FOREX PRO Weekly, March 14-18, 2016

[Sive Morten]

Fundamentals

(Reuters) - The Australian and New Zealand dollars nursed losses against the euro on Friday after the European Central Bank indicated there might be little room for more rate cuts, leaving them with hefty losses for the week.

The euro stood at NZ$1.6732 , having gained two cents in one session, putting it on track for a 3.7 percent weekly rise. It was also up at A$1.4970 and poised to end the week 1.4 percent higher.

The euro initially fell after the ECB cut deposit rates and expanded its bond-buying programme to include corporate debt. But all that changed when ECB chief Mario Draghi said they had no plans to cut rates any further.

Against its U.S. counterpart, the Australian dollar had a milder session at $0.7470, still within reach of an eight-month summit of $0.7528. It was on track for a 0.4 percent gain for the week, having leapt three cents since March 1.

It also stood tall on a trade-weighted basis at 63.8 <=AUD>, a level not seen since July and poised to post a fourth week of increases.

The Aussie took a breather against its kiwi neighbour at NZ$1.1153 , having touched a 5-month peak of NZ$1.1285 on Thursday when the Reserve Bank of New Zealand shocked with an interest rate cut and flagged possibly more.

"With a clear acceleration of policy easing expectations in New Zealand, we have seen AUD/NZD enter a new and likely higher range," said ANZ, adding it was expecting two more rate cuts.

"We do not expect this trend to reverse soon and note that a test towards the NZ$1.1430 level cannot be ruled out over the coming weeks."

The New Zealand dollar edged up to $0.6683 on Friday after falling as low as $0.6618 the previous session. It is still down 1.8 percent so far this week, largely due to the RBNZ's rate cut.

"After the initial gap lower, the NZD quickly composed itself and has consolidated above 0.6650 overnight. Downward momentum may prove short-lived," said Kim Martin, senior market strategist at BNZ, in a research note.

Of 12 economists polled following Thursday's surprise move, three expect the central bank to cut rates to 2.00 percent at the April review. Eleven of 12 see rates at 2.00 percent at the June meeting.

So, guys, today we will talk a bit on currency wars, because many of us have been surprised by market reaction on ECB decision. At first glance, as Draghi has announced more dovish steps - EUR should turn down, but this has not happened. And here we will try understand what still has happened.
This is not a secret, guys, that every Central Bank works to protect domestic economy by manipulation of the value of it's own currency. Thus, for Japan it is necessary to have cheap currency to keep Export at high degree, while for US it is a long term program of expensive and wealth dollar as US has pretended on leadership in global economy and policy, and dollar should be treated as safest and most reliable currency in the world (as it was in time of gold standard). We will not come through the whole history, but turn right to current times. Right now global economy stands in crisis, and most bright issues of it are disinflation, anemic industrial growth, weak consumption, unemployment. QE programs in different countries have not led to stabilization and improving. They just have triggered multiple bubbles on financial markets. But the feature of the bubbles - every time they need more resources to keep growing. Since QE has reached tremendous values, now the new idea have appeared - Period of Negative Interest Rates (PNIR), and as a result - free money distribution among population that should improve consumption and hence - production. And now let's return back to ECB recent meeting...

First, Draghi said that ECB will print more money. QE will increase from 60 Bln to 80 Bln per month, and it is hint that ECB stands on course to PNIR. But why DAX dropped and why EUR rallied? Imagine what could happen if you would tell trader in mid 90's that Central Bank will print 80 Bln per month and put' em on open market. This trader would tell you - "Buy at all money that you have, this will lead indexes to the sky". But in 2016 this has not happened. Why?

I agree with opinion that markets have expected more. This was just mismatch to market expectations. They want not just hesitate steps in TNIR direciton - they need real TNIR and more printing - hunderds billions per month or even trillions.

Measures that were announced by Draghi were treated as betrayal from ECB and hawkish character. That's why Indexes dropped and EUR pumped up. So, what will be next?

Now the ball on a Fed field. This is like Rat race movie. BoE, Fed, ECB and BoJ will take part. This is printing race. Fed currency can't support previous course on rate hiking, since it will lead economy in dead way. Thus, we should be ready to sequence of blur statements and postponing of next rate hiking on indefinite term. Or, even rate decreasing. As our forum member Ezra said - it seems that some big whales foresee this and take additional bets against USD in advance. Very probable. The same is true for Japan and China that strongly depend on export.

How deep rates could drop? Personally I haven't investigated this problem, but I've read that theoretically banking system could swallow rates around "-5%". After that banking system will stand at the edge of collapse and economy will turn to hyperinflation and it will move our of control.

What currencies could get advantage from this situation? Those who have balanced and relatively independent economy, large gold reserves and well-balanced export/import that does not depend from just one country with low rates.

For example, AUD. At least it is interesting in current environment by some reasons. First is balanced and partially isolated economy, mostly self-sufficient. It stands in relation to Asia region and China. High level of interest rates. It could bring a lot of investments, say, from Japan. Second - AUD stands in tight relation to gold, since it is one of the largest gold producers.

