FOREX PRO WEEKLY, June 25 - 29, 2018

Fundamentals

This week we do not have a lot of new inputs of fundamental character. Mostly we keep the same view on long term perspectives that we've discussed here and here. Within the week we've got not bad PPI data and PMI index for the whole EU. Besides, relief has come from Italy as well.

"The German and French data were better. There was more assurance from the Italian government about staying in the single currency," said Minh Trang, senior currency trader at Silicon Valley Bank in Santa Clara, California.

Business activity in Germany and France, the euro zone's top two economies, picked up in June despite trade tensions between Europe and the United States, IHS Markit data showed.

The current Italian government "does not want to exit the euro", Claudio Borghi, a top lawmaker in the far-right League party, said in a newspaper interview. The single currency was also bolstered after Greece clinched
debt relief and received a cash infusion from the euro zone.

Still Europe's political situation, especially in Germany and Italy, and the global trade picture remained uncertain, which could put the dollar, euro and other currencies in a tight trading range into the quarter-end, analysts and traders said.

Fathom consulting also has defensive view on perspectives of EU economy and ECB interest rates policy. Recently in report to clients Fathom tells:
"We also expect that the composition of the ECB’s Governing Council will become more hawkish over the coming year. We believe that GDP growth across the currency bloc peaked in 2017, with a slew of weaker-than-expected survey and other soft data released in the first half of this year suggesting a slowdown in 2018."


Speaking briefly on tariffs piking that increases value, our suggestion is US has more advantages and ability to manipulate markets, surfing between rivals and multiple exporters in different part of the world. Recent 200Bln of new tariffs almost equals to whole US export to China value. This is only on first glance China could dominate because many analysts talk about large US debt that China holds. But, China has no government retire plans, no social services. Initially it could seem that China stands in advantage, but, if China export will start to narrow - this will be social catastrophe, massive poverty in China and it will have geometrical progression, because elder people, old parents, pensioners are on charge of labor pool. If this pool will lose job - this will be chain reaction of poverty and total social collapse.
EU also stands frightened because it see what happens with China and they start worry that it could happen with EU as well. This depresses economical sentiment.

COT Report

This is a bit surprising, guys, especially in a light of recent EUR action but CFTC data shows big drop in net long position on EUR. Open interest also has diminished approximately for 100K contracts. This is very big change for just single week. If you will take a look at trading volume - drop two weeks ago had a record high trading volume.





So, this behavior points on massive closing of long positions on EUR and mostly coincides with our long-term view of EUR performance. So, recent CFTC data points on bearish sentiment.

Technicals
Monthly

June is almost over but it still stands inside one to May bullish grabber and now mostly looks like high wave pattern, which could indicate indecision.

Since we have bearish view on EUR in a perspectives of 6-12 months, major concern stands not around direction, but around manner of price action. Particularly speaking - whether we will get our 1.20 bounce before turning south or, EUR will continue down immediately. Unfortunately monthly chart can't answer on this riddle.

Position of grabber also looks interesting, because it contradicts to other inputs. Grabber suggests action above 1.26, but this scenario doesn't agree with ECB policy and investors sentiment that we see from COT report. Since they are mutually exceptive scenarios - one of them should fail.

Also, long-term price behavior stands bearish. 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.

It means that to make grabber work we need to get strong positive fundamental factor. Current inputs that we have definitely are not sufficient for drastic upside reversal on EUR.

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.

Last week EUR again has tested potential neckline of H&S. Major supports still has not been touched. It seems that EUR has support here, but at the same time - it makes recent upside action a bit fragile. I would prefer testing of weekly support first. Massive long covering a week before also is a warning sign.

May be EUR will continue upside action, but major weekly support stands just 20-50 pips lower, and this is perfect situation for traps of different kind and fake downside breakouts. We need to keep in mind this moment. Probably we need to apply more strict conditions for upside reversal identification on daily chart.


Daily

This picture is well-known for us. Here, guys FX PRO chart shows that it was a 2 pips W&R of previous low, and theoretically this makes butterfly invalid any more. But, if you will take a look at September futures on CME - you'll see that previous lows are still valid:


So I will keep it here. It place important role in our trading plan, because it could become precisely the pattern that we're watching for, and it could trigger upside reversal action to 1.20.

But, here we have another important issue - the one that we've talked about on Friday, when we've called you to not jump in and wait a bit. This is bearish grabber - it has been confirmed. This pattern suggests renew of previous lows, which, in turn, should fix all irrational things and EUR finally will as touch weekly Fib levels as complete butterfly reversal pattern.


Speaking on strict criteria on immediate upside continuation that we've mentioned above - I would apply upside breakout of 1.1860. In this case butterfly will be erased and EUR will break through daily K-resistance.

