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Forex FOREX PRO WEEKLY, November 05 - 09, 2018

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Nov 3, 2018.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals

    Fundamental background stands very tricky for EUR right now. Two weeks ago on GDP and mostly PCE weak data, EUR and other currencies have got support and started rally across the board. Not because of their strength but mostly because of review investors' expectations on Fed policy. As we mentioned in previous report - odds on Dec rate change has dropped for 20% to ~62%, according to CME Fed watch tool.

    But yesterday we've got opposite situation. NFP data was good, but what is more important - wedge growth shows 3.1% inflation which make investors come back to idea of rate change. As a result - odds jumps for 10% and now stands around 73% that Fed will increase rate in December:
    upload_2018-11-3_10-39-37.
    Source: cmegroup.com

    Why I'm talking about this? Because in short-term perspective, EUR/USD rate is a function of Fed decision and at 100% will depend on strength of weakness of the dollar. From that standpoint,Nov 8th Fed meeting will be extremely important for the markets. Not because Fed will change rate, but because of the comments. And this will be the moment where short-term trend will be estimated. This will happen on coming week.

    Speaking Friday data and recent rumors around China tariffs agreement, here is what Reuters tells -

    White House economic adviser Larry Kudlow told CNBC that President Donald Trump has not asked U.S. officials to draw up a proposed trade plan for China, shooting down an earlier report from Bloomberg that Trump had asked officials to draft a possible deal.

    Kudlow also said he was not as optimistic as he once was about the two nations reaching a deal and said that Trump “could pull the trigger” on additional tariffs on Chinese imports, depending on how talks go.

    Separately, Trump told reporters that a lot of progress had been made with China on trade, and he predicted the world’s two largest economies would reach a very good deal.

    Risk sentiment deteriorated after the Kudlow remarks and that later drove more safe-haven demand for the dollar, Juan Perez, senior currency trader with Tempus, Inc in Washington, said.

    “Just looking at the movements over the past two days for the U.S. dollar, the headlines surrounding U.S.-China talks -progress or lack thereof - is contributing to swings in broader risk sentiment, which is contributing to swings in the U.S. dollar,” said Eric Viloria, FX strategist at Credit Agricole in New York.

    Investors’ view that the United States to be in better shape than its rivals to weather a trade war has helped drive demand for the dollar.

    On Friday, the dollar was also supported by data that showed U.S. job growth rebounded sharply in October and wages recorded their largest annual gain in 9-1/2 years, which could keep the Federal Reserve on track to raise interest rates in December.


    But the boost to the dollar from the jobs data was relatively muted.

    “I think we might be seeing some signs that dollar gains are starting to become somewhat limited at these levels,” said Sireen Harajli, foreign exchange strategist at Mizuho in New York.

    This week rally was good, especially on GBP, Gold and dollar index and short-term investors have opened long positions. Till the Fed meeting, EUR and other currencies will drive by their own, but I have some bad feeling on 8th of November, that this could be turning point. Not just because of Fed meeting, but also by taking a look at sentiment.

    EUR net short position have increased on the background of rising open interest. This increase doesn't look extreme, mostly position stands the same, but numbers show that as speculators as hedgers have opened more bearish positions.
    upload_2018-11-3_10-49-42.
    Source: CFTC.gov
    Charting by Investing.com


    upload_2018-11-3_10-51-32.

    Besides, although we do not see big appreciation of US dollar, take a look at US 10 year rate. It has shown solid growth this week, increasing from 3.06 to 3.22%, and this is solid range for it. Our target stands at 3.35% area:
    upload_2018-11-3_10-54-50.
    Charting by Tradingview.com


    It means that maybe on Friday effect was a bit muted and postponed, but Fed meeting could be last drop and change situation. What I would like to say is we probably could keep any longs until 8th of November, as markets will be driven by existence sentiment and upside bullish momentum, but, as Fed meeting will start, it would be better to meet its results sitting on the hands.

    And the last one - Fathom provides update on GDP and ECB policy perspective. Following their conclusion, overall situation stands in a row with expectations and lets ECB close QE program in December as it was planned. EU GDP is slowed, but still it shows positive numbers, which keeps major scenario intact by far. First view on rate change will not happen until mid 2019:
    [​IMG]
    Fathom’s euro area nowcast model uses numerous high-frequency data to construct a timely estimate of euro area GDP growth. According to the model, the euro area economy is likely to have expanded by 0.4% in the third quarter. The currency bloc’s growth rate has undoubtedly slowed in the face of an uncertain global trade environment (net trade has been a drag on growth this year). Nevertheless, the pace of expansion remains solid and this, coupled with rising core inflation, should give the ECB sufficient confidence to cease net asset purchases in December.

