Sive Morten
Special Consultant to the FPA
- Messages
- 18,566
Fundamentals
(Reuters) - The dollar rose broadly on Friday after the release of U.S. factory orders and services sector data that beat estimates, reversing an earlier slide after an underwhelming October jobs report.
The euro turned negative against the dollar, falling to its lowest level since Monday after the U.S. factory orders and ISM non-manufacturing PMI data, while the dollar turned positive against the Japanese yen, erasing earlier losses and nearing its highest since mid-July.
The Institute for Supply Management’s non-manufacturing purchasing managers’ index rose to its highest level since 2005. New orders for U.S.-made goods rose for the second straight month in September and orders for core capital goods surpassed expectations.
The dollar index, which measures the greenback against six rival currencies, rose to its highest since Oct. 27, closing in on a nearly four-month peak.
The strong data backed a slate of releases on U.S. growth and inflation from earlier in the week that pointed to a strong economy and further interest rate increases from the Federal Reserve.
“When we look at the big picture, we’re looking at a Fed that’s likely to hike in December and could very well have three hikes up its sleeve for 2018 and that is certainly a more hawkish outlook than we’re expecting from most other major central banks,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
The dollar had earlier fallen to its lows of the day after the release of October U.S. non-farm payrolls, which came in below expectations.
The jobs report showed its largest gain since July 2016, but missed economists’ expectations for an increase of 310,000 jobs, following a particularly weak reading in September.
The dollar index posted its third straight weekly increase, following its largest weekly percentage gain of the year last week. October was the dollar’s best monthly performance since February.
Chart of the Week: Storm-affected GDP reading points to solid US economic momentum
by Fathom Consulting
Last Friday’s advance estimate of US GDP showed that the economy expanded at an annualised pace of 3.0% last quarter. While this is lower than our forecast of 3.5%, the difference between the outturn and our forecast was mainly due to inventories ̶ otherwise, the underlying pace of expansion was solid.
Despite disruptions from the hurricanes, consumption rose 2.4%, while private non-residential fixed investment rose 3.7%. Inventories made a smaller positive contribution than we anticipated, as production by auto manufacturers failed to keep pace with a surge in demand for new vehicles – these inventories are likely to be replenished in Q4, boosting growth. Residential investment was negatively affected by the hurricanes, and fell 6.0% in Q3, but this component is likely to rebound in Q4. At this stage we expect GDP growth to exceed 3.0% in the final quarter of 2017.
СOT Report
Although we do not see many changes week by week, but in reality changes are coming, if we will take a look difference for month. Thus, for last 4 weeks net long position has dropped from record high and decreased for 26 K contracts, while open interest mostly stands that same around 438K contracts. It means that long position gradually have been replaced by shorts. This process now is going slow, but it just has started. Difference between ECB and Fed policy will continue to make impact on EUR/USD and probably will accelerate more closer to the end of the year:
So last week we've put solid fundamental background under strength on US dollar. Downside reversal that we saw last week is just shy steps in this direction and should accelerate. Currently we have different setups on other currencies as well - GBP, NZD, just to call some, but we're also interested with progress on our major setup on EUR. Last week first step of our setup has been completed and second step just has started. We thought that it should be a bit faster, but it goes as it goes...
Technical
Monthly
Last week market has continued downside action and November is becoming 3rd month of decreasing, although drop is not too fast by far. On monthly chart we do not see any reasons to change our analysis by far. Mostly it stands as we've suggested. Recent upside breakout to 1.21 area closer and closer comes to be treated as "failure" and "bullish trap" according to classical interpretation.
Market has dropped below lows of both - September and August. They were "indecision" candles. It means that we probably is getting new direction right now.
At the same time there are not many tools exist here, on monthly. Beyond of all-time support/resistance zone that cuts EUR/USD history by 1.20 edge, we have - rectangle consolidation and upside reversal swing. Making parallel to DXY chart, where we have downside reversal swing, here we also should suggest deep retracement down. This, in turn will push price back inside rectangle, which will be not good sign for bulls.
In this case of rectangle space will be open for price fluctuation and now it is impossible to say whether it will be deep retracement or real return back to lows.