Or, say Russian Ruble. I will put it just as example of macro economy. I do not call you invest in Ruble, since it has many other risks. But it is interesting. Take look. Negative interest rates probably will lead to rising of commodity prices, including Crude oil. Russia has very low debt level so, it does not need external resources to refinance it. Ruble is weak - it dropped 3 times since December 2014 and this is got for exporters. Healthy interest rate - around 8%. Finally, Russia has 4 times greater gold reserves compares to money supply. In fact, this is very undervalued currency fundamentally. And this disproportion mostly was created artificially by external attack on economy.


Swiss franc also should done well. Relatively low sovereign debt, good gold reserves, specific all-sufficient economy, except may be hydrocarbons, but they are cheap right now...

So, guys, make conclusions... Personally I like gold, mining companies, oil companies especially with government stake.

Today we will take a look at AUD. Actually we've said everything on EUR in our video on Friday, other currencies also do not show something special. Besides, we have taken a look at AUD long time ago. Now, due to gold relation AUD takes special meaning.

CFTC data shows classical bullish combination. Net long position, open interest and AUD rate are growing. At the same time there are pretty much space for more growth. AUD will be primary object for carry traders in nearest time.

Technicals
Monthly

Situation on monthly chart has not changed significantly. Although we've discussed this major support long-time ago, in Autumn 2015, market still stands here. In fact, March is the first month when AUD finally turns to upside reaction and shows respect to major support level. Trend has turned bullish.

In March AUD has moved above Yearly Pivot. Next logical long-term destination is YPR1 around 0.81 that also coincides with monthly overbought. As market has completed huge all-time AB=CD pattern, and now has shown retracement back to major 5/8 Fib support - whether market will return back to upside action is a rhetoric question. This is too long perspective. At the same time as market already was at 1.10, why it could not be at 1.16 1.618 Fib extension of all-time AB-CD pattern. Right now is tough time, situation changes rapidly, so we can't exclude any scenario.

That's being said, monthly picture is bullish, March action looks strong and AUD has chances to continue this move.

Weekly
Here trend also bullish. Those of you guys, who follows our analysis should remember that initially we've thought about butterfly here. Most recent drop was really fast on AUD, but price has not quite reached 1.27 extension and right now it mostly reminds double bottom pattern.

Appearing of W&R right at the second bottom another bullish sign and it is very typical for Double Bottom. On a way up market has broken very strong resistance - neckline, Yearly Pivot and all these stuff around weekly overbought. On a way up AUD also has passed through MPR1. This tells on appearing of new bull trend here and points that this is not just retracement up in a bear trend.

Following this logic nearest target should stand around 0.7850 area - important Fib resistance and double bottom target. Usually it equals the depth of double bottom itself, counted up from neckline. Current upside action looks important especially after strong drop in January. If we will take a look at broader picture - may be we will get reverse H&S pattern, although head is a bit overextended beyond 1.618 extension. We'll see...

Still major problem right now is how to take long position, since market stands at weekly overbought and it would be better to wait for some retracement down.

Daily

This picture shows that hardly we will get bounce down before market will complete AB=CD target @ 1.618 that is also H&S final destination. Overall picture looks very similar to gold.

So, it seems that it is too late to take short-term long position. It would be better to wait completion @0.77 area and then for retracement down to either 0.75 or even 0.7330 area. First area is not just consolidation. This is neckline of weekly pattern, YPP. But as market stands at overbought - retracement to K-support seems preferable. (These Fib levels I've drawn based on 1.618 target)

That's being said, despite that overall picture looks bullish - currently it is not reasonable for taking long position and better to wait for a bounce down.

4-hour
This chart also confirms further upward action. Recall DRPO "Sell" pattern that we've discussed on March 8. DRPO is always 2-edged sword, since as direct DRPO as DRPO "Failure" are both patterns to trade. Now we have DRPO "Failure" and you can see how this usually happens - upside action was sufficient to compensate previous lows on direct DRPO pattern. Here we do not have any other patterns that could confirm daily target, but may be later we will get something, like butterfly or something of this kind.

Conclusion:
That's being said, is Australian Central Bank will not change it's policy drastically and will not be involved strongly in currency war - Australia could get significant advantages from healthy interest rates, relation to gold mining industry, sufficient economy and one of financial centers of Asia region.
In short-term perspective we will watch for ~ 0.77 daily target and retracement down, at least to 0.75 or even 0.7330 where we will think about taking long position.


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]

Good morning,

(Reuters) - The dollar edged lower in Asian trade on Tuesday, with the yen getting a lift after the Bank of Japan held policy steady as expected at the conclusion of its two-day policy meeting.

Next up will be the U.S. Federal Reserve, which begins its own two-day meeting on Tuesday. Major currency pairs are expected to tread familiar ranges as investors await fresh clues on the outlook for U.S. monetary policy.

The BOJ removed language from its statement that it would cut interest rates further into negative territory if needed, and said it would exempt money reserve funds from the negative rates policy. It also offered a bleaker view of the economy than in January.

Most investors had expected the central bank to hold policy steady, as BOJ Governor Haruhiko Kuroda has said he hopes to spend more time assessing the economic impact of its negative interest rate policy that it unveiled in late January. Investors are now awaiting Kuroda's post-meeting press conference at 0630 GMT.

