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Forex FOREX PRO WEEKLY, May 13 - 17, 2019

Discussion in 'Sive Morten- Currencies, Gold, Bitcoin Daily Video' started by Sive Morten, May 11, 2019.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals

    This week was relatively quiet as by price action as by events and news that were released. In general, week has passed under the sign of US-China negotiations. There were some statistics releases, such as CPI, but it has not brought something new and just confirmed things that everybody knows.

    Investors' logic on current events suggests that as tariffs was picks up, it could impact on US economy and force Fed to cut the rate. This is the reason why as more tough talks appear as higher EUR was drifting. But overall trading range was relatively tight.

    As Reuters reports - the euro firmed on Friday and is poised for a second consecutive week of gains on growing fears that any escalation in the trade conflict between the United States and China would force U.S. policymakers to cut interest rates.

    U.S. President Donald Trump’s tariff increase to 25% from 10% on $200 billion of Chinese goods kicked in on Friday, and Beijing said it would strike back. The two sides are pursuing last-ditch talks to try to salvage a trade deal.

    While U.S. and Chinese officials return to the negotiating table later on Friday, investors have quietly ratcheted up bets of a U.S. interest rate cut, with markets now roughly expecting one rate cut by the end of 2019.

    Indeed, if we take a look at Fed fund rate quotes, we'll see that chances on one rate cut stands 50/50 by the end of this year:
    upload_2019-5-11_12-25-39.
    Source: cmegroup.com

    Athanasios Vamvakidis, an FX strategist at Bank of America Merrill Lynch, said if China retaliated then the threat of a global trade war would affect the outlook of the U.S. economy and increase the chances of a Fed rate cut.

    “In this case, the Fed has more room to ease than most other central banks, suggesting eventually a weaker dollar against both the euro and the yen,” he said.

    John Marley, a senior currency consultant at FX risk management specialist, SmartCurrencyBusiness, said Europe was seen as a barometer for global growth and markets would benefit from any trade deal between China and the United States.

    Trump on Friday said he was in “absolutely no rush” to finalise a trade agreement with China as U.S. negotiators prepared to continue talks in Washington, saying discussions were continuing “in a very congenial manner”.

    Broadly, risk appetite was muted though some of the higher-yielding currencies such as the Australian dollar which was heavily sold this week when Trump unexpectedly ramped up trade tensions, gained.

    Still, trade tensions have had broadly little impact on foreign exchange markets with typical perceived safe-haven assets such as the Japanese yen only gaining 1.2% this week while broader currency market volatility gauges were subdued despite a minor bounce this week.

    “Risk has actually traded remarkably resiliently,” said Alan Ruskin, global head of currency strategy at Deutsche Bank. Earlier this week, there were “some fairly sizeable risk-off moves, particularly in dollar/yen, (but) there has been no real follow-through today.”

    “They were constructive discussions,” Treasury Secretary Steve Mnuchin told reporters as he left U.S. Trade Representative Robert Lighthizer’s offices near midday. Chinese Vice Premier Liu He, his country’s lead negotiator, told reporters at his hotel in Washington that the talks had gone “fairly well,” Bloomberg reported.

    Deutsche Bank’s Ruskin said, “There’s a sense that talks will continue. As to whether there will eventually be some kind of deal, Yes, but there will be a lot of noise in the interim.”

    Also on Friday, the Labor Department reported that U.S. consumer prices rose in April but underlying inflation remained muted, suggesting the Fed could keep interest rates unchanged for a while.

    And now guys we're going to take a look at some facts that absolutely do not correspond to multiple statements above. First is, take a look at recent CFTC report - I do not see any short covering on EUR. Despite heavy upside action this week - net bearish position stands the same:
    upload_2019-5-11_12-33-45.
    Source: cftc.gov
    Charting by Investing.com


    Second is Fathom consulting update on US economy momentum. And they confirm that still expect one rate hike this year, closer to the end. The same thing hints J. Bullard when he said that slow inflation is a temporal thing and it should start to change.

