, where market mechanics has been broken by not quite natural behavior. NZD has passed through this resistance as knife through the butter. In fact we've got disrespected strong resistance level. As a result, price has formed bullish reversal swing.

At the same time market right now stands at major 5/8 Fib resistance, MPR1 and daily overbought again. Now we will not search chances to go short of course, but mostly will be looking for a bounce to take long position.

One of the levels that could be formed here is DiNapoli B&B "Buy" pattern.

4-hour

Here we need to watch for retracement. There are two levels, mostly that are suitable. First one is neareast 0.7130 Fib support and next one is K-area around 0.7075.

As market stands at resistance and overbought, besides, we have bullish reversal swing - retracement probably should be deeper. Daily B&B also can't start higher than 0.7066 Fib support. That's why we think, that it would be better to watch for this level first.

Conclusion:

During last month situaiton on NZD has changed drastically. There some important issues on monthly chart that point on higher potential targets.
That's why in short-term, on coming week, we need suitable retracement to think about long entry. Currently we intend to keep an eye on 0.7070 area

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.

 

[Joh]

Thank you Sive for another terrific report, so look forward to them each day.
Please keep them coming

 

[Sive Morten]

Good morning,

(Reuters) - The Canadian dollar rose to its highest level in nearly two months on Tuesday, buoyed by hawkish comments from Canada's central bank, while worries about UK political uncertainty dented sterling.

At one point, the Canadian dollar was at its strongest since April 17, at C$1.3274 per U.S. dollar, extending gains after climbing more than 1 percent on Monday. The loonie last traded at C$1.3293, up around 0.2 percent on the day.

Bank of Canada Senior Deputy Governor Carolyn Wilkins said on Monday first-quarter growth was "pretty impressive" and that signs economic growth was broadening would lead the central bank to consider whether current low rates would still be required.

"She delivered a much more hawkish signal than we've seen from the central bank in some time," said Sue Trinh, head of Asia FX strategy for Royal Bank of Canada's Hong Kong branch.

"Bottom-line, odds of a rate hike by the end of the year from the Bank of Canada have moved up considerably," Trinh said, adding that markets were now pricing in more than a 50 percent chance.

Sterling was still looking wobbly after the shock result of Thursday's UK general election, which left Prime Minister Theresa May short of a parliamentary majority that would have strengthened her hand as Britain prepares for Brexit negotiations with Europe.

The pound eased 0.1 percent to $1.2653, after shedding 2.3 percent the previous two trading days.

"The prospect of further political uncertainty due to the lack of an overall Conservative majority is likely to weigh on sterling in the short term," said Jeremy Gatto, senior vice president, trading, for Geneva-based boutique asset manager Unigestion.

On the other hand, the potential for "softer Brexit" rhetoric in a market that is already short on sterling could help support the currency over the medium-term, Gatto added.

The greenback was steady to firmer against the yen and the euro ahead of the Federal Reserve's two-day policy meeting starting later on Tuesday.

Against the yen, the dollar held steady at 109.97. The euro eased 0.1 percent to $1.1193.

With the U.S. central bank widely expected to raise interest rates, investors' focus will be on any fresh hints on the pace of tightening in the months to come, and its assessment of the economy and outlook on inflation.

Investors will also be watching for any fresh details on the Fed's plans for trimming its balance sheet.

"Given that the minutes (of the last Fed meeting) contained lots of details, one possible scenario is that there will be an announcement in June and that it will start in September," said Masafumi Yamamoto, chief currency strategist for Mizuho Securities in Tokyo, referring to the Fed's possible balance sheet reduction.

Elsewhere, the Bank of England is set to announce an interest rate decision on Thursday, and the Bank of Japan holds a policy meeting on Thursday and Friday.

Today guys most bright setup we have on CAD. That's why we just should not ignore it. Those of you who follows our regular weekly research probably remember that we expect drop to 1.2770 area as CAD has bearish monthly grabber. At the same time, CAD can't drop straight to this level and as any market will have periods of retracements. So, this moment could happen within few sessions.

