Forex FOREX PRO WEEKLY, March 16 - 20 , 2020

Sive Morten

Special Consultant to the FPA
Messages
13,162
Fundamentals

So, guys, another tough week passed. Among brightest events we could name collapse on stock market, early action by BoE. In general fundamental background right now is common to any currency, and probably to any market as well. In technical part we take a look at GBP, because market stands at vital point that is changing long-term perspective on the market.

But this week brings something else. Now we could recognize first signs of big global affair that was trying to hide under disguise of virus epidemic. We mentioned previously that epidemic just a disguise. This sounds cynic, especially because people are ill and dying. Epidemic is absolutely real and awful event in our modern history, but this makes it even more terrible if it is really were launched to hide big economical changes. You'll see it later, in our report.

We warned in our recent report that BoE will cut the rate. Indeed the British pound erased early gains after an unexpected interest rate cut by the Bank of England on Wednesday, while the dollar resumed its descent against the safe-haven Japanese yen and Swiss franc on fears over the spreading coronavirus.

“Markets had priced in more than 25 basis points, but not the full extent of 50 basis points,” said Moh Siong Sim, currency strategist at the Bank of Singapore. “But it’s not a surprise in the sense that the market was kind of expecting the bank to team up with the U.K. government...it looks like that 50 basis point rate cut could signal that we could expect something quite substantial from the budget itself.”

The BoE’s move comes as a number of central banks and governments around the world stepped up efforts to shore up their economies from the economic impact of the coronavirus epidemic.

The recovery in safe-haven currencies mirrored falls in U.S. equity futures and U.S. bond yields in Asian trade on Wednesday, as the spread of the virus in major economies threatens to brake business activity and curb consumer spending.

The dollar jumped on Tuesday as investors hoped global monetary policymakers would launch further stimulus plans to reduce the drag on economies from trade and travel disruptions. But a lack of clarity on what Washington will do has kept many investors on guard. U.S. President Donald Trump said on Tuesday he will ask Congress for a payroll tax cut and other “very major” stimulus moves, but the details remain unclear.

“It is too early to say the market sentiment has turned positive. Yesterday’s rebound in the dollar and in risk assets is a type of a rebound you often see in a downtrend,” said Shinji Ishimaru, senior currency analyst at MUFG Bank. “In addition to economic measures, the focus will be on how much the U.S. can contain the infections to keep the economy going. That is a very big unknown,” he said.

he U.S. Centers for Disease Control and Prevention (CDC) reported on Tuesday 696 new cases of coronavirus, an increase of 224 from its previous count, and said the number of deaths had risen by six to 25.

Investors are also expecting the U.S. Federal Reserve to cut interest rates by at least 0.5 percentage point at its policy review next week, in addition to its emergency rate reduction earlier this month.It is not clear if such a move could boost investors’ risk tolerance after global equities tumbled following the Fed’s surprise rate cut just over a week ago, market players said. But that will surely diminish the dollar’s yield advantage over other major currencies, which has been a main driver of the dollar’s strength in the past few years.

The euro weakened on Thursday, as investors were unimpressed by the European Central Bank's stimulus measures to fight the economic fallout from the coronavirus outbreak. Investors instead flocked to safe-haven currencies such as the U.S. dollar and Japanese yen.

The ECB approved fresh stimulus measures on Thursday to help the euro zone economy cope with the growing cost of the coronavirus epidemic, but kept interest rates unchanged "The ECB has been grasping for straws," said Erik Bregar, head of FX strategy, at Exchange Bank of Canada, in Toronto. "Arguably they still don't know what to do. But they very much felt the pressure to at least do something because every other central bank is lowering interest rates or doing multi-policy fronts that
will help banks and businesses."

