FOREX PRO WEEKLY May 04-08, 2015

[Sive Morten]

Fundamentals
Reuters reports dollar touched a two-week high against the yen on Friday and rose from a two-month low versus a basket of major currencies, supported by signs that the U.S. economy may be stabilizing after a recent soft patch.

U.S. economic reports were mixed, with consumer sentiment strong but manufacturing and construction weak. The net effect of the data was positive on the dollar, which investors viewed as oversold. Volumes was thin, with most of Europe shut for the May Day holiday.

Yields on long U.S. Treasury debt hit seven-week highs, which helped attract investors to the greenback.

"The numbers were mixed and while there has been some improvement in the data, we're still waiting for more evidence that the U.S. economy has indeed turned the corner," said John Doyle, director of markets at Tempus Consulting in Washington.

U.S. manufacturing activity held a near two-year low in April, but a jump in consumer sentiment suggested the economy was pulling out of a weak phase in its cycle. Separately, construction spending slipped 0.6 percent to an annual rate of $966.6 billion, the lowest level since September.
The dollar started to gain momentum on Thursday after data signalled that the U.S. labor market was recovering with initial jobless claims dropping, wages rising along with a jump in Midwest business activity.

"We maintain that the (recent) sell-off in the greenback is likely to run out of steam," said Jane Foley, senior FX strategist, at Rabobank in London.

"If the dollar sell-off persists, there is risk that several central banks will reassert their dovish positions in order to ensure that relative interest rate differentials remain clearly in favor of the greenback."

In late trading, the dollar rose against the yen, supported by the rise in Treasury yields. It was last up 0.7 percent at 120.24 yen . It hit a two-week high of 120.28 yen.

The dollar index was up 0.7 percent at 95.257, having suffered its worst month in four years in April. The index on Friday posted its best daily gain in a month.

The euro slid 0.2 percent to $1.1196 , after earlier hitting a two-month peak. The euro has been aided recently by a surge in German yields as fears of deflation in Europe have eased.

CFTC data starts to change. When we’ve taken a look at EUR last time, Shorts-to-Total ratio was ~ 85%. This is critical number when significantly increases the probability of retracement, because market participants can’t support the same pace of open new short positions. Now we see the results of this – COT report shows that although Open interest stands flat for three recent months – longs show upward action while shorts are contracting. This supports the idea that retracement should continue in short term perspective.
Still on coming week NFP data and market reaction on it will be probably in focus as well as Greek debt negotiations and Ukraine of cause.

Open interest:

Shorts:

Longs:

Technicals
Monthly
As we have estimated previously 1.05 is 1.27 extension of huge upside swing in 2005-2008 that also has created awful butterfly pattern. Recent action does not quite look like normal butterfly wing, but extension is valid and 1.05 is precisely 1.27 ratio. At the same time we have here another supportive targets, as most recent AB=CD, oversold and 1.27 of recent butterfly.
Now think what do we have – market at 1.27 butterfly target and oversold, CFTC data shows overextension of shorts positions. Recent data has led to dovish forecast on US rates, while EU recent data conversely was mostly positive, as well as earnings reports of EU companies. This smells like solid upside retracement.
April has closed and confirmed nicely looking bullish engulfing pattern. We know that most probable target of this pattern is length of the bars counted upside. This will give us approximately 3/8 Fib resistance 1.1810 area. Could we call this situation as “Stretch”? By features probably yes, since market is oversold at support, but by letter not quite, since 1.12 level mostly was broken and the area where market stopped was not a Fib level. Still, applying here Stretch target (middle between OB and OS bands) we will get an area of 50% resistance of most recent swing down around 1.22 area.
Another very important moment here is recent thrust down itself. Take a look – it is perfect for DiNapoli directional pattern, say, B&B “Sell”, or even DRPO… but B&B seems more probable. You can imagine what B&B means on monthly chart – large swings, definite direction of trading for weeks. Retracement up has no limitation from monthly overbought level. We think that we need to be focus mostly on B&B from 1.22 area, just because market is oversold. That’s why 3/8 level could not hold upside retracement. In 1.22 area also stand previous lows.
Still, our next long-term target stands the same – parity as 1.618 completion point of recent butterfly. Currently we should treat this bounce up, even to 1.22 area, only as retracement within bear trend. Yes, tactically fundamentals have become weaker in US, and open door for pause in bearish trend, but overall picture has not changed drastically yet.

