Forex FOREX PRO WEEKLY, May 20 - 24, 2019

Sive Morten

Special Consultant to the FPA
Messages
12,638
Fundamentals

It is difficult choice guys, this weekend - what currency to cover in weekly report. EUR is our primary currency, also we see big action on gold, as usual. But, at the same time we see great potential in GBP, that follows our long-term bearish view. Yesterday GBP has broken our signal level, and this fact opens big perspective. Actually I've traded GBP with last two weeks and come to conclusion that it goes in correct direction.

Thus, tomorrow, in second report, we probably talk about GBP. Our view on gold market we discussed on Friday and recent drop just confirms our suggestion. Now, let's keep up with EUR.

The whole week EUR shows downside action. Although it was not absolutely smooth, but downside pushes were carrying conviction. And all this stuff has happened on a background of hysteria of gaining momentum US-China tariffs piking. The widely-held view suggested that EUR should benefit form US-China tariffs turmoil as US economy should weakened. We have contrary opinion and suggest that US will get everything what they want from China first and then turn the "eye of Sauron" to EU and Japan. Tariffs have no mutual effect and serves well only in the hands of US, as US controls global liquidity and prints world's money. Anything what China (or any other country) wants to buy - they have to buy for USD as all goods and commodities are traded on US exchanges (in majority) and for US Dollars. And the only way to get dollars for own needs - is to sell goods, i.e. export them. With such a domination, what tariffs China could apply to US? Besides, US export to China five times less than import - approximately 150Bln agains 550+Bln.
D. Trump, said - applying of 20% tariffs lets us to earn 100Bln to budget income every year. And he is right ;)

This explains why we have contrary view on this subject and suggest that EUR gets no advantage from this process. As a result we keep our bearish long-term view on EUR.

Reuters reports this week - the dollar rose on Friday as concern about next week’s European parliamentary elections dented demand for the euro, while the British pound dropped to a four-month low on worries about Britain’s exit from the European Union.

The dollar has been favoured as a safe-haven currency even as the U.S.-China trade war escalates.

The euro has been hurt this week by Italian Deputy Prime Minister Matteo Salvini’s comments that European Union rules harm his country.

The elections will shake up the continent, leading to a relaxation of budget rules and influencing the choice of the next central bank chief, Salvini said on Friday.

“The market is a little bit concerned about European elections. It seems to be a flow into the dollar as a bastion of last resort,” said Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management in New York.

The euro briefly pared losses after the White House said President Donald Trump is delaying a decision for as long as six months on whether to impose tariffs on imported cars and parts to allow for more time for trade talks with the EU and Japan.

Sterling fell to the lowest since Jan. 15 after cross-party Brexit talks collapsed and concern grew about the impact Prime Minister Theresa May’s likely resignation would have on Britain’s exit from the EU.

The offshore Chinese yuan fell to its lowest levels since November after China said the United States must show sincerity if it is to hold meaningful trade talks as Trump dramatically raised the stakes with a potentially devastating blow to Chinese tech giant Huawei Technologies Co Ltd.

The world’s two largest economies are locked in an increasingly acrimonious trade dispute in which they have imposed escalating tariffs on each other’s imports.

“Rhetoric from both sides is getting more heated, making a U.S.-China deal seem a long way off,” Win Thin, global head of currency strategy at Brown Brothers Harriman in New York, said in a report.

“At this point, this means there will be no high-level negotiations between the two until a potential Trump-Xi (Jinping) meeting at the G20 meeting in late June. This means the next round of tariffs will likely come into play, signalling further escalation and making a deal that much harder,” Thin said.

“Despite yesterday’s rebound, we are still reluctant to trust a long-lasting reversal in risk appetite. With the U.S. (verbally) attacking China, and China willing to respond, we cannot assume that the worst is behind us,” said Charalambos Pissouros, a senior market analyst at JFD Brokers.


Data on Friday showed U.S. consumer sentiment jumped to a 15-year high in early May on growing confidence over the economy’s outlook, though much of the surge was recorded before the trade war escalation.

The dollar has also benefited as a safe-haven currency even with the United States and China locked in a trade dispute. It was bolstered on Thursday by data that showed U.S. homebuilding increased more than expected in April.

China’s central bank will use FX intervention and monetary policy tools to ensure the yuan does not weaken past the 7-per-dollar key level in the immediate term, three people familiar with the central bank’s thinking said.

Even brief look at events of this week gives clear picture who gets the earn. Another reason, why we had doubts on EUR bullish perspective last week is speculative positions on EUR. CFTC shows that they stand bearish and not diminished, so traders keep shorts at the same amount. They are not ultimately bearish and pretty much room for drop still, but they are stable. This fact provided confidence last week.

upload_2019-5-18_11-24-45.png


Source: cftc.gov
Charting by Investing.com

At the end of fundamental part we would like to share with some extractions from last Fathom consulting report. They update their view on perspective of global financial crisis in 2020-2021 and some statements have importance for us as well. Following the link, you read the whole report, while we provide just few fragments here.

