Forex FOREX PRO WEEKLY, May 10 - 14, 2021

Sive Morten

Special Consultant to the FPA
Messages
14,726
Fundamentals

No doubts, guys that NFP report outshines everything else on this week. It has made a stunning result on the market, the bomb effect. This is a kind of moment, when you see from long-term view that something of this kind has to happen but you do not see the source, where it could come from. Because nobody expected so poor numbers especially when we've got great sales, GBP, consumption, sentiment and even inflation data in last 2-3 weeks. But this surprise stands in a row with our long-term view and leads as DXY as EUR one step closer to the major target.

Market overview

The dollar fell to its lowest in more than two months on Friday after U.S. jobs data for April came in well below expectations, putting a damper on hopes that a roaring economic recovery would spur higher rates and light a fire under the greenback.

Nonfarm payrolls increased by only 266,000 jobs last month after rising by 770,000 in March, the Labor Department said in its closely watched employment report. Economists polled by Reuters had forecast a rise of 978,000 jobs.

"The number was so out of consensus, that I think the market expectation of super-high rates and a squeeze on inflation is going to go down by the wayside, and that obviously means more liquidity from the Fed," said Boris Schlossberg, managing director of FX strategy at BK Asset Management. It also means U.S. interest rates will stay at ultra-low levels for quite a while and that is going to keep the pressure on the dollar, Schlossberg added.

"This is only one report, but this is changing many traders' thinking on how this recovery is unfolding," said Edward Moya, senior market analyst at FX broker OANDA, in New York.


SAMEER SAMANA, SENIOR GLOBAL MARKET STRATEGIST, WELLS FARGO INVESTMENT INSTITUTE, ST LOUIS:

“Job growth came in well below expectations, and below the 3- and 6-month averages, showing that the labor market recovery may be uneven at times.”

“Still, it was positive and the internals (hours worked, the participation rates, and wage growth all were better than expected) suggest things continue to improve.”

“We would not read too much into any one jobs report and continue to think the labor market remains on track and will be more than enough to underpin consumer confidence and consumption.”

“We also think the investing backdrop remains positive and investors should favor stocks over bonds, and cyclicals/growth over defensives.”

While the U.S. economy has been gaining steam on the back of massive government stimulus and an improving health situation, Federal Reserve speakers on Wednesday downplayed the risks of higher inflation.

"The outlook for the dollar by many right now that it’s going to be in the house of pain for quite some time," because for the most part, the markets are convinced that the Fed has Treasury yields under control, said Edward Moya, senior market analyst at FX broker OANDA in New York.

"The employment gain is understated in part because of the generous largess from Washington," said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles. "Short-staffed restaurant owners are working overtime, truck drivers are impossible to find even after a hefty increase in hourly wages and loading docks at warehouses are keeping trucks idle as there aren't enough workers."

"We have warned frequently that the COVID-19 shock last spring would echo through the seasonally adjusted data and cause significant volatility," said Scott Ruesterholz, portfolio manager at Insight Investment in New York. "That is likely what is happening with this report."


The report did not change expectations that the economy entered the second quarter with strong momentum and was on track for its best performance this year in almost four decades. Timely labor market indicators, like new claims for jobless benefits, which last week dropped below 500,000 for the first time since the pandemic started, suggest payrolls will pick up.

Elsewhere, the Bank of England said it would slow the pace of its bond-buying as it sharply increased its forecast for Britain's economic growth this year after its coronavirus slump, but it stressed it was not tightening monetary policy.

"They said they are going to reduce the weekly pace of purchases, but that's not a signal and so sterling has kind of gone up and down and done nothing at the end of the day," said Erik Bregar, director and head of FX strategy at the Exchange Bank of Canada.

As we've mentioned in last two weeks Investors were also paying attention to elections in Scotland that could herald a political showdown over a new independence referendum. read more

President Joe Biden reacted on Friday to a disappointing April jobs report by saying the U.S. economy has a “long way to go” before recovering from its pandemic slump, and he urged Washington to do more to help the American people. Biden and his team have said his $1.9 trillion pandemic relief package, the Democratic president’s first major legislative accomplishment, is helping to bring the economy back from its pandemic plummet, and they are pushing for another $4 trillion in new investments.

“Today’s report just underscores in my view how vital the actions we’re taking are,” Biden said in remarks at the White House. “Our efforts are starting to work. But the climb is steep and we still have a long way to go.”

The jobs report highlighted an intractable political divide in Washington over government spending. Republicans and business groups blasted generous unemployment benefits in the relief package, contending they were stopping lower-wage Americans from going back to work. Critics object to the high price tag of Biden’s plans and warn they could bring inflation. Biden said he did not believe government benefits were hindering a return to work, and his economists backed him up.

