Forex FOREX PRO WEEKLY, March 01 - 05, 2021

Sive Morten

Special Consultant to the FPA
Messages
14,521
Fundamentals

So, we're gradually rolling into Spring, as it is March 01 already on Monday. It seems that trading plan on GBP that we've prepared last week starts well, the reaction on 1.42 resistance looks solid. As we've covered longer-term perspective as well - we just follow the plan, with the next step is downside retracement to daily Fib supports of 1.37 first and potentially 1.35.
It is not a secret that the major driver of this week was interest rates. Nobody has expected the rally of such a scale. And light panic spread across the board, pressing on all assets, including stocks, gold etc. J. Powell also add some fuel to the fire repeating the same mantra on above 2% inflation. Despite that we have higher standing target on EUR, for instance, we should not be surprised with sudden collapses. According to our long-term view global economy is coming to major reversal and the signs of that start to happen oftener and oftener. But this is not the end yet. Once major pullback on nominal interest rates will be completed (somewhere around 1-1.2% supposedly), this will be the culmination point. Anticipated pullback should become the background for swan song rally as on gold as on EUR and other assets, probably.

Market overview

President Joe Biden scored his first legislative win as the House of Representatives passed his $1.9 trillion coronavirus relief package early Saturday, though Democrats faced challenges to their hopes of using the bill to raise the minimum wage.
Republicans, who have broadly backed previous COVID-19 spending, said much of the current package was not necessary, highlighting elements like a subway near Pelosi’s San Francisco district. Only 9% of the total would go directly toward fighting the virus, they said.

The bill’s big-ticket items include $1,400 direct payments to individuals, a $400-per-week federal unemployment benefit through Aug. 29, and help for those in difficulty paying rents and home mortgages during the pandemic.

Democrats will have to sort out how to handle a proposed minimum-wage increase, which may have to be stripped from the bill due to the complicated rules that govern the Senate. The House-passed bill would raise the national hourly minimum wage for the first time since 2009, to $15 from $7.25. The increase is a top priority for progressive Democrats. However, the Senate’s rules expert said on Thursday that the wage hike did not qualify for special treatment that allows the rest of the bill to be passed with a simple majority, rather than the 60 votes needed to advance most legislation in the 100-seat chamber.

The U.S. economic recovery remains “uneven and far from complete” and it will be “some time” before the Federal Reserve considers changing policies it adopted to help the country back to full employment, Fed Chair Jerome Powell said on Tuesday. Powell began is testimony before the Senate Banking Committee as Wall Street looked set for its sixth straight day of declines from last week’s record highs, although losses were pared after the release of his comments. Fears about rising U.S. Treasury yields hit the technology sector particularly hard.

The U.S. central bank’s interest rate cuts and purchases of $120 billion in monthly government bonds “have materially eased financial conditions and are providing substantial support to the economy,” Powell said in prepared remarks.

The Federal Reserve’s Powell reiterated on Wednesday that U.S. interest rates will remain low and the Fed will keep buying bonds to support the U.S. economy.
Central bank wouldn't adjust policy until the economy is clearly improving, and will look through any near-term spike in inflation. The Fed’s commitment to low rates has some investors worried that inflation could spike on passage of further fiscal stimulus.

"Powell made it very clear that the improvement in the economic outlook thus far will not instigate the Fed to tighten monetary policy," National Australia Bank foreign exchange strategist Rodrigo Catril wrote in a client note. The punchbowl ain’t going anywhere anytime soon and the policy backdrop should remain supportive for risk assets for some time."

What’s unclear is how much of an overshoot he will tolerate, and for how long. A larger-than-anticipated rise in inflation would push bond yields sharply higher. If the rise in the cost of capital looks like it may outstrip growth rates, company valuations fall, and stock investors will have a problem.

Trouble could also come from another source. In past decades, the Fed would tap on the monetary brakes when growth started to lift prices. It may have to press on the pedal more forcefully than in the past if an inflation overshoot causes wages to rise, too, creating a feedback loop. Neither of these are immediate headaches. But stock investors may want to keep the aspirin handy.
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Easy financial conditions, the promise of fiscal stimulus and an accelerating COVID-19 vaccine rollout have driven money into what's known as the reflation trade, referring to bets on an upswing in economic activity and prices. Commodity-linked currencies are placed to benefit from a pickup in global trade, while investors have also cheered Britain's progress in recovering from the coronavirus pandemic.

