Forex FOREX PRO WEEKLY, June 22 - 26, 2020

Sive Morten

Special Consultant to the FPA
Messages
14,742
Fundamentals

We've got few important events this week - a lot of statistics, EU summit, few statements from central banks and worries around possible Covid relapse in China and US.


The dollar slipped and riskier currencies rallied on Tuesday as the U.S. Federal Reserve prepared to start its corporate bond buying scheme, while a report flagging the possibility of more fiscal stimulus helped to underpin investor sentiment. After a 2.1% rise so far this month, the euro was heading back to near $1.15, this year’s high.

The Fed said it would start buying corporate debt on Tuesday as part of an already announced stimulus scheme, and launched its Main Street Lending Program for businesses. Investor sentiment was further supported by a Bloomberg News report that President Donald Trump’s administration was considering a nearly $1 trillion infrastructure programme to boost the economy, citing anonymous sources. Taken together, the news reinforced a belief authorities will do what it takes to get the world’s biggest economy back on track.

Data showed U.S. retail sales jumped 17.7% last month, the biggest rise since the government started tracking the series in 1992. Data for April was revised to show a record 14.7% drop in sales instead of the previously reported 16.2%. Economists polled by Reuters had forecast retail sales would rise 8% in May. The data followed a report early this month showing that the U.S. economy created 2.5 million jobs in May.

A full U.S. economic recovery will not occur until the American people are sure that the novel coronavirus epidemic has been brought under control, Federal Reserve Chair Jerome Powell said on Tuesday as he began the first of two days of hearings before U.S. lawmakers.

The dollar headed for its best week in a month on Friday as a resurgence in coronavirus cases knocked confidence in a rapid economic recovery and drove investors to the safety of the world’s reserve currency. Geopolitical tensions on the Korean peninsula, in the Himalayas and between China and its trading partners have also weighed, and the balance of risks kept morning moves modest. President Donald Trump on Thursday renewed his threat to cut ties with China, a day after the first high-level talks between the countries in months amid souring relations. The meeting, between top diplomats in Hawaii, was inconclusive.

Meanwhile an uptick in coronavirus cases in many U.S. states this week, along with rising hospitalisations, reflected a troubling national trend that has seen daily infection numbers climbing after more than a month of declines. More than 150 new cases have also been detected in Beijing since last week, prompting a lift in the city’s alert level and a reintroduction of travel curbs.

EU leaders agreed on Friday that urgent action was needed to haul their coronavirus-hit economies from the deepest recession since World War Two, but made no progress on a massive stimulus plan that has divided them bitterly for weeks. The 27 avoided a bruising bust-up during a summit by video-conference of around four hours, and agreed to meet in person in mid-July to haggle and get across the line a long-term budget and economic rescue package worth 1.85 trillion euros.

“Leaders unanimously agreed that the severity of this crisis justifies an ambitious common response,” Ursula von der Leyen, President of the European Commission, told reporters.

Earlier, European Central Bank chief Christine Lagarde warned the leaders that the European Union’s economy was in a “dramatic fall” due to the coronavirus crisis and that the full impact on unemployment rates was yet to come. Under discussion is the EU’s 2021-27 budget of about 1.1 trillion euros, and a proposal by the Commission, the bloc’s executive, to borrow 750 billion euros from the market for a new recovery fund that would help revive economies hardest hit by coronavirus, notably Italy and Spain.

Still there are a lot of disagreement stands among the members in all directions - as between west and east countries as between south and north. One senior EU diplomat said while there was little to show for the summit, at least it was cordial. “It was not particularly useful,” the diplomat said. “On the other hand, it was not very controversial either, and the tone of the debate was OK.”

The European Union is committed to reaching an agreement with Britain on their new relationship after Brexit - but not at any cost, the bloc said on Friday. EU chiefs Charles Michel and Ursula von der Leyen briefed the 27 national leaders on Friday on the latest talks with Britain, which have made precious little progress since London left the bloc in January, and now face an end-year deadline.

“We jointly stressed our willingness to undertake all possible efforts to come to an agreement,” von der Leyen, the head of the EU’s executive European Commission, told a news conference after the summit. “For this we have to bridge wide divergences, which remain to be solved.”

While Johnson wants a loose trade deal with the EU, the bloc is seeking much closer ties for the future covering climate, fishing, transport and security. Disagreements over how to guarantee fair competition, fisheries, rules for settling disputes or the role of the EU’s top court have so far prevented progress as the bloc seeks to tie London closely to its rules while Johnson wants to cut his country loose. German Chancellor Angela Merkel said after the EU discussions on Friday that a deal with Britain must materialise this autumn to leave enough time for ratification before 2021.