Weekly
Last time we’ve said that “any monthly retracement probably should start from some clear weekly pattern….we need extended one – either DiNapoli, or harmonic. Pay attention that within whole thrust down since it’s beginning in April 2014 market never has completed 3/8 retracement. Other words this thrust was not interrupted by retracement. It means, in turn, that we also can watch here for DRPO “Buy”. This was said on 6th of April.
Now we have confirmed DRPO “Buy” in place. But higher we have two strong resistance clusters as well. First one is 1.14-1.15 area that includes Fib level, MPR1, broken YPS1 and Overbought. Second one coincides with monthly level around 1.18-1.20. Weekly chart shows that it will be also K-area.
As we mostly trade on daily chart our initial trading plan will be focused on first, closer target.

Daily
Daily picture makes our trading plan clearer. Although trend is bullish and market thrusts higher – it’s not the time to take long position yet. Here we have clear butterfly is forming and it has all chances to reach 1.618 destination point. Our task here is to catch the deep. Since EUR is overbought as on daily as on weekly – retracement probably will be solid. Besides, May Pivot has not been tested yet. Thus, first possible retracement destination that we will be looking for is 1.10 area – MPP, K-support and natural support/resistance area around former tops.
Also take a look – 1.15 area around MPR1 is also extended 1.618 AB-CD target.

4-Hour
Now we drop time frame for 1 more step. Personally I do not intend to trade EUR on short side. For me the major point is to catch downward retracement for long entry. Intraday charts are mostly for scalp trading that is based on retracement down.
4-hour trend has turned bearish. Market has completed 1.618 AB-CD target. Thrust up is not perfect, but may be we could treat it as suitable for DRPO “Sell” LAL pattern. If this really will happen – then it’s target will stand in agreement with daily support level around 1.10 area. This will be also WPS1…

1-Hour
You can use also this channel as additional signal of starting move down. EUR probably should break it down…

Conclusion:
EUR could turn to solid upside retracement that will be notified even on monthly chart. For us it will mean clear direction of trading for considerable period.
Still, major fundamental factors are still valid and even action to 1.20 should be treated as retracement…



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]

EUR/USD Daily Update Tue 05, May 2015

Good morning,


Reuters reports dollar recovered a footing against a range of major currencies on Tuesday, with gains of around half a percent against the euro halting its worst run in four years.

The Aussie dollar was also sharply higher after the Reserve Bank of Australia hinted its cycle of interest rate cuts may be over for now after easing by another quarter percentage point.

An extremely volatile second half of April saw the U.S. currency slide more than 6 percent against the euro, doubts over the pace of U.S. growth prompting the first major turnaround in a rally that dates back almost a year.

That has somewhat undermined faith in major banks' forecasts it would move past parity to the euro for the first time since 2002, but many analysts still characterise the move as a temporary retreat on its way higher.

"We have had a big correction and that has taken some of the (potential for) profit-taking out of the market," said Jane Foley, a strategist with Rabobank in London.

"That said there is still a big debate about how fast the Fed can start raising rates. We have had a very disappointing first quarter in the U.S., we need to know how much that is just weather and other temporary factors."

This week's key numbers out of the United States are non-farm payrolls on Friday.

Before then, there is the prospect of a UK election that looks likely to lead only to further days or weeks of uncertainty over the makeup of the next government.

One-week implied volatility on sterling is at its highest since the last election in 2010 as a result and many analysts have argued the pound itself will at risk .

"Euro positioning is still short enough to argue for caution," Kit Juckes, a strategist with Societe Generale in London, said in a note to clients. "GBP/USD, on the other hand, is vulnerable. It is going to be very hard for anyone to form a stable government after Thursday night. I can't see how that helps sterling."

The Aussie fell initially after the RBA cut rates, but the removal of a sentence that has previously pointed to further easing was read as signalling it was done for now - a positive for short-term market borrowing costs.



Today we will take a look EUR, just small add-on to our yesterday analysis. As we've expected retracement indeed has started but it could be not yet the retracement that we're waiting for. We think that current retracement mostly stands due overbought condition and it will be small and fast. Real retracement should start from a bit higher level.
Take a look that reversal pattern i.e. butterfly has not been completed yet - market has not quite reached 1.618 target. It means that as soon as EUR will leave overbought condition it should proceed higher:

For those traders who trade on daily - this is not very important, they mostly wait for 1.09 support for taking long position. This information mostly important for intraday traders. We just warn you about this risk - you could be washed out, but retracement will start a bit later from a bit higher level.
on 4-hour chart we've not got any DRPO pattern. Market just shows downward retracement and meets WPP.