"Kuroda will face some awkward questions on why the yen is significantly stronger now than before negative rates were revealed," Sean Callow, senior currency strategist at Westpac, said in a note.

The euro edged up slightly to $1.1108 , within sight of last week's one-month high of $1.1218 touched after the European Central Bank chief Mario Draghi followed the bank's extensive easing on Thursday with comments suggesting further cuts were unlikely.

The Fed is seen standing pat on interest rates, and could also make clear that future hikes are on its agenda despite concerns about the strength of the global economy, as long as U.S. inflation and jobs continue to strengthen.

On Monday, an increasingly important gauge of U.S. inflation rebounded last month from record low levels, adding to other firming price measures that could help pave the way for future Fed interest rate hikes.

Analysts point to a much calmer global situation than in January, when the Fed noted the U.S economic slowdown, the decline in inflation, and external factors including China and oil prices.

"The focus for us is going to be on the 'dots' to see if there's any shift. Potentially, they could move lower, which may weigh on the dollar a little bit if that is the case," said Mitul Kotecha, currency strategist at Barclays in Singapore, referring to Fed monetary committee participants' "dot plots" of their interest rate expectations.

"I think the statement will be balanced, and we'll still continue to see some data dependency, with the economic outlook unchanged as well, so it shouldn't be particularly market-moving," he said.

Australia's central bank said in minutes of its March 1 policy review released on Tuesday that there were "reasonable prospects" for continued economic growth and it was still too early to assess whether a bout of global market volatility early in the year foreshadowed something more sinister.
Low inflation would give it room to ease policy but only if needed, the minutes showed.

Now guys, it is really initeresting how Fed will response on ECB step. As BoJ have seen rate drop - they have taken pause with their own rate moving in negative space.

To be honest, right now it is not big difference what currency to watch, since all of them are preparing for Fed. And hardly we will see any drastic action before it will happen.

Right now we have two major interests here. First is - interesting struggle of Central banks who will try to resolve two major problems - protect its own economy and reach maximum negative rate as late as possible. This is guys, like checkers game, you postpone attack as far as possible to get strategic advantage.
Second - technical picture on the charts per se. On EUR, market has formed long-ranged candle that has 2 major features. Usually it holds price action for considerable period of time (as it was recently in Nov 2015). Second - market will continue action in direction of breakout. Last one is especially interesting, since EUR stands in situation of equilibrium and breakout will lead to significant action. Thus, confirmation of bullish grabber that has been formed by uspide breakout will let us to return back to discussion of daily AB-CD pattern and its 1.618 target, while bearish 1.08 breakout will open the door for big butterfly right to the parity:

But right now, before Fed, we just can disccuss possible depth of retracement. First level is 1.1060 - Fib support and WPP:

On hourly chart we see that current AB=CD pattern creates Agreement as with 3/8 as with 5/8 Fib levels. Also we have hidden bullish divergence. It means that AB-CD probably will be completed, but first market could show minor upside action. Later it could form, say, butterfly "buy" or something of this kind that will help to complete AB-CD target:

So, If you're bearish - do nothing, wait for 1.08 breakout. If you're bullish - you could either wait for upside breakout as well, or, apply scale in entry on both Agreements on hourly chart, since bullish grabber stands in place and will be valid until market stands inside the range of big daily candle.

 

[Sive Morten]

Good morning,

(Reuters) - The dollar was in a holding pattern on Wednesday as markets waited for fresh guidance from the Federal Reserve, while a fall in dairy prices knocked the New Zealand currency broadly lower.

The dollar index stood at 96.743, stuck in familiar territory since drifting off a one-month low of 95.938 set last Friday. The euro was little changed just above $1.1100 .

No policy action is expected from the Fed, but the market will be hyper-sensitive to any guidance on when it might deliver its next hike in interest rates.

Any signal that there is more than one hike in store this year will be positive for the greenback. Conversely, anything more dovish could keep the dollar pinned down.

"The FOMC is the main game over the next 24 hours," analysts at ANZ wrote in a note to clients.

"We retain the view that the next rate hike could come as early as June, and it would be reasonable to expect further increases in the second half of 2016. However, this outlook remains data dependent."

A hawkish Fed could hurt stock and commodity prices, in which case safe-haven currencies such as the yen and the Swiss franc could gain on the dollar.

The yen eased slightly in Asia but held on to much of the gains it made after surprisingly weak U.S. retail sales data on Tuesday briefly unsettled the dollar.

The Bank of Japan on Tuesday skipped a chance to expand its massive asset-buying programme even as it offered a bleaker view of the economy. Some traders said that the combination cast a shadow on risk sentiment, which perversely bolstered demand for the safe-haven yen.

Speculation is also rising that Prime Minister Shinzo Abe may delay a planned tax hike next year, as he organises a series of meetings with renowned economists who advocate fiscal spending.

On Wednesday U.S. economist Nobel laureate Joseph Stiglitz said he had advised Abe to delay the tax increase and focus more on fiscal spending.

