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FOREX PRO WEEKLY, June 18 - 22, 2018

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Jun 16, 2018.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals

    Last week we've placed our detailed fundamental view on two major subjects that will drive EUR/USD in long-term perspective. They are tariffs turmoil and Fed/ECB interest rate balance. This week, we mostly get a results, and they are mostly confirm our assessment of situation.

    ECB indeed was not too brave to take more aggressive steps in interest rate policy. It just has confirmed what we've said - they will try to keep everything unchanged as long as possible. Thus, M. Draghi said that QE will finish according to the schedule, in December and interest rate will be unchanged till the mid 2019 - this was new input that push EUR lower. I would say that it is not totally unexpected, because we said that ECB definitely will keep rates at zero till the end of 2018, and then gradually will start preparation for more hawkish steps. So 6 month in the beginning of 2019 is precisely the period that should be enough for preparation to the first rate change.

    In general, on the question that the ECB was abandoning asset purchases before inflation reached its target, Draghi responded that current levels are much higher than two years ago and the council is confident growth is strong enough to keep inflation on course to reach the target. Given the slowdown in the first quarter, ECB staff revised the forecast for GDP growth this year downward to 2.1 percent, from 2.4 percent, while leaving it unchanged at 1.9 percent for 2019 and 1.7 percent for 2020.

    The staff projections for eurozone inflation are 1.7 percent for this year as well as for the following two years. However, since the ECB reacts to incoming data and inflation, this could be subject to change. Indeed, the current forecast for 2018 and 2019 has been revised upward due to higher oil prices.


    Also Draghi has confirmed our view on Italian political crisis - Draghi said it was nothing like the earlier crisis of confidence that hit the entire southern rim of the eurozone. Italian yields are well below crisis levels and there has been no evidence of contagion in other countries, he noted.

    This let's us to make update on our long-term analysis. It suggests action to at least ~ 1.10 area if we will get confirmation of ECB flat policy. Recent rate decision brings more confidence with this scenario

    Speaking on Fed perspectives, I show you two tables with 2 week lag. They show probabilities of rate change by Fed, according to investors' expectations. This one is two weeks ago:
    [​IMG]

    And this table is most recent, just after Fed meeting this week:
    upload_2018-6-16_14-10-16.

    Take a look that investors mostly treat positive recent Fed statement as probabilities of rate change have increased. Next one should come in September, and chances on 4th rate hike this year have increased for 20%.
    Now, if we combine this new data with ECB policy, as a bottom line we should get more bearish pressure on EUR/USD and continuation of bear trend in long term perspective.

    Speaking on tariffs... we do not have something new here. In general we need to keep in mind simple thing - United States are working on rebalancing their global cash flows. This work goes on different directions. First is, Trump tries to offload US balance with non-core assets. Long time America pays for its allies and finance global authorities, blocs such as NATO, small limitrophe countries that supports US policy in region or that have valuable geopolitical position. This was rather expensive for US population and tax payers.
    As soon as global world balance is going to change - America needs to accommodate to new reality. Now US makes an attempt to put some expenses on allies. That's why once Trump has become a president we start to hear demands to Europe for increasing NATO financing and US military bases in EU, to support Ukraine, Baltic and other countries of Eastern Europe. The same stands in other regions of the world. In two words - US is seeking chances to put financing burden of its circle of influence on his allies.

    Second big cluster of work that Trump is trying to make is to re-balance of huge cash flows from financial sector into production. Its too much capital stands in different financial assets that do not produce any real wealth for US population. The same is about merchant sphere. Applying tariffs and unpopular steps in financial sphere he tries to make investors re-balance assets, diversify them in favor of real production. Why these measures unpopular? Because previously big banks, funds etc. made money easily on financial markets, robbing population and regularly initiating global crisis, using big crib named "National debt" but now this crib is closing. At least Trump wants it to be closed. He needs to optimize and reduce government expenses, redeem dept and rise real industrial production.

    Currently it is very difficult to predict what steps will be taken on this way. Definitely 50 Bln tariffs with China is next to nothing, but here is psychological effect is important. So, we'll see. Now, my opinion is US tends to become a country of Germany type - with strong local area domination in North America, wealthy population and healthy economy, without global domination but keeping national geopolitical interests in the world.

    Still, we're mostly interested in financial process and ECB/Fed disbalance are most important for us now. Geopolitical factors are long-term and too complicated for analysis.

    COT Report
    Recent CFTC data shows that net long speculative position stands around 77K and slightly has increased, while open interest has dropped for ~19K contracts. It means that investors probably supports an idea that downtrend could take a pause soon:
    upload_2018-6-16_14-3-28.

    Technicals
    Monthly


    Technical picture barely has changed last week, as June month stands as inside May by far and makes no impact on long-term picture yet. Thus, mostly all that we've said last time is still valid. Major interest is a consequences of monthly bullish grabber, of course...

    Theoretically it suggests action above 1.26 top, but taking in consideration recent fundamental background, it seems that it has more chances to fail. Anyway, EUR now stands at support, and although we expect downside continuation in long-term perspective, but in few months upside bounce still could happen - just as reaction on this support.

    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.

    Conversely EUR ability to hold above YPP and keeping grabber valid could become a reversal point if corresponding fundamental factors will appear.

    eur_m_18_06_18.

    Weekly

    So, on weekly chart 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 first upside reaction has happened, market needs to fade down existing bearish momentum before upside action will start. This bearish momentum finally has triggered another downside action, which takes the shape of bearish reversal week - new top has been formed but week has closed below the lows of previous one.

    In fact, first upward action mostly was due OS area, but major Fib support levels were untouched. Now situation has changed and EUR is not at OS any more. It means that major support right now stands at 1.1450-1.1480 area. This is most probable destination for EUR on coming 1-2 weeks.