The fact that the ECB did not cut interest rates was a "minor surprise" for the market given that the money market curve had priced in a 10 basis-point easing. In mid-morning trading, the euro fell more than 1% to $1.1172 The dollar rebounded sharply after the ECB announcement, and was last up 1% against a basket of
currencies at 97.513

Analysts said the dollar had rallied as swap spreads on major currencies blew out and investors scrambled for the U.S. currency. "It's all about dollar liquidity, the cross-curency basis swap has blown out. I would assume it's banks/corporates driven. We are moving to the next phase of the selloff," said Kenneth Broux, a strategist at Societe Generale.

The dollar had earlier struggled after U.S. President Donald Trump banned travel from Europe to stem the coronavirus. With the latest ban posing a fresh disruption to the global economy, traders were also disappointed by the lack of broad measures in Trump's plan to fight the pathogen, prompting traders to bet on further aggressive easing by the Federal Reserve.

Money markets are now expecting another 100 bps of easing from the Fed by next week taking the benchmark policy interest rates to zero after a hefty half point rate cut last week.

Risk aversion was the dominant theme in currency markets on Thursday as Asian, European, and U.S. stock markets were a sea of red, forcing traders to stampede out of currencies heavily geared to the global economy such as the Norwegian crown and the Australian dollar.

President Donald Trump declared a U.S. national emergency over the quickly spreading coronavirus on Friday, opening the door to more government aid to combat a pathogen that has infected more than 138,000 people worldwide and left over 5,000 dead.

“To unleash the full power of the federal government to this effort today, I am officially declaring a national emergency - two very big words,” Trump said in remarks at the White House Rose Garden, adding that the U.S. situation could worsen and “the next eight weeks are critical.”

Trump, whose action makes available $50 billion in federal aid to states and localities, had faced criticism from some experts for being slow and ineffective in his response to the crisis and playing down the threat.

The European Union proposed a 37 billion euro ($41 billion)investment initiative as part of a package to cushion the bloc’s economies from the coronavirus impact.

CFTC Data


Speculators’ net long U.S. dollar positioning in the latest week fell to its lowest level since July 2017, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday. The value of the net long dollar position was $2.22 billion in the week ended March 10, down sharply from $17.28 billion the previous week.

We do not have big changes in GBP net position - it still stands long around 25K contracts, but situation could change soon. This week we have big change of EUR position - net short position strongly decreased and now it stands around zero point. Massive drop of short positions was accompanied by rising of open interest. This reminds unwind of carry positions that we've mentioned last week. Open interest increased for 19K contracts:
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Fathom this week shows two reports on virus subject. One of them is worthy of our special attention as it has relation to the global process that we suspect.

Global response to COVID-19 starts to take shape

Last week’s post discussed the Federal Reserve’s response to the COVID-19 outbreak and considered its possible path forward. Since then, we have seen a monetary response elsewhere. Fellow G7 central banks in Canada and the UK followed the US lead and cut by 50 basis points. The Bank of England also announced cheap funding to encourage bank lending, as well as a reduction in the cyclical component of banks’ capital requirement ratio. As mentioned last week, there remains some uncertainty about the correct way for monetary authorities to respond to the fallout from COVID-19 given that it is likely to negatively affect both demand and supply. However, for the moment, policymakers appear to believe that the former will dominate.

1584188621833.png


The new UK chancellor, Rishi Sunak, delivered the government’s Budget this week, perhaps shedding light on possible fiscal responses to come in other affected economies. Mr Sunak announced a £12 billion spending plan to respond to what the World Health Organization now deems to be a global pandemic. The funds will provide support to affected businesses and ensure that all employees forced into self-isolation will receive sick pay over that period. The chancellor announced additional spending measures worth £18 billion in order to boost economic activity against a backdrop of record low interest rates. The combined monetary and fiscal response together will loosen the UK’s policy stance significantly, perhaps boosting economic growth by 1% this year. It would not be a surprise to see other affected countries follow suit.

