Sive Morten
Special Consultant to the FPA
- Messages
- 18,706
Fundamentals
(Reuters FX news) - The U.S. dollar fell on Friday, adding to its worst week since April 2016 against a basket of major currencies, and having surrendered the gains made since Donald Trump was elected U.S. president.
The dollar index, which tracks the greenback against a basket of six world currencies, has shed more than 2 percent this week. On Friday, it fell 0.75 percent, hitting its lowest since Nov. 9, the day after the U.S. election.
Uproar over Trump's recent firing of FBI Director James Comey, who was overseeing an investigation into possible links between the president's team and Russia, has pressured the dollar.
"The dollar overall, across the board, has been getting beat up this week and a lot of that has to do with the political risk here in DC," said John Doyle, director of markets at Tempus Inc in Washington. "While we saw a little bit of a reprieve yesterday, we’re right back on that dollar weakness train."
The U.S. currency has also suffered from a resurgent euro, which has the largest weighting in the dollar index. The single currency has gained more than 2.5 percent this week, headed for its best performance since February 2016. It rose 0.95 percent on Friday to a six-month high of $1.1205.
The advance of the euro was spurred by a possible winding down of the European Central Bank's expansive monetary stimulus program, said analysts, with recent data pointing to a robust recovery in the euro zone.
Against the safe-haven Swiss franc, the dollar fell 0.65 percent, touching a six-month low. It was on pace for its largest weekly percentage fall since February 2016.
The dollar fell 0.3 percent against the yen to 111.14 and had its first weekly drop in five against the Japanese currency.
The dollar moved broadly lower after a report that a senior White House adviser is a person of interest in the investigation into possible coordination between the Trump campaign and Russia.
Too early to call the outcome of US/China trade negotiations
by Fathom Consulting
Last week Fathom’s proprietary China Exposure Index (CEI) reached its highest level since the US presidential election. The index is a gauge of the relative share price performance of US-listed firms that have significant exposure to China. The pick-up last week seems to be due to comments from Alibaba founder Jack Ma, who wants to sell more US-made products in China, and to well-received results from one of the CEI’s major constituents; the announcement of a trade deal between the US and China, which contained very little that was new or substantive, had almost no impact. The bigger picture is that, in our view, the US and China are engaged in a high-stakes economic game of chicken, and we expect the US to come out on top: that is what the CEI is pricing in.
COT Report
Today we will take a look at EUR, but setups that we have on CAD and JPY are not less interesting either. That's why it was difficult choice today. So, on EUR CFTC data shows clear bullish sentiment. Net short position contruction starts in January and stands on the way since then. Last two week net speculative position has changed sign and turned to bullish. In whole history, EUR very rare was speculatively bullish. Maximum value of bullish positions was around 70K contracts. Now we have 50% of this value. So, EUR still has room to grown.
Still, overall background of this process is rather fragile. Mostly it is driven by two factors. Political scandal in US and hopes that positive EU statistics will become a trend rather than occasion. In a result, Investors now seriously start talking on closing EU QE program and other hawkish ECB measures.
Speaking on first factor - political issues are strong and important, but they are very short-term, because they do not change financial background and just skew balance for a time. Although US economy shows better results, they are faded against FBI director firing issue.
Second driving factor - changes in EU economy are important, but currently it is too early to speak about real trend of improvement. EU has a lot of structural problems, that's why, if this is new upside trend indeed, it will bring a lot of volatility. That's why, although recent performance on EUR look impressive, we have some doubts on durability of this action.
Technical
Monthly
Trend is bullish here but price is not at OB level that stands actually above 1.16 area. Price finally has broken up YPP and indicates bullish sentiment as well. While market stands in sideways consolidation - large monthly swings are not useful for us and we mostly will use levels that stand inside consolidation as well.
Next resistance inside rectangle stands at YPR1=1.1305.
But here we have some other interesting issues. First is bullish divergence with MACD indicator. Somehow we haven't got bullish grabbers there, although price flirted for 3-4 months with MACD line. Nevertheless, appearing of divergence usually leads to action above previous top, which is 1.1715 area.
Second, while rectangle was forming we saw two failure breakouts. First was, precisely at 1.1715 top and after it price dropped to 1.05 bottom. Second was recently - when market has reached 1.0340 but then returned back in consolidation. This moment also mostly supports an idea of upside continuation, at least to upper border.
Other scenarios, such as rectangle breakout etc., are not interesting for us right now, since probably will happen not even in May and it has not much sense to talk about it right now. Our attention right now on what will happen inside of rectangle on coming week.
Also we confirm our previous look that it is too early to talk on breaking of bearish tendency by far. Sideways action during bull trend could be treated as sign of bearish dynamic pressure, although fluctuations inside of rectangle could be rather wide.
A the same time, fluctuations and even upside action to YPR1 and previous top will not change overall bearish setup yet. Price needs to create new top and exceed 1.17 high to change situation on monthly chart. While EUR will drift inside 1.03-1.16 range, it should be treated as consolidation or retracement action.
