Forex FOREX PRO WEEKLY, March 23 - 27, 2020

Sive Morten

Special Consultant to the FPA
Messages
13,162
Fundamentals

Well, now it is time where we have a lot of information about virus and just few on economy. As Fathom correctly tells - "The number of cases measures how the virus is spreading. The number of media articles measures how the fear of the virus is spreading. Both of these matter for the depth and severity of the recession." Now we have ~150 articles per day on every infected person (50Mln vs approx 300K cases across the Globe):
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The U.S. dollar surged on Tuesday as companies and investors sought out the most liquid currency on concerns about economic shutdowns from the global spread of the coronavirus.

The Federal Reserve on Sunday slashed rates to zero and launched a new bond purchase programme. Other central banks have taken similar measures but the moves have so far failed to stem liquidity strains and market panic. Central banks have also cut pricing on their swap lines to make it easier to provide dollars to financial institutions around the world.

The Bank of Japan on Tuesday made its biggest injection of dollar funds since 2008 and South Korea also pledged to act soon. But funding markets show continued stress in sourcing the greenback.

“Stress here is helping lift the USD,” said Shaun Osborne, chief FX strategist at Scotiabank in Toronto.

Three-month euro/dollar cross-currency basis swap spreads rose as high as 120 basis points - its widest since late 2011 - before falling back to 39 basis points.

The U.S. Federal Reserve said on Tuesday it would reinstate a funding facility used during the 2008 financial crisis to get credit directly to businesses and households.Investors are also looking for governments to launch new fiscal stimulus to help offset an economic downturn. U.S. President Donald Trump announced a plan on Tuesday to send money to Americans immediately to ease the economic shock from the coronavirus crisis.

Data on Tuesday showed that U.S. retail sales unexpectedly fell in February, with households cutting back on purchases of a range of products, and the coronavirus outbreak is expected to depress sales in the months ahead.

The Reserve Bank of Australia has reiterated it stands ready to ease policy further in the face of the unprecedented spread of the coronavirus, adding to speculation about aggressive stimulus measures this week.

In response to the COVID-19 pandemic, the Federal Reserve cut its benchmark interest rate by 100 basis points on Sunday. For the first time in history, all G7 central banks are now lending at rates below 1%. As countries in Europe and cities in the US go into lockdown, the pandemic is expected to result in an acute disruption to economic activity. Looser monetary policy will not address the fall in consumption, but will help banks lend to businesses that need short-term funding to get through a period of lower demand. The speed of recovery in the medium term will depend almost entirely on the effectiveness of government measures to stop the spread of the virus.
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The euro rose on Thursday against the dollar and the pound after the European Central Bank announced a 750 billion euro asset-purchase programme in response to the coronavirus outbreak. The ECB said the new programme, which targets public- and private-sector assets, will be conducted until the end of 2020. The ECB’s announcement is the latest in a series of steps by major central banks this week to offset the impact the coronavirus outbreak is having on the global economy and financial markets. The ECB’s purchase scheme, which was announced at an emergency meeting late on Wednesday, came less than a week after policymakers launched fresh stimulus measures. The new asset-purchase programme will also include debt from Greece, which has so far been shut out of ECB bond purchases due to its low credit rating, the ECB said.


The dollar was headed for its biggest weekly gain since the 2008 crisis on Friday, as the coronavirus pandemic drives a dash for cash that is stretching the world’s financial plumbing. Even the U.S. Federal Reserve’s extension of discount dollar funding - already available to six of the world’s biggest central banks - to nine more overnight showed only the most tentative signs of satisfying demand for greenbacks.

“World markets are still very, very nervous,” said Westpac FX analyst Imre Speizer. “People are scrambling for (cash) any way they can,” he said.

The coronavirus pandemic and the draconian quarantine measures to slow its spread have ground global commerce nearly to a halt, driving a huge real demand for borrowed dollars so that idled businesses can cover costs.