"There's some uncertainty on how the currency market will react to a tax hike delay. But I think there's chance it would be regarded as suggesting the limit of monetary easing and lift the yen," said Minori Uchida, chief currency analyst at the Bank of Tokyo-Mitsubishi UFJ.

Two noteworthy currencies overnight were sterling and the New Zealand dollar.

Sterling slipped to $1.4124 , near its low last week of $1.4119 and having retreated from Friday's peak of $1.4437, driven by oscillating views on whether Britain would leave the European Union in a June referendum.

Taking the blame for the latest fall in the pound was a poll suggesting supporters of "Brexit" had overtaken those who wanted to stay in the EU.

News of further price falls in milk products, New Zealand's most valuable export, dragged on the kiwi which briefly dipped below 66 U.S. cents for the first time in more than two weeks. It was last at $0.6607.

International dairy prices fell at a fortnightly GlobalDairyTrade auction, confounding expectations for a rise and disappointing kiwi bulls.

Today guys, we will take a look at JPY, since it probably will get strong impact of Fed decision. Yesterday we've seen BoJ results and mostly they stand on hold - they have seen what ECB has done, now they wait for reaction from the Fed.

My thought, guys, that Fed will turn on dovish road gradually. I do not call you to trade this, since I'm not trade Fed decisions as well, but in current environment and ECB, BoJ policies - this will be suicide for US to rise rates in near term. With poor inflation, consumption, high household debt burden - it is difficult to do.
Currently market consensus expects next rate hike in June but I think that Fed will start prepare public opinion that this will not happen. They probably gradually will take position of not cancelling rate hiking but multiple postponing on indefinite terms...

Technically JPY also shows some bearish signs. First - upside reaction after reaching of weekly oversold and Fib support was too small. Yen barely has touched 3/8 Fib resistance. Second - as DRPO has been formed, no upside action has followed. Finally - on daily chart market is forming bearish triangle pattern and it has signs of bearish dynamic pressure as trend has turned bullish but price action is not.

But it is not as simple as it stands. On 4-hour chart market has magnet area that represents multiple untouched targets - MPP, initial large AB-CD, minor AB-CD and butterfly. As Fed solution definitely will trigger volatility, Yen could show spike up to touch this targets, but later, if Fed comments will be dovish it could turn to downward action.

Current situation on JPY could be very similar to monthly picture of GBP. Just compare it with daily JPY chart and you will get it:. Here is upside swing that we expect and following downward reversal, if Fed statement will be dovish.

 

[Sive Morten]

Good morning,

(Reuters) - The dollar was under pressure in Asian trading on Thursday after declining sharply following the Federal Reserve's decision to halve its outlook for U.S. interest rate increases to two from four by the end of this year.

The greenback, under renewed pressure against a resurgent yen, marked a fresh three-week low. Earlier, it had clawed back some lost ground against the perceived safe-haven currency as regional equities rallied on reduced expectations of Fed tightening.

"The dollar's fall is in reaction to the FOMC, but the yen fell this morning on risk-on sentiment, then it strengthened in the afternoon," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank in Tokyo.

Fed policymakers noted that the U.S. economy faces risks from an uncertain global economy, even though moderate growth and "strong job gains" would allow it to raise rates this year.

"I think there was some amazement that the Fed had been so hawkish, when others were going to negative rates, but this brings them more in line with the global economy. But still, it was a reality check," said Bart Wakabayashi, head of FX sales at State Street Global Markets in Hong Kong.

Against its Japanese counterpart, the dollar slipped 0.3 percent to 112.18 yen after earlier falling as low as 111.94. It still remained mired in its recent well-trod range between the Feb. 11 low of 110.985 yen and the March 2 high of 114.875.

"If it stays in this range much longer, some might think it's formed a hard floor there, and you might have some people adding dollar longs back in the game," Wakabayashi said.

Against the yen, the euro skidded 0.4 percent to 125.85 yen. But it inched up slightly against the dollar to $1.1226 , after the Fed helped propel it to a one-month high of $1.1244 overnight.

The dollar index, which tracks the greenback against a basket of six major currencies, slumped 0.3 to 95.617, after plunging to a one-month low of 95.539 in the wake of the Fed announcement.

The index slid nearly 1.3 percent in the time between the Fed statement's release and the end of Fed Chair Janet Yellen's remarks, as investors ratcheted down their expectations that higher U.S. interest rates would lift the dollar anytime soon, and pondered when the next tightening would come.

"We doubt that the doves will be ready for a rate hike within the next six weeks. However, by June there may very well be a majority for a hike," analysts at Rabobank said in a note.

Ahead of the Fed, the dollar initially rose after data showed an increase in underlying U.S. inflation and the housing market continued to strengthen.

Later on Thursday, the Bank of England will also announce a policy decision, and is expected to stand pat.

A Reuters poll last week showed that most economists do not expect the BOE to raise rates until the first quarter of 2017, versus the fourth quarter of 2016 seen in a poll taken just a month before.

So, guys, that's it. Fed stands on the way as ECB and BoJ. Right now they still talk that they will definitely intcrease rate in current year, but gradually they will change rethoric and in June they will say that rate hike will come but closer to an end of the year. In turn, by the end of year they will say that probably rate will increse next year. As we've said - Fed right now can't just cancel its previous opinion, but their mind already has changed strongly compares to December meeting and markets have reacted.