Our channel on hourly chart was broken, but this breakout was very slow and lazy.
That's being said, we see the risk of another leg up before real retracement will start. The target of expected retracement is the same - 1.09 area

Now 2 words on GBP. Market almost has reached the level that we've mentioned as the one for long entry. Tomorrow we will probably make update on GBP:

 

[Sive Morten]

GBP/USD Daily Update, Wed 06, May 2015

Good morning,


Today guys we will be trade DiNapoli B&B "Buy" pattern on daily chart. This is not yet the retracement that we've expected with H&S pattern. This is mostly separate pattern that will become a part of downward action. Probably B&B will become BC leg of larger AB-CD pattern. So, this is separate trade with its own context and target.
On daily chart all conditions have been met - thrust, close below 3x3 DMA and reaching major Fib level that coincides also with MPP:

On 4-hour chart we see the target of this pattern - 1.5337 level - 5/8 Fib resistance of whole backward action:

Most important for us is hourly chart. Here we also see that market on a way down has completed 1.618 AB=CD pattern and this creates and Agreement with daily Fib support. Now we see first swing up and 5/8 retracement of it - this is the point where we should take long position. My position is a bit worse - at 1.5162, but this is not a big deal.
Our stop should be slightly below current lows. As market has completed AB-CD, it has no reasons for W&R or creating new lows, since it has no uncompleted targets below them. Hence, the one reason why market could move lower is a failure of B&B setup.
Profit should be slightly before 1.5337 level, may be at 1.5330.

So let's see how it will turn... Good luck to those who intends to trade this stuff.

 

[Sive Morten]

GBP/USD Daily Update, Thu 07, May 2015

Good morning,


The euro hit a ten-week peak on Thursday, tracking European bond yields higher and benefiting from a sell-off in the dollar after weak U.S. jobs data added to speculation that the Federal Reserve will delay raising interest rates.
"The dollar lost momentum after the ADP employment report yesterday, so some of the euro move reflects that," said Phyllis Papadavid, senior FX strategist at BNP Paribas in London. "The next 48 hours are going to be quite important, both in terms of the election and the payroll number tomorrow."

Traders said the euro's resilience was also due to a surge in German Bund yields , which have jumped nearly 50 basis points in just over a week, outstripping a 34 basis point-rise in their U.S. peers .

Against the British pound, the single currency powered to 74.71 pence, its highest since Feb. 6. The ruling Conservatives and opposition Labour Party have been neck-and-neck in opinion polls that indicate neither will win an outright majority in the 650-seat parliament.
As Britons took to the ballot box to cast their votes in the most uncertain UK parliamentary elections in decades, the euro also hit a three-month high against sterling . Though the pound inched down against the dollar, it remained in the range in which it has traded for the past two weeks .

Figures on Wednesday showed U.S. private sector employers in April hired the fewest workers in over a year, raising a red flag for closely-watched non-farm payrolls numbers due on Friday.

That data, as well as a warning from Fed Chair Janet Yellen about the potential dangers of high equity valuations, helped drive the euro to its highest against the greenback since late February, trading up 0.3 percent at $1.13825 on Thursday.


"The dollar lost momentum after the ADP employment report yesterday, so some of the euro move reflects that," said Phyllis Papadavid, senior FX strategist at BNP Paribas in London. "The next 48 hours are going to be quite important, both in terms of the election and the payroll number tomorrow."

Traders said the euro's resilience was also due to a surge in German Bund yields , which have jumped nearly 50 basis points in just over a week, outstripping a 34 basis point-rise in their U.S. peers .

Against the British pound, the single currency powered to 74.71 pence, its highest since Feb. 6. The ruling Conservatives and opposition Labour Party have been neck-and-neck in opinion polls that indicate neither will win an outright majority in the 650-seat parliament.

"In terms of short-term sterling response, we see a hung parliament as the worst outcome given that the full degree of uncertainty would remain in place, with markets likely reacting with a knee jerk sterling sell off," wrote Petr Krpata, FX strategist at Dutch bank ING in London.

Reflecting a high degree of uncertainty on the shape of the next government, option traders are expecting a volatile trading in sterling. The pound's overnight implied volatility has shot up to above 30 percent from around 12 percent on Wednesday.

The Norwegian crown rose around one percent against the dollar after Norway's central bank left interest rates unchanged, trading at 7.3545 crowns , its strongest this year.



