FOREX PRO WEEKLY March 02-06, 2015

[Sive Morten]

Fundamentals
Reuters reports the dollar index ended little changed on Friday as it stayed on track for a record eighth month of gains on improving U.S. data and comments from Federal Reserve officials that bolstered bets for a interest rate rise later this year.
This measure of the greenback against the euro, yen and four other currencies was set to mark its longest streak of monthly gains since the greenback was floated as a fiat currency in 1971. February's gain of about 0.52 percent, however, was the smallest of the eight months.

The dollar overcame earlier month-end selling that followed a rally on Thursday, as more evidence suggested the U.S. economy will expand in the coming months.

"The trend is still in place to support the dollar," said Eric Viloria, currency strategist at Wells Fargo Securities in New York.

The government said on Friday it downgraded fourth-quarter U.S. gross domestic product growth to a 2.2 percent annual pace from an initial estimate of 2.6 percent. Economists polled by Reuters forecast a revision down to 2.1 percent.

better-than-expected reading coincided with encouraging U.S. pending home sales and consumer sentiment figures, though a surprise drop in a private index on U.S. Midwest business activity to its weakest since July 2009 revived some worries about slowing U.S. growth.

Amid this backdrop of moderate economic expansion, the Federal Reserve has shown it would be "patient" on ending its near-zero interest rate policy. Fed Chair Janet Yellen reiterated this stance at her semiannual testimony before Congress this week.

Other top U.S. central bank officials signaled the Fed's path towards normalizing monetary policy remains on track for later this year, but the pace of rate increases will likely be gradual as inflation has been stuck below the Fed's 2 percent target.


CFTC data shows decreasing of open interest. Probably investors have closed some positions on Greece uncertainty. On previous week CFTC shows contraction as long as short positions. At the same time long positions shows solid long-term drop and right now speculative shorts stand for 214’901 vs. longs of 41’400. Thus, our ratio stands at 83,84% and in general stands at numbers when market will need some pause or pullback to reduce this number.

Open interest:

Shorts:

Longs:

So, guys, each week brings its own concerns and tensions. Thus, in financial sphere it is not quite clear what will happen around Greece. After brave rhetoric before election Syriza has met with reality after elections and now they understand that they have to search for compromises on debt problem. Otherwise it could lead to negative consequences for economy. At the same time Greek people and government understand that after joining EU they were deprived of financial independence and do not control financial system of the country since they can’t print money and regulate liquidity. It seems that there is some red line exists in Greek patience, Greeks demand equity and if they will see that EU bureaucrats do not want to hear anything – this could provoke drastical steps, although chances of this event are not significant. Right now parties have come to agreement, but this agreement mostly tactical and Greece continues to think on strategical exit from difficult economical situation. Obviously it is not a solution - increase short-term burden every time to support short-term liquidity.
In geopolicy situation is far from prosperity. At first glance we see some chill out in Ukraine, but many experts think that this is temporal. At the same time, US tends to create a circle of instability around Russia, since Nulland has started round trip across Russian Asian borders to Armenia, Azerbaijan, Georgia and Turkmenistan. Recent statements from leaders of these countries and observation of experts suggests that main target of this trip is start the same process in these countries that were made in Ukraine. Thus opposition significantly activated in Armenia. As you know, Armenia has old conflict with Azerbaijan on Nagorny Karabakh. In Kazakhstan were appointed President’s early elections. That’s just few issues and probably we will know more in nearest time.
Meantime, despite on complex situation our analysis mostly will be technical on current week.