The major beneficiaries from Fed step out will be AUD, probably and JPY. AUD is because it has ~3% rate and stands in tight relation to gold. Thus, JPY has dropped. As you know our medium-term target is ~ 108.50, short-term - 110.50 as it is shown on the chart. Recent drop lets us to get Butterfly "Buy" pattern that coincides with weekly Fib support and daily oversold:

On 4-hour chart market even was not able to show technical spike up to our targets and MPP as we've discussed, but dropped immediately. Butterfly has been cancelled, sideway consolidatio has been broken. This breakout also suggest action below recent lows to 110.30-110.50 area:

If you're watching for short entry, you could use most recent AB-CD extension. Thus, JPY already has passed 100% target, and next one is 1.618. As soon as it will reach it - you could try to use minor rally to sell into. BTW - yen has dropped below WPS1 and it means that current action is not just bearish retracement, but continuation of short-term bear trend.

 

[Sive Morten]

Good morning,

(Reuters) - The dollar held near a 17-month low struck overnight against the yen on Friday as the Federal Reserve's less hawkish outlook for U.S. interest rates weighed on the U.S. currency.

The dollar has slid sharply since the U.S. central bank lowered its expectations for interest rate increases this year at the midweek Federal Open Market Committee (FOMC) meeting.

Treasury yields have dropped sharply after the policy meeting, fuelling the dollar's fall to its weakest in five months against a basket of major currencies.

The dollar was trading at 111.105 yen , just off a low of 110.67 plumbed overnight that was its weakest since October, 2014.

"Short-term speculators are leading the action. They appear to be selling the dollar and Japanese stocks in tandem, trying to probe for a bottom," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

"They are testing to see if the trough of the recent 110-115 yen range can hold," he said.

The market's focus was on how far the yen could rise before it elicited some kind of response from Japanese authorities.

The dollar's post-FOMC weakness against the yen presents a potential headache for Japan. The country would like to see the yen remain relatively weak to support its exporters, but the market thinks Japan has to tread carefully lest it is accused of engineering competitive devaluations.

"It is easier for speculators to bet on further dollar weakness as the European and Japanese central banks have just concluded their policy meetings, meaning further easing will not take place for a while," said Masafumi Yamamoto, chief FX strategist at Mizuho Securities in Tokyo.

The European Central Bank eased extensively last week, while the Bank of Japan stood pat at its policy meeting earlier on Tuesday. The BOJ had adopted negative interest rates in January, but the shock move did little to weaken the yen.

"The Japanese authorities have not been clear in their stance towards a strong yen. The market could attempt to test the authorities to see where exactly they stand on the yen," Yamamoto said.

The euro hovered near a five-week high of $1.1342 and was on track to gain 1.6 percent on the week.

The dollar index <.DXY> fell to a five-month trough of 94.847, and was set to end the week 1.5 percent lower.

Elsewhere, sterling received a further boost against the broadly weaker dollar after the Bank of England on Thursday kept interest rates steady as expected and said rates were more likely to rise than not.

The pound traded just below a one-month high of $1.4504 scaled overnight. It has clawed back from a seven-year low of $1.3836 hit late in February on concerns over the potential exit of Britain from the European Union.

A continuing bounce in crude oil prices boded well for commodity-linked currencies. The Australian dollar rose to an eight-month peak of $0.7681 on Friday, while the Canadian dollar advanced to a five-month high of C$1.2946 versus the dollar overnight.

Today, guys, I do not want to start any new conversation, that's why let's better take a look at AUD since it has hit our predefined target and now is ready for retrcement. As we've said previously -AUD probably will be the one that will get advantage from currency wars. Australia has relatively healthy interest rate and it stands in specific region. Beside geopolitical place makes Australia to be self-sufficient, since this is independent continent which has all resources and this is developed country.

Speaking on recent BoE statement, they again has created good chances for taking short on GBP. What rate hike is possible right now? Fundamental analysis of GB economy shows large household debt burden, and weak perpectives on inflation. Besides, with started currency wars (just read comments above) and Brexit voting in June - it is difficult to expect any hint on rate hike any time soon. Thus, it is very probable that GBP will turn in nosedive very soon.

Now on AUD. Currently Aussie has reached strong resistance area and completed our daily extension target. Market stands at weekly Fib resistance and overbought, which creates bearish "Stretch" setup. And existing here AB-CD 1.618 target turns simple Fib level to Agreement. Thus, as we've discussed last week, when market will reach this area - it probbly should turn to some downward retracement:

As you can see - most probable destination is K-support around neckline of Double Bottom pattern, and daily oversold.

On 4-hour chart price also reached WPR1. Now we see bearish engulfing on top, but no larger pattern has been formed yet. Currently we could recognize,say, half of potential H&S pattern here and get AB-CD down.