That's being said, right now is not time yet to make big conclusions on monthly chart and we just will focus on what will happen inside rectangle:
Weekly
This chart brings major information for our analysis. Trend is bullish here, and we have two moments that we have to combine. From one point of view, we have DiNapoli bearish "Stretch" pattern, as price has reached weekly overbought (OB) right at major 5/8 Fib resistance.
At the same time we have uncompleted AB-CD 1.618 target right around YPR1. This pattern sooner or later will be completed. Take a look that as EUR has reached 1.0 target, following reaction was really mild and EUR has kept gap open. This is very rare situation. Besides, if you remember (we've talked on it last time), this was not just AB=CD target but also Fib resistance and some other extension targets. But EUR has passed through all of them and respect was really small as even gap was not closed.
Now we see strong acceleration. So market does not even feel tired, but shows faster action right to 1.618 extension point. What does it mean?
It means that either no reaction will happen on "Stretch" pattern until EUR will reach AB-CD target, or this reaction will be small and temporal.
First scenario brings nothing good to us, since currently we can't go long as market stands strongly overbought. Let's hope that we will get second - some retracement will come. In this case we potentially should have two trades. First one on a way down, while second is major entry on long side of the market with 1.1305 target.
Daily
Here we mostly will talk on retracement that could happen. Trend definitely is bullish here, but price also strongly overbought. Let's try to estimate what retracement we could get.
First, we need to excude all levels that stand below the gap. Just because they are below oversold area and hardly market will reach it, at least within single week. In dry result we have two major areas. First is 1.0880 K-support that creates strong cluster with YPP, gap and daily oversold area. And second is minor, 3/8 support level around 1.1010.
When you have weekly bearish "Stretch" pattern you could expect solid downward push and 1.0880 area is not absolute value that you could expect. But taking in consideration total context that we have, and particular that price stands just 100 pips from AB-CD weekly target, most probable is retracement to 1.1010 area. Major retracement will come after market will complete weekly AB-CD around 1.13:
4-hour
Here it is not clear what particular reversal pattern we could get. I'm not sure that we could talk on DRPO "Sell", only if we will get fast drop on Monday's open. More probable is appearing of H&S pattern.
Take a look that around 1.1010 area we have another two levels. They are WPS1 and Fib level. Thus, our 1.1010 daily level turns to K-support around WPS1. This is rather strong area, and if retracement will happen, this is the primary level to watch for. So, it seems that either EUR will continue action right to 1.13 without meaningful retracements or if retracement still will happen, it should be not less than 1.10 area
Conclusion:
Medium-term picture for perspective of 2-3 weeks shows that upside action has chances to continue. Next upside target stands around 1.13 area.
Still, it is too early to talk on breaking long-term bearish tendency.
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.
(Reuters FX news) - The U.S. dollar fell on Friday, adding to its worst week since April 2016 against a basket of major currencies, and having surrendered the gains made since Donald Trump was elected U.S. president.
The dollar index, which tracks the greenback against a basket of six world currencies, has shed more than 2 percent this week. On Friday, it fell 0.75 percent, hitting its lowest since Nov. 9, the day after the U.S. election.
Uproar over Trump's recent firing of FBI Director James Comey, who was overseeing an investigation into possible links between the president's team and Russia, has pressured the dollar.
"The dollar overall, across the board, has been getting beat up this week and a lot of that has to do with the political risk here in DC," said John Doyle, director of markets at Tempus Inc in Washington. "While we saw a little bit of a reprieve yesterday, we’re right back on that dollar weakness train."
The U.S. currency has also suffered from a resurgent euro, which has the largest weighting in the dollar index. The single currency has gained more than 2.5 percent this week, headed for its best performance since February 2016. It rose 0.95 percent on Friday to a six-month high of $1.1205.
The advance of the euro was spurred by a possible winding down of the European Central Bank's expansive monetary stimulus program, said analysts, with recent data pointing to a robust recovery in the euro zone.
Against the safe-haven Swiss franc, the dollar fell 0.65 percent, touching a six-month low. It was on pace for its largest weekly percentage fall since February 2016.
The dollar fell 0.3 percent against the yen to 111.14 and had its first weekly drop in five against the Japanese currency.
The dollar moved broadly lower after a report that a senior White House adviser is a person of interest in the investigation into possible coordination between the Trump campaign and Russia.
Too early to call the outcome of US/China trade negotiations
by Fathom Consulting
Last week Fathom’s proprietary China Exposure Index (CEI) reached its highest level since the US presidential election. The index is a gauge of the relative share price performance of US-listed firms that have significant exposure to China. The pick-up last week seems to be due to comments from Alibaba founder Jack Ma, who wants to sell more US-made products in China, and to well-received results from one of the CEI’s major constituents; the announcement of a trade deal between the US and China, which contained very little that was new or substantive, had almost no impact. The bigger picture is that, in our view, the US and China are engaged in a high-stakes economic game of chicken, and we expect the US to come out on top: that is what the CEI is pricing in.
COT Report
Today we will take a look at EUR, but setups that we have on CAD and JPY are not less interesting either. That's why it was difficult choice today. So, on EUR CFTC data shows clear bullish sentiment. Net short position contruction starts in January and stands on the way since then. Last two week net speculative position has changed sign and turned to bullish. In whole history, EUR very rare was speculatively bullish. Maximum value of bullish positions was around 70K contracts. Now we have 50% of this value. So, EUR still has room to grown.