Technicals
Monthly
So dynamic in last few weeks was mostly flat and accelerated only yesterday. February yet is inside month but January was dreadful month for EUR. We have plunge that we haven’t seen since 2008 crisis. Now euro stands at the eve of most interesting action. I do not know what we will get later, but monthly chart looks very cool. You, guys, probably see everything by yourself already. Yes, EUR has passed through YPP and YPS1 with a blink of an eye – it needs just 3 weeks to pass through yearly barrier. But right now currency stands at rock hard support area – monthly oversold, major 5/8 Fib level, AB=CD target and 1.27 extension target. It should be upside retracement, guys!!! It needs absolutely unprecedented power to push EUR lower. It is interesting that all four recent legs down have approximately the same length. So, it seems that EUR is also at the peak of harmonic swing.
At the same time after retracement (if it will happen of cause) downward action will continue. EUR has dropped to 1.27 butterfly target too fast. Odds suggest continuation to 1.618 extension. By the way, the same suggestion we could make based on AB-CD. CD leg is also too fast. But where does it stand? Right – at 1.0 point, parity. Bingo… This will be next destination point when and if market will pass through 1.11-1.12 area. Also we need to say that we knew about 1.11-1.12 and we have discussed it here and even pointed on it as possible “long-term” target. But it has appeared that it is not “long-term”. That’s why we’re talking of scale increasing on EUR. Right now EUR passes for week distances that previously it has passed for months. The cornerstone for EUR perspective will remain US fundamental data. Recently data mostly was supportive for US dollar appreciation. Meantime, market obviously is overextended to the downside and needs technical retracement. This is also confirmed by CFTC speculative ratio. Thus, we should be very sensitive to any sign of retracement or reversal patterns on lower time frames.

Weekly
Potentially weekly chart could give us DRPO “Buy” as conditions for upside retracement exist as technically as from speculative positions point of view. Meantime market could move 100 pips lower to 1.1030 area, because monthly butterfly target stands slightly lower compares to current price level. This in turn, could lead to appearing of perfect weekly DRPO “Buy” pattern.
On previous weeks market has failed to return back above YPS1 and MPP. Here I’ve chosen minimum target of 50% resistance from most recent thrust down. This level also will be accompanied by weekly overbought. Let’s initially focus on this level of 1.20 area as potential target. Currently it is difficult to find reasons for stronger upside action, but thrust itself is suitable for DRPO right from beginning, I mean 1.39 area. And theoretically it is possible that retracement could be even to 1.30 area. It will not be straight of cause, but technically there is now flaws in context that could point that this is impossible. Still, let’s move step by step and first will watch for 1.20. Even this level is very significant target.

Daily
Trend on daily chart has turned bearish. This picture shows how precisely market could reach 1.1030 area. Market could form 1.27 Butterfly “buy”. Although it has even lower target, but for weekly chart this is acceptable variation. Currently it is difficult to suggest how market will behave around MPS1, but probably it will be possible to show some spike down to reach butterfly target. So, our context is becoming clear: market at rock hard monthly support, speculative positions bearishly overextended a bit, weekly chart could form DRPO pattern and daily butterfly could become a pattern that particularly will be final pattern of weekly DRPO.

4-Hour
As we think that right wing of butterfly already stands in progress – EUR should not show too deep upside bounce. Still, we have new MPP for March and we know that market in most cases tries to test it within a month. Thus, if upside retracement will happen – we hope that it will stop around 1.13 area. This is solid resistance that includes K-resistance, MPP and WPR1. Also this will be lower border of previous consolidation. In fact, currently we have twofold setup. Scalp traders could try to trade market down to butterfly target around 1.10. While daily traders should wait when setup of weekly DRPO “Buy” and daily butterfly will be completed.

Conclusion:
Right now it is very difficult to understand how geopolitical and inner economical situation will impact on EUR. There are too many uncertainty and variables. Thus, on current week we mostly focus on technical picture. Thus long-term chart shows that market is approaching to rock hard support around 1.10-1.12, CFTC data tells that short positions are too big and this creates background for upside retracement on EUR.
Weekly chart suggests 1.20 as minimum target of this bounce if DRPO “Buy” pattern will be formed, while daily chart points how exactly it could be formed – by appearing of Butterfly “Buy” pattern. Overall context looks pretty logical and finalized. This gives us more confidence on success.



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 Morten]

FX Daily Update, Tue 03, March 2015

Good morning,


Reuters reports dollar pulled back a little from an 11-year peak against a basket of major currencies on Tuesday, with the Australian dollar stealing the spotlight as it surged after the Reserve Bank of Australia stood pat on interest rates.

The U.S. currency also was pressured against the yen after Etsuro Honda, an economic adviser to Japanese Prime Minister Shinzo Abe, told the Wall Street Journal in an interview that dollar/yen may be at the "upper limit of comfort zone."