"The dollar will probably weaken over time as economies pick up and the reflation trade gets more attention," said Bart Wakabayashi, Tokyo branch manager of State Street Bank and Trust. We’re seeing very strong upward pressure on prices in the U.S. in particular."

“The improving global growth outlook continues to be supported by loose monetary and fiscal policies,” wrote Lee Hardman, currency analyst at MUFG in a note to clients. For now we continue to see the current trading environment as remaining supportive for commodity-related currency strength, and recommended a long AUD/USD trade.”


Euro-Swiss franc has surged this week, as investors quit the safe-haven franc. The euro is in its eight consecutive session of gains versus the franc and has had its strongest week in percentage change terms since June 2020.

“This is a big vote of confidence in the global recovery, and we see EUR/CHF on track to meet our year-end forecast at 1.15,” ING global head of markets Chris Turner wrote in a note to clients on Wednesday.

Reuters polls found that market participants expect the bull run in global stocks, fuelled by cheap liquidity and reflation hopes, to continue for at least another six months.

The dollar index lifted off a seven-week low on Thursday after yields on 10-year U.S. Treasuries jumped as high as 1.6% following weaker-than-expected bids in a U.S. government debt auction. The move was the latest example of currency markets taking their cue from bonds, which have been moving on the changing outlook for economic growth and inflation following unprecedented government stimulus and monetary easing along with increasing COVID-19 vaccinations.

The rise in bond yields, after adjusting for inflation, has accelerated in recent days, indicating a growing belief that central banks may begin to pare back ultra-loose policies, even as officials maintain a dovish rhetoric.

“It has been a global move,” said Vassili Serebriakov, an FX strategist at UBS in New York. “Those higher bond yields are a symptom of expectations of a strong economic rebound after the pandemic. Some of the currencies that typically don’t do well in a global rebound are lagging. Changes in the dollar have been different against different currencies recently. “It’s not just across the board the way it was last year when everything was driven by U.S. real yields falling and selling dollars across the board,” Serebriakov added.

Yields have surged as an acceleration in the pace of vaccinations globally and optimism over improving global growth bolster bets that inflation will rise. That has also led investors to price in earlier monetary tightening than the Federal Reserve and other central banks have signaled.

The dollar move is “a function of what’s happening on the yields side,” said Jeremy Stretch, head of G10 FX strategy at CIBC World Markets. The 10-year yield briefly climbed above the S&P 500 dividend yield on Thursday, he noted, indicating “uncertainty that is writ large.”

“The Fed has not really hinted that that’s making them uncomfortable, so the bond market’s going to push that,” said Edward Moya, senior market analyst at OANDA in New York. “That’s really dictating this move in the dollar. There’s a big, big concern that this reflation risk is going to get out of hand and that’s going to really pummel the emerging market currencies, and I think you’re going to see that investors are going to need to reassess their dollar positions,” said Moya.


Data on Friday showed U.S. consumer spending increased by the most in seven months in January, while price pressures were muted. U.S. jobs data for February released next Friday is the next major economic focus.

Next week to watch

What happened to keeping borrowing costs in check? All of a sudden, central banks are grappling with rising bond yields that could threaten recovery prospects.

February is ending with some of the biggest bond moves in years, even after soothing noises from Federal Reserve Chair Jerome Powell, European Central Bank boss Christine Lagarde and Reserve Bank of New Zealand Governor Adrian Orr.

Australian and New Zealand 10-year yields have soared 70 basis points each -- Australia’s biggest monthly yield jump since 2009. U.S. 10-year yields are set for the biggest monthly rise since late-2016.

Focus now turns to what central banks say or do next; the Reserve Bank of Australia meets Tuesday and officials from the Fed, ECB and the Bank of England officials are due to speak.

The RBA tried to defend its 0.1% target on three-year yields. If Tuesday’s euro zone data shows inflation ticking higher, pressure will grow on the ECB, too.

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RBA TAKES ON MARKETS​

The bond rout poses a test for the RBA’s yield-curve control policy when it meets Tuesday.

