Forex FOREX PRO WEEKLY, May 13 - 17, 2024

Sive Morten

Special Consultant to the FPA

This was really great week guys, no big news at all. Among the major events I would point Initial claims data collapse, which actually has triggered rally on Thursday. And signing free trade agreement between Serbia and China. Also imposing new export barriers on China EVs from the US. The recent two are not economical but still seem important. Among economical news I would mention more publications in mass media materials concerning crisis and breaking of "old global order".
Still next week hardly will be boring. We will get CPI and some other important data.

Market overview

The dollar weakened against most currencies on Thursday after economic data showed more signs of softening in the U.S. labor market, while the pound rebounded from earlier lows after the Bank of England opened the door for an interest rate cut. Weekly initial claims for state unemployment benefits increased 22,000 to a seasonally adjusted 231,000, the highest level since the end of last August and above the 215,000 expected by economists in a Reuters poll:

The data followed last week's weaker-than-anticipated U.S. payrolls report and other data that showed job openings fell to a three-year low in March.
Market participants have looked towards a softening labor market as a sign that consumers will begin to slow spending and in turn help cool inflation. Data next week will include readings on consumer prices (CPI), producer prices (PPI) and retail sales.
"We did have a knee-jerk reaction in yields and the dollar lower this morning after the jobless claims number came in above expectations," said Karl Schamotta, chief market strategist at Corpay in Toronto. There were some seasonal distortions in the claims report that may have led to the higher reading, but recent economic data kind of suggests that we're seeing a deceleration in the world's largest economy, and if we do see a sequential decline in U.S. consumer/producer price indices next week as well as the retail sales number, then that could prick that U.S. exceptionalism trade that's been dominating markets for quite a long time."
"The CPI, I don't think it's going to change people's views; the price pressure is still elevated, but it'll be a decline, it will be just a softer year-over-year read," said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York. "So it's not so much the magnitude, but the direction."

The greenback showed little reaction to comments from Federal Reserve Bank of San Francisco President Mary Daly, who said she still sees a "really healthy" labor market and inflation that remains too high.

The BoE's Monetary Policy Committee had voted 7-2 to keep the central bank's key policy rate at a 16-year high of 5.25%, with Deputy Governor Dave Ramsden joining Swati Dhingra in voting for a cut to 5%. BoE Governor Andrew Bailey said it was possible the central bank would need to cut rates by more than investors expect.

The dollar inched higher on Friday following a reading on U.S. consumer sentiment as investors sorted through a batch of comments from Federal Reserve officials, with the focus beginning to turn toward key inflation readings next week. The greenback pared declines and turned modestly higher after the University of Michigan's preliminary reading on consumer sentiment came in at 67.4 for May, a six-month low and below the 76.0 estimate of economists polled by Reuters. In addition, the one-year inflation expectation climbed to 3.5% from 3.2%.


Also supporting the dollar were comments from Dallas Federal Reserve President Lorie Logan, who said it was not clear whether monetary policy was tight enough to bring inflation down to the U.S. central bank's 2% goal, and it was too soon to be cutting interest rates. That ran counter to earlier comments from Atlanta Federal Reserve President Raphael Bostic, who said the Fed likely remained on track to cut rates this year even if the timing and extent of the policy easing was uncertain. In addition, Chicago Federal Reserve President Austan Goolsbee said he believes U.S. monetary policy is "relatively restrictive."

