Sive Morten
Special Consultant to the FPA
- Messages
- 18,635
Fundamentals
This week guys, everything was turning around Brexit and multiple Parliament voting on whether to exit without a deal or not and is it make any sense to postpone it.
As Reuters reports - the dollar fell broadly on Friday and was set for its biggest weekly drop in more than three months, dragged lower by weak U.S. economic data, while sterling was slightly below its highest level since June 2018, hit Wednesday after Britain’s parliament rejected a “no-deal” exit from the European Union.
U.S. manufacturing output fell for a second straight month in February and factory activity in New York state was weaker than expected this month, offering further evidence of a sharp slowdown in economic growth early in the first quarter.
Friday’s reports extended the streak of weak economic data and underscored the Federal Reserve’s “patient” stance toward further interest rate increases this year. Fed officials are scheduled to meet next Tuesday and Wednesday to assess the economy and deliberate on the future course of monetary policy. The U.S. central bank raised rates four times last year.
“Data today on factory growth and the Empire State index also underwhelmed. Consequently, the Fed next week is likely to keep in wait-and-see mode on interest rates, a cautious stance that’s checked the dollar’s rise,” said Joe Manimbo, senior market analyst at Western Union Business Solutions.
While no change in rates is expected next week after the Fed paused a multi-year rate-hiking cycle in January, officials might strike a more cautious view on the outlook for the global economy after a volatile week in currency markets.
The pound paused for breath but stayed on course for its biggest weekly gain in seven weeks on growing expectations that Britain will not crash out of the EU without a deal on March 29.
The UK parliament voted to seek a delay in Britain’s exit from the EU, following a decision to avert a no-deal Brexit.
“The market has some reassurance that the chances of a no-deal Brexit are very low, which is the reason why the currency market has taken this news as a positive. These votes have removed the worst-case scenario,” said Ugo Lancioni, head of global currency at Neuberger Berman in London.
Have you thought guys, why it is a lot of fuss around EU-UK agreement and why this agreement is so important. What's the problem with Brexit without a deal and what other climbdown UK wants from Brussels?
At first glance it seems that no problems. Would you like to exit - please, do it. New borders are agreed, what other concerns do we have? Why T. May goes to EU almost every day.
The answer is simple - money. As EU as UK do not worry about borders, custody fees etc. This is mostly technical problems and could be regulated in one or other way by special entities of both sides. But money... EU needs to get big contribution for UK exit. Sum is not estimated precisely but it stands around 50-70 Bln EUR plus UK share of total EU debt which also will be around 30 Bln of 270 Bln. Of course this contributions will be spread for decades, but this is significant sum. Hard Brexit suggests no contributions from UK to EU budget.
It seems that T. May has worked on decreasing of this sum with Brussels and partially it was done. But, as Junker has said - no more climbdown.
Why this topic is important for EU as well. I suspect that EU stands under hazard of big restructure. Big and core countries are not satisfied with poor migrant policy and large support to junior members - Eastern nad Baltic countries, Greece etc. Now all eyes stand on the way how UK will exit. Just imagine what will happen if it leaves free of charge. This fact tells that everybody could leave EU for free and pay nothing.
This subject is not far-fetched. Here is last Fathom consulting report on this subject. Although probabilities of exit are low but everything could change depending on Brexit results:
Fathom uses CDS spreads and zero-coupon bond yields to calculate the market-implied likelihood of member states abandoning the euro and returning to their own national currencies. The calculations reveal that investors’ perceptions of such a risk were little changed in February and that they continue to see this as an unlikely outcome. Italy continues to be seen as the country most at risk, but its market-implied probability still remains close to 10%. Concerns over Grexit ― once deemed a near-certainty by investors ― have also abated in recent years, with Fathom’s indicator for Greece dropping to 2% in February. A similar message is reflected in gauges of public opinion ― last November’s Eurobarometer survey revealed strong support for the euro, with 67% of Greeks and 63% of Italians polled indicating that they remain in favour of the single currency.