The RBA offered to buy A$3 billion ($2.36 billion) of three-year bonds at an unscheduled operation on Friday. But a firmer message be needed. Australia’s 3-10-year yield curve is the steepest it has been in at least three decades. The Aussie dollar topped $0.80 for the first time in three years. Futures are pricing a rate hike for 2021, despite the RBA stressing it won’t move until at least 2024. Rising commodity prices offer a reason to be bullish on Australia’s economy, but the RBA might need to rein in some of this optimism.

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UK: SPEND OR TAX?​

British finance minister Rishi Sunak will pledge more budget spending on Wednesday but it may be the last bit of pandemic-related support he offers.

Sunak has racked up more than 280 billion pounds ($397 billion) in spending and tax cuts to revive the economy. He’s pushed sovereign borrowing to a peacetime record -- the 2.1 trillion-pound debt equals 98% of gross domestic product.

So he’ll be thinking of ways to plug rather than enlarge budget holes. Expectations are for the corporation tax rate to be upped from the current 19%.

Some analysts expect tax increase announcements in autumn. Morgan Stanley predicts fiscal tightening to the tune of 2% of GDP to come into force from next year.

Businesses want Sunak to keep lifelines open; some economists urge him to emulate U.S. stimulus plans. Sunak will be hoping a post-economic recovery materialises, bringing tax revenues rolling in.

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SPOTLIGHT ON JOBS​

As U.S. lawmakers weigh up President Joe Biden’s $1.9 trillion spending bill, February’s jobs report on March 5 will show us how the labour market is faring.

Latest weekly data showed new unemployment benefit claims at a three-month low, suggesting the decline in COVID-19 infections is lending the labour market some traction. Retail sales also rebounded in January.

February non-farm payrolls are expected to rise by 110,000, economists estimate, after January’s 49,000 increase. But winter storms that swept across the South in February may complicate the issue.

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So, events of this week shows that turning point of global economy comes faster than we thought initially. Everything that we see agrees to our long-term view and, as we've said before, we should see more signs of a new reality in nearest term. While previous trend is strong and long-term, we see first attempts to fade its momentum and start the reversal.
Still, at current moment we have no intention to deny existed targets as on dollar index around 87.3 as on EUR currency at 1.2440 just because reversal doesn't happen in a blink of an eye and despite temporal strong opposite movements on the markets - they are not yet the new trend. Even interest rates has dropped for 7% below 1.42% now, preparing the background for long entry on EUR according with our trading plan.
At the same time, rising volatility of interest rates, low demand on US bond auctions makes us think that Fed steps in earlier, and we think that first adjustments to the policy could come even this year. At least rhetoric probably will be changed. This is because the whole US economy has relation to interest rates and 10-year in particular. For example, mortgage loans are based on 10-year nominal rate and it makes mortgages more expensive now. It is needless to talk about corporate loans, expenses short-term borrowing and other stuff. So, bumpy ride could wait us in the 2nd half of the year.

Technicals

Monthly

Market shows low volatility in recent two months, at least on a longer-term charts, so it makes no impact on the picture. Overall context still stands bullish as price healthy stands above 1.20 former top.

Technically 1.2450-1.25 resistance is critical for EUR, that it has to break to proceed higher. Most reasonable targets now stand around 1.26-1.28 area.

Technical picture suggests that we could accept any pullback with no problems to bullish context while it stands above 1.16 lows. The invalidation point, by the way, agrees with Yearly Pivot point that has special meaning to us. Although it is preferable to the market to stay above 1.20, just to keep short-term bullish context either.

Drop below 1.16 breaks the normal market mechanics as major retracement and reaction to COP is done. Thus, another deep retracement here is not logical and should not happen. Besides, action below 1.16 means appearing of bearish reversal swing. It is not necessary leads to bearish collapse and drop below 1.02 but deeper downside action happens and we would have to forget about bullish positions on lower time frames. Still, as we've discussed above - this should not happen yet.

eur_m_01_03_21.png


Weekly

On weekly time frame we've got bearish divergence around the top, but downside action looks too slow to treat it as major reversal. Mostly it reminds tight flag consolidation. Market keeps harmonic swing retracement here that we've discussed last time.