Following last week's softer than expected U.S. payrolls report and a Fed policy announcement, markets have been pricing in about 50 basis points (bps) of cuts this year, with a 62.2% chance for a cut of at least 25 basis points in September, according to CME's FedWatch Tool

Global central banks that moved together to battle inflation are starting to scatter, with European rate setters turning dovish while the U.S. Federal Reserve stays cautious about cutting too soon. Following the most aggressive global monetary tightening cycle in decades, here's where leading central banks stand and what they are expected to do next:

The European Central Bank is growing more confident about cutting interest rates as euro zone inflation continues to ease, three ECB policymakers said on Monday. ECB policymakers Philip Lane, Gediminas Simkus and Boris Vujcic said separately that the latest inflation and growth data cemented their belief that inflation will head back to the central bank's 2% target by the middle of next year. The ECB has all but promised a rate cut on June 6 and money markets are almost fully pricing in three cuts this year.
"Both the April flash estimate for euro area inflation and the first quarter GDP number that came out improve my confidence that inflation should return to target in a timely manner," ECB Chief Economist Lane told Spanish newspaper El Confidencial. April inflation data finally showed progress on services prices but the bank would continue to focus on services to make sure it did not derail disinflation later on.

German commercial property prices fell 9.6% in the first three months of 2024 compared with a year earlier, the VDP banking association said on Wednesday, as the nation's property industry suffers its worst crisis in decades. The continuing decline in values of commercial real estate follows a 10.2% drop for all of 2023. The latest drop is less severe than the 12.1% drop for the fourth quarter, which was the biggest ever.

Meantime, U.S. banks reported renewed weakening in demand for industrial loans and a decline in household demand for credit in the first quarter of the year, according to a Federal Reserve survey of senior loan officers published on Monday. he net share of large and medium-sized banks reporting tightening standards for commercial and industrial loans ticked up to 15.6%, from 14.5%, the survey showed. A rising share of banks reported weaker demand for C&I loans.
"Many consumers and businesses are feeling the pinch from reduced credit availability even as the Fed looks set to keep interest rates higher into 2025," wrote Nationwide economist Ben Ayers. "This could set the stage for weaker activity ahead and makes the economy more susceptible to an unexpected shock."

Fitch Ratings on Tuesday downgraded embattled regional lender New York Community Bancorp and its bank subsidiary, Flagstar Bank, to 'BB' from 'BB+'. The ratings agency said the downgrade reflects its assessment that NYCB has a weaker earnings and profitability profile coupled with the execution risk associated with its restructuring plan.

The U.S. Federal Reserve Board has issued an enforcement action with First Citizens Bank of Butte in Montana, the board said in a statement on Tuesday.
The enforcement action addresses issues with board management, anti-money laundering and suspicious activity reporting, according to a written agreement between the Fed and the First Citizens Bank of Butte.


Despite that there were no any official releases, there are still some interesting publications that could become bricks in the wall of overall situation in the US economy, or easier speaking in the wall of crisis. For example, Legendary analyst of financial and geopolitical cycles Martin Armstrong says:
I think the US could default on its debt as early as 2025, but it will probably happen in 2027. We went as far as we could. Europe is in the same boat. So does Japan. That's why they need war. They think that starting a war will be an excuse [to avoid] defaulting on [their] debts. They simply won't pay China. If they try to sell their debt, good luck...
So, once that happens, you will go to war and that will be their excuse for collapsing this whole debt thing, which will lead to the cancellation of pensions, etc. Then they can blame Putin. This is the same thing Biden did before he said it was Putin's inflation. . . These people are desperately trying to stay in power. Nobody wants to give it up, and nobody wants to reform.

Armstrong is also predicting a big turn on or about May 7th. Armstrong predicts a recession will start then and go on until 2028. GDP will continue to fall, and inflation will continue to rise. Armstrong says it is the perfect storm for a dreaded “stagflation economy.” This was 54 min interview and he spoke on many subjects including politics, Ukraine etc, so you could watch by the link above.

Here we're interested only with economy topic and this is another one confirmation of our (and not only our) view that the US economy stands in structural crisis that will last for 8-10 years, if no negative acceleration happens. The forecasts for the American default are spinning up . We shouldn't rely on them too much, but I would still pay attention that everyone usually laughs about it for a long time at first, and then suddenly it turns out that "everyone has known this for a long time." In fact, it is still very easy to technically avoid default, but apparently not just politically, because you need to print a lot and apparently they cannot decide who will be the beneficiary of the "last issue".

