Forex FOREX PRO WEEKLY, March 08 - 12, 2021

Sive Morten

Special Consultant to the FPA
Messages
14,742
Fundamentals

Long-term background for EUR barely has changed as EU still is treated by market society as lagging behind US and closest neighbor UK in terms of recovery, but in short-term we have two driving factors - Powell's speech and NFP release. Both mostly was dollar supportive. In fact, Powell gives the green light to rally on US interest rates, which can't be unsigned for FX and other markets as well.

Market Overview

The dollar gained on Wednesday as investors priced for strong U.S. growth relative to other regions. Investors have boosted bets on U.S. growth and inflation as the government prepares new fiscal stimulus, and speculation is rising that the Federal Reserve could also be closer to normalizing monetary policy than previously expected.

"What the market is looking at today are growth differentials between a recovering U.S. and more of a sputtering Europe," said Joe Manimbo, senior market analyst at Western Union Business Solutions, in Washington.

Data on Wednesday showed that the euro zone economy is almost certainly in a double-dip recession as COVID-19 lockdowns continue to hammer the services industry. The U.S. currency has also benefited from a rise in U.S. Treasury yields.

British finance minister Rishi Sunak said that Britain's government would borrow significantly more in the coming financial year than thought just a few months ago.
Sunak said the economy would regain its pre-pandemic size in the middle of 2022, six months earlier than previously forecast, helped by Europe's fastest COVID-19 vaccination program.

U.S. Federal Reserve Chair Jerome Powell on Thursday repeated his pledge to keep credit loose and flowing until Americans are back to work, rebutting investors who have openly doubted if he can stick to that promise once the pandemic passes and the economy surges on its own. With vaccines rolling out and the government fiscal taps open “there is good reason to think we will make more progress soon” toward the Fed’s goals of maximum employment and 2% sustained inflation, Powell told a Wall Street Journal forum. Markets seemed impatient for more from the Fed chief to address the move up in bond yields, sending the 10-year Treasury interest rate back above 1.5% and knocking stocks on Wall Street.

The U.S. currency soared the most in a month after Powell said the violent sell-off in Treasuries last week was "notable and caught my attention" but was not "disorderly" or likely to push long-term rates so high the Fed might have to intervene more forcefully. Instead, he reiterated a commitment to maintain ultra-easy
monetary policy until the economy is "very far along the road to recovery."

Powell's remarks reignited selling in Treasuries, with the benchmark 10-year Treasury yield jumping back above 1.5% and rising as high as 1.5830% in Asia. Last week, it had soared to a three-month top of 1.614%.

"The market was seemingly looking for Powell to push back harder on the recent increase in yields."

Investors are awaiting the March 16-17 Federal Reserve meeting, after comments from Fed Chair Jerome Powell gave little indication that the central bank was concerned by the recent yield rally. The rise in Treasury yields, which move inversely to bond prices, means bonds offer greater competition to equities and other comparatively risky investments. Higher yields can weigh even more on tech and growth stocks with lofty valuations, as they threaten to erode the value of their longer-term cash flows.

The dollar rose to multi-month highs against the euro, yen and Swiss franc on Friday after Federal Reserve Chair Jerome Powell expressed no concern about a recent sell-off in bonds.
“The U.S. dollar rose sharply higher post-Powell comments (as) many in the market I sense were looking for stronger rhetoric from the Fed to put a break on further rallies in yields,” said Neil Jones, head of FX sales at Mizuho Bank. We didn’t get it and the dollar is pushing higher across the board on expectations of further increases in U.S. yields.”

Data showed jobs growth beat expectations in February, backing up the view of Federal Reserve officials who have said that a recent rise in U.S. government bond yields is justified by an improving economic outlook. The jobs improvement came amid falling new COVID-19 cases, quickening vaccination rates and additional pandemic relief money from the government, putting the labor market recovery back on firmer footing and on course for further gains in the months ahead.

Nonfarm payrolls surged by 379,000 jobs last month, after rising 166,000 in January. In December, payrolls fell for the first time in eight months. Economists polled by Reuters had forecast February payrolls increasing by 182,000 jobs.

“This is a rather impressive nonfarm payroll report,” said Edward Moya, senior market analyst at OANDA in New York. “There’s momentum in the labor market and what that’s doing is providing I think more optimism that the growth picture is looking even better.”

A rollout of COVID-19 vaccines and impending U.S. fiscal stimulus have boosted confidence in an economic recovery, adding fuel to expectations of higher inflation.

“As the economy reopens, we are beginning to see significant legs to the reflation story. This strong NFP bolsters the story, which is pressing the Fed to move up the timeline for rate hikes,” said Justin Hoogendoorn, managing director of fixed income at Piper Sandler Financial Strategies in Chicago.

St. Louis Federal Reserve President James Bullard said on Friday that the run-up in yields reflects improving expectations for the economy.

