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Forex FOREX PRO WEEKLY, March 25 - 29, 2019

Discussion in 'Sive Morten- Currencies, Gold, Bitcoin Daily Video' started by Sive Morten, Mar 23, 2019.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals

    There were two major events in focus this week - Fed statement and Brexit rustle. Fed has shocked markets by clear signal of refusing interest rate increasing this year. This information has triggered chain of events and most important one for financial markets is drop of US interest rates. Recent Brexit events also make impact on market sentiment and GBP perspective.

    As Reuters reports - The dollar fell against the safe-haven Japanese yen on Friday as dismal U.S. manufacturing data fuelled worries about the wider economy, and Treasury bond yields signalled growing fears of a recession.

    The dollar, however, rose against the euro as a much weaker-than-expected German manufacturing survey raised concerns that Europe’s powerhouse economy may be slowing.

    While EU policymakers had cut growth forecasts for the euro zone economy earlier this month and launched a new round of cheap loans to its banks, the below than expected data raised concerns that the German economy, Europe’s powerhouse, may be slowing quickly.

    IHS Markit’s flash composite Purchasing Managers’ Index measuring activity in German services and manufacturing, which together account for more than two-thirds of the economy, fell to 51.5, it lowest reading since June 2013.

    “The data was bad and the falling bond yields is also weighing on the euro,” said Manuel Oliveri, a currency strategist at Credit Agricole in London.

    Germany’s 10-year government bond yield was poised to turn negative for the first time since October 2016 and was last trading at 0 percent after falling three basis points overnight.

    On Friday, the spread between 3-month Treasury bills and 10-year note yields inverted for the first time since 2007 after U.S. PMI manufacturing data missed estimates. This inversion of the yield curve is widely seen as a leading indicator of recession.

    “You have to take it seriously that it is a signal for slowing growth or a potential recession in the next 12 to 18 months. This is what the Fed looks at closely,” said Sean Simko, head of global fixed income management at SEI Investments Co in Oaks, Pennsylvania.

    “The recovery (in the yen) is not on the strength of the Japanese economy, it’s more about safe-haven flows,” said Alfonso Esparza, senior currency analyst at OANDA in Toronto.

    Japan is the world’s biggest creditor nation, and its currency benefits when Japanese investors repatriate funds in times of financial or geopolitical stress.

    The dollar, which came under pressure after the Federal Reserve surprised investors on Wednesday by abandoning all plans to raise interest rates this year, found some relief from a weaker euro.

    “March’s flash PMIs add to evidence that GDP growth was subdued in the three largest advanced economies in Q1, with Germany continuing to take the brunt of the global manufacturing slowdown,” Simon MacAdam, global economist as Capital Economics, wrote in a note.

    “It helps to reinforce the idea that we are looking at a more meaningful and more widespread slowdown than markets had anticipated a few months ago,” said Karl Schamotta, director of foreign exchange strategy and structured products at Cambridge Global Payments.

    “What we are seeing is sort of a recognition that the Fed is reacting to deeper risks in the global economy,” he said.

    The British pound, weighed down by fears Britain could exit the European Union on March 29 without a deal in place, recovered overnight when EU leaders gave Prime Minister Theresa May a two-week reprieve to decide how Britain would leave.

    Risk reversals, a gauge of puts to calls, and an indicator of how bearish or bullish are on the outlook of the currency, indicate that short term negative bets on the pound are piling up rapidly despite the broader calm in the spot markets.

    One-month risk reversals on the pound versus the euro plunged to its lowest levels since mid-2017. Against the dollar, bearish bets grew to their highest levels since September 2017, according to Refinitiv data.

    European Union leaders on Thursday gave May two weeks’ reprieve, until April 12, before Britain could crash out of the bloc if lawmakers next week reject her Brexit plan for a third time.

    “That means the FX market clearly now sees a higher likelihood of sterling collapsing, even if the spot rate is not yet reflecting an increased no-deal risk,” Commerzbank strategists said in a note.

    Fathom consulting also reports on worrying signs in US economy:

    Although the government shutdown ended nearly two months ago, it is still complicating assessment of the US economy. Some data releases were delayed and the data themselves (payrolls, unemployment, retail sales and sentiment indicators) exhibited volatility. The failure of Fathom’s US Economic Sentiment Indicator (ESI) to rebound in February suggests that the shutdown may have had more than a transitory effect and/or GDP growth was slowing anyway — both are probably true.
    [​IMG]


    At the same Fathom tells that not everything as bad as it seems:

    That said, the current level of the ESI is still consistent with a solid pace of economic expansion and more than two-thirds of the ESI’s constituents are currently higher than their long-run average.