Such a large budget deficit in the United States, as it is now, was usually observed during periods of recession. That is, only fiscal stimulus keeps the economy from falling into the red. But the economy is still moving towards a recession - this can be seen, first of all, from the labor market data and other indicators are also getting worse.

The logical question is: if the budget deficit is already record high, how will the economy need to be stimulated when the recession hits? Especially if inflation remains high (although a recession itself should be a disinflationary factor, but not always) and the Fed will have to pretend that they continue to fight inflation at a high rate. Increase the budget deficit and public debt. Yellen, apparently, is actively preparing for this, having accumulated almost 1 trillion dollars in a TGA account, so that you don’t have to immediately and suddenly borrow money from the market. We've covered this topic last week.


But we are still seeing a reduction in demand for government debt against the backdrop of rising inflation. Even at the current level of borrowing, not to mention the future one. So the Fed, whether at high or low rates, will still have to step in and buy treasuries.

But only reducing the rate to zero or even minus can help restore the economy and solve the problem of public debt. Because this is not a question of liquidity, it is a question of the cost of money in comparison with the return on investment in the real sector of the economy, despite the fact that before, when the rate was at zero, there were no booming investments and economic growth, which means a normal return on investment is possible only with a zero Fed rate, and development - with a negative rate (although this did not work for rapid growth in Japan, Sweden, or Switzerland). It’s just not clear who in such a situation will need this debt, except for central banks.

Regarding economic growth and statistical fraud... Healthy economic growth is always accompanied by an increase in energy consumption. No, of course, if production is declining and services are growing, then it's not a fact. But we do not see such a strong decline in the share of production in the US GDP.

But what we see is that there is no increase in automobile fuel consumption (Ok-ok everyone started buying EV), even a decrease, nor an increase in electricity consumption (What EV? Data centers?) not really since 2005 (before the crisis). At least, the growth is significantly lower than the population growth even over the last 15, not even 19, years by 11.7%. While they pictured the GDP growth during this period is 2 times. So what kind of economic growth are we talking about? :cool:

And finally, the topic of households savings and consumer sentiment. Somehow this topic was ignored by big media, although the changes that we see there are radical and epic.

San Francisco Fed:
“The latest estimates of the total excess savings remaining in the US economy during the pandemic have turned negative. American households have used up all of them as of March 2024. Since September 2021, they have fallen (from a peak of $2.1 trillion) by an average of $70 billion per month, although this decline has accelerated to $85 billion per month since last fall. However, consumer spending has remained strong in recent months (raising an important question: what next?)

Latest Fed Credit Conditions Survey SLOOS:
US banks generally reported that household lending standards have been tightened for all categories of residential real estate loans, with the exception of preferential government programs. Moreover, standards for credit cards, auto loans and other consumer loans have also tightened, and demand has generally declined. The share of banks that have tightened standards for commercial and industrial loans for medium and large businesses increased from 14.5% to 15.6% in the first three months of the year.

If we consider these news together with recent Michigan sentiment indicator, then direction of this process becomes more or less clear. Recent ISM Services PMI (Apr) = 49.4 ( previously 51.4). Actually, services, which is ~70% of GDP were holding GDP positive for quite a long time turns to negative area. Let's see how the Fed will slow down its balance sheet reduction from June on sentiment. This is already push higher inflation expectations (chart above), but not expectations in the manufacturing or services sector. This means only one thing - Inflation.


First thing guys, we should be ready that "the Image of prosperity" should stay until the end of 2024 because of $1Trln US Treasury reserves. It could fade and disguise any problems for some time and many investors will believe it. Also it means that stock market hardly collapses in the same period. For EUR/USD trading it means that USD should keep dominant role because of "rosy picture" that suggests no necessity to cut the rate. But this "Crime of the century" can't last forever. This is good time to go out of the US assets, because when this "prosperous time" will come to the sudden end - there will be a lot of screams "Let me out!" but it will be hard to do something.

