Forex FOREX PRO WEEKLY, May 17 - 21, 2021

Sive Morten

Special Consultant to the FPA
Messages
14,731
Fundamentals

As we warned previously, global markets, at the eve of economy cycle direction changing usually are extremely volatile. This is that we see right now. The thunder of poor NFP report was still sounding in the air, when markets were stunned by CPI and Consumer spending data, that turned them in opposite direction, and NFP effect was mostly forgotten. So, any statistics data now is short-lived, until it becomes a detail in fundamental puzzle. All these things are perfectly fit to our long-term view and changing of global economy cycle where reflation stands as the 1st stage.

Market overview

The U.S. dollar nursed losses near 2-1/2 month lows on Monday as a disappointing U.S. employment report prompted investors to unwind their growing long positions in the greenback. The United States created a little more than a quarter of the jobs that economists had forecast last month and the unemployment rate unexpectedly ticked higher, casting doubts that the Fed would consider advancing the time line of tightening policy in the coming months.

"The more erratic the recovery on the U.S. labour market, the longer the Fed will take to consider rate steps," Commerzbank strategists said in a note

"The unexpected slow recovery in the U.S. labour market reinforces the FOMC's patient approach to monetary policy," while "the improving global economic outlook is a medium-term weight on the USD," Commonwealth Bank of Australia strategist Kim Mundy wrote in a client note, predicting a break above $1.22 for the euro.


That view was shared by JP Morgan strategists who cut their net long dollar positions against a basket of G10 currencies, notably the euro and the Antipodean currencies. Broader positioning data also revealed a similar trend.

U.S. consumer prices increased more than expected in April as booming demand amid a reopening economy pushed against supply constraints, which could fuel financial market fears of a lengthy period of higher inflation. The consumer price index jumped 0.8% last month after rising 0.6% in March, the Labor Department said on Wednesday. Excluding the volatile food and energy components, the CPI soared 0.9%. The so-called core CPI rose 0.3% in March.

Economists polled by Reuters had forecast the overall CPI climbing 0.2% and the core CPI rising 0.3%.

“For now, the Fed is likely to believe this is just a temporary spike given the more generous unemployment benefits are set to end in early September. If true, then markets need not be overly worried about inflation. However, if the Fed has misjudged its position then fears of a quicker pace of tightening are likely to drive volatility in bond markets higher,” JP Morgan said.

The dollar held gains on Thursday, supported by higher Treasury yields after a bigger-than-expected rise in U.S. consumer prices fanned fears about an increase in inflationary pressure. The greenback is likely to continue to rise as some investors unwind bearish bets on the currency and reposition for more sustained inflation as more countries leave behind the coronavirus pandemic, analysts said.

"The move in the dollar was fuelled by the upward surprise in consumer prices, but also because the market was caught on the short side," said Shinichiro Kadota, foreign exchange strategist at Barclays. This market is aware of the potential for further upside surprises to inflation. This will support the dollar."

Benchmark 10-year U.S. Treasury yields rose to a five-week high of 1.7040%, which increases the appeal of holding dollar-denominated assets. Signs of stronger labour market and increased consumer spending would offer more evidence that inflationary pressure will pick up, which could push yields and the dollar even higher, traders said.

The dollar edged lower against major currencies on Friday after U.S. retail sales unexpectedly stalled in April and as concerns about prospects of accelerating inflation receded. The Commerce Department said on Friday that retail sales were unchanged in April after a 10.7% surge in March, boosted by stimulus checks. But another acceleration in retail sales appears likely in the coming months as the U.S. economy reopens and Americans spend the savings they have been amassing.

Friday's drop erased some of a two-day rally in the dollar after data on Wednesday showed U.S. consumer prices increased by the most in nearly 12 years. While the Fed has pledged to keep interest rates low even as inflation rises, some in the market have bet that the Fed will be forced to act sooner than expected, making the dollar more attractive.

The combination of weak economic data - last week's non-farm payrolls report and retail sales on Friday - and evidence of stronger inflation has meant that the dollar has struggled to make much headway, wrote Jonas Goltermann, senior economist at Capital Economics. The prospects for monetary policy normalization remain key. Minutes from the April FOMC meeting, released on Wednesday, may provide some further clues as to policymakers’ intentions in that regard."

Inflation in the post-pandemic world
(By Fathom consulting)

The inflation outlook in the post-pandemic world is a contentious issue, gaining much media attention and is even the focus of a series of notes from Fathom Consulting. The first of three focuses on the ways in which economists have tended to think about the inflationary process, such as the output gap, and concludes that while measuring this intangible concept is fraught with difficulties, and perhaps decreasing relevance as the nature of economic production evolves (think Netflix), it will still be a valuable tool in the unique economic circumstances of the pandemic. Indeed, as we emerge from the pandemic and economies reopen in full, aggregate demand is likely to rise sufficiently far, relative to potential, to put significant upward pressure on inflation. Why?