    And, this area also will be the one where we need to keep an eye on bullish reversal patterns. Because EUR either will turn up there to 1.20 target or no upside action will happen at all.
    eur_w_18_06_18.

    Daily

    Trend has turned bearish here, but EUR reached OS on Friday. It means that immediate downside continuation hardly will happen. This in turn tells us, that if any reversal pattern will be formed here - it probably will be a butterfly.

    Upward bounce has good chances to happen in the beginning of the week due OS. Butterfly target mostly coincides with weekly support and MPS1. This situation provides potentially two different trading setups. First is for short-term traders who will be aimed to butterfly target around 1.1420 area. Second for daily traders - who could try to go long as soon as butterfly will be completed.
    eur_d_18_06_18.

    Intraday

    As upward retracement just has started - we do not have a lot of tools here yet. Due daily OS, we probably should be ready for 50-61.8% upside bounce. Here I place 50% level as it is favorite one for EUR.

    Probably we need to keep an eye on some upside AB=CD pattern and, as a result - "222" Sell, which trigger downside continuation. This should be especially interesting for scalp traders:

    eur_4h_18_06_18.

    Conclusion:

    Since gap between Fed and ECB policy has widened last week, chances on downside continuation to 1.10 area in long-term perspective have increased.

    Within few weeks we should get the answer on question - will EUR show upside action to 1.20 area is it is followed by H&S shape on weekly chart. Mostly it will depend on reaction on major weekly 1.1450-1.1480 support.

    Next week probably will be taken by upside retracement action. If downside reversal will start - this will happen closer to the end of the week.


    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.
     
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  2. FreddyFX

    FreddyFX Sergeant

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    Master Sive, feels to me we are in for a complicated week. Guess the safest is to trade VERY cautiously !!!
     
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  3. PassPP

    PassPP Recruit

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    Thanks for the update Sive!
     
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  4. tun13

    tun13 Private, 1st Class

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    Hello Sir Sive, thank you so much for your analysis as always.

     
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  5. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Greetings everybody,

    Let's go back to our EUR stuff. As we've said in weekend report - Mon-Tue is a time of upside pullback, but the major concern was how deep this pullback could be. Right now we could say that probably it will be rather small. As you probably have heard, situation with tariffs turns to steep spiral as D. Trump has announced another possible $200Bln goods tariffs. Demand for safe haven has jumped - just take a look at USD and JPY.
    Now EU investors start to project this sutation and EU goods and themselves and this is not good for EUR.

    That's why it seems that downside action will be re-established today. This absolutely doesn't change our targets - all of them stand the same as well as patterns. This just makes butterfly to look a bit steeper:
    eur_d_19_06_18.

    On 1H chart EUR has completed our setup as we've expected "222" Sell. But it was rather short-term.
    eur_1h_19_06_18.

    Conclusion is simple - daily traders wait for 1.14-1.1450 for long entry. While intraday traders could use starting drop down for short entry (on some minor pullback, maybe smaller "222" Sell will be formed). With the same target around 1.1450.
     
  6. Lolly Tripathy

    Lolly Tripathy Master Sergeant

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    Hi side sir,
    It's a buying butterfly on gbpusd and sell for usdcad .
     
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  7. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Hi Lolly,
    yes, but be careful with CAD. Something is going on there, I mean with crude oil. A lot of uncertainty - Russia - OPEC and Iran...
    So, I will not surprise if CAD is coming to 1.3650 weekly XOP. So, definitely it is better to watch for at least 1.618 butterfly
    GBPUSDH4. USDCADDaily.
     
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  8. Lolly Tripathy

    Lolly Tripathy Master Sergeant

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    Thank you so much for the reply s
    Dear sive sir
     
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  9. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    EUR doesn't show big changes by far. Mostly price still coiling inside yesterday's range and inside or flag pattern. Upward bounce again shows harmonic number. Currently, on daily chart we do not see anything that could give us hint on invalidation of our scenario with 1.1450 target. It means that for daily traders nothing has changed and we're still waiting of reaching major weekly support:
    eur_d_20_06_18.

    Consolidation is taking the shape of widening triangle. Market stands tight just above previous lows and this is more bearish sign rather than bullish. Usually real upside reversal happens fast, but here we do not see it and could even recognize some signs of bearish dynamic pressure. It seems that attempt of downside breakout will happen sooner rather than later:
    eur_4h_20_06_18.

    Our yesterday's "222" Sell pattern has done well, but now there is another one could be formed. This is mostly for those who trades intraday. Pay attention how different dowside action and upside one. Market drops down very fast, while upside retracement is gradual and slow.
    eur_1h_20_06_18.
     
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  10. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Greetings everybody,

    Today we do not have something new to say on EUR - everything stands as we've discussed. Recent "222" Sell has worked nice. That's why today we turn to AUD. There is no completed setup yet, but it could appear very soon - within 2-3 sessions.

    As we're watching for upward action EUR from 1.1450 area - AUD potential scenario stands in the same direction. On weekly chart price is coming to major weekly Fib support level:
    aud_w_21_06_18.

    On daily chart we also have XOP target that has been hit just recently. This combination creates weekly Agreement area. Although AUD is not at OS - at least minor pullback has good chances to happen. But "minor" on weekly is ~150 pips, equals to smallest harmonic swing:
    aud_d_21_06_18.

    Recent thrust down after our "222" Sell that we've discussed 8th of June, is suitable for DiNapoli direction patterns - either DRPO or B&B. In current situation appearing of DRPO looks more logical.

    On 4-hour chart we also could get DRPO "Buy" as soon as price will hit weekly support probably:
    aud_4h_21_06_18.

    Minimum target of this scenario should be around 0.75 - harmonic swing and classic DRPO "Buy" pattern...
     
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