Indicators that we've considered today point that situation inside the US economy is becoming tighter and it comes already down to households finances. Hardly we will get big relief in inflation data as well. Until the ECB June's rate cut, EUR/USD mostly will be driven by the US statistics. Then, in June, EUR could get a new downside impulse if the ECB decides to continue. Other words speaking, despite that June's cut already 99% is priced-in, I do not see fundamental reasons for EUR upside reversal.

Months starts intriguing, as our anticipated "flirt with MACD" takes place. Will it become a grabber or not should become clear by the end of the month. Fundamental picture tells that there are no reasons to get big bullish reversal pattern on EUR. But technical is the technical to predict possible fundamental turns. Maybe driving factors will appear later, or... right, grabber just will not be formed. Now this scenario seems as the most probable.

The same potential grabber stands on monthly DXY as well...



This chart barely has changed. Despite nice rally on Thursday, we've got the inside week anyway. Thus, picture remains the same - trend is bearish and everything stands in the range of strong downside collapse 4 weeks ago. Thus, from the weekly chart point of view, EUR is showing upside pullback inside of longer term downside tendency.



So, we've got our upside action that we would like to get and "better" level for short entry. Should we sell now? Upside AB-CD is done, price is stuck inside wide resistance range of double K-areas of 1.0750-1.0835 in total. Well, it is very likely we should... Just let's find out the only one thing on the next week:


It is very interesting that if you will check the MACD value for the next week, it shows 1.0803 that in general agrees with daily K-resistance area. What does it mean? It means that daily K-area is a vital for bearish scenario and EUR has the last chance to trigger downside continuation. Otherwise, bearish context will fail and everything will turn for 180 degrees - i.e. up. (Say hi to monthly grabber).

This makes trading process relatively simple. The only thing that bears should control is daily K-area. Also it makes no sense to place too far stops as breakeven point of bearish trend is very close.

4H chart looks bullish by far. Good CD leg acceleration to OP, small, just 3/8 retracement to K-support area and fast bounce out from it. Chances of possible upward action to XOP are exist, no doubts. But the problem is XOP stands around 1.09 and above "C" point of bearish AB-CD pattern of a daiy scale. Other words, if we get action to XOP - bearish context will be destroyed.

Now On 1H chart EUR is forming reverse H&S on top. As bulls as bears should keep an eye on it. Bulls, if they missed entry from our 1.0730 K-support and would like to join the party, Bears - watch for H&S failure, because it might become the signal for short entry:

Particularly speaking - 1.0745 (5/8) - 1.0756 (1/2) levels range seems interesting. Bulls now stand in a kind of trap due recent strong upside action. EUR has to keep going higher to holds bullish context, especially after so fast upside bounce. If it will drop back to 1.0725 lows - this will be quite irrational and unnatural performance, suggesting breaking of the market short-term sentiment.

Thus, bulls could think about entry around 1.0745-1.0756 area, watching for bullish patterns around on 15 min chart, for example. While bears should sit on the hands and watch for either H&S failure here or its upside completion targets, hoping that EUR will not go higher than daily K-area...
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Morning guys,

First is - our GBP setup that we've discussed last week starts perfect - just an update for those who follows it...

So, EUR has started well on Monday, following the idea of 1H reverse H&S pattern. But now we stand in an area that could give us the hot mix of patterns, starting from monthly bullish grabber, weekly bearish grabber and so on.

As we've discussed in weekend - 1.08 area is the line between bearish and bullish context. Market has to stay below it to keep weekly downside trend. Here it means that this is the last culmination area and bears have to make a decision on short entry on weekly/daily time frames. This is very comfortable, because invalidation point stands near and you do not need to hide stop too far.