At the same time, currency traders want dollar positions and investors need cash to cover losses in the stock market, and are liquidating everything from gold to bonds to get the dollars. The scramble has already prompted the U.S. Federal Reserve to allow 15 central banks around the globe to borrow dollars cheaply against their domestic currencies. Yet stress, which is evident in cross-currency basis swaps, remains evident in the cost of borrowing dollars abroad and in the week’s 4% decline in the gold price. The premium over interbank rates that investors were paying to swap yen for one-year dollar funding was around 72 basis points, still close to the 2016 highs hit last week.

“Foreign borrowers with $12 trillion of dollar-denominated debt worldwide are hoarding as many dollars as they can in order to be able to service their debts,” said Mathieu Savary, Strategist at BCA Research. (At) some point, there will be enough dollar supply to calm the markets. Gold prices are an indication that we are not there yet.”

One issue is that piecemeal central bank interventions are often doomed to fail as individual economies usually lack the firepower to influence currency markets for any length of time But shock-and-awe moves such as the coordinated Group of Seven moves to weaken the yen, seen after the 9/11 terror attacks or the 2011 Japan tsunami, have worked.

Alternatively the United States could act alone, some say, noting that dollar strength was highly unwelcome at a time when the U.S. economy is headed for recession. The last time the Fed went out on its own was in the early 1990s under George H.W. Bush to stem a soaring dollar.

“The U.S. has brought in almost all its instruments, the one that hasn’t been done is intervention - the stronger the dollar gets the more likely the U.S. government will consider intervening,” said Thomas Flury, head of FX strategies at UBS Global Wealth Management’s Chief Investment Office.

“Typical during past crises, FX interventions helped calm not only FX markets but also equities and brought credit spreads down and that is something they will be keen to do.”

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Dollar strength will dismay not only those in the Trump administration, but others around the world because when the dollar rises, it tends to ‘tighten’ conditions through channels such as higher import prices or by forcing interest rate hikes to shield currencies.

That in turn risks triggering a full-blown emerging markets crisis, the pattern seen many times in the 20th century.

Its power is down to the outsize role it plays in keeping the world’s financial systems ticking over, accounting for 40% of global trade flows, 50% of cross-border lending and 65-85% of the world’s risk-free assets, according to Goldman Sachs.

“Dollar strength is unwelcome for the U.S. as it tightens financial conditions but for the rest of world it tightens financial conditions even more because many countries are highly dollarised or they have dollar debt,” said Claire Dissaux, head of global economics & strategy at Millennium Global Investments.

She doubts so far the pain from the dollar is big enough for Washington to ponder intervention — alone or with G7 peers — and says containing the raging selloff in equity markets will be the greater focus.

Plus there are the logistics of coordinating such a move with other central banks, many of which will not be keen to see their own currencies strengthening even as world growth nosedives.

Without “credible commitment from a group of central banks it won’t work,” said Dissaux who believes the best option is more swap lines of the sort the Fed announced on Thursday

But it is not just the dollar rise that is hurting, but also the brutal volatility. Implied volatility, or expected price swings for some of the world’s biggest currencies have rocketed to multi-year highs — one-month Norwegian crown vol is over 30%, triple end-February levels. The euro, pound and all emerging market currencies paint a similar picture.

“The vols are unbelievable. Intervention would quickly kick that lower,” Flury of UBS Wealth said, calling it “the fear factor”.

On Friday six major central banks announced coordinated action to enhance liquidity in the greenback by increasing the frequency of their currency swap operations to occur daily

CFTC Data


This week we see that carry unwind process is near the end, at least in EUR. EUR short positions almost are closed as net position has turned positive
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Source: cftc.gov
Charting by Investing.com


Data shows that open interest has dropped dramatically, for 70+ K contracts. Half of shorts have been closed by speculators. As rates of all Central Banks stand approximately at the same level below 1% - there is no interest in any carry trading and investing in cross-borders assets.