 

[ochills]

Good Day Commander in pips,
Beautiful weekend to you. Please take a look at the monthly chart AUD/USD do we have DRPO Buy confirmation for the month of February. also how do you arrive at Bullish engulfing for GBP/USD on weekly chart, because looking at the bullish candle it does not double or triple the bear candle but at-least almost equal in length. I often see this conclusion in your analysis sometimes but I want know how you came to conclusion that it is bullish engulfing.

thanks as always.

 

[ochills]

 

[Joh]

Fundamentals

(Reuters) - The Australian and New Zealand dollars nursed losses against the euro on Friday after the European Central Bank indicated there might be little room for more rate cuts, leaving them with hefty losses for the week.

The euro stood at NZ$1.6732 , having gained two cents in one session, putting it on track for a 3.7 percent weekly rise. It was also up at A$1.4970 and poised to end the week 1.4 percent higher.

The euro initially fell after the ECB cut deposit rates and expanded its bond-buying programme to include corporate debt. But all that changed when ECB chief Mario Draghi said they had no plans to cut rates any further.

Against its U.S. counterpart, the Australian dollar had a milder session at $0.7470, still within reach of an eight-month summit of $0.7528. It was on track for a 0.4 percent gain for the week, having leapt three cents since March 1.

It also stood tall on a trade-weighted basis at 63.8 <=AUD>, a level not seen since July and poised to post a fourth week of increases.

The Aussie took a breather against its kiwi neighbour at NZ$1.1153 , having touched a 5-month peak of NZ$1.1285 on Thursday when the Reserve Bank of New Zealand shocked with an interest rate cut and flagged possibly more.

"With a clear acceleration of policy easing expectations in New Zealand, we have seen AUD/NZD enter a new and likely higher range," said ANZ, adding it was expecting two more rate cuts.

"We do not expect this trend to reverse soon and note that a test towards the NZ$1.1430 level cannot be ruled out over the coming weeks."

The New Zealand dollar edged up to $0.6683 on Friday after falling as low as $0.6618 the previous session. It is still down 1.8 percent so far this week, largely due to the RBNZ's rate cut.

"After the initial gap lower, the NZD quickly composed itself and has consolidated above 0.6650 overnight. Downward momentum may prove short-lived," said Kim Martin, senior market strategist at BNZ, in a research note.

Of 12 economists polled following Thursday's surprise move, three expect the central bank to cut rates to 2.00 percent at the April review. Eleven of 12 see rates at 2.00 percent at the June meeting.

So, guys, today we will talk a bit on currency wars, because many of us have been surprised by market reaction on ECB decision. At first glance, as Draghi has announced more dovish steps - EUR should turn down, but this has not happened. And here we will try understand what still has happened.
This is not a secret, guys, that every Central Bank works to protect domestic economy by manipulation of the value of it's own currency. Thus, for Japan it is necessary to have cheap currency to keep Export at high degree, while for US it is a long term program of expensive and wealth dollar as US has pretended on leadership in global economy and policy, and dollar should be treated as safest and most reliable currency in the world (as it was in time of gold standard). We will not come through the whole history, but turn right to current times. Right now global economy stands in crisis, and most bright issues of it are disinflation, anemic industrial growth, weak consumption, unemployment. QE programs in different countries have not led to stabilization and improving. They just have triggered multiple bubbles on financial markets. But the feature of the bubbles - every time they need more resources to keep growing. Since QE has reached tremendous values, now the new idea have appeared - Period of Negative Interest Rates (PNIR), and as a result - free money distribution among population that should improve consumption and hence - production. And now let's return back to ECB recent meeting...

First, Draghi said that ECB will print more money. QE will increase from 60 Bln to 80 Bln per month, and it is hint that ECB stands on course to PNIR. But why DAX dropped and why EUR rallied? Imagine what could happen if you would tell trader in mid 90's that Central Bank will print 80 Bln per month and put' em on open market. This trader would tell you - "Buy at all money that you have, this will lead indexes to the sky". But in 2016 this has not happened. Why?

I agree with opinion that markets have expected more. This was just mismatch to market expectations. They want not just hesitate steps in TNIR direciton - they need real TNIR and more printing - hunderds billions per month or even trillions.

Measures that were announced by Draghi were treated as betrayal from ECB and hawkish character. That's why Indexes dropped and EUR pumped up. So, what will be next?

Now the ball on a Fed field. This is like Rat race movie. BoE, Fed, ECB and BoJ will take part. This is printing race. Fed currency can't support previous course on rate hiking, since it will lead economy in dead way. Thus, we should be ready to sequence of blur statements and postponing of next rate hiking on indefinite term. Or, even rate decreasing. As our forum member Ezra said - it seems that some big whales foresee this and take additional bets against USD in advance. Very probable. The same is true for Japan and China that strongly depend on export.

How deep rates could drop? Personally I haven't investigated this problem, but I've read that theoretically banking system could swallow rates around "-5%". After that banking system will stand at the edge of collapse and economy will turn to hyperinflation and it will move our of control.

What currencies could get advantage from this situation? Those who have balanced and relatively independent economy, large gold reserves and well-balanced export/import that does not depend from just one country with low rates.

For example, AUD. At least it is interesting in current environment by some reasons. First is balanced and partially isolated economy, mostly self-sufficient. It stands in relation to Asia region and China. High level of interest rates. It could bring a lot of investments, say, from Japan. Second - AUD stands in tight relation to gold, since it is one of the largest gold producers.