    And here is most important conclusion for us:
    Although we expect economic growth to slow this year, we still think that the economy will grow above potential, prompting inflation to rise and another two 25 basis point increases in the fed funds rate between now and the end of Q1 next year.

    Indeed here is one thing where it is difficult to object to Fathom. Recent NFP data shows 0.4% wage inflation and it keeps growing as in previous reports it was 0.2 and 0.3 was treated as increasing. It means that despite possible slowdown GDP and production - inflation could force Fed to rise rates. Fed rhetoric could change and despite recent statement more hawkish action still stands on the table. This makes us still keep our long-term view on EUR/USD and still think that USD has more advantage position compares to EUR.
    The only mismatch that we have here is a drop of US yields and it is difficult to put it in context of positive US perspectives. Although recent drop could be just short-term reaction on Fed statement, we need to keep an eye on 10-year yields. Trend should have to change when more realistic hawkish perspectives appear on horizon. Conversely, if US is falling into recession, we should see more signs of this and mostly in statistics data. In this case Fathom will review its assessment of US situation in advance probably.

    CFTC Net EUR position has not change this week and stands short around 78K contracts.

    Technicals
    Monthly


    Despite solid volatility through the week, monthly chart is barely impacted as price still stands in the same range.

    Here 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 could happen somewhere in the summer. Of course, recent news and market sentiment hardly agree with this now, but situation changes rapidly and this scenario is not erased totally yet.

    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. We already see rally on JPY particular by this reason. Following 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.
    eur_m_25_03_19.

    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.

    Last week we've mentioned, as I call it, "2-days grabber". It is surprisingly, but it has been completed as price moved above recent top of 1.1418. But, bulls' happy was very short-term as price dropped back, forming shooting star bearish reversal pattern and cares signs of W&R.

    Here is difficult to talk on long-term perspective, guys, but in short-term, sentiment mostly looks bearish. EUR and GBP are strongly politicized right now. If we wouldn't have any new Brexit turnings any time soon, I would say EUR is looking south, but with strong external driving factor situation could change in a blink of an eye, ignoring any technical background. Actually we saw an example, how this could happen, just on Friday.
    eur_w_25_03_19.

    Daily

    Despite strong sell-off on Friday, It is not everything lost for the bulls. Yes, drop back below trend line, MPP and intraday K-support looks bearish. But market has formed bullish reversal swing and deep retracement is normal action. MACD daily trend still stands bullish. If we would have not as strong collapse as we do - it would be much better. But...

    So, to take control over market and confirm bullish trend - EUR has to show upside continuation and break up recent top and 5/8 Fib resistance. Opposite action, i.e. inability of market to do it, will lead to downside continuation. Our task is watch for pattern.
    eur_d_25_03_19.

    Intraday

    And first pattern is already in place. EUR has dropped right to major 5/8 Fib support on 4H chart, completing AB=CD pattern down. So, we have "222" Buy pattern in place. As our forum member Venelin correctly tells - we have B&B "Buy" setup on daily chart, thrust up is good, market hits major support within 3 bars below 3x3 DMA... What's the problem? Right, only with the pace of downward action it is too strong. May be B&B will work, or at least 3/8 upside pullback will happen, but currently it is too brave to suggest upside continuation.

    So, this is first setup - if you intend to trade it long - move stops to breakeven as soon as market will pass 25-30 pips up.
    eur_4h_25_03_19.

    Another setup that we will keep an eye on - possible bearish continuation pattern. If, say, upside action will be slow and heavy, we could get "222" Sell pattern and downside continuation. This will happen, if EUR will fail to climb above 1.1420 top and continue upside action.

    Hourly chart shows that upside action could start by small reverse H&S pattern. Since drop was very strong, more probable target is K-resistance and WPP around 1.1340 area. But this is only by technical sight, once external political factors intrude - everything could happen.
    eur_1h_25_03_19.

    That's being said - it is not forbidden to trade bullish patterns guys, but reduce your appetite, or, move stops to breakeven, at least. Bears should wait for upside retracement, the way how it goes, it should not be fast and furious, and look for bearish patterns, such as "222" Sell.

    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.
     