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Here is at least some view on economy problems from Fathom consulting, that seems interesting in nowadays:

Details: policy stimulus

Monetary policy has been loosened sharply in the US and UK (both policy rates and QE), with no material response as yet from the ECB. It is not clear that lower rates can help support growth in the very short term in this particular crisis, though these measures might help minimise second-round effects.

A number of finance ministries have taken what, on the face of it, is aggressive policy action. But in our judgement, much more will be needed. First off the mark, France announced a €345 billion package, split into €300 billion of loan guarantees and €45 billion of cash. The UK has subsequently announced something of almost identical size. In each country, even the loan guarantees are sufficient to over only around seven weeks of economic activity; the cash sums a few days. Even if none of the loans are repaid, this would add no more than 10 to 15 percentage points to the government debt to GDP ratio in each country. In the aftermath of the global financial crisis, government debt as a share of GDP rose by some 40 percentage points across the major economies. Most governments are using words too, along the lines of Draghi’s “whatever it takes”. It is to be hoped that they follow through on that commitment, as the economic case for such support following what will prove to be a temporary shock, even if of uncertain duration, is overwhelming. Unless a way of controlling the disease is found soon, massive government support, delivered almost immediately, could make the difference between entering and avoiding a severe financial crisis, and deep depression.

Details: policy restrictions

The stimulus packages are designed to offset the economic impacts of the restrictions on movement that have been introduced to control the spread of the virus. New, draconian restrictions have been announced in the US, the UK, France and Germany over the last few weeks, and are already in place in China, South Korea and Italy. In the coming days we will monitor daily changes in these restrictions.

V, U or L?

If this is to be a V-shaped recession, then a huge, lifetime buying opportunity awaits brave equity investors in the near term. But they need to be brave, since the risk of a much more protracted recession remains in place. The shape of the recession is critical and will be determined by the degree of second-round effects. The key factors that we will be monitoring include: corporate defaults and insolvencies; and unemployment. If the short-term hit is not contained, firms will go bust and even firms that remain in business will lay off workers. If those effects come to pass in scale then the likelihood of a sharp, V-shaped recession will fall. We will be monitoring these signals daily.

Corporate spreads have widened, but so far remain far below the peaks they reached during the crisis of 2008/09. We will shortly introduce a proprietary measure of corporate insolvencies on a daily frequency.

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Unemployment is typically a slow-moving, lagging indicator of recession, as the chart below demonstrates. It is likely to pick up gradually as the months go by.

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However, there are high-frequency data on corporate layoffs that we will be tracking over coming weeks, to help us gauge whether the V is shifting to a U or an L. Already there is anecdotal evidence that layoffs are beginning, especially in the retail sector, as well as B2C businesses like hotels, bars, restaurants etc.

So guys, what do we have in a dry result?

Obviously the recession. In fact, we already in there. Still, nobody could tell yet whether it will be "V", "W" or "L" shape as in Japan that lasts since 1990's. I suggest it will be "W" shape probably, taking in consideration the scale of harm to global economy and it will last not less than 1.5-2 years, with active stage till winter probably.

Second - run into USD still stands under way, it is not finished yet, but it is close to its final. This is what we see from CFTC data - EUR net position has turned bullish, long positions on stock indexes have increased across the board. I suggest that bargain hunting should start soon, or actually it is already started, but we should get "W" shape, so the second chance will be on 2nd "V" . We have US elections in autumn. As I'm sure that virus panic has artificial genesis and expect that it should start fading closer to September by news on vaccine, cases reducing etc. Although I do not deny the seriousness of infection per se - people are dying around. This do matter of course, but this is different topic. We should understand the difference - infection itself, as illness, and the reasons why it has been launched and the panic that was seeded in the world.