Or, say Russian Ruble. I will put it just as example of macro economy. I do not call you invest in Ruble, since it has many other risks. But it is interesting. Take look. Negative interest rates probably will lead to rising of commodity prices, including Crude oil. Russia has very low debt level so, it does not need external resources to refinance it. Ruble is weak - it dropped 3 times since December 2014 and this is got for exporters. Healthy interest rate - around 8%. Finally, Russia has 4 times greater gold reserves compares to money supply. In fact, this is very undervalued currency fundamentally. And this disproportion mostly was created artificially by external attack on economy.


Swiss franc also should done well. Relatively low sovereign debt, good gold reserves, specific all-sufficient economy, except may be hydrocarbons, but they are cheap right now...

So, guys, make conclusions... Personally I like gold, mining companies, oil companies especially with government stake.

Today we will take a look at AUD. Actually we've said everything on EUR in our video on Friday, other currencies also do not show something special. Besides, we have taken a look at AUD long time ago. Now, due to gold relation AUD takes special meaning.

CFTC data shows classical bullish combination. Net long position, open interest and AUD rate are growing. At the same time there are pretty much space for more growth. AUD will be primary object for carry traders in nearest time.
View attachment 24176

Technicals
Monthly

Situation on monthly chart has not changed significantly. Although we've discussed this major support long-time ago, in Autumn 2015, market still stands here. In fact, March is the first month when AUD finally turns to upside reaction and shows respect to major support level. Trend has turned bullish.

In March AUD has moved above Yearly Pivot. Next logical long-term destination is YPR1 around 0.81 that also coincides with monthly overbought. As market has completed huge all-time AB=CD pattern, and now has shown retracement back to major 5/8 Fib support - whether market will return back to upside action is a rhetoric question. This is too long perspective. At the same time as market already was at 1.10, why it could not be at 1.16 1.618 Fib extension of all-time AB-CD pattern. Right now is tough time, situation changes rapidly, so we can't exclude any scenario.

That's being said, monthly picture is bullish, March action looks strong and AUD has chances to continue this move.
View attachment 24177

Weekly
Here trend also bullish. Those of you guys, who follows our analysis should remember that initially we've thought about butterfly here. Most recent drop was really fast on AUD, but price has not quite reached 1.27 extension and right now it mostly reminds double bottom pattern.

Appearing of W&R right at the second bottom another bullish sign and it is very typical for Double Bottom. On a way up market has broken very strong resistance - neckline, Yearly Pivot and all these stuff around weekly overbought. On a way up AUD also has passed through MPR1. This tells on appearing of new bull trend here and points that this is not just retracement up in a bear trend.

Following this logic nearest target should stand around 0.7850 area - important Fib resistance and double bottom target. Usually it equals the depth of double bottom itself, counted up from neckline. Current upside action looks important especially after strong drop in January. If we will take a look at broader picture - may be we will get reverse H&S pattern, although head is a bit overextended beyond 1.618 extension. We'll see...

Still major problem right now is how to take long position, since market stands at weekly overbought and it would be better to wait for some retracement down.
View attachment 24178

Daily

This picture shows that hardly we will get bounce down before market will complete AB=CD target @ 1.618 that is also H&S final destination. Overall picture looks very similar to gold.

So, it seems that it is too late to take short-term long position. It would be better to wait completion @0.77 area and then for retracement down to either 0.75 or even 0.7330 area. First area is not just consolidation. This is neckline of weekly pattern, YPP. But as market stands at overbought - retracement to K-support seems preferable. (These Fib levels I've drawn based on 1.618 target)

That's being said, despite that overall picture looks bullish - currently it is not reasonable for taking long position and better to wait for a bounce down.
View attachment 24179

4-hour
This chart also confirms further upward action. Recall DRPO "Sell" pattern that we've discussed on March 8. DRPO is always 2-edged sword, since as direct DRPO as DRPO "Failure" are both patterns to trade. Now we have DRPO "Failure" and you can see how this usually happens - upside action was sufficient to compensate previous lows on direct DRPO pattern. Here we do not have any other patterns that could confirm daily target, but may be later we will get something, like butterfly or something of this kind.
View attachment 24180

Conclusion:
That's being said, is Australian Central Bank will not change it's policy drastically and will not be involved strongly in currency war - Australia could get significant advantages from healthy interest rates, relation to gold mining industry, sufficient economy and one of financial centers of Asia region.
In short-term perspective we will watch for ~ 0.77 daily target and retracement down, at least to 0.75 or even 0.7330 where we will think about taking long position.


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.

Wow i love the way you write your well informed reports. Thank you Sive,
The examples you describe above give me some insight re certain Currencies and the various possible scenarios you use as examples are excellent. The Forex market appears to me a complicated beast that many sources (banks/countries) seem to know how to exploit to their benefit and even re use for their own agenda's in a manner that is difficult for little me to get my head around (as in Mario Draghi performance last week, frankly i felt 'played').
So in the meantime thank you for the warning, myself will stick to the rules and be even more cautious and hopefully seize the opportunity to trade when the time comes and cash in.
Kudo's to you Sir.
p.s how is your wife faring is she getting any better?
.