That's being said, if weekly tendency is valid, EUR should "finalize" somehow upside action and turn down. For example we could get upside butterfly with the same 1.0835 target:

Our H&S pattern on 1H chart point on slightly lower 1.0826 target:

So, if you have long position - you could keep it for awhile, just tight the stop, be on guard when EUR comes close to 1.0830 area. Be aware of CPI, PPI etc. releases...

For the bears - simple way is to sell with stop above daily K-area and forget it. More advanced approach (is what we try to do) - follow the patterns and try to identify reversal with them, which is also cut the risk due to closer potential stop...
Upon booking result on EUR long near recent highs, I have taken short on GBP at the predefined level with breakeven stop ;)
Upon booking result on EUR long near recent highs, I have taken short on GBP at the predefined level with breakeven stop ;)
Hi mate, yes, but it seems GBP turns to "alternative" scenario with H&S failure. It means that it will challenge the top again, trying to return back in trading range above 1.2650-1.27 area...
Morning guys,

So, EUR hits 1.0835, upside butterfly completes first 1.27 target. Bears probably have nothing to do by far, and should watch for results of this week. Everything still could change.

Now, those who still hold long positions should make a decision on either to hold it through CPI report or to close and re-enter later. But, based on recent PPI and started manipulation with CPI statistics, they probably will try to hold it near expectations level. Next upside targets you could see on the chart, the major one is XOP around 1.09

If downside pullback starts, we will keep an eye on 1.0790 K-support area as a most probable one that could hold downside pullback. If, of course CPI will be not too strong and more or less near the consensus level. 1H next upside target is around 1.0870
Morning everybody,

So, our 1.5 months journey with this retracement is coming to an end. Because market has broken 1.0835 resistance and it is not a retracement any more. Yes, we still have two days until the end of the week, miracle could happen if EUR drops back, keeping weekly bearish trend intact. But, chances for that do not look like very high...

So, as all intraday targets are done, we're now in a kind of "transition mode". Transition to higher time frame patterns. Particularly speaking - it might be big reverse H&S on daily chart, if weekly bullish trend will be confirmed. Recall, that on monthly chart we could get bullish grabber in May. So, this H&S perfectly fits to this scenario:

Now bulls and bears are changing places. If only yesterday bears were waiting for good resistance to take long term bearish position while bulls were trading short-term intraday targets. Now situation is changing at 180 degrees. Bulls should wait for moderate pullback to take good mid term position, while bears have to start dealing with scalp minor intraday setups.

Particularly speaking - on 4H chart we also could get reverse H&S. EUR has formed bullish reversal swing, erased previous collapse. So, an area around 1.0750 seems interesting for long entry. Also here we could watch for tactical B&B "Buy" around 1.0826...

On 1H chart I see nothing to do by far. H&S 1.0870 target is done perfectly, but market has too few time to show some response here. So, reaction is just starting.

That's being said, as big action is done, right now we see nothing to do by far. This is typical for transition moments, when trend on higher time frame is breaking and market needs to prepare the background to follow it.
Morning everybody,

So, EUR mostly stands in the same area, we've talked about it in details yesterday, so let's have a look on GBP. On Daily chart market stands at resistance level, but obviously we have here upside AB-CD with 1.2780 target. Market sentiment is changing into more dovish about USD, US data stands under strong control from US economy authorities so in nearest few weeks upside action has good chances to continue. Potentially, as GBP returns back to "yellow" trading range, it could aim on the top around 1.29 as well. If BoE will not start cutting rates aggressively .

On 4H chart price now at the resistance and we have few other targets here. Since GBP accurately reacts on "XA" swing extension, we use it as a major one. Now we're at 1.27 extension. Next one, 1.618 is around 1.2750 which is very close to daily AB=CD target:

GBP stands in tight pennant consolidation (as well as EUR), suggesting upside continuation. Since the thrusting action from the "C" point looks nice for DiNapoli patterns, we also could watch for B&B for example, if cable shows pullback to ~1.2630 area:

So, today's Friday, I do not see anything to do urgently, let's just keep watching for attractive entry points, while GBP keeps bullish context.