"In addition to some option-related selling above 120 yen, Honda's comments helped send the dollar lower. The pullback in Japanese shares is another factor weighing on the dollar today," Kaneo Ogino, director at Global-info Co in Tokyo, a foreign exchange research firm.

"But these factors are only short-term selling factors. Dollar/yen firmly remains in an uptrend long term," Ogino said.

The main action was on the Australian dollar, which rallied against its U.S. counterpart after the RBA opted to leave its policy rate unchanged at record low of 2.25 percent, surprising some who had looked for another easing to follow February's cut.

However, the Aussie's rebound might prove temporary with the RBA seen taking rates lower sooner or later.

"Another rate cut will eventually be needed to cushion the economy from a slowdown in mining investment and sluggish non-resources sectors. Low inflation here and overseas will make the decision easier when the time comes," said Jasmin Argyrou, senior investment manager at Aberdeen Asset Management.

Higher U.S. Treasury yields helped limit the dollar's losses. The benchmark 10-year note hovered near 2.00 percent after spiking about 8 basis points overnight.

In addition to Wall Street shares hitting fresh record highs on Monday, yields were seen driven up by a batch of mixed data overnight.

U.S. private income and the personal consumption expenditures (PCE) index rose modestly while consumer spending and housing data proved weak.

"The data proved mixed, but relatively firm inflation figures caught the market's eye. It still remains to be seen if prices will go on an uptrend. But if data continue to suggest that prices have at least bottomed out, it will support the case for a summer rate hike," said Bart Wakabayashi, head of forex at State Street in Tokyo.

Last week dollar bulls were initially disappointed by perceived dovish signals from Federal Reserve Chair Janet Yellen but took heart again after data showed U.S. core inflation rose more than expected.


So, guys, we will continue to monitor two issues - our weekly B&B "Sell" trade on GBP and possible upside reversal pattern on EUR. So, EUR setup does not need yet any updates, thus, let's take a look at GBP today.
So, on daily chart we see that our B&B "sell" has started pretty nice - market has turned precisely from 1.5550 Fib resistance by forming bearish engulfing. Bullish grabber that we've awared of, has not been formed and trend just has turned bearish. On daily we do not see any problems with setup and still focus on 1.5180 target:

Meantime on 4-hour chart we could get upside retracement within 1-2 days. Market right now almost has reached 1.5320 strong support - Fib level+WPS1+MPP. We expect to see bounce up to 1.5450 and shifting of market's shape to H&S pattern:

This upside action could be triggered by 3-Drive "buy" pattern on hourly chart. It looks ugly and not quite harmonic but it's reversal point almost coincides with 1.5320 support:

That's being said our suggestion for couple of sessions is first move to 1.5320 then upside retracement to 1.5450 area and appearing of H&S pattern. After that we count that B&B trade to 1.5180 will continue...

 

[Sive Morten]

FX Daily Update, Wed 04, March 2015

Good morning,


Reuters reports dollar held firm near an 11-year high versus a basket of major currencies on Wednesday, as investors awaited U.S. economic data and a European Central Bank meeting later this week for fresh clues on policy direction.

The dollar index has gained about 5.7 percent so far this year, helped by the U.S. economy's better performance against other major world economic regions and relatively higher U.S. interest rates.

Its rise has slowed over the past month or so, however, as investors have seen fewer catalysts to move the dollar higher given the uncertainty over whether the U.S. Federal Reserve will start raising interest rates by mid-year or wait a while longer.

A decline in Japanese equities on Wednesday and the previous day's drop in U.S. shares were tempering risk sentiment and helping to weigh on the dollar versus the yen, said a trader for Japanese bank in Tokyo.

That was offsetting the dollar-positive impact from rising U.S. bond yields, the trader said, adding that the bond market seemed to be bracing for the possibility of the Fed changing its forward guidance in its policy statement due later this month.

The U.S. two-year bond yield has risen about 6 basis points this week and last stood near 0.68 percent.

Some investors and analysts expect that the Fed will drop the word “patient” in its forward guidance at its policy meeting on March 17-18, paving the way for a possible rate rise in June.

Later on Wednesday, the dollar could take its cues from the U.S. ISM services report and a reading on U.S. private sector employment, ahead of U.S. jobs data due on Friday.