“It’s clear that there are people who are not ready and able to go back into the labor force,” Treasury Secretary Janet Yellen told reporters, citing parents whose children are still learning remotely. “I don’t think the addition to unemployment compensation is really the factor that is making a difference.”

Jared Bernstein, a member of the president’s Council of Economic Advisers, told Reuters that Biden’s COVID relief and stimulus, known as the American Rescue Plan, had helped generate an average of more than half a million jobs per month, April not withstanding.

The 266,000 jobs that U.S. firms added in April were “nowhere near” what was expected, a Federal Reserve official said Friday, and added little to the “substantial further progress” officials want to see before considering changes to monetary policy.

Barkin said he thought the results were largely driven by labor supply issues and “frictional” barriers to employment such as mismatches between available workers and job skills, and workers still facing child care and other constraints. Many, he said, flush with savings and with enhanced unemployment benefits still available, have the “wherewithal” to wait to return to work and may be doing so.
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Still, it gives Fed policymakers little reason to do anything but keep the monetary policy tap wide open until the economy is on a clearer path back to full employment.

“This puts less pressure on the Fed to prematurely talk about tapering. They wanted to be patient and hold off on it,” said Larry Adam, chief investment officer at Raymond James in Baltimore, Maryland, in reference to the process of reducing the $120 billion in monthly bond purchases the Fed currently makes to help hold down long-term interest rates that influence family and business spending decisions.

The Fed in December said it would not consider changing its bond purchases until there had been “substantial further progress” in reaching its full employment and 2% inflation goals.

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Fed Chair Jerome Powell has said he wants to see a “string” of strong monthly job reports before opening debate on when and how fast to reduce the support provided to the economy through the coronavirus recession, including the bond purchases and the promise of near zero interest rates for years to come.

After the report, interest rate futures traders slashed bets the Fed will start raising rates next year, and the yield on the 10-year Treasury note fell to a two-month low, suggesting the market was more concerned with slowing job growth than inflation pressures. The bulk of U.S. central bankers see waiting until 2024 before lifting rates for the first time since slashing the Fed’s policy rate to near zero in March last year.

U.S. Treasury Secretary Janet Yellen said on Friday the nation could exhaust its ability to borrow this summer even if Treasury takes “extraordinary actions” to buy more time when the nation’s debt ceiling comes back into effect at the end of July.

Yellen told reporters at the White House that while the Treasury could extend its ability to borrow by employing special measures if Congress did not act to raise the debt ceiling, those steps might buy only a “very limited” amount of time.

“It is exceptionally challenging this time to try to figure out just how long those (extraordinary) measures are going to last in part because of higher and more volatile spending and revenue numbers associated with the state of the economy and the pandemic,” she said.

“We are concerned that there are scenarios that give (a) very limited amount of additional time to use extraordinary measures,” Yellen added. “There are scenarios in which some time during the summer” room would run out even after special measures were employed, she said.

COT Report

CFTC numbers are moderately positive this week, even without last changes from NFP release. Pre-NFP data shows minor increasing of net long position and open interest. Hedgers were closing hedge positions against EUR downside action. Thus, NFP impact probably should be significant and we will see it on next report. Meantime COT data confirms existing of bullish sentiment on the market.

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Next week to watch

#1
After weeks of COVID-19 lockdowns, a reopening of European economies is close, and boosting sentiment. Tuesday's German ZEW sentiment survey could confirm a brightening outlook.

Germany might ease curbs on those fully vaccinated or recovered from COVID-19 as early as the weekend. France starts relaxing a night curfew and allowing restaurants to offer outside service from May 19.

After a slow start, the EU is expected to meet its target of delivering first vaccine doses to 70% of adults by end-summer, the euro zone should get to 50% in June. That’s good news for tourism-dependent economies. Brussels’ recommendation to ease restrictions on some countries and travellers is putting a spring in the step of British airline stocks too.

#2

Investors will watch the U.S. Treasury’s debt auctions for signs that demand remains steady after a yield surge roiled markets in the first quarter and fanned concerns that higher borrowing costs could hurt stocks, particularly growth sectors like technology.

The Treasury will auction $58 billion of three-year notes on Tuesday and $41 billion of 10-year notes on Wednesday, followed by $27 billion of 30-year bonds on Thursday. The Federal Reserve's asset purchase schedule too is due on May 13. The Fed kept Treasury purchases unchanged at $80 billion per month for mid-April to mid-May period.