On Bank of Canada statement loonie has dropped (I'm speaking on USD/CAD direction) right to daily major Fib support level and oversold. Plunge itself takes the shape of butterfly pattern, that also has been completed right in the same area:

This combination could let us to get minor 3/8 retracement with 100+ pips potential. Actually, on daily chart we have two different patterns - butterfly and DiNapoli bullish "Stretch" as combinaiton of Fib support and OS level.
The tricky moment here stands with too fast downward action. This is not good sign for butterfly. Here we need to take in consideration two moments. First - this was reaction on one time event, but not on some lasting driving factor. Bank of Canada - said, market - reacted. THis is short-term, one moment action. THat's why retracement could follow, especially if Fed will support USD.

Second - we will not take position blindly here, but will get some insurance first in a way of bullish reversal pattern on hourly chart. IT could be DRPO "Buy" , butterfly, 3-Drive etc...

In general, it should be enough for trading this setup. Potentially, target stands around 1.3375 Fib level.

 

[Sive Morten]

Good morning,

(Reuters) - The dollar eased on Wednesday with investors looking past an expected U.S. rate hike later in the day for clues on Federal Reserve policy for the rest of the year.

The dollar index, which tracks the greenback against a basket of six major rivals, edged down 0.1 percent to 96.930.

Against the yen, the dollar inched 0.1 percent lower to 109.98, while the euro added 0.1 percent to $1.1217.

The Fed is scheduled to announce its monetary policy decision at 2 p.m. eastern time (1800 GMT) on Wednesday at the end of a two-day policy meeting, followed by a press conference by U.S. Federal Reserve Chair Janet Yellen.

The Fed may also provide more clues on how it plans to reduce its holdings of more than $4 trillion in Treasuries and mortgage-backed securities.

Economists polled by Reuters overwhelmingly see the U.S. central bank hiking its benchmark rate to a target range of 1.00 to 1.25 percent this week, though expectations for further rate increases are fading.

What emerges from the Fed meeting "is certainly going to chart the course for a lot, including the strength of the dollar," said Bill Northey, chief investment officer at the private client group of U.S. Bank in Helena, Montana, who spoke from Minneapolis.

"There is some risk that we could see a more dovish outlook," he said.

Fed funds futures on Tuesday suggested traders saw about a 29 percent chance of rates rising to 1.25-1.50 percent at the Fed's Sept. 19-20 meeting, and a 57 percent chance of such a move at its Dec. 12-13 meeting.

"What investors want to know most is the pace of rate hikes going forward," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust in Tokyo.

"With many market participants worried about a dovish outlook, a surprisingly hawkish one could catch some investors off guard," she said. "The U.S. economy isn't doing so badly, so anything is possible."

Traders and analysts appear divided over whether China's central bank will once again follow the Fed and raise its short-term rates, as it did in March.

Depreciation pressure on the yuan has abated, for now, after authorities engineered sharp gains in May and changed the calculation for the daily midpoint to flush out short sellers.

The Bank of Japan, which is also meeting this week, is expected to keep its monetary policy unchanged.

The New Zealand dollar slipped 0.1 percent to $0.7215 after touching a low of $0.7197, moving away from the previous session's nearly four-month high of $0.7228.

New Zealand's current account deficit as a proportion of gross domestic product widened in the March quarter to its most in a year, data out on Wednesday showed.

The dollar resumed its drop against its Canadian counterpart after skidding to its lowest levels since late February in the wake of hawkish comments from Bank of Canada Governor Stephen Poloz, who signalled that the BOC could raise interest rates sooner than previously thought.

The U.S. dollar slipped 0.1 percent to C$1.3221 after falling as far as C$1.3209 overnight, its lowest since Feb. 28.

Today, guys, actually very poor setups across the board and honestly speaking few things that we could discuss as markets just wait for FOMC.