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At the time of writing, the US had earmarked $8 billion to respond the crisis (now it is 50Bln announced as we've mentioned above). The UK’s £12 billion in direct COVID-19-related funding would be equivalent to almost $120 billion once you factor in the relative size of each economy. Ireland, meanwhile, has announced a €3 billion package to respond to COVID-19. Adjusted for the size of its economy, that package would be equivalent to almost $200 billion in the US. That is just for direct measures related to COVID-19 — a broader counter-cyclical fiscal stimulus could be bigger still. The Dow Jones Industrial Average entered bear market territory this week, dropping 20% from recent highs in volatile trading subject to extreme uncertainty. Any sustained rebound may depend on a forceful response coordination across government. It is unclear exactly how much the US economy will need. But international experience so far suggests that it will be significantly more than the $8 billion that has been penciled in so far.



So guys - is it only to me seems that we stand at the edge of big robbery of the century? Or better to say we're already in there. We already talk on virus and its real hazard to the world previously. With all respect and seriousness to situation the scale of pandemic rises a lot of questions to disproportional impact on global economy.
Here is China statistics on workers and people transfers in underground. China starts to close special hospitals as virus peak is passed.
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At the same time, what do we see - two side attack on real assets value. Stock market drops 50% and central banks starts injection of liquidity under the cover of virus fighting:

With markets buckling under the toxic combo of COVID-19 and an oil price war, central banks are centre stage — from the Fed Reserve to the Bank of Japan, they are all pump-priming, boosting liquidity and cutting interest rates.

In emerging markets, currency losses have forced central banks such as Chile, Brazil and Indonesia to intervene with dollar sales. In coming days we hear from central banks in South Africa, Turkey and Indonesia, countries whose domestic situations are only being exacerbated by the glum backdrop.

Russia, so far considered one of the better placed emerging economies due to its solid central banking credentials, has suddenly found itself grappling with a $30-per-barrel fall in oil prices. It’s central bank meets on Friday.

Guys, I do not want to look paranoiac, but we see two major trends. First trend on making cheaper all real assets - stocks, commodities in particular. Second - devaluing of currencies globally. The compound effect is outstanding - real assets becomes cheaper simultaneously with cheaper currencies. This is hidden hyperinflation, because it is impossible to identify it, when it happens globally. You just can't compare one currency to another, because this is coordinated process. We see just fist steps of cash printing, this is just a beginning. The more to come. And all this stuff is to close the national debt, that couldn't be paid out in no way, if we wouldn't get global force-major situation. Buy real assets, guys - all property that relates to commodities of any kind - oil, gas, metals, stocks of commodity companies etc., ignore financials. This is the reason why all central banks were buying gold and prepared to this situation. It is a big probability that money will cost nothing soon. As we call it - this is the robbery of the century, or even millennium. You'll see how fast the repairing will be. While common people still shocked by virus and too busy with own deeds - big capitals will buy out all real assets in a blink of an eye at junk price. Because real value of money after epidemic will fall in few times. Now it sounds impossible, but ultimately, I will not be surprised, if there will be temporal refuse of national currencies, return to gold standard or, say, issues of SDR - kind global money, until stabilization is over. I'm also interested in what do you think about this stuff. Currently I just can't treat virus as a separate problem without relation to big fundamental shifts in global economy and politics. By my opinion - they relate to each other. And the most awful thing is that the virus is tragedy for common people, thousands of families across the Globe, but lucrative business for the "special minority". This is the primary tragedy of modern world: the life - most priceless thing, costs nothing.


Technicals
Monthly


Now guys, let's take a look at technical analysis, as we've agreed - of GBP. Although it is difficult to apply technical tools now. They have limited applicability. But we hope that at least long-term charts reflect overall situation correctly. On a background of BoE rate cut - GBP has dropped and long-term picture is changing as well.

