Sive Morten
Special Consultant to the FPA
- Messages
- 18,776
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.
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:
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.