    Technical analysis
    Monthly


    Doing technical analysis this week is real challenge guys. Strong upside impulse makes difficult to apply any assumptions of the problems that could appear in the middle of coming week.

    Things that we've said last week on monthly chart are still valid. Monthly picture is the one about 1.13 lows. Despite solid upside action on daily chart last week - here, on monthly it looks puny, and price stands around 1.13. Downside breakout will open wide road to the south.

    As we've mentioned last week, EUR - hangs upon 1.14-1.15 support area. After strong drop and spike down - no meaningful upside action has followed. This is not good sign for bulls. It's already 5 months of laying upon this area. As longer EUR will stand here as greater chances on downside breakout will be.
    This is indirect sign of weakness, when market can't jump out from strong support area. It means that strong level could support price from collapse but its effort is not sufficient to start bullish action. Day by day buyers will be washed out around this level and EUR could break it, if nothing will change. So, let's keep this issue in mind. It is not vital by far, but still first warning signs already exist.

    On monthly chart 1.14-1.15 area is strong and very important support, because it includes YPP. Since our fundamental background supports dollar strength within a year or so - downside breakout should happen sooner or later. The fact that EUR has turned down precisely from YPR1 area tells that recent 1.05-1.26 action was an upside retracement within long-term bear trend. And YPP break could become another vital confirmation of this scenario.

    In general 1.14-1.15 is important not just because of YPP. Take a look - this is upper border of former 1.05-1.14 consolidation. If price will drop back inside it - it will open road to the bottom of 1.05 area. Also this is monthly 50% support area. Price has problems with breaking borders of any consolidation, but it has no barriers inside and could freely move from up to bottom.

    Now - take a look what progress we have around it. 1.14 lows is the first test of rectangle and monthly support. After small bounce price returns back to it. So, this is the crucial border and now it seems that EUR has very good chances to break it. Once it will happen - free space to YPS1 around 1.08 will be opened. It will mean return back in rectangle. Next our target here will be 1.03 AB-CD COP extension right around major lows.
    It seems that we will not bore till the end of the year. Don't forget also that trend is bearish on monthly chart...
    eur_m_05_11_18.

    Weekly

    If I ask you was it really positive week for EUR, almost all trades would say - "sure, because good rally has been formed on the markets across the board". But take a look at weekly chart, do you see here something positive? Our bullish grabber has been erased last week. Rally was cancelled by Friday drop and, in dry result we have indecision week right at the eve of Fed meeting, with light bearish sentiment on the back?
    Recall what we've said in the beginning of this report - "bad feeling" about bullish perspective...

    Here I remind you what we've said last week on this chart
    "...But, for fairness' sake, we have to say that fundamental story is a bit different. We do not see any bullish enthusiasm among investors. But it is necessary to move weekly chart. Weekly time frame is too big to be driven buy technical fluctuations. It needs some real factors. It's not a joke to push EUR to 1.20 area, this will not happen occasionally by some "technical retracement" real driving factor is needed, mostly fundamental. But right now it is real challenge to find one. That' being said, although we have a grabber and other stuff, but it also could fail. Personally I gravitate more to bearish scenario, it seems more probable to me. Market looks heavy, especially on monthly chart."
    And today it sounds reasonable as well.
    eur_w_05_11_18.

    Daily

    And now guys, we're coming to most interesting stuff. First - take a look at daily EUR chart. OP target has not been hit yet, EUR has failed to break falling wedge on Friday and turned down precisely from its upper border - definitely it is not quite bullish behavior, at least for upside reversal as it was seemed in the beginning of the week. Also EUR has failed to pass through MPP:
    eur_d_05_11_18.

    Now let's dig a bit more and take a look at December Dollar Index Futures. On Tuesday we correctly have estimated reason for pullback, as particular Dollar index has completed OP and shown W&R, which has triggered good pullback. And here is what we have now -
    dxy_d_05_11_18.

    B&B "Buy" Setup with bullish grabber on board that suggests taking out of previous tops, at least. Could it fail? Well, probably yes, any pattern could. But, you should understand how bullish context is weak right now. Overall sentiment and investors activity doesn't show big purchases of the EUR, technical picture shows really big risk for any long position on EUR. On weekly chart, after W&R is done (I mean dollar Index), market mostly is coiling around the top, but doesn't go deeper. Friday statistics was dollar supportive. In such circumstances I do not want to go long guys...