In current situation it makes sense to recall long-term bearish targets here. Major OP stands around 0.95, below the parity. But on the way down butterfly pattern could be formed and it has two extensions. First one is 1.1335, second - 1.05. Monthly oversold area stands relatively close, thus, it is logical to focus first on nearest target.

gbp_m_16_03_20.png


Weekly

On weekly chart we have to recall the pattern that we were watching - reverse H&S pattern. Now we have obvious signs of failure. As we know, when H&S fails price drops below the head. Using extensions tool we have next target at XOP right around the head's lows - 1.19 area. As GBP is strongly oversold on weekly chart, downside action should not be straight forward, but we do not bet on this, as in current situation everything is possible.

Still, technical picture shows downside direction, but suggests that we should watch for pullback to consider possible short entry.

gbp_w_16_03_20.png


Daily

Here market hits XOP, but it seems that it has stopped mostly due weekly and daily oversold rather than by XOP target. No significant Fib levels below the market. In current situation upside pullback hardly will be significant, so it makes sense to focus on nearest 1.2615 level, but even nearest level is 400 pips distance. Thus, probably we could watch for different scenarios on intraday charts as well:
gbp_d_16_03_20.png


Intraday

Here we have strong bearish momentum and two levels to consider. 1.2615 here is also K-resistance, at it is accompanied to 1.27 5/8 level as well. But we also are interested with 1.2482-1.2530 as market could show just minor upside pullback.

gbp_4h_16_03_20.png


Conclusion:

Big politics and economical affairs involved in Global turmoil guys. Big events stand under way, but unfortunately they are not in medicine sphere. We dare to suggest that under the cover of epidemic the global forces change the shape of financial system. The history will show whether we're right or wrong.
Meantime, GBP shows bearish tendency and we will try to join.
 

FreddyFX

Sergeant
Messages
362
Master Sive.

Read your explanation twice, to understand it the best.

As an electrical engineer by profession, and since 2007 being a professional trader, I have come to understand that fear is a powerful weapen and by inflicting it into communities, the Big Boys can mover everything thaty want to where they need it the most.

Personally I have learned to stay calm and keep a cool head. As you know I am one of your followers from your very start here and have been taken ONE lesson from it all the time. Having money in the bank has no value, so I have very little, lol, but have the ACs to keep my place cool, have the solar panels to supply electricity,,,,,,,and as I am now 70, no need for much.

It will ALWAYS be the poor people that will suffer with these kind of fear situations, as they often do not have any insight or knowledge about what is really happening and will go under, sad, but true.

Living in Mexico I see that happen so many times. When there is an earthquake, a hurricane, a flood, it are always the poor that loose.

Personally I give very little value to news that we see on TV channels like Fox and CNN.
How forr heaven sakes can they mention an exact dead toll every day when a country like the USA does not even know how many illegals there are within their borders ????

My advise, stay calm, be smart and follow your daily routine. ......... and as for trading, charts do net get sck, they reflect what is happening and trade what they tell you to trade.

I wish EVERYBODY good health and strength in these times !!!!!
 

IanN

Private, 1st Class
Messages
31
Sive thats amazing insight. I must say it is shockingly plausible what you write and fits sooooo well with all I have learned about our Geopolitical System in the past years that I trade!!

I remember you were the first I ever saw mention "Helicopter Money" in 2014 when you predicted the rise of Gold because of this and other reasons!! Gold was at 1050 then and it bounced on a double REPO and I was following you during that trade without so much knowledge yet myself.

If you are right this time again (and I think you are) then its very scary what comes for us isn't it?

A few questions please.

Would you say it is a good idea to move a large amount of Cash savings to Gold right now? Would it make sense to you that Gold price could be 5 or hell maybe 15 times times higher then today in only a few years? And will the DOW level we talk about then also be like 90000pts or 130000pts compared to 20000pts today? Do I understand this vaguely correct? Of course Cash like Dollar or Euro will have lost much worth then and wages might be higher in number than today but still not the same "real value"?
 