    Here is what Fathom tells:
    After three years when US policy has been acting to boost output relative to potential, Fathom’s forecast sees it returning to neutral this year, as President Trump’s fiscal loosening comes to an end, and as the real rate of interest continues to drift higher. In contrast to investors in US money markets, who believe the Fed Funds rate is more likely to fall this year than to rise, Fathom expects one interest rate rise in the second half of this year, and a second one in the first half of next year, as US growth remains above trend.

    Although US growth is set to slow this year, a degree of momentum is likely to keep it above our estimate of trend. Next year brings the risk of a sharper slowdown, in the US and elsewhere, although our central expectation remains that a recession will be avoided.
    [​IMG]

    The picture in the euro area is somewhat different. With growth having slowed since 2017, and with core inflation still at just 1.2%, the ECB’s main refinancing rate is likely to remain at zero for the foreseeable future. With real rates of interest substantially below their historic average, the currency bloc is likely to grow at a rate of about one per cent this year ― due to an ageing population and weak productivity growth, this is still above Fathom’s estimate of trend growth.
    [​IMG]

    Now, let's ask the same question - in current circumstances, how do you think - what the importance of all this noise around US-China talks and that may be (which is not the fact), that tariffs should force US to cut the rate? For me it sounds like concoction. China economy shows slowdown, it is record defaults and bankruptcy in corporate sector. US dollar serves 70%+ of all international trade and I'm sure that China will do what US will force it. EU is next. US stands in difficult political and economical situation and they need to use all power that they still have to earn necessary gain. I'm gravitating to idea that US will win in any tariffs war with China. We already talked about it previously.

    So, the net result - no short covering, Fathom suggests improving and rate hike instead of any cut that is widely suggested right now. Trump starts talking on total 25% tariffs on whole China export to US, which is approx. $550 Bln. This holds me aside from suggestion of EUR rising in nearest time.

    Technicals
    Monthly


    This week looks a bit dummy from technical point of view. Trading range was very tight and it almost nothing to add to our previous analysis.

    Monthly was standing quiet for long time and every week we tell about two major scenarios that we keep an eye on. They are 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.

    Our forum member, Stag provides update from EW analysis point of view and also suggests these scenarios. Taking in consideration fundamental things that we discuss above - I would prefer downside scenario.

    Despite dropping out from the flag pattern, price is coiling around major support and we can't say yet that it was broken. MACD trend stands bearish, no oversold here.Downside targets stand the same - first is YPS1 at 1.09 and second one is AB-CD COP target around 1.03, i.e. previous lows and bottom of the rectangle.

    As we said this many times previously - indirect technical factors point on market's weakness, at least in long-term perspectives. Our major long-term driving factors are - Brexit, deteriorating situation in EU and China economy and politics, its high reliance on US and lack of preparedness to change in Fed policy. By our view these factors will make the game in nearest 1-2 years, or even longer.

    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. 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_13_05_19.

    Weekly

    As it lasts for few weeks, weekly chart doesn't show any valuable add on to technical picture. Stag's charts are more interesting, as they also shows weekly chart and provide three different scenarios that should happen here rather soon.

    Here market is still coiling around the same major Fib support. And the only thing that we could add - bearish grabber that has been formed this week. It suggests drop below the lows of 1.11 Grabber provides trading setup on coming week, at least until it stands valid.
    eur_w_13_05_19.

    Daily

    So, on short-term charts we have tricky situation. As I mentioned through the week, overall price action doesn't look strong, price action is rather slow and choppy, and this puts the shadow on bullish perspectives.

    Now we have as daily and weekly grabbers that point to the downside and US-China topic is totally utilized and exhausted. This potentially creates background for reversal down. At least, we should be careful to bearish patterns and signs on daily and intraday charts through the week.

    At the same time, Stag suggests action to 1.1323 top, which potentially erases both grabbers and short-term setup. This is why situation is tricky.

    If, still we are correct and EUR drops - our primary pattern here is butterfly. Its nearest target will be 1.1070. Action above grabbers tops gives us AB=CD pattern with target very close to 1.1325 top.Thus, situation stands not as bad, because we know vital level and border between bullish and bearish context.
    eur_d_13_05_19.