So, despite a lot of noise around recent report we would like to say few things that somehow appeared to be outside of mainstream discussion. First is, we have negative data only in direct numbers, while such numbers as wage inflation (hourly earnings), unemployment and participation rate have shown better than expected performance. It means that current pullback in NFP is normal retracement as it can't just run without any breath taking. Some economists, mentioned above also talked about it.
Second - it is clear overestimation of NFP effect on the market. I suppose that getting new great report could change sentiment at 180 degrees again. Besides, NFP doesn't correlated with other statistics that mostly looks positive. So, by taking all these stuff together, it seems that recent reports mostly looks like "statistic error" or some out number.
At the same time, it perfectly fits to our long-term view on Dollar Index. Absolutely unexpectedly we've got the driving factor that leads our long-term expectation to the target. In fact, we've got the help where we haven't expected it. The more careful investors view on longer-term perspective is helpful to our scenario right now as it gives more chances to complete DXY 87.40 target. Under impact of this stunning report upside action EUR and downside action DXY should continue. This is the major thing that is important right now, and we keep going with our trading plan.

Technicals

Monthly

Market shows great performance in recent two months. As we said last week EUR supposedly has 2-4 bars on monthly chart to hit major upside 1.2860 target.

Still, we suspect that an exceptional event exists that could let EUR to extend this time. This is more aggressive ECB rhetoric in June. Above we said that Canada already starts tightening policy, BoE on the way and June might become a clash of the titans - ECB vs. Fed. Early verbal action from ECB might push EUR higher, if Fed will keep its mantras, and probably it will, as we see by recent NFP report.

As we've said earlier, despite that market has come very close to 1.16 vital area - EUR was able to stay above it and shows perfect recovery. MACD trend stands bullish. From technical point of view, this is good sign that price is jumping up from YPP.

Taking the parallel view on Dollar Index - EUR has corresponding upside AB-CD with 1.2860 OP, standing near Yearly Pivot Resistance of 1.26. If our suggestion is correct - 1.26-1.28 is an area that corresponds to DXY 87.40 target.

eur_m_10_05_21.png


Weekly

Last week we have few concerns, as you remember that put the shadow on bullish scenario, but now all of them have been resolved - grabber is cancelled, potential H&S is destroyed as price jumps significantly above 5/8 Fib level where the top of right arm should be. Besides, we have strong acceleration that is not typical for H&S pattern.
Market is not at overbought, so it could keep moving higher. Recent action lets us to set new upside targets, that we do below. But, here on weekly chart we have divergence that suggests taking out of previous top around 1.2350. "Three white soldiers" also relatively rare and strong pattern that usually appears in the beginning of extended upward action.
eur_w_10_05_21.png


Daily

Consequently as price was able to stay above key 1.1950 Fib support area and shows fast acceleration suggests that we're in extension mode. Due to recent action we could make few changes in our trading plan. First is, we do not need to focus on the whole upside action and keep in focus only the recent thrust from 1.1950. Real bullish market should not show reversal swings and drop below major support area.

Speaking on upside target OP stands around 1.2435 but it is too far now for daily chart. Thus, we could focus first on 0.618 COP extension around 1.2260 - this is our major target for coming week.
eur_d_10_05_21.png


Intraday

Unfortunately there were not many chances to buy EUR last week as it was just single more or less acceptable retracement. Action stands very fast. At the same time this is good moment as well, because thrust is suitable for DiNapoli patterns. For instance, retracement to 1.21 K-area gives us nice B&B "Buy" pattern.
eur_4h_10_05_21.png


On 1H chart market hits local OP so, may be some pullback happens indeed. The "large" H&S of last week has worked, but as you can see the right arm was very fast and small.
eur_1h_10_05_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,726
Greetings everybody,

So, let's keep going with our EUR trading plan. As we've suggested in our weekly report - there should be some minor downside reaction as response to resistance and reaching of 1H OP target. At the same time we do not expect deep retracement, it is more chances that it remains above 1.21 area. Our target for this week stands around 1.2260 area. Daily performance looks great. AB leg shows good thrust, while started CD leg is accelerating even further. As market is not at overbought area - chances on deep pullback are minimal.
eur_d_11_05_21.png


On 4H chart we're mostly watching for just two levels - 1.2130 that has been reached already and major 1.21 K-area. Of course it would be perfect to get entry around 1.21, but it is not the fact that market definitely will reach it. Thus, you have to make a decision on entry tactics - whether you enter at first level, at second or split entry in 2 parts:
eur_4h_11_05_21.png


On 1H chart unfortunately we do not have clear downside AB-CD pattern. It looks more like minor Double Top. Its classic target also points on the same 1.21 area, where we have trend line support as well. So, indeed, 1.21 support look perfect for our trading setup, but, as we've said market could proceed higher right from 1.2130.
Hourly chart has its own XOP target as well. It stands 1.2225 area - slightly lower than daily 1.2265
eur_1h_11_05_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,726
Morning guys,

Today we get more clarity on downside retracement - it might be deeper, because of the patterns that we harmonically have as on EUR as on GBP and it seems on Gold too. It doesn't make impact on our daily trading plan, as we just wait for pullback, whatever it will be and consider long entry then. But this might be important for those who are considering bearish position.

