Sive Morten
Special Consultant to the FPA
- Messages
- 18,679
Greetings everybody,
This time we have big choice of interesting setups among different currencies, and it is really the question which one to choose for weekly report. Most bright setups we have on EUR, GBP, CAD and JPY. Today, I think, we need to take a look at GBP, because on EUR we mostly have the same tactics and long-term target of 1.1450-1.15 that has not been reached yet. Our "Creeping with oversold" tactics should continue next week as well and I think that daily update on Tue will be enough to cover this subject.
Tomorrow we will take a look either on CAD or JPY. Yen is interesting right now and it seems that our scenario of downside reversal is late a bit but start to work
On CAD we have another interesting story. Yesterday on St. Petersburg forum V. Putin said that he thinks fair crude oil price is 60$ per barrel. Once it has been said - oil starts dropping and this is very important for CAD scenario.
But anyway guys - things that we do not cover in weekly reports, we will try to put in daily videos.
Fundamentals
Despite loosing of some momentum on Wednesday on a background of more dovish Fed minutes than it was expected, dollar re-established status quo on Friday as data shows new orders for key U.S.-made capital goods increased more than expected in April and shipments rebounded, suggesting that business spending on equipment was picking up after slowing down at the end of the first quarter.
A bit dovish Fed comments is not a surprise for us, because 3 weeks ago we've discussed this subject when we've analyzed driving factors of USD strength and come to conclusion that intrinsic power is limited. Still, overall investors' sentiment in US stands bullish. Even US-China trade tariffs dust-up has no impact sentiment. As we've mentioned earlier, despite big trade deficit and visuality of high dependence for China export - China stands in weaker position. Recently just one Trump's tweet was enough to make China back step an open domestic markets for US companies. So, perspectives of US economy still stands strong, we expect somewhere around 3% growth annually. So, it should have enough power to push EUR to our 1.14-1.15 target with perspective of continuation to 1.10.
So, while EU starts to change rhetoric and turns East (just read recent statements by E. Macron and A. Merkel), UK as all-time ally of US has no choice and major problems still stands the same. Brexit comes closer, economic relations with EU are far from compromise and own UK economy stands under pressure.
As you know, recent flat BoE decision was not a surprise, but now rate hike is virtually certain till the end of the year as recent poll shows. As Fathom consulting reports - "By close of business the day before the MPC vote, the chances had faded to just over 70%. Immediately following publication of last Thursday’s Inflation Report, market-implied odds fell to just over 60%."
Boe has adjusted forecast for inflation to 2.2% due faster depreciation of GBP, but still they expect GDP around 0.3% this year.
At the same time Fathom gives interesting insight with relation to BoE recent inflation report - "What the Inflation Report fails to mention is that growth revisions also tend to be pro-cyclical. If there are good reasons to believe that the economy is slowing — and there are many in our view — then it is quite likely that the initial estimate will get revised down."
Another important negative issue in UK is credit conditions. According to recent survey it stands at tightest level in last eleven years. This makes negative impact on UK economy perspective as business has difficulties to get money. Fathom model points on most probable GDP value for 2018 is "-0.4%".
"A model that takes information from this survey into account would tell us that ‘true’ growth in Q1 might have been anywhere between +0.4% and -1.2%, with a central estimate of -0.4%."
It means that rate increase by BoE in November 2017 was just a reverse step for unnecessary rate cut in on "after-Brexit" economy depression fears.
Here, I suppose we could make the only one conclusion - fundamental background for GBP remains weak, and its dropping should continue in foreseeable future.
CFTC data shows that speculators have closed all long positions on GBP as positions have dropped from record high to zero point. Recall that few months ago we've warned on low chances of breaking 1.40 level by GBP due highly saturated long positions.
Technicals
Monthly
Long term charts mostly stand in relation to fundamental processes rather some technical short-term issues. From this point of view GBP action on monthly chart absolutely corresponds to our view on UK economy and its perspectives. Right now we will focus only on nearest target of 1.30, but we remind you our long tong all-time AB=CD OP target around 0.95. Recent bottom of 1.22 is, actually, COP target.
It is difficult to talk definitely guys, but in my opinion most undervalued factor for UK is flaw in its relation with EU as economical as political. EU is turning East right now to huge new markets and economical possibilities - Iran, Middle East, Asia and Russia, of course. This is alternative to UK market, especially when UK turns up its nose at EU. At the same time, UK is an island, it strongly depends on its closest neighbor - EU. Not only in terms of mutual trading, but also in terms of goods logistic. If this flaw will start to wide - 0.95 of GBP/USD could become a reality.
Speaking on technical issues, our suggestion that GBP hardly will break through 1.40 area was correct. This was strong support, top of harmonic swing and at 1.40 long positions were highly saturated.
Cable has failed to break through Yearly Pivot resistance 1. This fact tells, that current upside action is just a retracement within long-term bear trend.
