Forex FOREX PRO WEEKLY, June 29 - 03, 2020

Sive Morten

Special Consultant to the FPA
Messages
14,036
Fundamentals

So, this week we do not see too much activity on the markets as fundamental background also is not overload with events. Mostly eyes of the investors are on new Covid cases across the Globe and everybody worries on relapse of pandemic. Some statistics also has been released and it was mostly positive.

Weekly surfing
The euro jumped to one-week highs following positive economic data on Tuesday, while the Australian dollar and other higher-risk currencies strengthened after U.S. officials confirmed that the U.S.-China trade deal remained intact.

The euro bounced following a sign of recovery this month in the euro zone economy’s downturn caused by the coronavirus pandemic. IHS Markit’s Flash Composite Purchasing Managers’ Index (PMI), seen as a good gauge of economic health, recovered to 47.5 from May’s 31.9, moving closer to the 50 mark separating growth from contraction. In April it hit a record low 13.6.

That is still below the 50 mark separating growth from contraction, but the strong rebound - together with upbeat data in Britain and the United States - lent support to a sense that growth is returning at pace. It also seemed enough for now to offset worries about a resurgence in U.S. coronavirus cases, and to draw bets - reflected in a rising gold price - on broad dollar weakness. The euro is headed for its best month against the dollar since October.

“The story in the G10 is the euro zone PMIs coming in above expectations,” said Vassili Serebriakov, an FX and macro strategist at UBS in New York. Those economic readings are encouraging “in the sense that growth is rebounding a bit faster than markets expected.

U.S. data on Tuesday showed that U.S. business activity contracted for a fifth straight month in June, while sales of new U.S. single-family homes increased more than expected in May.

Better-than-expected U.S. macroeconomics reports have elevated Citi’s U.S. economic surprise index to record highs and emboldened expectations that a recovery from the slump caused by the coronavirus pandemic may not take as long as some analysts feared.

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The euro gained on Friday and is set for its biggest weekly rise in three weeks after the European Central Bank reaffirmed its dovish stance in the minutes of its policy meeting while the dollar struggled at U.S. coronavirus infections surged.

Facing the biggest economic contraction in generations, ECB policymakers at their June 4 meeting extended emergency bond purchases until mid-2021 and increased them by 600 billion euros to 1.35 trillion euros to help member states finance their pandemic response.

Reuters reported after the meeting that policymakers had debated increases of 500 billion to 750 billion euros.

The cautious comments suggested an extension of the bond- purchase plans and reinvestment programs is likely by the end of the year, which may benefit the euro.

“What we have seen in the last 4-6 weeks has been a big turnaround on the euro’s sentiment and this will be very supportive for the currency depending on the progress on the EU recovery fund,” said Chris Turner, ING’s global head of markets. He expects the euro to strengthen to $1.20 by end of the year.

Bank of America Merrill Lynch’s trading platforms and broader positioning surveys indicate currency markets are long euro/dollar, though positioning is not stretched.

The dollar reacted little to data showing U.S. consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 8.2% last month, the largest increase since the government started tracking the series in 1959. That said, personal income fell 4.2% last month.

Political affairs

U.S. intervention in Chinese interests could risk Phase 1 trade deal spooked investors already worried about a surge in coronavirus cases. The three main indexes extended losses after the Wall Street Journal said U.S. ‘meddling’ in Hong Kong, Taiwan, other matters could jeopardize Chinese goods purchases under the trade deal.

The rest of the world can no longer take it for granted that the US still aspires to be a global leader and needs to readjust its priorities accordingly, Angela Merkel has warned.

“We grew up in the certain knowledge that the United States wanted to be a world power,” the German chancellor said in an interview with a group of six European newspapers, including the Guardian. “Should the US now wish to withdraw from that role of its own free will, we would have to reflect on that very deeply.”

In an interview with the Guardian, Germany’s Süddeutsche Zeitung, France’s Le Monde, Spain’s La Vanguardia, Italy’s La Stampa and Poland’s Polityka, Merkel said the US military presence in central Europe was in the US’s own interest.

“American troops in Germany help to protect not only Germany and the European part of NATO but also the interests of the United States of America,” the chancellor said.

Talking of Germany’s military spending, Merkel said: “We in Germany know that we have to spend more on defence; we have achieved considerable increases in recent years, and we will continue on that path to enhance our military capabilities.”

But “reflecting very deeply” for Merkel does not appear to amount to an endorsement of what the French president, Emmanuel Macron, has called European “strategic autonomy”, the ability to defend the continent without reliance on the US.