I will not be surprised if Core EU, "elder 14" members could launch process of reforming to narrow "circle of trust". And this will put under question countries that either bollix to policy of major countries, especially Germany or, do not match to conditions of EU membership - national debt, inflation, EU contributions etc.
So, IMO under cover of discussion of "important political and economical" issues, in reality we have trite mercantilism and nothing more.
There are some UK domestic factors exist also. For example, I suspect that Parliament doesn't care much on what T. May has achieved, they just lust her retirement. But this subject doesn't have any relation to our major discussion.
Thus, as Brexit could be major precedent of EU leaving process, it will not end fast and simple. UK stands here subdued as it cares burden of national voting results on Brexit and it has to exit, while EU has more advantages and freedom in this process. No doubts Brussels will twist arms to UK and suck it as dry as possible.
Technicals
Monthly
This week we do not see any big action. Market shows response to major 5/8 Fib support.
Thus, our analysis here still stands the same. We mostly wait for clarity - either downside breakout and start action to 1.08 and later to 1.03 or ability of the EUR to hold above 1.12 and turning up. Market stands at support area around major 5/8 Fib level. In case of upside action, YPP will be important target , because, as a rule, market tends to touch YPP through the year. But after recent events chances on rally stand phantom.
As Fathom consulting expects first rate change by Fed in June, but market is not ready for this step (as wee see from Fed watch tool by CME) - this is the first moment when EUR could show big action. By our view this should happen somewhere in summer.
As we said this many times previously - indirect technical factors point on market's weakness, at least in long-term perspectives, as EUR can't jump out from strong support within more than 5-6 months and just lays upon it. Trend stands bearish here.
Monthly situation shortly could be described as indecision with light gravitation to the downside. In fact, long standing around Yearly Pivot last year confirms things that we've discussed above. MACD trend stands bearish here.
Thus we keep valid our downside COP target around 1.03 by far.
Just by using of common sense, guys, in nowadays it is difficult to expect something positive as in global economy as in politics. Hence, any bad new triggers demand for safe haven assets and US dollar. Just by this simple logic odds stand in favor of downside trend rather than sharp upside reversal.
So, although on technical picture we see just light and indirect signs of EUR weakness, political background stands negative. This is the major reason why I do not believe in resurrection of bull trend on EUR in this year.
Weekly
Last week we said that it is most difficult chart for understanding, because here we could find as bullish as bearish signs. Fallen wedge and strong support works for bulls, while long-term standing on support line and fundamental background add points to the bears.
We do not have a lot of new inputs this week as well. In fact recent week was inside one, but if you're sharp-eyed enough, you'll see that price action repeats. Here we have the one that I call as "2 bar grabber". It happens when market changes trend by first close and turns back at second one. The same action we had at the end of 2018 and it triggered upside continuation. It means that next week could happen something similar. Although overall price action on weekly chart has no momentum and mostly sideways, on daily chart upside action could last for some time.
Daily
Here, on daily situation mostly stands the same and we also have Friday inside session. Thus, what we've said on Friday daily video is still valid. As market has shown strength and broken intraday strong resistance levels, it could move up more.
Although we see reaction on daily K-resistance area, but it is too small to talk on reversal and mostly reminds consolidation under strong level and possible attempt of breakout.
Harmonic swing target also is not completed yet. Trend stands bullish here. That's being said what we've talked earlier, we should repeat now - although major bearish tendency is still valid, market shows strength and we should not take any short positions until we get clear bearish patterns at strong levels. Until we get it, we treat current context as bullish.
Intraday
Here is what we will watch in the beginning of the week. Market has to complete major XOP target here and finalize upside action by butterfly pattern. XOP target also coincides with daily harmonic swing destination.
As both targets stand relatively close to K-resistance area we expect some downside reaction as soon as targets will be hit. May be it will not lead to major reversal, but moderate retracement has good chances to happen:
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.