How likely is a repeat of the 2008 global financial crisis? (By Fathom consulting)

There is a pronounced risk of a global recession during the next two years. But, if it comes, will it be a ‘normal’, V-shaped recession or a more L-shaped financial crisis, replaying what happened in 2008/09?
Despite high levels of debt, globally, we found that the risk of a US-led global financial crisis is much lower now than it was back in 2007 — though certain individual economies might not be immune.


When the US sneezes the rest of the world catches a cold. That metaphor generally holds both for the US economy and the US financial system, given their respective size and importance in the world. And the epicentre of the global recession of 2008/09 was the US economy and its banking sector.

Until around the turn of this year, Fathom’s view was that a ratcheting up of US interest rates on the back of overheating and rising inflationary pressure would tip the US economy into recession again in 2020, dragging down the global economy with it. But with US inflation still sluggish (despite a strong labour market) and the Fed now showing a much more dovish face than last year, this is no longer our central scenario; but it is still the principal risk in our global outlook. The bad news is that a US-led global recession in 2020 is still a possibility; the question is whether that would lead to a 2008-style global financial crisis. The answer: a qualified “no”.

There might be a recession, and it might be led by the US, but it is unlikely to be a financial crisis like 2008/09, for five reasons:
  1. US households have deleveraged
  2. The lender of last resort has acquired government debt through QE
  3. The banking sector has reduced risk
  4. Derivative markets are smaller relative to GDP
  5. A global financial crisis requires contagion




The bottom line is that the US, the country that could tip the global economy into a recession, is less likely to experience a banking crisis now than it was in 2007. It may be smaller than China, and the risk of a banking crisis in China has increased. But the US has by far the largest and most globally integrated financial market — accounting for 35% of global market capitalisation and more than half of the MSCI All Country World Index. China’s financial system is smaller and less integrated into the global financial system than the US, which suggests that the potential negative financial spillovers from China are likely to be less than those from the US. China’s loose lending standards and doubling down on old growth methods are building up financial problems, but we do not expect the country to enter recession or experience a financial crisis within the next year or so.

For a global banking crisis to occur, we would need to see risk increase in the systemically important nations. That would be the corollary of another private credit cycle, which would last a few years and would be associated with a bull market in equities for that period. It might happen — but if it does, we will experience at least one more party first.


Technicals
Monthly


This week EUR has spent in the range of previous swing, no impact on long-term charts, such as monthly and weekly. On monthly chart price action stands inside the April, still. Trend is bearish by MACD. So, here we keep our view the same and gravitate more to bearish perspective.

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.

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_20_05_19.png


Weekly

As it lasts for few weeks, weekly chart doesn't show any valuable add on to technical picture. In addition to bearish grabber that we've got last week - this week we've got another one. Both suggest drop below the lows of 1.11 Grabber provides trading setup on coming week, at least until it stands valid.

Another moment here guys, that I think about is more psychological one. Here, on weekly chart EUR has formed a lot of bullish signs a long time ago - this is the wedge-shaped action, bullish divergence, etc. And all people see it. But - no price reaction to upside. Price is pressing and pressing down. It looks like building an energy for breakout, when power is not enough yet, but its coming and coming gradually. Trading range on weekly chart has contracted dramatically. It suggests release sooner rather than later. Something tells me that this release should be to the downside.
eur_w_20_05_19.png


Daily

Here is our well known picture as we look at it every day. Despite positive news through the week, EUR has failed all attempts to show upside action and breakout. It has failed to pass through daily K-area of 1.1240.

The parallel opposite grabber on Dollar Index is completed, but it has reached minimal target only, showing W&R of daily lows on DXY. Our daily grabber here is survived and is still working. Trend here has turned bearish. Combining all information that we have on EUR makes me focus on scenario that you see on the the chart - butterfly "Buy" with first potential target around 1.1070 area. EUR is not at oversold and target could be reached within the week.

We have MPS1 (not shown) around 1.11 lows, but hardly it will hold downside action if EUR gets there. In general, EUR stands on the cusp of big, drastic changes as political as economical and these events definitely will find the way into EUR price. Somehow I'm sure that we get surprises on 23-27 May elections in EU Parliament...

eur_d_20_05_19.png


Intraday

On 4H chart we're dealing with the same AB-CD pattern and next target is OP around 1.1135. XOP coincides with daily butterfly extension around 1.1060 area. Market here has broken all Fib supports and stands right now in "free space" till the OP target. Harmonic swing retracement suggests pullback either to first Fib resistance or to K-area. Thus, watching for bearish continuation pattern with suggestion of short entry around one of these two levels with stop above K-area is a core of our trading plan.
As market stands not at some strong support, it is more probable that pullback will be small.
eur_4h_20_05_19.png


If market drops directly to OP on Monday without any pullback - do not hurry to take position, wait and see what will happen.