GERMANY has been left furious over the threats from US President Donald Trump to kill off the Nord Stream 2 gas pipeline with additional sanctions, with Angela Merkel ready to strike back as a huge backlash escalates. Unnamed officials warned the prospect of direct intervention from the US in the EU's energy interests should trigger a collective response. Tensions between the two global superpowers have escalated this week, with Washington announcing the possibility of tariffs on $3.1billion of proudicts from Germany and other European countries. Donald Trump has also warned he will slash the number of US troops in Germany, while also repeating a threat to pile several new levies onto the German car industry. The US President has been vocal of his criticisms of Ms Merkel and her Government, making the Nord Stream, owned by Gazprom PJSC, one of his main targets.

Germany is preparing to strike back against the U.S. if President Donald Trump follows through on his threat to kill off the Nord Stream 2 gas pipeline with additional sanctions. Chancellor Angela Merkel's administration is considering pressing for coordinated European Union action, according to two German officials familiar with the discussions. An economy ministry paper seen by Bloomberg News said such measures by the U.S. would be new and could hit significantly more German and European companies and banks as well as state agencies.
The new German strategy adds the possibility of further escalation between the transatlantic allies, with the U.S. this week announcing potential tariffs on $3.1 billion of products from Germany and other European countries. Trump has also reiterated his intention to cut the number of U.S. troops in Germany and renewed a threat to hit the German auto industry with a new set of levies.

COVID-19

Globally, cases of COVID-19 have been rising for the past week or two. But as chart shows, the course of the disease continues to vary markedly across continents. Adjusted for population size, Europe suffered a severe outbreak through February and March, but cases there are now declining even as lockdown measures are eased, albeit slowly. In South America, the number of new diagnoses continues to rise, particularly in Brazil and Chile, with the latter country adding a large number of previously omitted cases last week. Cases are clearly rising in North America too, though mainly in parts of the United States that suffered relatively few cases earlier in the year.
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The United States recorded 45,242 new cases of COVID-19 on Friday, the largest single-day increase of the pandemic, according to a Reuters tally, bringing the total number of Americans who have tested positive to at least 2.48 million. The new record for positive COVID-19 tests comes as several states at the center of a new surge in infections took steps back from efforts to ease restrictions on businesses. COVID-19 is the respiratory illness caused by the coronavirus.

Governor Greg Abbott ordered bars across Texas to close by mid-day and required restaurants to limit indoor seating capacity to 50%, while Florida state officials told bars to immediately stop serving alcohol on their premises. Texas had been at the forefront of states peeling away restrictions designed to control the pandemic, allowing bars to reopen in May. It has since witnessed some of the biggest spikes in new cases, reporting 5,996 on Thursday. The state has also seen record numbers of hospitalizations in the last two weeks.

Florida issued its new rules after recording a startling 8,942 new cases of COVID-19, eclipsing the state’s one-day record of 5,511 reached on June 24. California Governor Gavin Newsom said Friday that Imperial County, southeast of Los Angeles, has become so overwhelmed by the virus that he was recommending it issue a strict new stay-at-home order.

Despite the grim news from Texas, Florida and elsewhere, President Donald Trump said on Friday the United States was coming back from the crisis, which has halted large parts of the economy and left millions jobless.

“We have a little work to do, and we’ll get it done. We’re having some very good numbers coming out in terms of the comeback, the comeback of our nation, and I think it’s going very rapidly and it’s going to be very good,” he said at an event in the White House.

The coronavirus pandemic is causing wider and deeper damage to economic activity than first thought, the International Monetary Fund said on Wednesday, prompting the institution to slash its 2020 global output forecasts further. Concerns about an increase tariffs also weighed on risk sentiment, and boosted demand for the greenback.


That's being said, it seems that global economy is trying to hook for "V" shape recovery as overall statistics show better numbers in all developed countries. Still, this positive trend is very fragile as it depends on few factors and two of them are of exceptional importance. First is no 2nd wave of Covid pandemic. Now it seems that situation stands on a control. Yes, few countries, including US show situation that makes to be worry, but it stands below the scale of March numbers and gives the hope that it will not shift to second wave across the Globe. Second - lasting fiscal support from central banks. They have to lead it to the end when economy gets sufficient strength. Too early elimination of support could hurt economy, triggering corporate (or even government) defaults and hurt recovery pace. As Fathom writes in recent report - " we prefer to focus on measures of mobility obtained from smartphone data. Our first chart shows that usage of public transport continues to rise, slowly but surely. For now, the global economy remains on course for a V-shaped recovery."
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A ‘V’-shaped recovery remains the most likely outcome. However, premature withdrawal of government support, a second coming of the virus, and a wave of sovereign defaults in emerging markets are all potential headwinds. Each could weaken banks’ balance sheets and lead to a global credit crunch or banking crisis. A global credit crunch, whether the trigger is defaults by governments or by individuals, would almost certainly trigger a protracted recession, turning our V-shaped scenario into a more damaging ‘L’. With central banks already running out of options in their policy toolkit, the onus will be on fiscal policy to prevent and respond to any future crisis.