One reason is the unprecedented nature of the response from both monetary and fiscal policymakers to the crisis. The outcome of a policy that seeks to provide households with incomes close to, if not equal to pre-pandemic levels, while simultaneously forbidding those same households from purchasing many of the goods and particularly services that they would normally purchase, is a substantial build up in savings, evident in the chart above. The path of economic activity and inflation across the major economies through this year and next will depend, to a great degree, on how rapidly those excess savings pots are spent. Having been denied the right to undertake pleasurable forms of economic activity for more than a year, Fathom believes that households will make up for lost time, spending a sizeable chunk of the accrued savings quickly, eroding the output gap and putting upward pressure on inflation. This is a view that the Bank of England has moved a little closer to, recently doubling the amount of savings that it assumes will be spent. Whether this inflationary pressure is sustained will depend on the monetary policy response, and on the beliefs of wage- and price-setters — neither of which are easy to predict.

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Early in the recession, financial markets took the view that the net effect of the crisis would be deflationary or disinflationary. Markets have since come round to the Fathom view, that the impact on inflation would be neutral or even net inflationary. That is what is now priced into inflation expectations backed out of the relative prices of conventional versus index-linked government bonds, pictured in the chart below. Note, however, that despite the recovery in inflation expectations, in a longer historical context they remain low. The step down at the start of last year has been reversed and, in some cases, more than reversed. But we cannot yet conclude that the secular downtrend over a longer period has been arrested.
1621071754886.png


Many of the global forces driving inflation lower remain in place, and it remains to be seen whether the current conjunction of positive impulses (arising from the build-up of debt, the reversal of globalization and the colossal splurge of money printing, among other factors) will win out.

Something similar is true when it comes to government bond yields. They jumped down with growth and inflation expectations at the start of the recession, and have since recovered that lost ground or slightly overshot. But in a longer historical context they remain extremely low. Was the recession a blip in an unchanged secular downtrend, or a turning point which will see yields recover back towards ‘old-normal’ levels?

1621071790327.png


COT Report

Last week we've said, that NFP data was not priced-in yet and effect we should see on next week. So now we do see it. But this week we again have to say that effect of CPI we will see next week. Anyway, whatever it will be - we see rising bets against the dollar not only on EUR but on GBP and Gold market as well. EUR shows big jump in net interest for 15K+ contracts (each contract equals 125K EUR) and increasing of net long positions. But we also should acknowledge the growth of short positions:

1621072064513.png


Pay attention to the way how hedgers' positions have changed. While speculators add as longs as shorts - hedgers change position in the single direction. They close hedge against EUR weakness and add hedge against its growth. Total net change of hedger's positions is around 25K+ contracts. As a result total net long position has incrased:
1621072246425.png

Source: cftc.gov
Charting by Investing.com



Next week to watch

#1 US Retailers earnings reports

The numbers will show how consumer spending is shaping up as the economy rebounds from the coronavirus. And after U.S. consumer prices rose by the most in nearly 12 years in April, investors will want to see whether price pressures are building for companies. S&P 500 firms are set to post a 50.4% increase in quarterly earnings from a year ago, according to Refinitiv IBES data, with the consumer discretionary sector posting a jump of almost 189%. As a strong U.S. first-quarter reporting season winds up, retailers are getting started - Walmart, Target, Home Depot, Lowe's, L Brands and Ralph Lauren release results next week.

#2 PMI Report

Economic data is back in focus after a raft of mostly upbeat readings in recent weeks. Cue flash Purchasing Managers' Indexes (PMIs) for May across much of the developed world at the back end of the week. Before that, on Tuesday, investors will be able to chew on Japanese and euro zone first-quarter GDP numbers.

Vaccine rollouts and signs of recovery mean PMIs in major economies should hold comfortably above the 50-line dividing expansion from contraction.

Perhaps more market-moving will be the prices-paid component, an inflation indicator. Note, the euro composite input prices index jumped to 64 in April - the highest in 10 years.

#3 FOMC members speeches

On May 22, 2013, then Federal Reserve chief Ben Bernanke said that over the coming months the bank could "take a step down in our pace of (asset) purchases." Those remarks set off a months-long selling storm - the taper tantrum.

Eight years on, are markets in for another tantrum?

There was taste of it in a panicky reaction to Treasury Secretary Janet Yellen's comment, quickly walked back, that rates would have to rise someday. Still, a strong economy suggests the Fed will have to soon start hinting at unwinding asset-buying stimulus; tapering could even start by end-2022.