Another, more valuable reason to suggest that here still might be an upside action is untouched XOP here and major OP on DXY weekly chart as well. Indeed, 1.19 K-support here looks attractive for position taking, but, until price stands above recent lows - it keeps chances for immediate upward action.
eur_w_01_03_21.png


Daily

Here is the reason why we carefully watching for 1.1950 lows. While price stands above it - it keeps chances to form upside butterfly that lets EUR to complete weekly 1.2440 target, as well as DXY long-term OP.

Downside action on Friday was a bit faster than we thought, as market hits 1.2065 level within single session. Still, interest rates has dropped back below 1.42%, more than 7% that could return things back on its own and EUR could start climbing again.

Whatever will happen, here we need to keep an eye on bullish grabber first, as its appearing should be good sign for the bulls, and potential bullish patterns on intraday charts - that's for second.

Drop below 1.1950 lows destroys this context and we have to watch for something else, most probable downside AB=CD right to weekly K-area.

eur_d_01_03_21.png


Intraday

Intraday charts provide nothing interesting by far. We see that EUR stands at support but now reaction has been formed yet and it is unclear whether price holds above it or not. It is not vital that price has to stay above 1.2060 as we have still some distance to 1.1950 lows but, it is preferable as this is last 5/8 Fib support. The only thing that we could suggest here is potential DiNapoli patterns around support area. IT might be as DRPO "Buy" as B&B "Sell". DRPO at some degree could be built-in on our context, especially if we get daily bullish grabber. B&B "Sell" definitely becomes scalp short-term trade. We need to get clear signs that EUR holds above 1.1950. In this case we could start thinking about long entry. Currently it is not clear yet - we haven't got H&S on hourly chart that discussed on Friday and no downside AB-CD. Overall action stands straightforward which is more headwind for bullish context.
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RahmanSL

Major
Messages
2,768
Hi Sive...another great report & analysis.

Frankly, I don't know how to predict the EUR/USD anymore and, in fact, barely made any trades last week and, next week, will probably be more of an observer than an active Trader.
However, I will most definitely be looking out for your analysis for the 1.950 lows.

Cheers & all the best!
 

Sive Morten

Special Consultant to the FPA
Messages
14,521
Morning guys,

As we're waiting for clarity on EUR - it was not able to stay above predefined support and no grabber has been formed, we take a look at specific currency to us - AUD, that we rare discuss in recent time. Concerning EUR - it shows acceleration and now chances are growing that we see it around 1885 K-support area still...

So, on AUD it was tough previous week that has become a reversal one, playing back all February's achievements. As a result, the first pattern that potentially could be formed here is H&S on daily. But now price stands at oversold and we could get at least few additional intraday trades - first one is bounce out of OS, then downside action right to the neckline and upside action to the top of the right arm. So let's focus on the first one:
aud_d_02_03_21.png


On 4H chart we also see that price at 5/8 Fib support, that, in combination with daily OS gives DiNapoli bullish "Stretch" pattern, suggesting upward bounce. Thrust here looks perfect and it makes me think about possible DRPO "Buy" pattern. This is the first setup to watch. But don't be focus only on DRPO as some different bullish reversal pattern could be formed as well. The potential target of the bounce is 0.7850 or even major 5/8 0.7880 area.
With the DRPO we want to see approximately equal bottoms and signs of bears capitulation in attempt to go lower, but not just close below 3x3 DMA
aud_4h_02_03_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,521
Morning everybody,

So, let's go back to the EUR today. Recently market was showing downside action, breaking all intraday support areas and might seem that bullish context is broken. But the session close was in a quite different manner. Once new low has been formed, price has closed at the top, showing reversal feature.