Global recovery view

Fathom reports this week that it seems probable that a mixture of non-pharmaceutical interventions (NPIs), voluntary social distancing, existing immunity, seasonality and vaccinations have all played a role in reducing cases. Through the crisis, disentangling the precise effects of each has proven challenging, making it difficult to forecast the evolution of the disease with any accuracy. However, there is good reason to believe that this will change as the impact from vaccines becomes increasingly pronounced.

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While the virus is unlikely to disappear any time soon, the outlook for many countries appears favourable given existing and planned vaccine rollouts. Israel continues to lead the world, with more than half of its population having received at least one vaccine dose. The UK and US are faring better than most other advanced economies. European Union member states continue to be relative laggards, with less than 5% of the EU population having received at least one dose so far. However, that number is expected to increase substantially in the coming months as supply ramps up. Injections should have material benefits. Indeed, there is clear evidence already of a vaccine effect, with hospitalisations among older age groups in both Israel and the UK falling faster than the general population.

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Overall, our baseline view is that COVID-19 will become less of a health and economic emergency as the year progresses, particularly in Europe and the US as vaccines are widely rolled out. This should result in a sharp bounce in economic activity as restrictions are unwound and people become less fearful. There is clear evidence of rapid economic recoveries in countries that have successfully controlled the virus without vaccines, including in Australia, China, New Zealand and Taiwan. There is good reason to think a similar process will take hold in countries that control the virus via vaccination. This is particularly true as extended lockdowns have coincided with fiscal support that has left household balance sheets healthy, at least in the advanced economies. In the US, for example, aggregate household savings over the past twelve months are $1.8 trillion higher than they were in February 2020, with further fiscal support expected this month.

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If a quarter of the build-up so far is unwound in the form of personal spending this year, that alone would boost GDP by two percentage points. However, the extent to which households will spend remains highly uncertain, particularly as savings are disproportionately concentrated among higher earners who tend to have lower marginal propensities to consume. Meanwhile, there remain downside risks to the economic outlook, in the form of scarring from increases in corporate debt as well as the potential for vaccine-resistant strains to become more widespread. Finally, there is the risk that increases in demand result in fears about inflation or actual inflation. Either would push long-term interest rates higher with an associated tightening in financial market conditions.

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Northern Ireland Issue

The European Union has promised legal action after the British government unilaterally extended a grace period for checks on food imports to Northern Ireland, a move that Brussels said breached the terms of London’s EU divorce deal. Provisions of the Withdrawal Agreement and the protocol on Ireland/Northern Ireland set out the EU’s course of action. Britain signed them when it formally left the EU in January 2020. Britain says it has not breached the protocol.

This makes Britain and the EU consult on the issue for up to three months, at which point either side can request that a five-person arbitration panel intervene. The panel has 12 months to make a ruling, or six months for urgent matters. If either side does not comply with a ruling, the other side can suspend parts of any other EU-UK agreement, such as the trade deal struck in December. This could mean the European Union imposes tariffs on certain British imports.

The European Parliament has postponed setting a date for its vote to ratify the EU-UK trade deal in protest at the British move. The deal is provisionally applied until the end of April. If EU lawmakers do not vote by then and the deadline is not extended, the trade deal would cease to apply, leaving Britain and the European Union to trade on WTO terms with tariffs and quotas.

Bernd Lange, the German chair of the parliament’s trade committee, told Reuters that lawmakers preferred de-escalation but were “ready to use this hard weapon”.

COT Report

This week we have contradicted data on EUR and GBP. While EUR shows decreasing of net long position that mostly agrees to fundamental background, GBP shows big inflows instead where net position stands just 15K contracts below all time highs around 50K contracts. GBP situation should be discussed separately, but the strength in demand for UK currency could clarify our medium-term view on upside targets and retracement's depth on GBP.

Speaking on EUR - drop of interest to EU currency stands in a row with our technical view of deeper action on EUR. As you can see - not just longs have been closed but new shorts opened as well. The same tendency in hedgers' (Commercials) positions:

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Next week to watch

On February 25, as a mini-tantrum raged on bond markets, the U.S. Treasury auctioned $62 billion in 7-year notes - but investors, it would seem, forgot to show up. The lowest bid-cover ratio of 2.04 on record sent 10-year Treasury yields rocketing to a one-year high above 1.61%.

The Fed signalling it is not perturbed by rising yields has markets fretting again. Scheduled 10-year and 30-year Treasury bond sales on Wednesday and Thursday will be what TD Securities dubs a “litmus test for potential market dysfunction”.

The first aims to raise $38 billion, the second $24 billion. Another $58 billion of three-year notes are auctioned Tuesday.

The Fed clearly believes any inflation rise is transitory and tighter financial conditions so far don’t warrant action. The outcome of the auctions might well test its resolve.