Recent data, including the blowout April inflation print, has sown fear that rates may rise sooner than expected. One worrying change since 2013 is the $70 trillion-plus rise in global debt. If wobbly markets fail to get reassurance from Fed speakers in the coming days, a mini-tantrum could follow.

The great exit: central banks line up to taper emergency stimulus

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All information and data that we've got through the week mostly agrees with our long-term view and we see no reasons to change something by far. DXY is keep going lower to our major 87.4 target that now stands in the range of 1-2 months to be achieved. The single comment that makes sense to make here is about recent CPI data. Of course, the single strong number is not the tendency yet, but we should recall that CPI is lagging indicator. Usually it lags for 6-8 or even 12 months behind the "real" situation. Inflation becomes visible in CPI when it already stands in economy, because this is consumer prices - the last part of chain in production. So, we will keep watching, but the fact that inflation is identified by CPI is strong sign in favor of faster Fed reaction, I suppose.

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. This week we have no significant impact on monthly picture.

Still, we suspect that an exceptional event exists that could let EUR to extend this time. This is more aggressive ECB rhetoric in June. Previously 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 and reaction on CPI data as well.

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_17_05_21.png


Weekly

This week also was mostly inside one as market was struggling against CPI pressure and returns back only by the end of the week.

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_17_05_21.png


Daily

We already had the detailed discussion on daily picture. By the end of the Friday we've got nicely looking "Morning star" pattern, suggesting further upward continuation. The same pattern you could find on DXY, by the way. Overall upward performance stands very strong as on initial stage of BC leg, as right now, when it becomes even faster. This makes us think that recent upward jump is not a pullback after CPI sell-off, but mostly the continuation of AB action and is a CD leg.

If you remember, here we were waiting smaller retracement and initially it was so, but CPI has brought some adjustments, pushing price deeper. At the same time EUR was able to stay inside the upside swing from "C" point, which means that short-term bullish context is valid. Market relatively easy swallow CPI impact.

This makes us think that chances on downside AB-CD type of action are minimal, and we're stand aiming on COP @ 1.2260 area.
eur_d_17_05_21.png


Intraday

So, on 1H chart EUR has hit XOP target that we've discussed in Friday's video. Now, since we're dealing with daily "Morning star", EUR is ready for minor retracement. The key word here is "minor". We could accept only pullback to either 1.2123 or 1.21 area, since the retracement is preparation for extension based on candlestick pattern.
This logic tells that stop should be placed somewhere under 1.2070 lows, which is the best choice, or at least below 1.2085 area if you can't accept 1.2070. Too deep downside action an erasing of Friday's rally puts under question short-term bullish context. Especially when all resistance levels have been broken already, as on the long-term charts, as here.
Don't underestimate 1.2123 level, guys, because market is not at overbought and now it stands in 1.2125-1.2185 trading range. So, it could just re-test broken resistance and keep going higher.
eur_1h_17_05_21.png
 

RahmanSL

Major
Messages
2,823
Hi Sive, another excellent analysis & report...thank you very much.
Frankly, I am at a lost on EUR/USD direction and shall need your analysis more then ever before.
Next week Monday will most probably be watch & observe day until Tuesday EU GDP figure release, USA FOMC minutes on Wednesday, and Germany & EU PMI on Friday.

All the best!
 

RogerTC

Special Consultant to the FPA
Messages
328
DRPO sell in play on the weekly timeframe. Expect a decent move up at OP+F3+F5 confluence and agreement support zone. Usually double repo sell pattern on weekly charts are sign of deep reversal and targets XOP. We have F5+XOP agreement zone around 30k also. BUT i dont really expect to see 30k in bitcoin and i will long the market around 38-42k area. Get a huge bag of altcoins around these levels also.

BTCUSDWeekly.png


Meantime, we are doing very good on the managed account in primexbt. Roger s Signal is in top 4 now. I believe it will be in 1st place in 2 months..

Capture1.PNG
 
Last edited:

RahmanSL

Major
Messages
2,823
DRPO sell in play on the weekly timeframe. Expect a decent move up at OP+F3+F5 confluence and agreement support zone. Usually double repo sell pattern on weekly charts sign of deep reversal and targets XOP. We have F5+XOP agreement zone around 30k also. BUT i dont really expect to see 30k in bitcoin and i will long the market around 38-42k area. Get a huge bag of altcoins around these levels also.

View attachment 64903

Meantime, we are doing very good on the managed account in primexbt. Roger s Signal is in top 4 now. I believe it will be in 1st place in 2 months..