RahmanSL

Major
Messages
2,536
Sive my friend & mentor... still digesting your post/thoughts with what's going on inside my head and, one thing we can readily agree on, is that the financial market is going through a transition period which will be easy money for the very wealthy and difficult times for those in the lower rungs.
Perhaps I should consider go back to the fish aquaculture industry because, even in the worst of times, humans still need to eat :D

Cheers my friend and all the very best.
 

Sive Morten

Special Consultant to the FPA
Messages
13,162
Would you say it is a good idea to move a large amount of Cash savings to Gold right now? Would it make sense to you that Gold price could be 5 or hell maybe 15 times times higher then today in only a few years? And will the DOW level we talk about then also be like 90000pts or 130000pts compared to 20000pts today? Do I understand this vaguely correct? Of course Cash like Dollar or Euro will have lost much worth then and wages might be higher in number than today but still not the same "real value"?
Hi mate,
Well as you correctly said - it is extremely difficult to know it definitely. Statistics tells that since Great Depression all crisis has laid to 35-60% drop of stock market. We've passed 35-50% (in different countries). But now this is not just about the drop of stock market. In previous cases - money and financial system was the same, it has not changed. Now we have absolutely new precedent, baseline of different kind.

What I would like to say is - Dow could be at some reasonable levels, but the value of money will change... The same is about the gold - physical gold is distributed by long-term orders, while futures market could be controlled artificially, by holding big amount of shorts. If you can print money you could drive markets and control prices of any commodity.

I'm not sure that I could definitely forecast levels of gold and stock market. All that we could do here is to beat them by their own weapon. Do not panic and sell everything, but use this drop to buy. And we have to buy fundamental things - commodities, physical gold, commodities stocks, pharma companies etc. No banks, no bonds, no virtual assets - only real assets that is the core of the Earth and the whole live upon it.

And it is not short-term. I wouldn't say that gold jumps 2 times in nearest year. It could be long-term. We talk here about saving of the assets mostly.
 

Vokin

Recruit
Messages
9
As always, the perfect view. On the other hand, all this (only in a slightly different form) has been here many times in human history. Typhoid epidemic, cholera, hyperinflation, disintegration of empires, wars. Because the life of mankind takes place in cycles, it is sufficient to look into the past, to find out at what stage we are and what followed at that time (this is still awaiting us now).
The behavior of mankind as a species has not changed in nature, nor will it change in the future.

I'm glad I'm old. I'm glad I lived a life without war. I'm glad I met Mr. Morten at least here on the web, because meeting a clever and fearless person today is rare.
I wish you all health.
 

onenikos

Corporal
Messages
86
Dear Sive
As I have told you I am now retired and do not trade any more, but I still follow you. (I have started trading back when there were no platforms). Therefore I have seen a lot to gain the experience to recognize an organized move. You have accurately identified what is happening. This is a game for the big sharks and this time they are playing it super big. Securing real assets is the thing now, the more physical the better. So, to through in my 2 cents as FX is concerned, I would watch indexes and position statistics and start going into contrarian thinking. Your analysis is excellent and the forecasts do materialize, even as a reaction before failing. It is at these reaction points that one can look for profits with careful management including taking opposite positions if possible. In any case though keep regular withdraws from your account leaving the bear minimum to cover your strategy and exposure.
 

Georget@

Private
Messages
15
I remember when Sive noticed that Germany started the program to repatriate gold. I think it was back in 2014. The program was to be completed in ... 2020. I am sure it is just a coincidence.
I want to thank Sive once again for the good advice he gave along these years. Thank you and God bless you!
About the epidemic, I remember an interview of Mr. Soros from some time ago. He clearly said that he feels no responsibility what so ever for the social effects of his actions and the states should care for that. I think he is not the only one of his kind.
Now, in Romania it was declared state of emergency, like in many other EU countries. I do not understand why (we had about 100 cases, no deaths. On the other hand, we had 53 deaths from the local flu this year). I fear that some form of expropriation will follow.
I am watching an energy fund with EU companies stocks and I am looking to buy. It is now at 25% discount.
Best wishes for all of us!
 
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