Today we again will take a look at GBP. OUR B&B "Sell" trade has done well. It is not quite reached the target for few pips, but in general this trade was successful with 100+ pips result.
But now let's turn to current moment. As we've suggested yesterday this B&B trade is not the retracement that we're waiting for but probably should become a part of deeper move. In fact we suggest that it will be part of big AB-CD pattern down:

On 4-hour chart we see now more clear picture that let's us estimate depth of downward retracement with more precision:

It points on 1.4890. IF you will take a look at daily chart again - you'll see that it almost coincides with Daily Fib support @ 1.4924 area. In fact - we will get Agreement right at the bottom of potential right shoulder of reverse H&S pattern. This will be our next trading object on GBP....

 

[Sive Morten]

FX Daily Update, Fri 08, May 2015

Good morning,


Reuters reports today Sterling was the biggest gainer amongst major currencies on Friday, hitting its highest in over two months against the dollar, on relief that the Conservative Party was set for a surprise outright win at the British national election.

The dollar also gained against other major currencies like the euro and the yen as investors awaited the key U.S. jobs report later in the day.

With nearly three quarters of British seats counted, the Conservatives, seen as market-friendly, had won 203 of 650 seats with an exit poll suggesting they were on track to win 329 seats in the lower house of parliament, a majority that will help them govern for another five years on their own.

The straight majority was a surprise to many investors who, given that pollsters had predicted a "hung parliament", had factored in weeks of haggling over who would form the next government by buying options and hedging their exposure.

Sterling gained 1.5 percent on the day to $1.5475 after rising as high as $1.5523, its highest since Feb. 26, and pulling away from a five-year low of $1.4567 hit in mid-April.

The pound also marked its biggest one-day move against the euro since early 2013. The euro plummeted more than 2 percent on the day to 72.36 pence after touching a low of 72.19 pence, its lowest level since April 30, and well below a three-month peak of 74.82 pence scaled only a day ago.

"The UK surprise election result -- on target to see the Conservative Party win an outright majority -- is sterling positive," said Adam Myers, European head of FX strategy at Credit Agricole.

"Viewed within the context of the UK's large current account deficit, the policy uncertainty removed by today's result will be a relief for some previously nervous foreign investors."

Still, risks remain with the result likely to trigger a referendum on Britain's membership of the European Union within two years, while Scots could soon be pressing for independence.

Dollar bulls took hope from data on Thursday showing the number of Americans filing new claims for unemployment benefits held near a 15-year low last week.

The data helped bolster expectations for a relatively strong employment report. Economists forecast nonfarm payrolls to increase by 224,000 in April, after gaining 126,000 in March, when bad weather held back hiring.

"As always, unemployment and hourly wage growth should be taken into account, too," said Lutz Karpowitz, currency strategist at Commerzbank. "These series might be key for the market response if the NFP is in line with the expectations. Short euro/dollar positions do not really appear attractive today in the run-up to the labour market report."




Today guys, we briefly will take a look at EUR and at GBP. Market right now stands at the eve of NFP release. On EUR we continue to wait for bounce down that should give us chance for taking long position. May be this bounce will be triggered by NFP, although ADP report was weak and chances that NFP will follow it are significant.
Butterfly has been completed on EUR but market has shown just minor reaction by far. Here we see the single pattern that could be formed - 3-Drive "Sell". If market will completed EUR will touch MPR1 and completed daily wide 1.618 AB-CD pattern. Actually we do not care what will happen on top, because we're not going to go long right here and anyway need pullback. But how it will start in fact has no importance:

Now to GBP...
As Mr. D has won elections and this guarantee markets the stability of the course - equities and GBP have rallied. So, as you can see B&B is not always stops at 5/8 resistance, but could reach higher targets. At the same time we didn't get our AB-CD down that we've expected to get. Still, it does not mean that market will not return back - recall of NFP
Besides, in fact market has returned to area of weekly overbought and K-resistance. In this conditions hardly it will pass through it. Harmony of H&S pattern also looks bad and it still demands return back and forming of the right shoulder. That's why this still could happen:

In fact yesterday with election results catalysts GBP has completed not just AB=CD but 1.618 of our pattern. And now it has chances to turn down again as reaction on voting results has happened.
Anyway, here is situation the same as on EUR - we want to take long position but won't do this at current levels:

 

[stelore]

YES!!!
Butterfly sell completed on EURUSD.........

A bit too fast, now let's see if the bearish trend will be restablished.