The only riddle for me yet, is the final result. Somehow I have a feeling that this is big try-out before final collapse that will change the shape of civilization totally. It seems that now we're in a big test of how massive human mind reacts, how human being behavior changes depending on what signals are sent by mass media. It is a control how humans are driven by global information stream, whether they zombied enough or more efforts needed to achieve necessary effect. Once it will be achieved - the major "plan" will be started. We could build different theories but one of them is a total globalization - creating of united global government (say, on the G7 basis), denying borders, nationalities etc. under the impact of "global hazard" for the whole civilization, denying national currencies etc. Total control over the planet and every person in particular. Maybe something different could be, I do not know. You could accuse me in "conspiracy theory", but I'm not so stupid to believe that all this stuff is just an "occasion".

At the same time, beyond the try-out action, a lot of "by-tasks" resolving - political, economical. But we've talked about it week ago.

Turning closer to reality - I could repeat only the same thing. Ignore cash, buy real assets. Use the moment of gold drop, stocks. Step-in gradually, don't try to catch the bottom. Personally I've bought Rosneft shares as they have dropped 2 times. With Ruble devaluation, it stock costs 3-4$ per share. Rosneft has extraction expenses around 3$ per barrel and could keep extraction without new exploration expenses for 22 years. This is totally satisfies me. Also it pays 7-9% dividends. You could do the same - but choose proper assets. Ignore financials.

In nearest future we need to keep an eye on when currency market calms down and "run into USD" finishes. In 1971, ex-U.S. Treasury Secretary John Connally bluntly informed his fellow finance ministers: “The dollar is our currency, but it’s your problem.” Half a century on, that still holds true: desperate companies and banks around the world have been stumping up big premia in recent days in their rush to buy greenbacks — for trade, debt repayments, or just to hold.

The liquidity squeeze that saw the financial markets’ plumbing creak prompted the Fed into action: The world’s top central bank said on Friday it would enhance the dollar liquidity swap line arrangements it has with the Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank.

To see if that does the trick, watch for the dollar to stabilise - not just in exchange rates but also in forward swaps that essentially show how much of a premium people are willing to pay for dollars. In euro-dollar for instance, the Fed’s gigantic cash injections have narrowed the spread to minus 10-15 basis points from a whopping 120 bps earlier in the week. Similar on other currency pairs.

If that continues, it should calm down currency markets overall. Implied volatility, a gauge of expected price swings, surged above 15% this week but has since eased to around 12%.

Second - The forward-looking purchasing managers’ index due out in coming days in Europe and the United States will provide an early reading of the scale of the hit financial markets have already been bracing for.

The PMI surveys are typically conducted in the second half of a month and the data in the “flash” survey is usually collected in the week or so before the data is released, so economists reckon next week’s PMIs will provide the most comprehensive overview so far of the coronavirus impact.

It might make for ugly reading. Deutsche Bank now expects Germany to contract between 4%-5% in 2020; JPMorgan forecasts emerging markets ex-China to slip into recession in the first half and BofA sees global GDP growth dropping to zero this year, matching the major recessions of 1982 and 2009.

Of course recent days have seen governments and central banks ramp up aggressive easing and fiscal stimulus to buffer their economies - that may provide a silver lining to what is surely set to be a period of dire economic data.

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To be continued...
 

Sive Morten

Special Consultant to the FPA
Messages
13,162
Technicals
Monthly


Due volatility that we have - the valuable information stands only on higher time frames. Trend on monthly chart has turned bearish. Since this is not common driving factor - it is impossible to predict where this downside motion stops. But, following to technical tools that we have, we could suggest action somewhere to 1.0-1.02 area.

All support levels have been broken, price is breaking through YPS1 after it has been tested previously and March is becoming the bearish reversal month (although it is not closed yet and picture could change).

Appearing of monthly bearish reversal candle, when price creates new top and closes below the lows of previous month promises nothing good. As a rule, these candles has continuation of different scale. That's why we treat the odds of dropping as significant here.

eur_m_23_03_20.png


Weekly

On daily chart market ignores OB/OS levels as price action is too strong. But on weekly chart they are still working. EUR accurately keeps our AB-CD extension. Market has shown reasonable bounce to OP target, hit K-resistance and started dropping again.