So, butterfly is still valid, and actually, guys, we have no choice. Price has to go up right from here, or it doesn't go at all. So, we could try, or just ignore this setup...
eur_d_03_03_21.png


On 4H chart we have signs of acceleration, that is good, and, in fact, B&B "Sell" setup in place. As we're not interested with trading B&B (although it is possible), as we're watching mostly for long entry, B&B tells that we should get better entry price once downside retracement happens. Supposedly it should be around 1.2140-1.2150 area:
eur_4h_03_03_21.png


On 1H chart price hits tactic XOP, formed bullish reversal swing and we're watching for fib levels. Mostly, as I said - 50%, or even 5/8 as we have B&B. But, if you want to enter but do not sure where, or have not enough skills - just split position on 1/3 and 2/3 and buy gradually at first Fib level and around 2nd one.
eur_1h_03_03_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,521
Morning everybody,

So, lets keep up with our EUR analysis. The B&B "Sell" is done well and now we come to solution of the mystery - whether EUR turns up or not. If market indeed is bullish - it has to go up right from here. So, if you're still considering whether to participate or not - this is the moment for final decision.
eur_d_04_03_21.png


Because retracement that we're waiting for is done by 4H B&B trade (may be somebody of you have traded it as well)
eur_4h_04_03_21.png


Although 1.2145-1.2150 level is already hit - that is our potential entry level, on 1H chart we have picture for perfectionists. B&B has AB-CD target that makes Agreement with major 5/8 1.2138 Fib support area. Besides, potentially we could get the "finalizing" butterfly as well. Finally - keep an eye on 4H at this moment, because we could get bullish grabber. As you understand - for normal bullish market such a combination of targets/support should be enough background for reversal. So, let's see...
eur_1h_04_03_21.png
 

RahmanSL

Major
Messages
2,768
Hi Sive
Federal Reserve Jerome Powell is due to speak at 17:05 today and may potentially hint the Fed is ready to act to bring returns down....and a vote in the upper chamber may come as soon as today too.
One or both events happening will make the EUR/USD jumped to make your first butterfly pattern a reality.
As nothing is certain until the events, we will just have to wait and see.

All the best!
 

RahmanSL

Major
Messages
2,768
"The US dollar is drawing haven bids, courtesy of the Federal Reserve President Jerome Powell's comments on Thursday.
During a Q&A session with Wall Street Journal on Thursday, Powell reiterated that the central bank would continue to buy government bonds at the current pace of $120 billion per month and did not sound too concerned about the recent rise in Treasury yields.
"

Sive, that works well, and more, with your second butterfly pattern.
Now we await Germany's Factory Orders and then the NFP numbers.
 

Sive Morten

Special Consultant to the FPA
Messages
14,521
Morning guys,

So, EUR was holding well around our support area, but J. Powell comments totally crushed short-term bullish context and butterfly pattern. Now we have no choice but turn to our larger scenario with weekly downside AB-CD pattern. It means that next time when we could think about long entry happens only around 1.1880-1.1900 area, which is weekly K-support and Agreement.

Of course, NFP could impact as well today, but to reverse situation, or trigger deep upside bounce at least - numbers have to be very poor as well as hourly earnings inflation has to be near zero. Otherwise the tendency probably keeps going. Technically, it looks good as recently we've got downside acceleration and CD leg is faster than AB.

At the same time, as price stands at oversold, it would be better to wait for some pullback, if you consider taking new short position:
eur_d_05_03_21.png


On intraday charts we do not have anything interesting yet.
 

Sive Morten

Special Consultant to the FPA
Messages
14,521
Today the second update is on FX market as well. We take a look at GBP. EUR now stands at daily oversold, which makes not as comfortable to take the short position. While GBP is not, and it is possible, theoretically.

Just to remind you - on GBP market stands in reaction to weekly XOP and Agreement resistance, daily butterfly 1.27 target. The combination of these targets suggests some respect - 1.35 level is a common 3/8 pullback, but let's get at least 1.37 reaction that we've mentioned before.

J. Powell speech yesterday has made impact on GBP too, and price has formed daily reversal candle. It is pretty much room till oversold that coincides with our desirable Fib support level.
gbp_d_05_03_21.png



It means that on 4H chart we could consider AB-CD target that agrees with support and should keep an eye on breakout of rectangle consolidation:
gbp_4h_05_03_21.png


Usually, when we have scenario with direction but without clear patterns - we consider using of Stop entry orders. For instance, slightly below the rectangle, around 1.1830 probably. In this case when breakout just happens - we step in.
But, be aware of NFP. We need to get in a row or better numbers to make this setup working. Poor numbers, especially of hourly earnings could return price back into rectangle. So, if this fact doesn't confuse you - you could consider this scenario.
 
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