Still, overall background of this process is rather fragile. Mostly it is driven by two factors. Political scandal in US and hopes that positive EU statistics will become a trend rather than occasion. In a result, Investors now seriously start talking on closing EU QE program and other hawkish ECB measures.
Speaking on first factor - political issues are strong and important, but they are very short-term, because they do not change financial background and just skew balance for a time. Although US economy shows better results, they are faded against FBI director firing issue.
Second driving factor - changes in EU economy are important, but currently it is too early to speak about real trend of improvement. EU has a lot of structural problems, that's why, if this is new upside trend indeed, it will bring a lot of volatility. That's why, although recent performance on EUR look impressive, we have some doubts on durability of this action.
Technical
Monthly
Trend is bullish here but price is not at OB level that stands actually above 1.16 area. Price finally has broken up YPP and indicates bullish sentiment as well. While market stands in sideways consolidation - large monthly swings are not useful for us and we mostly will use levels that stand inside consolidation as well.
Next resistance inside rectangle stands at YPR1=1.1305.
But here we have some other interesting issues. First is bullish divergence with MACD indicator. Somehow we haven't got bullish grabbers there, although price flirted for 3-4 months with MACD line. Nevertheless, appearing of divergence usually leads to action above previous top, which is 1.1715 area.
Second, while rectangle was forming we saw two failure breakouts. First was, precisely at 1.1715 top and after it price dropped to 1.05 bottom. Second was recently - when market has reached 1.0340 but then returned back in consolidation. This moment also mostly supports an idea of upside continuation, at least to upper border.
Other scenarios, such as rectangle breakout etc., are not interesting for us right now, since probably will happen not even in May and it has not much sense to talk about it right now. Our attention right now on what will happen inside of rectangle on coming week.
Also we confirm our previous look that it is too early to talk on breaking of bearish tendency by far. Sideways action during bull trend could be treated as sign of bearish dynamic pressure, although fluctuations inside of rectangle could be rather wide.
A the same time, fluctuations and even upside action to YPR1 and previous top will not change overall bearish setup yet. Price needs to create new top and exceed 1.17 high to change situation on monthly chart. While EUR will drift inside 1.03-1.16 range, it should be treated as consolidation or retracement action.
That's being said, right now is not time yet to make big conclusions on monthly chart and we just will focus on what will happen inside rectangle:
Weekly
This chart brings major information for our analysis. Trend is bullish here, and we have two moments that we have to combine. From one point of view, we have DiNapoli bearish "Stretch" pattern, as price has reached weekly overbought (OB) right at major 5/8 Fib resistance.
At the same time we have uncompleted AB-CD 1.618 target right around YPR1. This pattern sooner or later will be completed. Take a look that as EUR has reached 1.0 target, following reaction was really mild and EUR has kept gap open. This is very rare situation. Besides, if you remember (we've talked on it last time), this was not just AB=CD target but also Fib resistance and some other extension targets. But EUR has passed through all of them and respect was really small as even gap was not closed.
Now we see strong acceleration. So market does not even feel tired, but shows faster action right to 1.618 extension point. What does it mean?
It means that either no reaction will happen on "Stretch" pattern until EUR will reach AB-CD target, or this reaction will be small and temporal.
First scenario brings nothing good to us, since currently we can't go long as market stands strongly overbought. Let's hope that we will get second - some retracement will come. In this case we potentially should have two trades. First one on a way down, while second is major entry on long side of the market with 1.1305 target.
Daily
Here we mostly will talk on retracement that could happen. Trend definitely is bullish here, but price also strongly overbought. Let's try to estimate what retracement we could get.
First, we need to excude all levels that stand below the gap. Just because they are below oversold area and hardly market will reach it, at least within single week. In dry result we have two major areas. First is 1.0880 K-support that creates strong cluster with YPP, gap and daily oversold area. And second is minor, 3/8 support level around 1.1010.
When you have weekly bearish "Stretch" pattern you could expect solid downward push and 1.0880 area is not absolute value that you could expect. But taking in consideration total context that we have, and particular that price stands just 100 pips from AB-CD weekly target, most probable is retracement to 1.1010 area. Major retracement will come after market will complete weekly AB-CD around 1.13:
4-hour
Here it is not clear what particular reversal pattern we could get. I'm not sure that we could talk on DRPO "Sell", only if we will get fast drop on Monday's open. More probable is appearing of H&S pattern.
Take a look that around 1.1010 area we have another two levels. They are WPS1 and Fib level. Thus, our 1.1010 daily level turns to K-support around WPS1. This is rather strong area, and if retracement will happen, this is the primary level to watch for. So, it seems that either EUR will continue action right to 1.13 without meaningful retracements or if retracement still will happen, it should be not less than 1.10 area
Conclusion:
Medium-term picture for perspective of 2-3 weeks shows that upside action has chances to continue. Next upside target stands around 1.13 area.
Still, it is too early to talk on breaking long-term bearish tendency.
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.