New Covid story

As Fathom reports, China is being closely observed, now more so than ever, and not just because it was the source of the COVID-19 pandemic, but because its actions and subsequent recovery are seen by some as a preview for what may be in store elsewhere. That is why last week’s news of a second wave, or ‘ripple’ as some are calling it, in China’s capital, Beijing, saw global stock markets pause for breath. But concerns that the latest outbreak (combined with rising cases in some parts of the US) could thwart efforts to kick-start the global economy were soon allayed by the promise of additional stimulus, supplementing the extraordinary measures already taken by the world’s central banks and governments. Federal Reserve Chair, Jerome Powell, suggested earlier this week that additional fiscal support may be needed in the US. Its COVID-related fiscal response already equates to more than 10% of GDP.

The new outbreak in Beijing has seen an additional 158 cases, increasing the city’s total by 27% over the past week alone. This has triggered the closure of parts of Beijing, the cancellation of flights, and the suspension of schools and sporting activities. While it is true that life had been getting back to ‘normal’ in China, the country still had some of the strictest COVID-19 related measures in place, a consequence of having reinstated some restrictions in early May following fears of a second wave back then. For now, offices, government departments and factories in Beijing remain open, suggesting that China’s policymakers are keen to limit the economic impact of this latest outbreak.

Kickstarting the economy is about much more than government policy alone, with other factors such as fear also influencing behaviour. To the extent that fear is fuelled by the human toll of COVID-19, those countries that have suffered higher mortality rates may well recover less quickly. In this context, China has considerably more wriggle room.

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Reassuringly for the US economy, high-frequency data from OpenTable suggest that the resurgence of infections in some US states has not weighed on consumer appetite to date. Indeed, according to the reservations website, the number of vacant seats in restaurants has continued to ebb, even in those states most affected by rising cases in recent weeks.

Economy data

Economic data, market trends and easing restrictions all continue to paint an optimistic picture. On the data front, new UK unemployment claimants rose in May by only half the rate seen in April, even as the total figure stood at its highest since October 1993. In Europe, according to the ZEW survey, German expectations increased to the most elevated point since 2005 in May, at the same time as the assessment of current economic conditions rebounded from April’s record low.

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Even more significantly, US retail sales surprised on the upside and rebounded by 17.7% in May even as many states remained in lockdown, as highlighted by the significantly weaker sales from food and drink places. US industrial production also posted gains in May after hitting lows comparable to 2008 in the previous month.
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We (Fathom consulting) have argued that policy actions have been unquestionably positive and the key engine behind such a swift recovery. At the same time, we also noted that sectors and assets more closely connected with macro fundamentals had significantly lagged in performance. Overall, we also eschewed the temptation of attributing thaumaturgical powers to the Fed, preferring a more balanced assessment around risks going forward. In particular, we have made it abundantly clear that the debate over a V-shaped recovery is to a large extent a debate about the odds of a smooth transition to a new normal rather than a wishful hope of a return to the ‘old’ normal. This distinction is important as we see many signs of how the pandemic has created clear dislocations across economic sectors and agents that are likely to stick around for some time.

COT Report
Speculators increased their net short dollar position in the latest week, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data
released on Friday. The value of the net short dollar position rose to $15.69 billion in the week ended June 16, compared with a net short of $9.51 billion the previous week.
In a wider measure of dollar positioning that includes net contracts on the New Zealand dollar, Mexican peso, Brazilian real and Russian ruble, the U.S. dollar posted a net short position of $16.27 billion, up from $8.88 billion a week earlier.

Recent CFTC data shows positive shifts in sentiment on EUR either as net long position has increased this week, despite that this achievement stands due to cut of bearish positions as open interest has dropped. Hedgers also have increased positions against upside action that indirectly confirms anticipation of upside continuation:

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Source: cftc.gov
Charting by Investing.com


Next week we mostly will be watching for another block of economy statistics. What shape will it be? - The V of a swift rebound, or the U of an (eventual) grind higher, punctuated by coronavirus scares, news of job cuts, social unrest and corporate bankruptcies? Or the depressing flatline of an L? Flash estimates of June business activity may give us some indication.