    Intraday

    We all wait for some upside continuation, and reverse H&S pattern seems as most suitable for this purpose. Indeed, retracement to 1.1360 will create the right arm of this pattern and at first glance it seems perfect for long entry.

    But I also would like to show you alternative scenario. We can't ignore the grabber on dollar index, at least until it stands valid. Here is very important detail exists. Our daily OP stands around 1.1240 area. Here, on 4H chart, we have smaller AB-CD pattern, which, actually is a daily CD leg. This minor OP already has been reached, but its XOP stands at the same 1.1246 area!

    Putting its all together - we could get (and I suppose we will), 1.618 3-Drive "Buy" pattern, as 3rd drive points on 1.12 target. It stands slightly below our OP and XOP, but we should not forget that stop orders below 1.13 lows could push EUR lower, so all targets could be hit. This scenario corresponds to idea of the grabber on dollar index.
    eur_4h_05_11_18.

    Should we ignore reverse H&S pattern? It depends on your risk aversion. Conservative traders are better to avoid any long positions right now. In general we could try to go long around 1.1360, but if market will not return back to 1.1450 neckline within 12 hours (3 periods on 4H chart), chances on H&S failure will increase.

    Conclusion:

    Without Fundamental/Sentiment analysis and excluding cross market view - EUR setup looks nice and inspiring of taking long position on 1.1360 retracement. But, with adding other type of analysis, overall bullish setup looks weak, and I have bad feeling about it. At least, I do not like Dollar index and sentiment bearish company to this EUR bullish setup.



    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.
     
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  2. Stag

    Stag Sergeant

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    When it comes to analysing and trading, there is no right way or wrong way guys, only your way. Mine is built on the Wave Priniple, because it extends the scope of my understanding of current price action and how it relates to the overall picture of a market. The list below summarises how it can help imporving your success:

    1. It identifies the trend (price action in the same direction as the one larger trend develops in five waves).
    2. It identifies countertrend price actions within the larger trend (reaction against the larger trend in three waves).
    3. It determines the maturity of the trend (price activity is a fractal, because wave patterns form larger and smaller versions of themselves).
    4. It provides high-confidence price targets (waves tend to be related by Fibonacci ratios).
    5. It provides specific points of invalidation (violation of rules implying that the operative wave count is incorrect).

    When I look for a trading opportunity I start my search by asking questions like “Do I see a pattern I recognize?, do I see either a motive wave or a corrective one?”.

    Last week when I said "I see the early signs of a reversal" it was based on No. 3 in the list: we clearly had a decline in five waves and its fifth subwave was an ending diagonal. Frequent readers already know that this terminating pattern shows up in the fifth wave position of impulse waves and in the wave C position of ABC patterns (you can find an unfolding example here and see what heppened next. Once they terminate, a sharp and swift reversal starts that goes above to the level where they began. And that's exactly what happend.

    Even being unfamiliar with the Wave Principle you probably know that motive waves define the direction of the trend, corrective waves travel against the larger trend. If all you do is identify a motive wave versus a corrective wave correctly, you can still identify some useful trade setups.

    Now let's take a closer look at the Dollar Index. The larger trend is up (referring to blue and red labels). It was clear that the decline from the August high to the September low was a three-wave move, and this structure could be identified as a zigzag - a countertrend move. Then, the wave up from the September low also comprises three waves and its structure also takes the shape of a zigzag. Have a look and see how wave (c) decreases its upside momentum reachning its minimum in blue wave (v) trading below the mid-line of the grey channel, signaling a weakening uptrend. The result is another three-wawe move again - this time up.

    How is it important to us?

    Three waves down, three waves up suggest that we are still in a correction. That's make me think that the Dollar Index may be in the middle of a correction within that trend.

    USDX_181102.

    Red wave 2 is possibly unfolding as a flat, which is a 3-3-5 structure where waves circle A and B are zigzags. Blue wave (iv) at 96.31 is already broken impulsively (typical for wave 1) and prices went below the structural support at 96.16. That means that odds favor a sell-off below 96 from near current levels. If that’s so, it’s reasonable to expect a clear five-wave move down with a steep shape to about 93.3 for wave C.

    But at this stage it is too early to say it is a flat, this pattern could be another tricky structure called a double three WXY combination as well. If the first two waves are zigzags (seem to be), then wave Y could unfold as a fiat or a triangle. If this is the case, we will see a series of three-wave structures forming either a flat or a triangle possibly ending much higher than wave C, finding support around 95.5 or even higher.