View attachment 64904
Nice analysis for Bitcoin. However this is Sive's report & analysis on EUR/USD. What's the correlation with EUR/USD?
 

RogerTC

Special Consultant to the FPA
Messages
328
DRPO sell in play on the weekly timeframe. Expect a decent move up at OP+F3+F5 confluence and agreement support zone. Usually double repo sell pattern on weekly charts sign of deep reversal and targets XOP. We have F5+XOP agreement zone around 30k also. BUT i dont really expect to see 30k in bitcoin and i will long the market around 38-42k area. Get a huge bag of altcoins around these levels also.

View attachment 64903

Meantime, we are doing very good on the managed account in primexbt. Roger s Signal is in top 4 now. I believe it will be in 1st place in 2 months..

View attachment 64904
Worth to mention that Sequential TD buy signal is coming tomorrow, Watch out for the decent move !!

BTCUSDDaily.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,731
Morning guys,

Let's keep up with our trading plan. Currently we do not see any bearish signs, so everything stands positive. On daily chart market is forming bullish dynamic pressure, suggesting that EUR could challenge the resistance. The question stands open whether we will get reverse H&S here and when the right arm start forming - before COP will be hit or after that. Currently we do not have clear answer. But IMO, because of some indirect signs, I would suggest that right arm has more chances to form after COP will be reached. (If H&S will be formed at all of course).

eur_d_18_05_21.png


On 4H chart market is forming the wedge pattern, that might be broken up with acceleration. Interestingly that XA swing extension matches perfect to daily COP, which means that here we should keep an eye on potential butterfly "Sell" pattern:
eur_4h_18_05_21.png


Another reason why I think that COP should be hit first is possible H&S on 1H chart as well. As reverse H&S doesn't suggest immediate deeper retracement but upward continuation, it makes me think that reaching of COP first is more probable.
eur_1h_18_05_21.png


As you could see we've not occasionally called to consider 1.2130 level in weekly report. EUR indeed has shown very small retracement and jumped. Still, if we get H&S here - EUR could re-test this level again, that should give us another chance to buy. But only if no collapse happens. We should be aware of any nasty sell-off and stand aside, if it happens. Only gradual action is our friend.
 

Sive Morten

Special Consultant to the FPA
Messages
14,731
Morning everybody,

So, as we've said recently, chances on direct action to COP looks better because of price shape and intraday market behavior. And EUR almost has reached it. As COP is accompanied with daily overbought area, we do not expect significant action above 1.2260 this week:
eur_d_19_05_21.png


As a rule, markets show some reaction on COP targets but usually it is small. Currently, as market stands near target and OB area - it would be better to not take new longs and wait for some pullback. As we will get FOMC minutes release later in the session, it could trigger some volatility and short-term dollar strength.

On 4H chart we do not have 3-Drive "Sell" pattern as wedge tops do not match to Fib rations. Still we have divergence here and could get reversal candle on top. Although COP target is done yet - price could form some spikes to reach it, but bearish signs start to appear already as a preparation to retracement.
eur_4h_19_05_21.png


Since we're dealing with just COP, let's focus first on near standing support area that market theoretically could reach. This is 1.2170 K-area. On 1H chart puny butterfly has been formed. But if you would like to take scalp short position - it would be better to wait for something more extended, maybe H&S pattern.
eur_1h_19_05_21.png


That's being said, on daily chart we do nothing and wait for pullback. If you have position - you could think about result booking. Scalp traders could keep an eye on more valuable bearish patterns on 1H chart to make a decision on short entry. Nearest target will be 1.2170 K-area.
 

Sive Morten

Special Consultant to the FPA
Messages
14,731
Morning guys,

Market stands in gradual downside reaction. It shows nice response to our 1.2150-1.2170 K-support on 1H chart but price shape still doesn't exclude deeper retracement. On daily chart it is nothing new to comment by far. We have " Dark cloud cover" pattern - the weaker type of bearish engulfing:
eur_d_20_05_21.png



On 4H chart we have a kind of B&B "Buy" trade, suggesting at least 5/8 upside bounce. So if you have taken long position recently - now its time to move stops to breakeven and think about either to book result at B&B target or not:
eur_4h_20_05_21.png


At the same time, as sell-off war relatively sharp yesterday and currently price shows slow and gradual choppy pullback out from our K-area - it looks like retracement, taking the shape of the flag pattern. It means that downside action could last a bit longer. So, if you haven't bought EUR around 1.2150-12170 yesterday - stay aside for awhile. XOP target stands around 1.2147, right around EUR favorite 50% support area. So, let's take a look whether some bullish patterns will be formed (say, butterfly) around XOP that gives us more confidence for long entry.
eur_1h_20_05_21.png
 
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