This week guys, everything was turning around Brexit and multiple Parliament voting on whether to exit without a deal or not and is it make any sense to postpone it.
As Reuters reports - the dollar fell broadly on Friday and was set for its biggest weekly drop in more than three months, dragged lower by weak U.S. economic data, while sterling was slightly below its highest level since June 2018, hit Wednesday after Britain’s parliament rejected a “no-deal” exit from the European Union.
U.S. manufacturing output fell for a second straight month in February and factory activity in New York state was weaker than expected this month, offering further evidence of a sharp slowdown in economic growth early in the first quarter.
Friday’s reports extended the streak of weak economic data and underscored the Federal Reserve’s “patient” stance toward further interest rate increases this year. Fed officials are scheduled to meet next Tuesday and Wednesday to assess the economy and deliberate on the future course of monetary policy. The U.S. central bank raised rates four times last year.
“Data today on factory growth and the Empire State index also underwhelmed. Consequently, the Fed next week is likely to keep in wait-and-see mode on interest rates, a cautious stance that’s checked the dollar’s rise,” said Joe Manimbo, senior market analyst at Western Union Business Solutions.
While no change in rates is expected next week after the Fed paused a multi-year rate-hiking cycle in January, officials might strike a more cautious view on the outlook for the global economy after a volatile week in currency markets.
The pound paused for breath but stayed on course for its biggest weekly gain in seven weeks on growing expectations that Britain will not crash out of the EU without a deal on March 29.
The UK parliament voted to seek a delay in Britain’s exit from the EU, following a decision to avert a no-deal Brexit.
“The market has some reassurance that the chances of a no-deal Brexit are very low, which is the reason why the currency market has taken this news as a positive. These votes have removed the worst-case scenario,” said Ugo Lancioni, head of global currency at Neuberger Berman in London.
Have you thought guys, why it is a lot of fuss around EU-UK agreement and why this agreement is so important. What's the problem with Brexit without a deal and what other climbdown UK wants from Brussels?
At first glance it seems that no problems. Would you like to exit - please, do it. New borders are agreed, what other concerns do we have? Why T. May goes to EU almost every day.
The answer is simple - money. As EU as UK do not worry about borders, custody fees etc. This is mostly technical problems and could be regulated in one or other way by special entities of both sides. But money... EU needs to get big contribution for UK exit. Sum is not estimated precisely but it stands around 50-70 Bln EUR plus UK share of total EU debt which also will be around 30 Bln of 270 Bln. Of course this contributions will be spread for decades, but this is significant sum. Hard Brexit suggests no contributions from UK to EU budget.
It seems that T. May has worked on decreasing of this sum with Brussels and partially it was done. But, as Junker has said - no more climbdown.
Why this topic is important for EU as well. I suspect that EU stands under hazard of big restructure. Big and core countries are not satisfied with poor migrant policy and large support to junior members - Eastern nad Baltic countries, Greece etc. Now all eyes stand on the way how UK will exit. Just imagine what will happen if it leaves free of charge. This fact tells that everybody could leave EU for free and pay nothing.
This subject is not far-fetched. Here is last Fathom consulting report on this subject. Although probabilities of exit are low but everything could change depending on Brexit results:
Fathom uses CDS spreads and zero-coupon bond yields to calculate the market-implied likelihood of member states abandoning the euro and returning to their own national currencies. The calculations reveal that investors’ perceptions of such a risk were little changed in February and that they continue to see this as an unlikely outcome. Italy continues to be seen as the country most at risk, but its market-implied probability still remains close to 10%. Concerns over Grexit ― once deemed a near-certainty by investors ― have also abated in recent years, with Fathom’s indicator for Greece dropping to 2% in February. A similar message is reflected in gauges of public opinion ― last November’s Eurobarometer survey revealed strong support for the euro, with 67% of Greeks and 63% of Italians polled indicating that they remain in favour of the single currency.