    Most importantly wave analysis provides a specific point of invalidation, which is the level at which an interpretation is no longer viable. In this case that point would be a new high above 97.2. As long as prices are trading below that key level, the dollar index is vulnerable to further weakness before the resumption of the larger trend.

    So what is the conclsuion then?

    All that I'm saying is: be opened for different views and have a plan for the unexpected. Remember that the only thing that can confirm an idea is price action. Until it occurs, even the best looking scenario, no matter how probable, may not turn out to be the correct one.
     
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  3. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Great add-on Stag. Thanks.
     
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  4. Deltoid88

    Deltoid88 Private, 1st Class

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    Quick update on short GBP set up from Friday. This could also be proper wave count. Maybe true abc correction has not started yet, maybe we saw expanded flat in wave 4. In this case bullish wave 5 is about to start, and could end around 1.3090, and after that true abc correction could start.

    Conclusion? Those who have shorts already, protect it with break even stop, leave take profit, but consider also option to close trades manually while still in decent profit if price action shows bullish signs. Those who do not have short positions, do not open it. It is not the right moment in my humble view.

    GBPUSDkH4kontra.
     
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  5. Deltoid88

    Deltoid88 Private, 1st Class

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    My complete view on EUR/USD and trade plan for the week.

    Monthly chart - bearish wave 2 develops in ABC action. Wave A is completed, wave B still active as most probable scenario.

    EURUSDkMonthly.
    Weekly chart - here I want to show you some possible zones where blue wave B can end: 1.1135-1.1240. If price goes down to this area, I would be looking for buying opportunities. In this case blue wave B would be expanded flat.

    EURUSDkWeekly.

    Daily chart - on daily I will reveal my trading plan for the week. Interested only in long positions on EUR while price stays above 1.130. I think reversal has started, and that blue wave B has already been completed. Long entry zone 1.130-1.138; SL=1.1280; TP zone - 1.18-1.21. This set up provides great risk to reward ratio, and what most important is, I believe it has good chance to happen. Note that if price break 1.130, that would only temporary negate bullish scenario, and bullish action can be re-established after completing some downside targets in 1.1135-1.12 zone.

    EURUSDkDaily.

    Intraday chart - goal here is to go long at best possible levels. Here we are in blue wave 2 to the downside. For this wave count 1.130 support is vital. So, I am expending this blue wave 2 to end somewhere in 1.13-1.1370 zone where bullish blue wave 3 could start. On chart we can see possible long entries after completing some fib targets.

    EURUSDkH1.

    At the end I would like to give comment on trading in general. There is only one way to trade, to follow your plan, to keep analyze as simple as possible, because only that kind of analyze can give you power to pull the trigger. If it is too complicated, it is not good. This is also way to maximize profits. If profits are not maximized, you lost money you should have won. That is proper way of thinking.

    Sive gave some good points how downside action could develop, but I do not think that would be the case. I will use every dip to increase long position above 1.130. FED is going to be important trigger this week which can tell us where we are going. I want to be fully into long positions before FED.

    Good luck!

    P.S

    Sive, I completely disagree with this. I think that action from 1.05-1.26 was start of reversal, bullish monthly blue wave 1, and that we saw long term bottom in EUR. In my humble view of economics I expect huge crises in USA in 2019-2021, that crises could last for quite some time.
     
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  6. Deltoid88

    Deltoid88 Private, 1st Class

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    Made mistake, I meant bigger, red wave B would be extended flat if price breaks down 1.13 and then upside action follows. Sorry for that.

    One more mistake, A op target is on 100% extension of course, and it has already been hit. In hurry wrote like op is on 1.27 extension.
     
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  7. Sive Morten

    Sive Morten Special Consultant to the FPA

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    This Pivots for 2018 year. For this year they work perfect - market has dropped to YPP and still could drop to YPS1 at 1.08. They do not work for 2020-2021 :rolleyes: Because in January we will get new yearly pivots.
     
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  8. Deltoid88

    Deltoid88 Private, 1st Class

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    Skillful and full of special moves and explanations as always ;) Thanks for reply!
     
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  9. Deltoid88

    Deltoid88 Private, 1st Class

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    Quick update on GBP. Wave 5 proved to be expanded flat, now we are in bullish wave 5 to complete wave A, after that I expect drop in ABC action to complete blue wave B.

    GBPUSDkH4.
     
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  10. Deltoid88

    Deltoid88 Private, 1st Class

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    Quick update on EUR. I think that we are about to start red wave C (5 waves) to complete blue wave 2 (3 waves) for great long entry in 1.1315-1.1335 zone, after that I am long all the way to 1.19-1.21 zone.

    EURUSDkH1.
     
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