Signs are that despite new infections in China and some U.S. states, the worst is over for big economies. Chinese factory activity returned to growth in May, while most countries saw a bounce in retail sales and manufacturing. U.S. and European purchasing managers’ indexes (PMI) turned higher in May even if they remained in contraction territory.

June PMIs should reflect more positive momentum coming through as lockdowns eased further. Then again, recent market swings suggest there’s just one economic indicator in focus for investors these days, and that’s the coronavirus case count.

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Economies are only just exiting stringent coronavirus lockdowns, but some policymakers are already hinting at another kind of exit - from their crisis-related stimulus.
Not all of them, however. The Fed has assured markets it won’t balk at further policy easing. But comments by the Bank of England, the People’s Bank of China and the Norges Bank have surprised some — the latter has even flagged plans to raise rates from 2022.

The BOE cited signs of economic recovery as a reason to slow the pace of its bond buying. And PBOC governor Yi Gang said policymakers should consider the “timely withdrawal of policy tools in advance” because of the potential for a “hangover”. The PBOC is seen not cutting rates for the second straight month. Data showing UK public debt surpassing 100% of GBP will reinforce fears of a debt surge stemming from emergency blank cheques. Markets aren’t spooked yet, especially as the Fed remains in easing mode. But stay tuned for more exit strategy talk.

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. Currently we see the pullback below Pivot again, but we have objective reasons for that and they are mostly technical. Overall sentiment stands positive on the market. If it will be supported by positive PMI next week and EU leaders will show progress in anti crisis negotiations - EUR could show the action that we hope to see.

In longer-term perspective major 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.

eur_m_22_06_20.png


Weekly
This picture shows that we were correct when warned that it is too early to bet on the rally, and now we see how deadly combination of K-resistance and overbought level hold EUR.

Now our major task is to estimate possible targets of this retracement, where EUR supposedly could re-establish upward action.
eur_w_22_06_20.png


Daily

It seems guys, that we're coming to most interesting moment where finally we could consider setups for taking of long position on daily chart. IMO we should ignore 1.1211 Fib level now and focus on 1.1080 - 1.1120 K-support by few reasons. First is, B&B "Buy" is not formed as market stands too long below 3x3 DMA line and shows no reaction on Fib support. Besides, I do not like 5/8 retracement that already has happened. It could be treated as B&B by nature, but it hasn't matched to the conditions of B&B. Thus, as market is not at oversold, EUR probably should reach K-support, which is also Pivot support 1 level and previous top.

eur_d_22_06_20.png


Intraday

Here guys I use contracted chart just to show what Fib levels I use. This time situation with position taking will be more sophisticated as we do not have perfect match of intraday AB-CD targets and daily Fib levels. It brings uncertainty in estimation of precise level where EUR could turn up. As we've said above - daily K-support seems as most suitable area. But here, on 4H chart we have different interesting combination. Take a look, OP target stands higher, around 1.1145 area while daily K-level is significantly lower. Still, we have another reaction point that gives Fib levels that match to AB-CD extension targets, making Agreements with them. All this stuff provides at least three levels where upside reversal is possible - 1.1145-1.1150, 1.1080-1.1120 and 1.0995-1.1017. The third one has least attractiveness, but first two levels are probable.

Thus, we have to split our position in parts and take first position at first level with the initial stop order below 2nd. Second half we will take at daily K-area with the same stop. When market shows upside bounce (or real upside reversal) up from daily K-area we need to move stops to breakeven. This is approximate trading plan.
eur_4h_22_06_20.png


Conclusion

EUR keeps moderately positive sentiment and has just technical barriers that do not let it to show upward continuation. Upside action should continue once EUR abandons overbought condition on weekly chart. Positive PMI statistics next week also would be nice.
 

Sive Morten

Special Consultant to the FPA
Messages
14,742
Morning everybody,

It is difficult choice today what to consider, but update for GBP seems more important. So we're stand on long side now as GBP has completed first part of our trading plan - price has reached major support at daily chart that consists of K-area and MPP.
This level has crucial meaning for the whole context. Breaking of K-area is bad sign because we stand in downside reaction to the minor COP target and it should not be too strong if market is bullish indeed. Second - breaking of K-area probably leads to drop below "C" point and it means that AB-CD pattern will be cancelled.
That, in turn, could lead to change of long-term sentiment and another drop on GBP. That's why this level has special importance
gbp_d_23_06_20.png


On 4H chart price perfectly has completed our AB-CD target that we've pointed for long entry. Now we have "222' Buy" and also Agreement support. So, if you're in - move stops to breakeven, or just under the lows.
gbp_4h_23_06_20.png