Intraday

Here price still stands below our 50% Fib resistance, OP target almost has been reached. Price will open around WPP. It will be different trading plan for daily traders and for intraday ones. Daily traders should wait either daily butterfly completion to go long or reaching of 1.20-1.21 area to go short, while intraday traders could try to catch minor patterns inside the day, but keep in mind the same levels, where you should stop going short and stop going long. They are 1.1450 and 1.20-1.21 correspondingly.
Thus, a lot of things will depend on daily grabber. If it will start to work - there will be bearish intraday tendency, if upside breakout still will happen, it could mean that EUR is on a road to the top or right arm of weekly H&S. But, it is dangerous to go long until daily butterfly will be still valid, i.e until price stands below 1.1860 tops.


Conclusion:

Since gap between Fed and ECB policy has widened, chances on downside continuation to 1.10 area in long-term perspective have increased. Right now we do not see any reasons to change this view. Fundamental background mostly stands the same.

In shorter-term we're coming closer and closer to a moment where some clarity should be on perspective of action to 1.20-1.21 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.

 

Sive,
Take a look at the spot price vs. the Futures. I do not show a bearish grabber on my spot as it could be different markets. It closed 4-5 pips above on Friday. Secondly I don't show any grabber on the futures. Very intersting and I think to shake the market up they will jump or at least try 1.1865 are if not 1.20 before resuming the down trend.

 

Thanks Josh, interesting... It seems that price difference becomes another input in our analysis. No I wonder, what action will follow...

 

Hi guys,

lets continue with EUR discussion. Market is gradually but still moving higher. Our daily bearish grabber has been vanished, and it seems that right wing of the butterfly has not started yet. Unfortunately there is no reliable setup yet for daily traders. For short entry we're watching 1.20-1.21 area, for long entry - we need some clear bullish reversal pattern. Now, while price stands below 1.1860 - we still watch for butterfly. But if EUR will jump higher - this could be double bottom...


On intraday charts market stands at important area - 1.17-1.1740. This is resistance cluster of WPR1, major 5/8 Fib level and previous consolidation with 1.1740 border. We could say, that if market will break 1.1740 up - this will be early bell of 1.1860 breakout. Because butterfly pattern suggests downturn below 1.1740:


1.1740 is also XOP target of our AB=CD pattern. For retracement - reaching of this area is quite enough. Upward breakout will tell that more upside action is coming:


Right now we do not see clear patterns here - neither bullish nor bearish. So, let's keep an eye on key levels and may be patterns will be formed when EUR will clarify further direction.

 

Morning everybody,

It seems that our doubts on upside perspectives are not in vain. Yesterday we've called to watch for price action around 1.17-1.1740. Here market has formed some bearish signs. It means that our scenario with butterfly is still valid.
On daily chart we have bearish engulfing pattern now:


On 4H there are two other negative moments. First is, market has dropped below WPP and second - price returned back in triangle consolidation, 5/8 Fib resistance has not been broken:


As a result, on 1H chart we could recognize H&S pattern. It means that market could drop at least to 1.1580-1.16 area, where direction again could change or proceed to daily butterfly destination point.

 

Just when you think you have figured it out which direction to take, some news and more fake news comes out and you are left scratching your head.
THANKS master Sive for doing your best to keep it understandable !!!

 

Good morning,

So EUR has answered on all questions, as our yesterday setup has been perfectly completed. First is, no Double Bottom will be formed on daily and butterfly is our major scenario. Second, which I think is very important - market is coming to May lows and there are just 2 sessions till the end of the month. If EUR will close below 1.1450 it will erase monthly bullish grabber, which seems positive and matching to real fundamental background in EU. So, next week will be important and daily traders finally will step in.


Meantime, we see only short-term setups for tradin on intraday charts. For example, on 4H we have good thrust down and appearing of B&B "Sell" around 1.16 could become a good trading setup:


Upside retracement could happen, because EUR has completed ultimate H&S target, which is XOP. Also price is at WPS1. So, may be minor upside bounce could happen. Here, on 1H it could take the shape of DRPO "Buy", because 1.16 is 50% of local thrust down:

 

Hi guys, here is a text book example for 4h B&B sell, already played as suggested by Sive:

DiNapoli rules!!!

 

Yes, it reach the target and retrace without closing the candle above 3x3. However It is still a opportunity to
play the DRPO Buy 1Hr with some higher target . 1.1553 is still a bastard for the bears to overcome on London close.

 

Hi, from EW perspective if Euro is in a triangle, short to 1.1450 would make wave 5. Above 1.1722 invalidates it. Stag, what is your view ?