    Intraday

    On 4H chart we show the AB=CD that we could get if our grabbers will fail. At the same time, market still stands at our major level where "222" Sell has started. So, our bearish pattern is still valid.
    eur_4h_13_05_19.

    On 1H chart we have relatively simple task. On Friday, market has shown a sign of W&R, failure upside breakout, although it had to move higher as reaction on OP target already has happened. Now we could keep an eye on reversal pattern and drop below 1.12 area.
    For example, we could get H&S pattern which could trigger downside reversal. As usual we could watch for minor "222" Sell on right arm of this pattern. Also this pattern is very comfortable for failure estimating. Once EUR will rise above the top, bearish context probably will be erased.
    eur_1h_13_05_19.

    Conclusion:
    Media comments contradict to facts that we see on the market - no short covering, technically market also look heavy and long-term bearish view on EUR was confirmed as well. This give little room to anticipation of bullish trend on EUR in long-term perspective.
    In shorter-term situation is more tricky and we need to keep an eye on bearish patterns on intraday charts, that already are forming. It's failure open road to 1.13+ area, while if they will start to work, we should get downside action below 1.11 lows.


    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.
     
  2. Deltoid88

    Deltoid88 Sergeant

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    Update on EUR. Although price action shows very low volatility I still expect that to change and that we are close to culmination point. I still expect bullish bounce as part of correction after which true downside action could continue with even higher volatility.

    Daily chart:

    EURUSDkDaily.

    4H chart:

    EURUSDkH4.

    1H chart:

    EURUSDkH1.

    How to trade this?

    Scalp sell entry against 1.1253 top, sell entry zone = 1.1230-1.1245, SL=1.1255, TP zone = 1.12-1.1215
    Main position, long entry in zone = 1.12-1.125, SL1=1.1195, SL2=1.1165, SL3=1.1109, TP zone = 1.1440-1.1740
     
  3. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    As we've said, EUR stands fundamentally bearish and only external factor could drive it higher. Yesterday there was an attempt when China announced 10% tariffs on US 60 Bln export starting 1st of June. We already express our opinion on this subject and personally I do not see any advantage for EUR in US-China tariffs piking.

    Tariffs is a tool that serves to US interests, they are masters of this tool. China could apply them as well, but it doesn't mean that it has the same efficiency. USD and Reminbi are not comparable by global trade value.

    Thus, I'm sceptical on EUR rally on a background of this news. And price action confirms my doubts. Upside reaction was fastly reversed back. As a result, we've got shooting star pattern on daily chart below major K-resistance. Our grabber is still valid.
    eur_d_14_05_19.

    On 4H chart our "222" Sell is still valid, although it has become more extended. Second - we've got bearish engulfing pattern once China news were reversed back:
    eur_4h_14_05_19.

    Maybe I'm wrong, but it seems that a kind of round top or "roof" is forming on EUR. Today I watch for "222" Sell pattern around 1.1250-1.1255 area, it could provide acceptable risk/reward for short position with relatively tight stop above grabber's top on daily chart. Currently I do not see any attractive bullish setups here, no clear patterns yet. For short entry - action should be gradual, pattern should be formed. Any upside acceleration suggests no short entry.
    eur_1h_14_05_19.
     
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  4. Deltoid88

    Deltoid88 Sergeant

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    Update on EUR. I will concentrate in this upside only on short term view, I will update my longer term view next week. I see many combinations longer term, and it is hard to determine what is most probable one. Price action is too slow and weak, with many pullbacks for this to be wave 3 to upside. Now I see this as part of C wave as my most probable scenario. I still expect bullish bounce to 1.1280 area to complete bullish retracement at least.

    4H chart:

    EURUSDmH4.

    1H chart:

    EURUSDkH1.

    15 MIN chart:

    EURUSDkM15.

    How to trade this?