Thus, let's take a look at EUR again. It shows anemic action in recent couple of weeks and storm around France elections calmed. Still, recent action mostly suggests another leg up. It is difficult to forecast how high it could be and now probably this is not good idea to forecast what Fed will say, but, based on technical issues that we have, EUR should reach, at least 1305 YPR1:

Why we think so? First is - daily trend has turned bearish, but EUR shows no bearish action and stands tight around 1.13-1.1350 top. On 4-hour chart we see hidden bullish divergence with MACD and broken flag is still valid. Price re-tests its border but it stands above it. This gives a hint on another leg up.

Besides, this technical picture mostly corresponds to our view on Fed policy. First is - fact of June rate increase will trigger some profit taking as it strongly priced-in issue and mostly is treated as "done" fact.
Second - we suggest that Fed will not rise rate any more in 2017 and today we expect more dovish comments compares to what investors expect.
But, guys, don't treat it as trading setup and call for going long. Personally I do not intend to trade FOMC. This is just what we think and why we expect some upward action on EUR today...

 

[Sive Morten]

Good morning,

(Reuters) - The dollar was steady on Wednesday, reversing major early losses, after the Federal Reserve raised U.S. overnight interest rates and said it was prepared to continue tightening monetary policy.

The dollar index, which tracks the greenback against six major currencies, fell to its lowest level since Nov. 9 in early trading after the release of weaker-than-expected U.S. inflation and retail sales figures.

U.S. retail sales in May recorded their biggest drop in 16 months and the Consumer Price Index unexpectedly fell month-over-month, suggesting inflation pressures could be moderating.

However, the Federal Reserve, in the statement released at the close of a two-day policy meeting, indicated it viewed the recent weakness in economic data as temporary, and it detailed expectations to continue raising rates. The Fed also laid out plans to pare back its $4 trillion balance sheet this year.

"The Fed’s message is that they’re not overreacting to" the CPI and retail sales data, said Richard Franulovich, senior currency strategist at Westpac Banking Corp.

"It’s very much a full-steam-ahead message, and the dot plot says they expect to hike once more this year. That’s on the hawkish side of expectations and as a result the dollar has clawed back a lot of its earlier losses."

The policy makers' release of quarterly economic forecasts is often referred to as the "dot plot" because of the chart indicating the Fed's rate setters' expectations.

Fed Chair Janet Yellen's news conference highlighted the central bank's rosy outlook on the economy, boosting the dollar broadly.

The euro, after earlier rising to its highest level against the dollar since Nov. 9, was last little changed at $1.1215.

Against the yen, the dollar was last down 0.35 percent, to 109.70 yen, after falling as much as 1 percent and hitting its lowest level against the Japanese currency since April.

Commodity-linked currencies such as the Australian, New Zealand and Canadian dollars also pared gains against the U.S. currency after touching multi-month highs following the release of U.S. data.

"Now that the Fed is apparently not as dovish as we thought and won’t be reacting to weak inflation numbers, the Aussie and kiwi are naturally giving up their gains," Franulovich said.

As investors right now think about new inputs from the Fed and rebalancing their positions, we do not have a lot of setup for trading.
Right now most clear setup stands on CAD and it is short-term and mostly technical with no relations to big trends...

On daily chart CAD has reached support of long-term trend line, daily oversold and completed AB=CD pattern.

Thus, we could count on some minor upside bounce and it could become the background of B&B "Sell" trade. On 4-hour chart actually we mostly have everything in place, except too much candles above MA. We have not pure B&B, but should get B&B LAL (look-alike) pattern. Price has not quite reached Fib resistance yet, thus we probably should wait a bit more when this will happen:

On 15-min chart market has 1.618 AB-CD target that creates Agreement with 1.3280 Fib resistance and also price could form some kind of butterfly with the same target. On 30-min chart we have bullish dynamic pressure, while on hourly chart - bullish grabber. All these patterns suggest upward continuation:

So, our trading plan first suggests upward continuation to 1.3280-1.3285 where we could try to go short. Target in this case will be at 5/8 Support around 1.32 area.