Monthly candle will have probably tail close. GBP is not at oversold here, which means that 1.28-1.30 area should be reached sooner rather than later. But I have some feeling that this drop is a beginning of something big...
Weekly
Weekly chart brings nothing new to our conclusion. Market is not at oversold, K-support is broken as it doesn't exist and road to 1.29 major Fib level is open.
The fact that GBP shows no reaction on strong support area just confirms our thoughts on its weakness. Plunge looks unstoppable. Also pound has dropped through MPS1 and confirms re-established long-term bear trend.
Daily
On daily chart we have just one pattern that could give us a target. This is double top. Actually we also have mentioned its 1.618 extension, and it was completed yesterday.
Now, final destination stands around 1.30-1.31. It is based on classical double top pattern - distance between tops and neckline, counted down. Also we use here 2.0 extension of the same AB-CD pattern which gives the same result.
Price is not at oversold, so, this level could be reached relatively soon. Now all targets coincide in one area - double top target, YPS1 and major 5/8 support. All of them stands in 1.29-1.31 area.
Intraday
4H time frame shows some additional minor targets that exist on intraday charts. Last time we've talked about this chart, when GBP has hit OP and we've made a conclusion that price probably will continue downside action. And this has happened. Now it's an XOP turn. Also we have 1.618 extension support of one of the tops of daily pattern. Still, guys, I do not have any illusions on perspectives of this support area. Market just has broken through weekly K-area as it doesn't exist. So, this minor level doesn't have big chances to hold GBP. Some pullback is a maximum that we could get here:
On 1H TF it seems that we also need to use tactics of harmonic swings and bearish continuation patterns - mostly the same that we are followed on EUR last week. Most regular guest here is "222" Sell pattern - common bearish continuation pattern as soon as upside harmonic swing is completed.
Here we need to take a look at two levels - WPP and WPR1. On 4H chart we have uncompleted yet XOP target around 1.3716. Take a look that here downleg usually stands at 1.618 of retracement. Suggesting that GBP will keep this tendency - next drop should be to WPS1 around 1.3230 area. Taking it all together it seems that GBP should reach XOP target first and show upside bounce second. When bounce will start we need to keep an eye on as upside harmonic swing as "222" Sell pattern around WPP:
Conclusion:
GB now is involving in multiple processes as political as economical. Financially, UK economy now stands in a difficult period. This gives a lot of uncertainty even in nearest future, including BoE policy.
Finally GBP starts to show clear bearish signs of solid strength which could have far going consequences.On coming week we watch for 1.28-1.30 target and chances to join this action.
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.
This time we have big choice of interesting setups among different currencies, and it is really the question which one to choose for weekly report. Most bright setups we have on EUR, GBP, CAD and JPY. Today, I think, we need to take a look at GBP, because on EUR we mostly have the same tactics and long-term target of 1.1450-1.15 that has not been reached yet. Our "Creeping with oversold" tactics should continue next week as well and I think that daily update on Tue will be enough to cover this subject.
Tomorrow we will take a look either on CAD or JPY. Yen is interesting right now and it seems that our scenario of downside reversal is late a bit but start to work
On CAD we have another interesting story. Yesterday on St. Petersburg forum V. Putin said that he thinks fair crude oil price is 60$ per barrel. Once it has been said - oil starts dropping and this is very important for CAD scenario.
But anyway guys - things that we do not cover in weekly reports, we will try to put in daily videos.
Fundamentals
Despite loosing of some momentum on Wednesday on a background of more dovish Fed minutes than it was expected, dollar re-established status quo on Friday as data shows new orders for key U.S.-made capital goods increased more than expected in April and shipments rebounded, suggesting that business spending on equipment was picking up after slowing down at the end of the first quarter.
A bit dovish Fed comments is not a surprise for us, because 3 weeks ago we've discussed this subject when we've analyzed driving factors of USD strength and come to conclusion that intrinsic power is limited. Still, overall investors' sentiment in US stands bullish. Even US-China trade tariffs dust-up has no impact sentiment. As we've mentioned earlier, despite big trade deficit and visuality of high dependence for China export - China stands in weaker position. Recently just one Trump's tweet was enough to make China back step an open domestic markets for US companies. So, perspectives of US economy still stands strong, we expect somewhere around 3% growth annually. So, it should have enough power to push EUR to our 1.14-1.15 target with perspective of continuation to 1.10.
So, while EU starts to change rhetoric and turns East (just read recent statements by E. Macron and A. Merkel), UK as all-time ally of US has no choice and major problems still stands the same. Brexit comes closer, economic relations with EU are far from compromise and own UK economy stands under pressure.
As you know, recent flat BoE decision was not a surprise, but now rate hike is virtually certain till the end of the year as recent poll shows. As Fathom consulting reports - "By close of business the day before the MPC vote, the chances had faded to just over 70%. Immediately following publication of last Thursday’s Inflation Report, market-implied odds fell to just over 60%."