The euro's moves have been subdued over the past few sessions and it has struggled ahead of the ECB's policy meeting on Thursday and the implementation of its government bond buying programme, due to start this month.

"In interest rate markets there is a focus on the actual start of quantitative easing," said Masafumi Yamamoto, market strategist for Praevidentia Strategy in Tokyo, referring to the ECB's bond-buying scheme.

"The QE is weighing on the overall sentiment toward the euro," he added.

The Australian dollar got a slight lift as the market took comfort in data showing the economy grew as expected last quarter, when the risk had been for a softer outcome.


Today we will take a look at EUR, since our GBP setup does not need any update yet. In general our analysis is still valid - we expect appearing of butterfly "buy" pattern that should give us oportunity to take long position. There are two major coming events by far. First one is ADP report that could push market and second - tomorrow ECB meeting.
Right now situation on daily chart looks bearish and shows nothing that could make us think that something is wrong with our context.
Market stands with bearish flag pattern after drop down below as WPP as MPP. In most cases this leads to further downward acceleration:

Why we expect partcularly butterfly but not Double bottom - because EUR has butterfly "buy" on monthly chart with lower reversal point and probably it should reach it. That's why double bottom is not quite suitable here.
On 4-hour chart we see another sign that hints on downward action. This is bearish dynamic pressure. Trend has turned bullish but price action is not:

So, as we can see mostly our plan is valid and we continue to watch over it.

 

[Sive Morten]

EUR/USD Daily Update Thu 05, March 2015

Good morning,


Reuters reports The euro slid to its weakest level in more than 11 years against the dollar on Thursday, as investors waited for the European Central Bank to announce more details of its massive bond-buying programme.

The common currency fell to as low as $1.1026 as of 0653 GMT, its lowest level since September 2003. It last traded at $1.1039, down 0.4 percent on the day.

The euro's drop gained momentum late in the Asian session. Traders said the euro's fall picked up steam after it breached an option barrier at $1.1050, with stop-loss offers adding to its drop.

The ECB, which starts its quantitative easing (QE), or bond-buying, programme worth more than 1 trillion euros this month, is expected to detail the plan later in the day following its policy meeting.

The QE scheme's details might not trigger much reaction in the euro, since the launch of the programme has already been priced in, said Jesper Bargmann, head of trading for Nordea Bank in Singapore.

Still, the divergence in the outlook for monetary policies in the United States and the euro zone is likely to keep the euro under pressure versus the dollar, he said.

"I think the dollar may keep strengthening as we wait for the first rate hike in the U.S.... The trend is in place," Bargmann said.

Markets will be looking for how the ECB's quantitative easing will work, when the buying will start, whether it applies to paper with negative yields and how the purchases will be distributed along the yield curve.

"I don't think we will see any big surprises... We think that we could see the beginning of these asset purchases as early as next week," said Mitul Kotecha, head of FX strategy, Asia-Pacific for Barclays in Singapore.

Investors have already driven yields across Europe to record lows in anticipation of the ECB's largesse, greatly widening the yield advantage of the U.S. dollar in the process.

While there is much uncertainty over when the U.S. Federal Reserve will start raising interest rates, some analysts expect it to drop the word "patient" in its forward guidance at its policy meeting on March 17-18, paving the way for a possible policy tightening in June.

Japan's weekly capital flows data released on Thursday showed that foreign investors bought a net 624.5 billion yen in overseas equities in the week ended Feb. 28.

That is the second largest amount of weekly net purchases of foreign shares by Japanese investors, based on Japanese Finance Ministry data going back to 2005, and also marks the 15th straight week of net purchases.

"When you combine these capital outflows with relatively higher U.S. yields, it does suggest dollar/yen remains fairly well supported," said Barclays' Kotecha.

The Australian dollar enjoyed a brief lift after Philip Lowe, Deputy Governor of the Reserve Bank of Australia (RBA), said the Australian dollar was much closer to fair value than at any time in the past couple of years.

The comment was taken as a softening in the RBA's long-standing verbal campaign for a lower currency and drove the Australian dollar to as high as $0.7840.