I will not be surprised if Core EU, "elder 14" members could launch process of reforming to narrow "circle of trust". And this will put under question countries that either bollix to policy of major countries, especially Germany or, do not match to conditions of EU membership - national debt, inflation, EU contributions etc.
So, IMO under cover of discussion of "important political and economical" issues, in reality we have trite mercantilism and nothing more.
There are some UK domestic factors exist also. For example, I suspect that Parliament doesn't care much on what T. May has achieved, they just lust her retirement. But this subject doesn't have any relation to our major discussion.
Thus, as Brexit could be major precedent of EU leaving process, it will not end fast and simple. UK stands here subdued as it cares burden of national voting results on Brexit and it has to exit, while EU has more advantages and freedom in this process. No doubts Brussels will twist arms to UK and suck it as dry as possible.
Technicals
Monthly
This week we do not see any big action. Market shows response to major 5/8 Fib support.
Thus, our analysis here still stands the same. We mostly wait for clarity - either downside breakout and start action to 1.08 and later to 1.03 or ability of the EUR to hold above 1.12 and turning up. Market stands at support area around major 5/8 Fib level. In case of upside action, YPP will be important target , because, as a rule, market tends to touch YPP through the year. But after recent events chances on rally stand phantom.
As Fathom consulting expects first rate change by Fed in June, but market is not ready for this step (as wee see from Fed watch tool by CME) - this is the first moment when EUR could show big action. By our view this should happen somewhere in summer.
As we said this many times previously - indirect technical factors point on market's weakness, at least in long-term perspectives, as EUR can't jump out from strong support within more than 5-6 months and just lays upon it. Trend stands bearish here.
Monthly situation shortly could be described as indecision with light gravitation to the downside. In fact, long standing around Yearly Pivot last year confirms things that we've discussed above. MACD trend stands bearish here.
Thus we keep valid our downside COP target around 1.03 by far.
Just by using of common sense, guys, in nowadays it is difficult to expect something positive as in global economy as in politics. Hence, any bad new triggers demand for safe haven assets and US dollar. Just by this simple logic odds stand in favor of downside trend rather than sharp upside reversal.
So, although on technical picture we see just light and indirect signs of EUR weakness, political background stands negative. This is the major reason why I do not believe in resurrection of bull trend on EUR in this year.
Weekly
Last week we said that it is most difficult chart for understanding, because here we could find as bullish as bearish signs. Fallen wedge and strong support works for bulls, while long-term standing on support line and fundamental background add points to the bears.
We do not have a lot of new inputs this week as well. In fact recent week was inside one, but if you're sharp-eyed enough, you'll see that price action repeats. Here we have the one that I call as "2 bar grabber". It happens when market changes trend by first close and turns back at second one. The same action we had at the end of 2018 and it triggered upside continuation. It means that next week could happen something similar. Although overall price action on weekly chart has no momentum and mostly sideways, on daily chart upside action could last for some time.
Daily
Here, on daily situation mostly stands the same and we also have Friday inside session. Thus, what we've said on Friday daily video is still valid. As market has shown strength and broken intraday strong resistance levels, it could move up more.
Although we see reaction on daily K-resistance area, but it is too small to talk on reversal and mostly reminds consolidation under strong level and possible attempt of breakout.
Harmonic swing target also is not completed yet. Trend stands bullish here. That's being said what we've talked earlier, we should repeat now - although major bearish tendency is still valid, market shows strength and we should not take any short positions until we get clear bearish patterns at strong levels. Until we get it, we treat current context as bullish.
Intraday
Here is what we will watch in the beginning of the week. Market has to complete major XOP target here and finalize upside action by butterfly pattern. XOP target also coincides with daily harmonic swing destination.
As both targets stand relatively close to K-resistance area we expect some downside reaction as soon as targets will be hit. May be it will not lead to major reversal, but moderate retracement has good chances to happen:
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.