If you're not, but you would like to buy GBP - you could consider one of these levels where is possible to take position. Currently it is impossible to say definitely what the level is, price could continue upward action from any of them. But all of them stand in just 50 pips range, so you could split position or just enter at any level.
Theoretically retracement should be 50-60% as market has formed bullish reversal swing. But trying to win 20 pips you could lose ten times greater. Thus - this is your task is how better to manage the entry.
Minimal potential of this trade is upside AB-CD action somewhere to 1.2550-1.26 area that is 4H K-resistance level. But we hope that GBP will follow to extended daily setup as well. Our task here is manage stops properly - turn trade to risk free and do not lock price to tight:
gbp_1h_23_06_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,742
Morning guys,

let's go back to our EUR setup. Now you probably understand why in our weekly report we consider all three potential areas for long entry and intend to buy at all of them. EUR accurately has reacted on first area that stands slightly above daily K-support. In turn, on daily chart nothing has changed and 1.11 is still our major level to consider for long entry. From technical point of view, it should be deeper retracement as EUR is reacting on weekly K-area and overbought, but it has not reached even 3/8 level. Despite cool rally yesterday, the question of deeper retracement still might be open:
eur_d_24_06_20.png


Take a look, on 4H chart upside action has started precisely from our first area. Now, if you're in, you have to manage your position and definitely keep stops at breakeven. Now the major question what do we have - either upward continuation or not yet. In second case, we could get deeper AB=CD pattern (blue lines) that agrees with daily K-support:
eur_4h_24_06_20.png


On 1H chart EUR completes perfect AB=CD target and shows retracement now. Take a look, that potentially we could get reverse H&S pattern as well here. It means that vital level here is 1.1235. If EUR breaks it down - be prepared for drop to 1.11. If H&S will be formed, then indeed, upward trend could continue right from here. Thus, you have to think how is better to manage your position.
eur_1h_24_06_20.png


If you have missed the entry at 1.1165 area - then you could consider 1st buy around 1.1277 K-area and price will bounce - move stops to breakeven. If EUR drops later to 1.1235 - that's the 2nd chance to buy.
Alternatively - wait for 1.11 on daily chart.
 

Sive Morten

Special Consultant to the FPA
Messages
14,742
Morning guys,

So, our suspicions are not in vain as you can see and not occasionally we discussed detailed trading plan in weekend. Yesterday, after normal reaction on support EUR has turned down again and now is very important moment that should answer on whether upward action continues or we get deeper retracement. As we've said many times already, technical picture stands in favor of the latter. Besides yesterday we've got reversal session on GBP. EUR has no big relation right now to Cable, but still, it means something and definitely makes impact on EUR performance.
eur_d_25_06_20.png


On 4H chart market comes to the bottom of right arm of our H&S pattern and this is moment of truth. Downside breakout means drop to 1.11 daily K-area, while upside reversal could lead EUR to new tops. This is the reason why we've called yesterday to book at least 50% profit and definitely keep stops at breakeven:
eur_4h_25_06_20.png


Here we could see how our suggestions work. We have expected ~30 pips reaction on OP target, and indeed, EUR hits Agreement with XOP target. Here you also could consider long entry with stops either below the Agreement area, or below the Head of the pattern. But, as this level is minor one, it provides worse protection and you could not get the chance to move stops to breakeven. Other words speaking - chances to catch loss is greater.
Alternatively you could when reversal will start and then try to buy on minor pullback, or, just wait for 1.11 daily K-support. Odds suggests that the chances are high that we will get it.
eur_1h_25_06_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,742
Morning everybody,

So, EUR has shown another downside session. Price slowly but stubbornly is creeping lower. This confirms our suggestion on deeper retracement and reaction strong weekly resistance area. Now chances become higher that market hits 1.11 K-support on daily chart:
eur_d_26_06_20.png


On 4H chart market takes the shape some flag or channel, but most interesting things stand on 1H chart:
eur_4h_26_06_20.png


Here, market not just has broken our Agreement resistance but shown acceleration after breakout. Now we have to apply more extended AB-CD pattern and its XOP stands at 1.1180 area, that has not been hit yet. Thus, it seems that most probable pattern today is a butterfly. Still, as we also have reverse H&S pattern in a failing mode - soon price also should drop below the Head. May be not today but rather soon.
Thus, currently we have no good bullish context and must wait when price hits next strong support level to consider long entry:
eur_1h_26_06_20.png
 
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