So, guys, as we stand at the eve of major event - ECB meeting, let's again take a look at EUR. BTW, on GBP - our weekly B&B trade shows excellent progress with 300+ pips in pocket, so there are 150+ pips rest till the target. This trade does not need any update, because it is very close to target and hardly we will be able to say something new.
But on EUR - our suggestion was correct and currency has dropped even further. Thus perspectives of BUtterfly "buy" looks very nice. Besides, if we apply here flag targeting - we will get the same point around 1.0970:

On 4-hour chart we see that our yesterday's bearish dynamic pressure has worked perfect, market has plunged down and stands below broken lows:

Still, on hourly chart we see 2-candle bullish grabber that suggests shy upside action and re-testing of broken lows. Well, may be this will happen while market will wait for Draghi and EUR will fluctuate around:

That's being said we stand close to culmination of our trading plan - long entry around 1.0970 area, based on daily Butterfly "Buy" pattern. So, let's see what we will see on ECB testimony.

 

[Sive Morten]

EUR/USD Daily Update Fri 06, March 2015

Good morning,


Reuters report dollar hovered at 11-year highs against a basket of major currencies on Friday, and could build on its gains if non-farm payrolls due later in the day support the case for a rise in U.S. interest rates in coming months.

Analysts polled by Reuters expect U.S. payrolls to have increased 240,000 last month and the jobless rate to have ticked down to 5.6 percent from 5.7 percent.

The key monthly market event took on a bit of extra significance after Federal Reserve Chair Janet Yellen said last month that "if economic conditions improve" the central bank will consider hiking rates on a "meeting-by-meeting basis."

"The dollar is following a well worn path of being bought on expectations of strong payrolls. Yellen touched on the Fed's data dependent aspect and the market has become more sensitive to indicators," said Shinichiro Kadota, chief Japan FX strategist at Barclays in Tokyo.

"The headline payrolls figure is of course important. But wages, with a strong link to inflation that Yellen is concerned about, need watching as well."

Much of the move was due to persistent weakness in the euro, which stayed under pressure after the European Central Bank said it would kick off its 1 trillion euro bond-buying program next week.

ECB President Mario Draghi surprised some by saying the central bank would be prepared to buy bonds with negative yields of up to 20 basis points, triggering a big rally in euro zone bonds.

The yields news overshadowed upgrades to the ECB's forecasts for economic growth.

"Our expectation is that the initiation of the bond purchases will help weaken the euro over the next few weeks, predominantly through the interest rate channel," analysts at CitiFX wrote in a note to clients.

The euro broke below $1.1000 for the first time since September 2003, but has since drifted back to $1.1029. Traders said the currency was vulnerable to a test of $1.0500, a trough seen in March 2003.

Against sterling, the common currency hovered just above a seven-year low of 72.18 pence . It also struggled near a one-month low of 132.125 yen .

Commodity currencies fared badly, led by a steep fall in the New Zealand dollar. The kiwi started to wilt in Asia on Thursday and accelerated its decline overnight as stop-loss selling was triggered.

Traders noted the kiwi's underperformance began after New Zealand's central bank said it was considering forcing banks to hold more capital to back loans to residential property investors.

Such measures could lessen the need for a hike in interest rates and investors duly responded by kicking the kiwi to a 1-1/2-week low of $0.7454 , well off this week's peak of $0.7611.



Today we will take a look at EUR again. Shortly speaking guys, we're at place. Now we have monthly butterfly, daily butterfly and both of them at strong monthly support. Today we do not need intraday charts, since we do not have yet any patterns there. But we will expect one thing that could significantly impact on our analysis. We want to get EUR return above previous lows.
Do not forget that on weekly chart we expect DRPO "Buy" pattern. And if daily butterfly will become part of weekly DRPO - this will give us more confidence with taking long position.
That's being said, currently we do not need to hurry with taking long. Potential of this trade is really significant - 500 pips at least, but even could reach 800 pips. Thus, its no need to catch "falling knife" right now. Better to step in at some deep when upward action will start and market move above previous lows. Who knows, may be NFP will help us with this today:

 

[cosmos]

The 1.0980 area coincides with 1.27 extension of the ABCD on the weekly chart. Not too far below the 1.1030 zone.