Now it stands at weekly Oversold. Monthly suggests downside continuation and here we have next XOP target at 1.0175, which agrees with idea on monthly chart.

Conversely, as market is forming widening triangle - we still could consider reversal formation in a shape of a diamond. If, within 1-2 weeks on daily chart EUR will show strong upside recovery back to 1.12 area, breaking all daily resistance levels - this could be the sign that "run into USD" is over.

eur_w_23_03_20.png


Daily

As higher time frame situation suggests no new shorts by far - on next week we will keep an eye on upside bounce. Here it makes sense to consider levels only. While pullback stands below major 5/8 Fib level, or better below confluence - EUR keeps bearish setup and chances on further drop.

Upside breakout and return back to 1.1250-1.13 area could be first sign that situation is changing.

eur_d_23_03_20.png


Intraday

On 1H chart we have a hint on Double Bottom pattern. At least we have W&R and signs of acceleration. If it will work - it should lead us precisely to daily K-resistance area. Bears should get chance to sell, while bulls will keep an eye on whether this level will hold or not.

eur_1h_23_03_20.png
 

Venelin

Master Sergeant
Messages
401
Technicals
Monthly


Due volatility that we have - the valuable information stands only on higher time frames. Trend on monthly chart has turned bearish. Since this is not common driving factor - it is impossible to predict where this downside motion stops. But, following to technical tools that we have, we could suggest action somewhere to 1.0-1.02 area.

All support levels have been broken, price is breaking through YPS1 after it has been tested previously and March is becoming the bearish reversal month (although it is not closed yet and picture could change).

Appearing of monthly bearish reversal candle, when price creates new top and closes below the lows of previous month promises nothing good. As a rule, these candles has continuation of different scale. That's why we treat the odds of dropping as significant here.

View attachment 51997

Weekly

On daily chart market ignores OB/OS levels as price action is too strong. But on weekly chart they are still working. EUR accurately keeps our AB-CD extension. Market has shown reasonable bounce to OP target, hit K-resistance and started dropping again.

Now it stands at weekly Oversold. Monthly suggests downside continuation and here we have next XOP target at 1.0175, which agrees with idea on monthly chart.

Conversely, as market is forming widening triangle - we still could consider reversal formation in a shape of a diamond. If, within 1-2 weeks on daily chart EUR will show strong upside recovery back to 1.12 area, breaking all daily resistance levels - this could be the sign that "run into USD" is over.

View attachment 51998

Daily

As higher time frame situation suggests no new shorts by far - on next week we will keep an eye on upside bounce. Here it makes sense to consider levels only. While pullback stands below major 5/8 Fib level, or better below confluence - EUR keeps bearish setup and chances on further drop.

Upside breakout and return back to 1.1250-1.13 area could be first sign that situation is changing.

View attachment 51999

Intraday

On 1H chart we have a hint on Double Bottom pattern. At least we have W&R and signs of acceleration. If it will work - it should lead us precisely to daily K-resistance area. Bears should get chance to sell, while bulls will keep an eye on whether this level will hold or not.

View attachment 52000
Hi Sive and all, I am following closely 4h. Eur/Usd and 4h. Gbp/Usd and think cable is leading technical development by 1 day. If Eur is to follow price action in cable remains to be seen:
2020-03-21 13-09-11.jpg
 

Major_Tom

Corporal
Messages
86
Hello,
these are the correct quaterly charts.Sorry, in the previous charts i posted, there was a mistake in the temporal aggregation of the candles. In these ones the open price of quaterly bar is the open monthly price of january.
All the best.

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GBPUSD.jpg
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XAUUSD.jpg
 

RahmanSL

Major
Messages
2,536
Hi Sive, needless to say, you weekly analysis & thoughts are invaluable to Traders.



I am not a conspiracy theorist nor do I listen to & believe rumors and false information but research for facts and figures.