If right now market will not go up but drop below 5/8 support our B&B trade context will be vanished.

 

[Sive Morten]

Good morning,

(Reuters) - The dollar stood tall in Asia on Friday, on track for weekly gains against a currency basket, after upbeat U.S. economic data gave investors reason to hope the U.S. central bank will stick with its plan to hike rates.

The dollar index, which tracks the greenback against six major peers, added 0.1 percent to 97.491, and was up 0.6 percent for the week.

The dollar rose 0.2 percent to 111.18 yen, on track to gain 1.1 percent for the week.

It ticked up to a session high of 111.27 yen, its highest since June 2, after the Bank of Japan kept monetary policy steady as expected, before quickly paring its gain.

The BOJ also upgraded its assessment of private consumption and overseas growth, signalling its confidence that an export-driven economic recovery was broadening and gaining momentum.

"With the BOJ, there were no big surprises there," said Mitul Kotecha, head of Asia macro strategy for Barclays in Singapore.

"Obviously, the dollar is reacting more positively today" than it did on Wednesday, after the downbeat U.S. economic data that preceded the Fed announcement.

On Wednesday, the Fed raised interest rates as widely expected, and also released some preliminary details of its plan to begin paring its $4 trillion-plus debt holdings.

Ahead of the central bank's announcements, however, downbeat inflation and retail sales data earlier sent the dollar into a tailspin.

"The dollar now seems to be getting over its shock from the core CPI release," said Masafumi Yamamoto, chief currency strategist for Mizuho Securities in Tokyo.

He noted that the Federal Open Market Committee (FOMC) was relatively hawkish, releasing its plan for balance sheet reduction earlier than expected and keeping the interest rate outlook unchanged - despite market expectations for a slowing in the tempo of rate hikes.

"It will be increasingly difficult to short the dollar, he added.

Thursday's run of U.S. economic data gave dollar bulls some reason for cheer. The Labor Department said initial claims for state unemployment benefits dropped 8,000 to a seasonally adjusted 237,000 for the week ended June 10, lower than the 242,000 that economists had predicted.

June readings of the New York Fed's Empire State business conditions index and the Philadelphia Fed business conditions index also both surpassed economists' expectations.

Higher yields underpinned the dollar. The benchmark U.S. 10-year Treasury yield was last at 2.174 percent in Asian trade, above its U.S. close of 2.162 percent. It had fallen as low as 2.103 percent on Wednesday after the downbeat data was published.

The euro was steady on the day at $1.1147, well below a seven-month high of $1.1296 touched on Wednesday, and down 0.6 percent for the week.

Sterling edged up 0.1 percent to $1.2773, getting a lift overnight after the Bank of England (BoE) came closer to hiking interest rates than many had believed it would. As many as three members of the BoE's policy committee surprised financial markets by voting for a rise in interest rates. It was still down 1.4 percent for the week so far.

The unexpectedly tight 5-3 vote came despite signs of a slowdown in Britain's economy, and uncertainty over Britain's political outlook since Prime Minister Theresa May's failure to win a parliamentary majority in last week's election.

Guys, to be honest, currently I do not see something really fascinating. NZD could form interesting setup on daily, but this probably will happen on next week, GBP stands in wide flag pattern, while EUR shows anemic action by far.

Thus, let's take a look again at CAD and our setup that we've discussed yesterday. Daily chart stands the same - it just explains the reason for minor bounce up, as CAD has reached long-term support line, OS and AB-CD target:

Yesterday we've started our talk on 4-hour chart and come to conclusion that before drop will start - price should climb slightly higher and this has happened:

Initially I mostly was looking for 1.3280 area (there was my entry order) as there was a target of 1.27 butterfly and 1.618 AB-CD, but price even has climbed to 1.618 and completed butterfly totally. Then our trade has started. Right now we have AB=CD pattern, that almost coincides with B&B target around 1.3220 area:

So, if you also have short - now it is possible to move it on breakeven. Probably our trade will be completed till the end of the session.