Conclusion:
Our long-term view still stands bearish on EUR as we see big disbalance among US and EU as political as economical power in difficult global environment. US has great influence on EU in all aspects, but EU is a gathering of different countries with their own interests. This gives US great chances to manipulate and make effect on political picture in EU.
In short-term perspective we expect continuation of downtrend on EUR, with nearest target around 1.1050-1.1070 area.


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.
 

Deltoid88

Sergeant
Messages
167
Update on EUR. Here is my updated wave analysis which I consider to be the most probable one. I still expect significant bullish bounce, but now I see one more lower low before that happens, and with that low we could have big, red wave A completed, and then we should see bigger bullish ABC correction which could last for months. I believe we are in wave 4 of wave 5 of big, red wave A on daily and weekly chart, which when finished, significant bullish correction is very probable, and could challenge even 1.20 level.

Weekly chart: Difference from previous analysis is red wave 3 which now I consider to be longer then before.

EURUSDkWeekly.png


Daily chart: Here is more visible how long and powerful was that wave 3 constructed of 5 waves. Also how wave 4 could look like.

EURUSDmDaily.png


4H chart: Here I want to show what is likely to happen in wave 4 that I believe we are currently in. I expect bullish bounce from start of the week to the 1.1248-1.1306 zone. This wave 4 also could have triangle formation. For that to happen, lows at 1.1135 must not be reached, and then also highs on 1.1263, after that wave 5 should start and be capped by length of wave 3 which had length of 212 pips, wave 5 should be shorter then that with condition to make new low, or to reach 0.618 length of wave 3.

EURUSDkH4.png


1H chart: Here I want to show that triangle formation of wave 4 which I consider to be the most probable one before wave 5 of wave 5 should start making one more lower low before that big bullish correction I expect.

EURUSDkH1.png


How to trade this?

First position - Long entry in zone 1.1150-1.1170, SL1=1.1134, SL2=1.1109, TP zone = 1.1240-1.13. I advise to use SL2=1.1109 since there are few important fib extensions at 1.1130 level, which Sive also mentioned. Just to cover those scenarios as well if triangle fails.

Second position - sell entry in zone = 1.1240-1.13, SL = 1.1326, TP zone = 1.1050-1.11. SL on 1.1326 is very important because breaking it means bullish correction has already started, and no further downside action should follow in next months.

Third, main position - long entry in zone = 1.1050-1.11, SL = 1.10, TP zone = 1.17-1.20
 

Sive Morten

Special Consultant to the FPA
Messages
12,638
Morning guys,

Yesterday EUR has shown action according to our trading plan. On daily we're still watching for our primary target - 1.1070 butterfly extension.
eur_d_21_05_19.png


While on 4H chart market indeed has shown one harmonic swing retracement to 1.1180 area - so we were correct that as market is not at oversold and no support stands below, retracement should be minimal. Thus, if you've followed this plan - now it is time to move stops to breakeven and think about taking some profit around 1.1135 area, which is OP target.
eur_4h_21_05_19.png


It is difficult to foresee, what reaction on OP will be, because it is minor target, and only single harmonic swing pullback could happen. But, on 1H chart we also get '222" Buy at the same area, and it could be the reason for double harmonic swing pullback - 30% of "222" Body, back to 1.1180 again. This is the reason, why it makes sense to take some profit. You have another half of your position open anyway.
eur_1h_21_05_19.png


Once reaction on 1.1135 target will be over (if any), we expect downside continuation with our daily setup.
 

Sive Morten

Special Consultant to the FPA
Messages
12,638
Morning guys,

It is amazing, but our setup has worked on published Fed minutes, which was impossible to predict. Somehow technical patterns coinside with major market events. Wonderful...

So, on daily we have no needs to change our trading plan. Trend stands bearish, it was a bit more volatility yesterday, but on daily chart it doesn't look too strong. Thus, here we still watching for our butterfly pattern:
eur_d_22_05_19.png


On 4H chart market is tending to our OP target, which has not been hit yet. It stands at 1.1130 area. As we've suggested 3/8 pullback has happened, which equals to double harmonic swing:
eur_4h_22_05_19.png


On 1H chart - pullback was a reaction on our "222" Buy pattern, so our short entry setup has worked. Now it is possible to move stops to breakeven if you was able to catch it, as it was very fast action. Currently we have bearish engulfing pattern and potential butterfly. Both have the same target at 1.1130.
The only problem - now it is difficult to find reasonable point for taking new short position, as price already stands near the target.
eur_1h_22_05_19.png
 

Stag

Sergeant
Messages
202
Hi guys, I just have posted a short update on the Euro, accidentally put it into the wrong topic, you find it here.
The Euro abruptly reversed from 1.1142 and impulsively advanced in five waves in relatively short order, topping at 1.1188.