    Long entry in zone = 1.1186-1.121, SL1=1.1172, SL2=1.1109, TP zone = 1.1280-1.1290
     
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  5. Joshnix

    Joshnix Corporal

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    Sive,
    After Trump stated that if the Fed cut the interest rate that the US would win the trade war, does that fundamentally change the bearish view to bullish? Fed cuts rate because of trade war and dollar goes down. That might bring about Deltoid's EW predictions. Might be advantageous to buy around 1.12 with close stop about 30 pips to anticipate the fed cutting rates?
     
  6. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Hi Josh,

    Of course, I understand what everybody talks about. But here is few moments exist. First, Fed has to get clear signs of trade war impact on US economy, second - it should prepare markets to this step. So, this is not near standing perspective. Third - 60Bln if US export to China is nothing. It is like big mac to elephant.

    Tariffs is a robbing tool in hands of US, but tariffs work only in one direction. They are not mutual. Yes, China could apply them also, but effect almost anemic compares to what US gets. My suggestion that under tariffs impact, US economy gets advantage compares to China. Besides, China has difficult situation in economy per se - massive corporate bankruptcies at record high level, GDP slowdown to record lows. This is result of no deversication, they sell everything mostly to just one country - US.
    As a bottom line - my suggestion that tariffs impact on US economy is overestimated, or intentionally used to burn the panic on markets.

    Related question - what deal EUR has to US-China piking? USD becomes weaker to EUR as a result of tariffs? This is questionable statement.

    Speaking on trading directly - I do not see valuable setups on daily/weekly basis by far. May be some short-term intraday setups here and there... but nothing on higher time frame. May be something should change soon, but currently not yet.
    I like GBP now.
     
  7. stelore

    stelore Sergeant

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    Hi Sive,
    I'm following AUD drop.
    Is there any chance to have a little analysis of Aussie from you?

    Thanks a lot for you daily effords
     
  8. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Hi buddy, I'll take a look what is going on there... Probably this is some echo of China situation...
     
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  9. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    So, our yesterday setup mostly is done well. Drop has happened. On daily chart we do not see any big shifts, mostly the same picture. Today we have a lot of EU stats, including GDP release so - be prepared.
    eur_d_15_05_19.
    Today our focus on intraday setup. There are a lot followes of bullish view on EUR, thus we take a look at chances to go long today. On 4H chart as you can see market stands at solid support area. This is K-area, and Agreement, trend line support. We have reasons to suggest at least minor pullback, although GDP release is the risk...
    eur_4h_15_05_19.

    On 1H chart we also have a "222" Buy pattern as a result of yesterday's drop. So, if you have a bullish view - you could consider this setup and may be use it somehow in your trading plan. Technically this construction suggests upside action at least to 1.1225 K-resistance, so it should be enough to place to stop breakeven. And then, we will see what will happen...
    Bears should sit on the hands as it is not good idea to Sell at strong support area...
    eur_1h_15_05_19.
     
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  10. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    We're not occasionally warned you and talked about our contrary opinion on US-China tariffs implication. Thus, our bullish setup that we've discussed yesterday, barely has worked, showing just minor reaction on strong support. Then EUR collapsed. Only S. Munchin comments on postponing EU and Japan car producers tariffs support the EUR and let it to return slightly back.

    As a result we've got high wave pattern on daily. Next direction depends on breakout of this pattern:
    eur_d_16_05_19.

    On 4H chart, you could see that EUR dropped to our next support around 1.1180 area and WPS1. Munchin comments give us bullish engulfing pattern at support area and we could use it as scalp setup for trading. Unfortunately we do not see anything more valuable on higher time frames, guys. And this is the only relatively clear setup, that we have on EUR by far.
    eur_4h_16_05_19.

    On 1H chart it takes the shape of reverse H&S pattern. Thus, if we get a kind of "222" Buy, we could use it for fast upside trade and AB=CD pattern target.
    Take a look that market has hit COP target of wide AB-CD pattern. And now we have reaction on support Agreement area.
    Finally, the only tricky moment is uncompleted XOP of our yesterday smaller ab=cd pattern. So, initial stop is better to place somewhere below xop. Total risk of this trade will be around 30 pips, which seems acceptable.
    eur_1h_16_05_19.
     
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