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  2. haja

    haja Recruit

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    Look forbearishpatterns, such as "222" Sell.
    Sir, what does "222" means.
    Thank you.
     
  3. Sive Morten

    Sive Morten Special Consultant to the FPA

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  4. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    Yesterday action was not too strong, so we're still watching for the same two setups - B&B "Buy" LAL on daily chart and downside reversal after.

    As we've said in our weekly report - we do not totally deny ability to re-establish upside trend and action above 1.1450, but still think that EUR needs strong support by external factor for this purpose. Current background is too weak to push EUR above recent tops. It means that bulls should be careful with B&B trade, focus on closer target and move stops to breakeven. Because, technically, overall situation looks bearish as retracement is too fast and deep, as EUR dropped back in downside channel. Current upward action is too slow. This combination makes us think that downside continuation should happen sooner rather than later:
    eur_d_26_03_19.

    So, our first trade (B&B) stands under way. Now it is possible to move stops to breakeven. If something goes wrong with it, next destination point will be XOP around 1.1215 area:
    eur_4h_26_03_19.

    here is you also could see most probable B&B target - strong resistance cluster of XOP target, K-area and WPP. This is also an area where should be safe to go short, if market climbs to it.:
    eur_1h_26_03_19.
     
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  5. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Greetings everybody,

    EUR shows weak action as it was not able to show any meaningful reaction on major daily 5/8 Fib level and Agreement, failing to reach even 3/8 resistance.
    Recent Trump decision on Golans territory could increase military and political tensions and we treat this decision as negative signs. Decision pushes Syria, Iran Hezbolla to turn to open military action in region, because US right now can't significantly help Israel to protect this territory. In such circumstances demand for safe haven currencies, such as JPY, CHF and partially USD will increase.
    Rustle around Brexit is also stands far from positive. This creates negative background around EUR.

    Thus, we need to take wider look at EUR perspective and recall our major daily AB-CD pattern. As 3/8 retracement after COP is over, now OP again stands in focus:
    eur_d_27_03_19.

    To get the answer whether EUR is ready to challenge the lows, today we have to keep an eye on 1.12 area. This is signal line of sentiment. There we have 4H XOP target and 88% Fib support. Once market will reach it we get bullish "Bat" pattern. Scalpers could use it for trade, because either harmonic swing of 3/8 pullback should happen.
    But general reaction is more important. While EUR stays above it, it keeps the same trading range 1.12-1.1450 and has chances on upside action. Breaking of 1.12 means that we're turning to 1.10-1.12 area....
    eur_4h_27_03_19.
     
  6. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    EUR keep going to our destination point. In fact, on daily we already see importance of this area. It incudes MPS1 as well. Drop below 1.12 opens wide trading range of 1.08-1.12, while standing above 1.12 lets market to fluctuate in 1.12-1.14 area. Thus, support area that we're coming to will be important and gives good assistance for understanding next direction:
    eur_d_28_03_19.

    On 4H chart we're watching for the same targets' cluster - XOP and 88% Fib support. It should be relatively safe to go long from there, at least to grab harmonic swing target. This is only for scalptraders. Overall situation is not good for taking longer-term positions:
    eur_4h_28_03_19.

    1H chart shows another minor extension target in the same area - OP and WPS1.
    eur_1h_28_03_19.

    That's being said - bears should be ready for profit taking, at least partially, bulls could try to take scalp long trade up from 1.1205-1.1210 area with harmonic swing extension target. More extended upward action stands under question right now and I wouldn't count on it.
     
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  7. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    In general, EUR has completed our target for this week - 1.1205-1.1210 area was hit. As we've mentioned earlier, this area is very important for market direction in nearest future. Thus, ability to hold above 1.12 lets EUR to fluctuate in 1.12-1.14 area, while downside breakout opens 1.08-1.12 area.
    eur_d_29_03_19.

    As XOP target is reached, now we should focus on market reaction. Currently it looks really weak and heavy. It means that we do not have sufficient context for taking any long position even scalp one. I would say that here is no reaction at all.
    For long position we need some more extended pattern, such as reverse H&S. But this means, in turn, that bears could keep some part of existed positions with breakeven stop. Weak reaction increases chances on downside continuation.
    eur_4h_29_03_19.

    If you already have taken long position on XOP - don't worry, as market already show minor bounce - move stops to breakeven as soon as EUR passes 25-30 pips in your favor. Chances to see upside harmonic swing are not bad.
    eur_1h_29_03_19.
     
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