The deep pullback from there is close to common targets for a second wave correction, the ~.80 Fibonacci retracement of the prior rally from 1.1142 - typical price action following a leading diagonal. However, if the rally was a first wave, the wave 2 correction should be near an end.

A turn above 1.1166 will bolster confidence in the bullish call but 1.1142 should hold as support. A new low would turn the three wave decline off 1.1263 into a five wave structure and there should be more decline to come - supporting Sive's scenario.
 

Sive Morten

Special Consultant to the FPA
Messages
12,638
Morning guys,

It was a quiet session yesterday, on daily chart we have inside bar, which doesn't make any impact on our setup. As we have daily and weekly bearish grabbers, we're still aimed on downside breakout of 1.11 area, which may be a butterfly "Buy" with 1.1070 destination point:
eur_d_23_05_19.png


At the same time, grabbers let market fluctuate in wide range and we have on 4H chart closer target. Besides, our EW experts warn about possible sharp reversal here. Indeed downside action shows clear slowdown and bullish grabber could be formed here.
Conversely, our OP target has not been met yet and this fact doesn't let us to go long immediately.
eur_4h_23_05_19.png


On 4H chart we have the same butterfly, which now has more harmonic shape. As we've said yesterday - now it is not very good time for new short positions. But, traders could hold short that were opened at our previous entry points and move stops to breakeven.
Here we keep our butterfly scenario by far and 1.1135 target, but do not exclude chances that it could be "222" Buy instead.
eur_1h_23_05_19.png


That's being said, despite action slowdown, we do not see yet sufficient context for long entry, as well as for new shorts. Right now old shorts could be held, but no good entry setup in any side is formed yet. Thus, we're sitting on the hands...
 

Deltoid88

Sergeant
Messages
167
Update on EUR. I believe blue C wave of wave 4 just started. Expectations are to bullish action to continue in 5 wave structure, in impulsive manner to zone 1.1259-1.13 where C wave should finish, and wave 4 completed. After that wave 5 of wave 5 of red wave A on daily chart should start chasing new, shallow bottom just under 1.1106. After that large bullish correction on completed red wave A should start.

Daily chart: This is one scenario how that large, bullish correction could develop. This is example of ZigZag. Also, very possible scenario for bullish scenario would be to devolop in shape of flat, which would mean price would not go so high up, but still significantly higher then levels in recent weeks.

EURUSDmDaily.png


4 H chart: Here I want to give comment on shape of wave 4 I believe we are currently in. It should have shape of extended flat correction. since bottom on 1.1110 was broken. Currently wave C developing which should have 5 wave, impulsive structure.

EURUSDkH4.png


1 H chart. More detailed look into current wave 4.

First wave, blue wave A had shape of ZigZag.
Second wave, blue wave B had shape of flat. It was complicated wave constructed of 3 red ABC waves. Red wave A - ZigZag, red wave B - ZigZag, red wave C - impulsive 5 wave structure.
Third wave, blue wave C. Currently developing, expectations are to be impulsive, 5 wave structure to upside to 1.1260-1.13 zone.

EURUSDkH1.png


How to trade this?

First position, long entry on every pullback against 1.1106 bottom. Long entry in zone = 1.1130-1.1160, SL1=1.1105, SL2=1.10, TP zone = 1.1258-1.13
Second position, sell entry in zone = 1.1258-1.13, SL=1.1326, TP zone =1.1050-1.11
Third, main position, long entry in zone = 1.1050-1.11, SL=1.10, TP zone = 1.17-1.20
 

Sive Morten

Special Consultant to the FPA
Messages
12,638
Morning guys,

So, yesterday was a bit dramatic action, but, as a result all setups are completed. We've got completed our grabber's minimal target, as EUR has dropped below recent lows, we've got completed finally weekly/monthly COP on Dollar index. Our butterflly on daily was not completed.

At the same time, forecast of our EW experts also starts to work, as EUR turns up. Thus, short-term sentiment on the market has changed. On daily chart we've got W&R and Reversal candle in one point. It suggests upside continuation of some scale.
eur_d_24_05_19.png


On 4H chart our OP target has been hit as well. Now market is coming to 1.12 Fib resistance:
eur_4h_24_05_19.png


On 1H chart, butterfly has done perfect, even has hit 1.618, although it was really fast. Now we have few short-term intraday targets, all of them stand around 1.12-1.1235 area. But, this should be only initial swing, as soon as we get meaningful retracement, we should get more representable patterns and extensions. This is our trading plan - wait when first upside swing will be over and watch for pullback, where we could consider taking long position here:
eur_1h_24_05_19.png
 
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