 

[Sive Morten]

Good Day Commander in pips,
Beautiful weekend to you. Please take a look at the monthly chart AUD/USD do we have DRPO Buy confirmation for the month of February. also how do you arrive at Bullish engulfing for GBP/USD on weekly chart, because looking at the bullish candle it does not double or triple the bear candle but at-least almost equal in length. I often see this conclusion in your analysis sometimes but I want know how you came to conclusion that it is bullish engulfing.

thanks as always.

Hey Ochills,
good observation on DRPO, may be... At least definitely LAL. I do not like minimal required thrust and interruption retracement in the middle of it, but it was less than 3/8... So, may be indeed it will work as DRPO... Thanks.

On GBP - ok, let's call it "piercing in the cloud", if you like it better.

Wow i love the way you write your well informed reports. Thank you Sive,
The examples you describe above give me some insight re certain Currencies and the various possible scenarios you use as examples are excellent. The Forex market appears to me a complicated beast that many sources (banks/countries) seem to know how to exploit to their benefit and even re use for their own agenda's in a manner that is difficult for little me to get my head around (as in Mario Draghi performance last week, frankly i felt 'played').
So in the meantime thank you for the warning, myself will stick to the rules and be even more cautious and hopefully seize the opportunity to trade when the time comes and cash in.
Kudo's to you Sir.

Hi Joh,
yes sometimes we have to discuss such issues, but unfortunately we have to acknowledge, that we can't use this information if even we're 100% right. This is too big scale for us as in money termas in time term. All that we could do is just take it in consideration and may be make adjustments on long-term analysis, keeping in mind possible reaction of Central Banks on mutual dovish steps on national currencies...

p.s how is your wife faring is she getting any better?
.

Thanks, yes, she's fine, already at home.

 

[Zilvinas]

Thank you Sive for your deep analysis as always!

But this time I'm not entirely agree with you on your thoughts on Eur. Here is the case:

1) I think ECB met market expectations and even exceeded them, because in the analysis, articles and etc. before ECB meeting I didn't find any indication or opinion or consensus that ECB will cut ALL rates, will give 4 new TLTRO's, will purchase Corporate bonds and will expand €20bn in QE (if I recall well market consensus was to expand €10bn in QE). So, this time Draghi basically shot all his guns at his disposal and for market that was a surprise, EUR immediately fell (I myself was into sell). But what did then happen? In the press conference Draghi said that ECB doesn't see any need to reduce rates further. I was watching the press conference, and when I heard that sentence my first reaction was: "What did you just say? Super Mario... what the hell did you just do?! Why did you say that after you shot all your guns?! You've just admitted that now you are defenseless!".That moment I just couldn't believe what I heard. So, basically what Draghi did it's like he gave the cake (All measures taken in monetary policy) to the capricious child (the Market) for his good behavior in the future (for Eur selling), but didn't promise to him that if he act good in the future he will get another cake. You can't do that with a capricious child! If he ate a cake and didn't get a promise for another one in the future, so think, why he should act good, when you already gave him a cake. If I were a capricious child I would have done the same, because it's your problem not mine if you gave me something in advance. So, what my point is, that Draghi with only just few sentences negated all the effort he had done. IMO Draghi in the press conference should have held his usual rhetoric: "Whatever it takes... in the future ECB will act with everything it has... and so on". And the Eur would have fallen further. The best example of that is NZD, when last year after the rate cut in the press conference RBNZ said that in the meantime it stops cuting rates further. After several minutes NZD appreciated and that it has done till last week.

2) here IMO it is a very good new article about Central Banks miscommunication http://www.bloombergview.com/articles/2016-03-10/what-picnics-say-about-monetary-policy

3) I think the questions that should be asked now are:
a) does anything changes from investor's point of view?;
b) does anything changes from speculator's point of view? (I personally think, that real investors are people or institutions who invest money based on fundamentals, long term view and for their best entry use only monthly or weekly chart. People or institutions who trade on medium-short term, use Daily or intra-day charts are speculators).
My answers:
a) IMO opinion from investor's point of view nothing really changed, because fundamentals didn't change and because of exports ECB will never let EUR appreciate to the highs it was in 2014. Now after Super Mario mistake best what EUR can do is reach 1.22. After that I think there are no people in this world who think that Draghi would not change his rhetoric of negative rates. Once again a good example is what's happening with NZD (at last last week RBNZ cut rates);
b) from speculator's point of view it's a different story. Because for speculators this situation is a holy grail, cause until Draghi changes his mind, EUR/USD will not trend, I mean price action from monthly and weekly charts perspective will be in range from 1.05 till 1.22. Now in this field (range), guys, will be a knife-brawl, and, believe me, bloodshed will be everywhere, because technical analysis will be the main tool and driver for the price action. But, hey guys, for that we have the Mighty Sive on our side, so I think we will not only survive this knife-brawl but will also make some pips, too

So, sorry for this long post. This all is only my opinion, but I just wanted to say what was on my mind. Cheers!