Boe has adjusted forecast for inflation to 2.2% due faster depreciation of GBP, but still they expect GDP around 0.3% this year.
At the same time Fathom gives interesting insight with relation to BoE recent inflation report - "What the Inflation Report fails to mention is that growth revisions also tend to be pro-cyclical. If there are good reasons to believe that the economy is slowing — and there are many in our view — then it is quite likely that the initial estimate will get revised down."
Another important negative issue in UK is credit conditions. According to recent survey it stands at tightest level in last eleven years. This makes negative impact on UK economy perspective as business has difficulties to get money. Fathom model points on most probable GDP value for 2018 is "-0.4%".
"A model that takes information from this survey into account would tell us that ‘true’ growth in Q1 might have been anywhere between +0.4% and -1.2%, with a central estimate of -0.4%."
It means that rate increase by BoE in November 2017 was just a reverse step for unnecessary rate cut in on "after-Brexit" economy depression fears.
Here, I suppose we could make the only one conclusion - fundamental background for GBP remains weak, and its dropping should continue in foreseeable future.
CFTC data shows that speculators have closed all long positions on GBP as positions have dropped from record high to zero point. Recall that few months ago we've warned on low chances of breaking 1.40 level by GBP due highly saturated long positions.
Technicals
Monthly
Long term charts mostly stand in relation to fundamental processes rather some technical short-term issues. From this point of view GBP action on monthly chart absolutely corresponds to our view on UK economy and its perspectives. Right now we will focus only on nearest target of 1.30, but we remind you our long tong all-time AB=CD OP target around 0.95. Recent bottom of 1.22 is, actually, COP target.
It is difficult to talk definitely guys, but in my opinion most undervalued factor for UK is flaw in its relation with EU as economical as political. EU is turning East right now to huge new markets and economical possibilities - Iran, Middle East, Asia and Russia, of course. This is alternative to UK market, especially when UK turns up its nose at EU. At the same time, UK is an island, it strongly depends on its closest neighbor - EU. Not only in terms of mutual trading, but also in terms of goods logistic. If this flaw will start to wide - 0.95 of GBP/USD could become a reality.
Speaking on technical issues, our suggestion that GBP hardly will break through 1.40 area was correct. This was strong support, top of harmonic swing and at 1.40 long positions were highly saturated.
Cable has failed to break through Yearly Pivot resistance 1. This fact tells, that current upside action is just a retracement within long-term bear trend.
Monthly candle will have probably tail close. GBP is not at oversold here, which means that 1.28-1.30 area should be reached sooner rather than later. But I have some feeling that this drop is a beginning of something big...
Weekly
Weekly chart brings nothing new to our conclusion. Market is not at oversold, K-support is broken as it doesn't exist and road to 1.29 major Fib level is open.
The fact that GBP shows no reaction on strong support area just confirms our thoughts on its weakness. Plunge looks unstoppable. Also pound has dropped through MPS1 and confirms re-established long-term bear trend.
Daily
On daily chart we have just one pattern that could give us a target. This is double top. Actually we also have mentioned its 1.618 extension, and it was completed yesterday.
Now, final destination stands around 1.30-1.31. It is based on classical double top pattern - distance between tops and neckline, counted down. Also we use here 2.0 extension of the same AB-CD pattern which gives the same result.
Price is not at oversold, so, this level could be reached relatively soon. Now all targets coincide in one area - double top target, YPS1 and major 5/8 support. All of them stands in 1.29-1.31 area.
Intraday
4H time frame shows some additional minor targets that exist on intraday charts. Last time we've talked about this chart, when GBP has hit OP and we've made a conclusion that price probably will continue downside action. And this has happened. Now it's an XOP turn. Also we have 1.618 extension support of one of the tops of daily pattern. Still, guys, I do not have any illusions on perspectives of this support area. Market just has broken through weekly K-area as it doesn't exist. So, this minor level doesn't have big chances to hold GBP. Some pullback is a maximum that we could get here:
On 1H TF it seems that we also need to use tactics of harmonic swings and bearish continuation patterns - mostly the same that we are followed on EUR last week. Most regular guest here is "222" Sell pattern - common bearish continuation pattern as soon as upside harmonic swing is completed.
Here we need to take a look at two levels - WPP and WPR1. On 4H chart we have uncompleted yet XOP target around 1.3716. Take a look that here downleg usually stands at 1.618 of retracement. Suggesting that GBP will keep this tendency - next drop should be to WPS1 around 1.3230 area. Taking it all together it seems that GBP should reach XOP target first and show upside bounce second. When bounce will start we need to keep an eye on as upside harmonic swing as "222" Sell pattern around WPP:
Conclusion:
GB now is involving in multiple processes as political as economical. Financially, UK economy now stands in a difficult period. This gives a lot of uncertainty even in nearest future, including BoE policy.
Finally GBP starts to show clear bearish signs of solid strength which could have far going consequences.On coming week we watch for 1.28-1.30 target and chances to join this action.
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.