Thus, Fathom shows the driving factors that investors will keep an eye on - sufficiency and potential change in Central Banks' supportive measures and virus situation.

Speaking particular on EUR/USD it seems that D. Trump and the United States push themselves in a dead way. Country stands in political crisis when its leader is loosing support inside the country. Bringing additional impact outside hardly will improve situation as US now stands in tricky relations with China and it seems EU as well. Such braves words from Germany Chancellor tells a lot. I have real doubts that we could hear them 2-3 years ago, this is just impossible. But now, political situation chances rapidly and A. Merkel's words confirms that US is loosing control over global political situation as well as their role and domination. Hardly new D. Trump initiatives works in favor of US Dollar. When you can't set order in your own home - how you could set the one outside?

In the past month, U.S. equities have underperformed world stocks by 2.5%; Europe outperformed by a similar margin. European stocks enjoyed investment inflows in three of the past four weeks, BofA says. Behind the shift perhaps are the growing odds of a presidential election victory for Democrat Joe Biden, worsening U.S./China ties and the continued rise in U.S. coronavirus infections that prevent economic activity from fully resuming.

Europe, meanwhile, has largely controlled the virus spread, economies are turning the corner quicker than expected and a proposed EU recovery fund is speeding up euro zone integration. BlackRock and Goldman Sachs are among those recommending clients shift focus towards European stocks, which lagged U.S. peers throughout the previous economic cycle due to a paucity of “growth” stocks.

European outperformance looks likely until at least November’s U.S. election. Longer-term though, U.S. firms, such as tech names, may face headwinds from higher taxes especially from a Democrat administration. And in a world where investors attach increasing importance to environmental, social and governance (ESG) credentials, Europe’s higher ESG scores will be a plus.

So, currently we do not see any short-term factors that could make negative impact on EUR/USD rate and suggest that our medium-term bullish context is still valid.


Next week events
Upcoming U.S. economic data and deadlines for renewing some fiscal stimulus measures in July could prove key tests for an equities rebound that has wavered in recent weeks. Investors will look to a raft of U.S. data next week - including reports on employment, consumer confidence and manufacturing - for clues on whether a nascent rebound in the U.S. economy remains intact. Improvements in some economic indicators, such as home sales, manufacturing activity and an unexpected bounce in employment data last month, have bolstered investor confidence and helped extend the rally in stocks. But others, including scant declines in jobless claims, reflect a still-tentative recovery.

Market participants are also looking for clues on whether lawmakers are likely to push through more fiscal stimulus measures in coming weeks. The House of Representatives passed another $3 trillion aid bill in May, but the Republican-controlled Senate has not taken up the House package and lawmakers are not expected to move toward another coronavirus bill until sometime in July. One component of Congress’ fiscal aid, a $600 per week supplement to unemployment insurance payments, is set to expire at the end of July.

Michael Wilson, chief U.S. equity strategist at Morgan Stanley, said that bill is critical to the bank’s thesis for a “V”-shaped U.S. economic recovery. “Our outlook for the economy is probably going to have to change” without further stimulus, he said.

Consumer confidence on Tuesday, manufacturing data on Wednesday and U.S. employment figures on Thursday - both weekly and monthly - are among reports due.
Non-farm jobs actually rose 2.5 million in May, versus April’s record 20 million-plus plunge. Another improvement could allow markets to push higher - bar further coronavirus-linked lockdowns.

Economies are bouncing back from the COVID-19 shock, so will inflation follow? Preliminary June euro area data may offer clues.
Already, inflation expectations are reacting to data showing the worst of the economic gloom has lifted; a long-term gauge of where markets see euro zone inflation headed is just above 1% — near its highest since early-March and almost 40 bps above record lows hit that month.

Some investors are already buying gold and other inflation hedging assets. But others say that if you dig deeper into activity indicators, they suggest little evidence of inflationary pressures picking up. And until that happens, expect the ECB to keep its foot on the stimulus pedal.
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COT Report

Recent CFTC data shows good performance on EUR, according to fundamental situation. As Open Interest as Net long position have increased and EUR still has the room to move higher:
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Source: cftc.gov
Charting by Investing.com



Technicals
Monthly


Long term charts monthly, weekly are barely impacted by price action as EUR mostly spends the time in the same trading range as last week. Thus, we keep analysis mostly the same.

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.

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.

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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. This week again market was not able to turn up, forming inside week with long upper tail.

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

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Daily

Here EUR reminds the tighten spring. While fundamental background pushes it higher, on the charts price goes lower due technical reasons. As a result, we see gradual very slow downside action as EUR is ready to release bullish energy at any moment. This also leads to forming of bullish flag pattern. Although we still hope that price hits our K-support area around 1.11 and we get perfect chance to go long, this downside tendency is very fragile and could be broken at any moment. This is the reason why last week we were considering all support levels where price potentially could turn up.