It is with extreme concern & frustration that I see how inadequately the US government is handling the COVID-19 pandemic and the irresponsible behaviors of their President who, on live national news briefings, openly lie & give out false information & facts with total disregard of the consequences of his words, actions, and inactions.

As we have seen, with increased testing in the US for COVID-19 in very recent days, the numbers of infected Americans went up alarmingly which strongly suggest that when test are FINALLY being carried out in the hundreds of thousands, the numbers of infected Americans will go up substantially.

Another bit of info which I found in the internet is by the director of the US CDC who allegedly testified before Congress on 13-Mar-2020 (https://www.globalresearch.ca/us-cdc-director-admitted-virus-deaths-miscategorized-flu/5706233) that the Influenza virus deaths in the US has been mis-categorized as the “flu”.

They were referring to the CDC’s published report & figures whereby between Oct 2019 & Feb 2020, at least 31,000 Americans have died and over 31 million infected with the "American Influenza" or commonly called the “flu”. That's a rather alarming figure for just five(5) months which should have gripped the attention of any country and raised alarms all over the world.

Anywhere, as you have correctly stated, the world is in recession and the economic situation will get much worse before it gets any better and, quite frankly, best thing to do now is to stay put and ride out the storm the best we can & know how.

All the best & stay safe.
 

sveckar22

Corporal
Messages
79
Hi guys, this is my weekly COT analysis.

GOLD:

Non-Commercial trades closed some more of their Long positions, some Short positions were also closed. The ratio between Longs and Shorts is still the same as the same week. Overall net long positions decreased.

22.3.2020 COT GOLD.JPG

OIL:

I don't update my COT analysis on US OIL regularly, but as the price is retesting the $20 level, Non-Commercial traders were closing their Short positions, they didn’t add to Longs, but still Net Long positions increased significantly.

22.3.2020 COT OIL.JPG

DXY:

Last week Non-Commercial traders have been closing their Long positions on the US Dollar, they also closed some of their Short positions. Overall Net Positions decreased significantly.

22.3.2020 COT DXY.JPG

EURO:

Non-Commercial traders closed some of their Long positions on EUR, but a lot more Short positions. Due to this Net positions now stand in Net Long territory.

22.3.2020 COT EUR.JPG

AUD:

Net Short positions decreased last week from Non-Commercial traders decreasing both their Long and Short positions.

22.3.2020 COT AUD.JPG

This is what I am looking at on the technical side.

On the Monthly chart we have this ABC so far to COP target, the market accelerated again to the downside and has taken out the lows of 2009. OP target stands at around 0.4000 level.

22.3.2019 AUD M.JPG


On the daily chart, market respected the XOP target with bodies of the daily candles always closing above the XOP.

22.3.2019 AUD D.JPG


This are some of the fib levels where we could take a Short position after a pullback and some clearer patterns forming on lower time frames.

22.3.2019 AUD W.JPG
 

sveckar22

Corporal
Messages
79
CAD:

Positions are now standing in Net Long territory for the second week as Non-Commercial traders have increased their Long positions and decreased their Short positions.

22.3.2020 COT CAD.JPG

We have a really nice set-up on the technical side.

On the Monthly chart we have this large ABC to so far COP target which coincides almost perfectly with weekly XOP target.

22.3.2020 COT CAD M.JPG


On the weekly chart the OP target was hit the acceleration from the C point which increases the chances of XOP being hit, but I suggest some retracement will follow first.

22.3.2020 COT CAD W.JPG


On the intraday charts I will be looking for completion of this ABC to probably OP or even XOP target before trying to go Long.

22.3.2020 COT CAD 4H.JPG


CHF and JPY:

It looks like Non-Commercial traders are expecting more moves to safe-haven currencies since the aggressively increased their Net Short positions on JPY and CHF.

22.3.2020 COT CHF.JPG

22.3.2020 COT JPY.JPG
 
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