ECB meeting


From Frankfurt to Rome and Madrid, government borrowing costs are up as much 33 basis points this year so Thursday’s European Central Bank meeting will be a test of its ability to suppress bond yields. As higher yields risk derailing a fragile euro zone economy, markets want action, or at least a commitment to step up bond buying via the 1.85 trillion-euro Pandemic Emergency Purchase Scheme. Not doing so risks accelerating the selloff.

Almost a year ago markets, already alarmed by COVID-19, took fright at ECB President Christine Lagarde’s off-the-cuff remark that the bank wasn’t there to “close spreads”. Soaring yields forced the ECB to respond with the PEPP.

The anniversary is a reminder to the ECB: it never hurts to show markets now and then not to push it too far.

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So, this week dollar rivals have got double impact - first one from the J. Powell, when he said that Fed intends to keep everything the same, showing no reaction on investors' concern about rising interest rates. Second - immediately from NFP data that shows that J. Powell was wrong. Within 2-3 weeks interest rates topic has to be the central one with strong markets reaction on any rumors, comments and particularly steps from the Fed on coming 16-17 March meeting.

It is difficult to suggest what will happen on the meeting, because, it stands just within 2 weeks ahead, and it could look windy if Powell changes the opinion in so short term. But from another view - interest rates' shift takes massive character, it reflects changing of economy conditions. This is not just occasional spike or speculators' game. We have good statistics and sentiment, in general, low demand for US bonds on auctions, as investors call for higher yield while the Fed auction barrier stands low, rising employment and inflation, crude oil prices and other signs. Powell stands in difficult situation right now - he can't ignore yields' rally, but he can't act as well. Any action from the Fed will be treated as confirmation of the tendency and it could accelerate, which Fed doesn't want at current stage.

From the technical point of view, we could say that at least verbal intervention is possible. Since we have down standing target for DXY and US interest rates stand around long-term resistance - only some Fed words or action could force them to react. But it has to happen soon. Maybe indeed something happens there.

Speaking on ECB - the high chances stand for anemic meeting as usual, as EU is too big bureaucracy structure to act in time. Besides, EU has no problems with an interest rates now and have no reasons and, actually, ability to cut it. Brussels bureaucrats are to greedy to provide more money to population. So, insipid speech seems highly likely again with high degree of negative impact on EUR performance. So, our target might be reached right on the next week.

Taking it all together, we do not see reasons yet to step out from our trading plan, suggesting EUR around 1.1885 next week, keeping in mind 1.16 area if everything goes worse later.

Technicals

Monthly

So, it seems that big events stands on horizon in March. EUR shows not very positive thing here - the December rally was reversed by three months downside action. Market is coming closer to 1.16 crucial level for bullish context.

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.

Upside targets are based on the same AB-CD pattern and stand the same. EUR has to break 1.24-1.25 level to reach them.
eur_m_08_03_21.png


Weekly

So, as we've said in updates through the week - J. Powell comments totally crushed short-term bullish context and makes us to turn to our weekly bearish scenario, as we do not have any other choice actually.

In short term EUR is coming to rock hard support of weekly K-area and oversold level around 1.1885, that is also an Agreement with daily AB-CD target. DXY, by the way, already stands there, completed OP on daily chart. As there are two weeks still, to Fed meeting, we have good chances to see response on this level. It means that next week we do not intend to go short, but keep an eye on any signs of reversal instead, once levels and target will be hit.

Taking a bit over horizon, other signs are not friendly to EUR, which makes us to treat any upside action as retracement by far. As we have bearish divergence here, and potential shape of H&S that could lead EUR below 1.16 area. Flat Fed statement in March could turn this scenario from potential to reality.

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Daily

We've discussed daily setup in details already. As EUR has failed to form the butterfly, there is only one direction exists - down. AB-CD target suggests OP around 1.1850 that agrees with weekly K-support and oversold area.

As market stands at oversold here as well - downside action could become a bit slower on intraday charts.
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Intraday

Here we have another one, smaller AB-CD pattern but the target mostly stands the same. Since market is oversold on daily, here we could get the context for scalp trade. For instance, as we have good thrust of CD leg here - any pullback, especially accompanied by bearish grabber might become B&B "Sell" that we could use for short entry with 1.1850-1.1860 target.
eur_4h_08_03_21.png
 

RahmanSL

Major
Messages
2,824
Hi Sive, another great report & analysis.