As market wasn't able to reach 1.21 level directly - we've got DRPO "Sell" instead of B&B. DRPO is tactical reversal pattern. On intraday charts it usually leads to deeper retracement - 50% at least of the thrusting action. In our case this is around 1.2075 area. But also it increases chances that EUR could reach 5/8 level as well.
eur_4h_12_05_21.png


On GBP with our yesterday's trading plan we have the same pattern - and we also talked about it:
gbp_4h_12_05_21.png


It means that chances of 1.21 K area survival has decreased. But I wouldn't say that EUR can't turn up from it, as it is strong support and upward action is fast. Thus, it is still makes sense to take some position around 1.21 K-area, say 30% of standard lot that you are trading with. And then watch for another entry at lower standing levels.
 

Sive Morten

Special Consultant to the FPA
Messages
14,726
Morning everybody,

so, Consumer Spending has spooked markets across the board and everybody forgot about recent NFP numbers in a blink of an eye. As we've said - these effects are short-term and we should not overestimate them, but for the truth's sake - consumer spending stands in a row with overall recovery tendency, while NFP was against it. Anyway rising volatility on contradictive fundamental statistics confirms our view that the US economy gradually is turning.

On daily chart, as we've said market could show deeper retracement because of stronger bearish DRPO pattern on 4H chart. Now we could say that theoretically drop could last till 1.1950 if H&S pattern here will be formed accurately. But it is difficult to say definitely as right arm might be shorter due strong upward momentum:
eur_d_13_05_21.png


On 4H chart DPRO has done well, solid upward bounce was from K-support, despite that it still has been broken later. Currently guys, if you've bought EUR around 5/8 support - move stops to breakeven. Those who just intend to buy - you could wait a bit more, as market could drop back either to the level again or even to XOP target, because of strong downside momentum. So, chances to take position at lower price still exists. If somehow EUR erases recent upside swing, then we turn to higher scale and start watching for daily H&S and 1.1950 lows. On daily chart we have MACD divergence as well, so I wouldn't deny this scenario totally.
eur_4h_13_05_21.png
 

RahmanSL

Major
Messages
2,823
Hi Sive...very good analysis and report......I'm keep on that loop-sided H&S on 4H chart which could still materialize.
Cheers & all the best!
 

Sive Morten

Special Consultant to the FPA
Messages
14,726
Morning guys,

So, week is coming to an end. Our major work was around entry setup, and mostly it is done well. Market starts upward action from predefined support area as on EUR as on GBP, where we were watching for 1.40-1.4040 area.

On daily chart theoretical chances exist on deeper downside action, somewhere to 1.1950, as we have bearish MACD trend and divergence. But I would say that they are theoretical mostly. Current upward action is too strong to call it as retracement. It looks more like upward continuation:
eur_d_14_05_21.png


On 4H chart our XOP Agreement area works nice and EUR was able to stay above it. It means that short-term bullish context, aimed on daily COP is still valid. Those who have taken position yesterday now could move stops to b/e and do nothing else. But if you're still considering entry, 1H chart could be useful.
eur_4h_14_05_21.png


On 1H chart we've got something like diamond on the bottom, which is quite rare pattern in general... Anyway, upward acceleration is strong and market now challenging 5/8 Fib resistance area. Pullback is very probable. At the same time, we have to keep an eye on 1.21 K-area and diamond's borders. EUR has to stay outside of it and above the K-area. So you could use any retracement that equals or above K-area with stops below it. Drop back inside the diamond and below K-area breaks short term setup and means that on daily we could get downside AB-CD to 1.1950. But now this scenario looks as hardly possible. Upward action is too strong.
eur_1h_14_05_21.png
 

Krismitt

Recruit
Messages
4
Hi there Sive:

Just started reading your Blog. Really good stuff!. Where can I read about your acronyms (COP, XOP, OP, Etc.)

Chris.
 

Sive Morten

Special Consultant to the FPA
Messages
14,726
Hi there Sive:

Just started reading your Blog. Really good stuff!. Where can I read about your acronyms (COP, XOP, OP, Etc.)

Chris.
Hi Chris, well, I'm a follower of Joe DiNapoli trading style, so everything you could read in his book "Trading with DiNapoli Levels".
In general COP, OP and XOP are just Fib extensions of 0.618, 1.0 and 1.618.
Also few terms are discovered here:
 
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