This week again, we try to be careful to intraday price performance to not miss reversal signs.
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Intraday

On 4H chart we have two different AB-CD patterns. The blue one now stands in focus. On Friday we've got bearish grabber that confirms our short-term scenario that we've discussed in video.
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On 1H chart our butterfly pattern has changed the shape a bit although the core of analysis still stands valid. With untouched XOP we still consider downside continuation to 1.1175-1.1180 area. In this case 4H grabber also will hit minimum target. Taking in consideration our comments on daily chart, guys, additional scenario we have to keep an eye on is a potential Double Bottom around 1.1165 lows as XOP stands close to it, if price will not go lower...

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Sive Morten

Special Consultant to the FPA
Messages
14,036
Morning everybody,

While EUR is doing its own deeds, let's take a look at GBP. It confirms our worryings on too strong downside pressure. Last week we've talked a lot on importance of current level and next 1.21 as well. Now it seems that GBP is challenging the K-support area. Still this is not the tragedy yet as major vital area is "C" point low and 1.21. Breaking this level means re-shaping of price action on daily. Ultimately - erasing of bullish context.
On daily chart C" point coincides with MPS1 that will be another indicator.
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Thus, on 4H chart we have to focus on next, XOP target of the same AB-CD pattern. Upside reaction on OP is over and it has not become the reversal moment. Thus, it means that GBP is coming to XOP that is 1.21. It should become the "moment of truth".
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Sive Morten

Special Consultant to the FPA
Messages
14,036
Morning guys,

Let's go back to EUR as it stands in a tricky moment. Daily chart shows indirect bullish signs - long standing above minor support area, flag shape and - take a look, early upside reversal inside the flag. It starts to smell like coming upside breakout...
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Inside the daily flag we have minor support line that forms triangle consolidation. By itself it doesn't point the direction. And right now no correct answer exists in what direction breakout will follow. But we could calculate few targets. It is possible downside butterfly. In this case it completes our desirable AB=CD pattern right to daily K-area at 1.11. Perfect area to go long. Maybe the dream will come true...

But, another interesting combination stands to upside where butterfly is also possible. In this case AB swing is the left wing and 1.618 extension coincides with daily XOP at 1.1550...
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It means that right now you could either go long inside the triangle with stops below 1.1150 (this is bet on upside butterfly). This is quiet entry. Conversely, for more conservative entry - do nothing and wait. In a case of drop to 1.11 there will be perfect chance to enter. Otherwise, you somehow will have to jump in a running train, trying to catch minor retracement on growing market.

On 1H chart there also nothing important. We have bullish divergence but it doesn't change significantly power balance here. Our XOP is still untouched:
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Sive Morten

Special Consultant to the FPA
Messages
14,036
Morning guys,

Not much has changed since yesterday. In general - context is bullish on EUR. As we've said previously - weak downside reaction, tight range for a long time, flag pattern, all these things point on preparation to upside breakout.
Now we're mostly busy with early reversal inside the flag and suspect that this might be final point before breakout. If not - nothing serious, as EUR keeps bullish context while it stands above daily 1.11 K-area.
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On 4H chart here is the butterfly that we've discussed yesterday. Price still stands inside the triangle but at higher level compares to yesterday. If you have taken position yesterday, as we've said- now you could move stops to breakeven. But two ways of position taking are still the same as price is still inside the triangle:
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If you still think about long entry, on 1H chart you could consider some retracement from recent upside action. Our XOP mostly has been hit, but fast price return suggests that this level is too low for EUR right now as deeps buy out fast. Alternatively it is possible to use Stop "Buy" order, when EUR breaks flag border and resistance level. Thus, as you can see here we have more than needed ways to take a position.
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Sive Morten

Special Consultant to the FPA
Messages
14,036
Morning everybody,
While EUR is still coiling inside triangle, we have new details on GBP. In recent two sessions it seemed that cable is turning up, but in reality it is not as cloudless as it seems.
Take a look, on daily chart market just repeats harmonic swing for the 3rd time and now it has failed to pass through MPP, forming bearish grabber. This pattern brings nothing good to bullish scenario and suggests that GBP could challenge recent lows with all consequences that we've discussed previously. So, we should not be hasty with conclusions of GBP recovery:
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4H chart shows that grabber is a result of Agreement resistance. MACD also shows hidden bearish divergence:
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So, bulls stands in tough situation. They have to either get grabber's erasing with higher price action or... pay attention to reverse H&S pattern and its right shoulder's bottom around 1.2340-1.2350:
gbp_1h_03_07_20.png


This time H&S is not as reliable due grabber existence, but who knows... At least position taking at support gives good chances to turn trade to riskless.
Bears have better setup and could try to take bet on the grabber, following small H&S pattern here that is forming right now...
 
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