I am keeping a close watch on the price of crude oil because of the correlation between that commodity and the US$ as it is traded & paid for mostly in US$ which is the preeminent global currency.
Every US$10/bbl increase in oil price leads to a 0.55% or 55 bps increase in the current account deficit.
As stated in some report: "The exchange rates and oil prices runs in both directions; a 10% increase in the price of oil leads to a depreciation of the US dollar effective exchange rate by 0.28% on impact, whilst a weakening of the US dollar by 1% causes oil prices to rise by 0.73%."
Ending 5 March 2021, the price of OPEC basket of thirteen crudes stood at US$69.53 a barrel

On 4-Mar-2021, the 13 member nations OPEC+, which control approximately half of the world’s oil supply, agreed to mostly maintain historic production cuts for April that were implemented last year to curb the crash in petroleum prices.
The agreement will ultimately keep roughly 8% of pre-pandemic supply, or 8 million barrels per day of crude production, off the market for another month.
The development pushed crude prices higher and delivered a blow to many market participants who hoped for an overall increase in output.

So, that's something for FED Powell to factor into the equation on next course of action.

Cheers & all the best!
 
Messages
192
Wow the GDP rises sharply in countries that have the virus controlled. Interesting the UK are ahead in forecasts by six months too. Could have a positive end to the year by the looks of it
 

RogerTC

Special Consultant to the FPA
Messages
328
And a few words; on the crypto world.

I have mentioned many times in the forum that this is the biggest wealth transfer opportunity in the century. The coins that i have shared in my threads have already made average of %500 gains in the last few months. Honestly we are just starting... If you still not in this world you are missing a lot. This will be the biggest investment in your life so dont miss it out.

Regards,

R.
 

RogerTC

Special Consultant to the FPA
Messages
328
And a few words; on the crypto world.

I have mentioned many times in the forum that this is the biggest wealth transfer opportunity in the century. The coins that i have shared in my threads have already made average of %500 gains in the last few months. Honestly we are just starting... If you still not in this world you are missing a lot. This will be the biggest investment in your life so dont miss it out.

Regards,

R.

One of my posts from december 2020. Those who followed the advise should be sitting on good profits.

Regards
Screenshot 1.PNG
 

Sive Morten

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

Here is fast update on EUR. So, market stands on spot - weekly K-support, OP target and oversold area. What else do we need to take long position? It seems nothing more - everything stands in place already. Still, I would suggest that we need bullish reversal pattern on 4H or 1H chart.

Indeed, here we already have patterns - "222" Buy on daily and Bullish Stretch by DiNapoli, why we need intraday patterns? Here are few reasons. First is - strong and accelerating CD leg. It means that we could count only on pullback, retracement, but not reversal by far. Second - DXY is challenging the same resistance, trying to pass it through. It means that market is driven by fundamentals now, not technical factors. With fundamentals in front - technical reaction could be distorted or even muted, and market could behave differently, showing less or no reaction at strong areas (recall BTC for example).
Finally, JPY performance confirms that this is not the technical rally, this is reflection of big economy processes. These reasons suggest that it would be better to get more confidence before taking positions against strong tendency. Besides, patterns give better risk/reward setups:
eur_d_09_03_21.png


On 4H chart minor AB-CD is completed as well. And since EUR has not formed yet anything, I think we could start from such patterns as DRPO or B&B, that might be formed in a case of 3/8 upside pullback. B&B seems more reasonable in current situation:
eur_4h_09_03_21.png
 

Sive Morten

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

So, market is coiling around major weekly support area, recently we've got the first bounce out from it. On Dollar Index the shape looks even better - clear bearish engulfing pattern:
eur_d_10_03_21.png


On 4H chart we've agreed to watch for DiNapoli patterns. Thus, we haven't got the B&B as price was not able to reach 3/8 Fib resistance, while DRPO still is possible. Although we already have close below 3x3 DMA - this is not the DRPO yet as we do not see bears' attempt to break through the lows. Current downside action is just a retracement of recent jump:
eur_4h_10_03_21.png


Meantime, on 1H chart we've got "222' Buy, and this is the first pattern that we could consider. It doesn't mean that other patterns couldn't be formed but here is subject to think about taking some part of the position, at least. And later add more if DRPO will be formed, or some other pattern.
eur_1h_10_03_21.png
 

Sive Morten

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

So, EUR actually has completed minimum intraday target, forming upside AB-CD to 3/8 Fib resistance area, based on daily bullish engulfing:
eur_4h_11_03_21.png


Of course, this is not the major thing that we were waiting for from testing of weekly K-support area. This is just minor episode, starting point of something greater, that should happen hopefully. Still, for short-term traders, it could be the reason to book the result as well:

eur_1h_11_03_21.png


Others also have few options what to do - for example, move stops to breakeven, the OP where we've entered yesterday, or keep initial stop, depending on your entry strategy. Now market has to increase the scale, turning from 1H setup to daily and form bullish pattern there as well that becomes the foundation for major upside action. (if it happens at all, of course).

On GBP - recall our previous week trading, market returns back into rectangle, that is bullish sign. This week we also could get bullish grabber...
gbp_4h_11_03_21.png
 
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