Recent action, accompanied by fundamental background and parallel analysis of key financial markets mostly shows bearish picture and suggests downside action that could take large part of 2018 action.
Now market still feels support of 1.16 area, but as it will dive deeper - downside action could accelerate
Weekly
Last week we've discussed chances to see here DRPO "Sell" pattern. In general it's possible appearing would be logic, because it corresponds by it's nature to H&S pattern that we have on daily. But the problem with this pattern stands with strong upside action which it suggests as second top of DRPO needs to be formed here.
Another important condition - price should not reach important Fib support of DRPO's thrust.
Although theoretically it is still possible as price still stands above 1.1510 Fib support, but in reality, I suspect that DRPO chances looks phantom. Just because market already has got major impulse and it is mostly impossible to stop it, reverse up and return price back to 1.21 area.
Yes, 1.14-1.15 is strong support area. It includes multiple Fib levels (and K-areas), trend line supports and OS, and upside retracement indeed could happen here. But DRPO time mostly is gone - it was much simpler to appear 2 weeks ago when market was indecision and just crossed 3x3 DMA.
In such circumstances, it is more probable to get another bearish continuation pattern, that also suggests moderate upside retracement - this is "222" Sell. And it is very probable that it could start somewhere around 1.1450-1.15 area.
Last week action takes the shape of "Gravestone" doji and most has bearish mood. Between 1.16 and 1.15 EUR has free space that's why action could go faster and retracement on daily and intraday charts should be smaller. 1.1450-1.15 area is final point of second step of our long-term EUR analysis. Third step is meaningful retracement up, somewhere to 1.17-1.18 area before major collapse on EUR will happen:
Daily
Here guys, a few moments to consider. Last week when we've said that upside reaction should be mild to keep purity of bearish scenario, it was a bit unbelievable, just because price has reached daily K-support and OS. In such circumstances there was a great risk that EUR will jump above neckline again. But, everything has passed well, as we've suggested.
NFP release was mixed. Although numbers have not achieved 310 K level, but last 2 month data was revised upward and real NFP was around 300K that is enough to treat is as good result. The major reason why Friday drop on EUR was slow, is drop in hourly earnings, which indicates short-term inflation.
From technical point of view everything looks perfect by far. On Friday EUR has formed bearish reversal candle by creating weekly top and close below not even Thu but also Wed lows. In fact, our entry point has work perfectly as top was around 1.1689+. But, if you've missed this chance, you could watch for some minor retracement based on last downside candle. Market now is not at OS, and EUR has room to move lower.
Intraday
On 4-hour chart we've got "222" Sell pattern, and market has dropped below "C" point of our AB=CD pattern. This gives new direction.
Trend here also has turned bearish finally:
Now let's estimate what levels we could watch for potential entry:
Personally I like 1.1630-1.1633 area. Upside action should not be too deep. EUR has broken our flag pattern down and this area is combination of different resistances - WPP, Fib level and broken flag support:
Those who already have position, could move stops to break-even on first entry (as I did) and think about scale-in around 1.1630 area. Now we start monitoring second stage of our long-term trading plan - action down to 1.1450...
Conclusion:
Bounce up to H&S neckline has been completed. Our next target is 1.1450.
In longer perspective, before major collapse on EUR will happen - we should get deep retracement up. It is necessary to fade existed upside momentum, as EUR was standing in long term uptrend. So, this retracement has great chances to start somewhere around 1.1450 area. This is next, 3rd stage of our long-term trading plan.
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) - The dollar rose broadly on Friday after the release of U.S. factory orders and services sector data that beat estimates, reversing an earlier slide after an underwhelming October jobs report.
The euro turned negative against the dollar, falling to its lowest level since Monday after the U.S. factory orders and ISM non-manufacturing PMI data, while the dollar turned positive against the Japanese yen, erasing earlier losses and nearing its highest since mid-July.
The Institute for Supply Management’s non-manufacturing purchasing managers’ index rose to its highest level since 2005. New orders for U.S.-made goods rose for the second straight month in September and orders for core capital goods surpassed expectations.
The dollar index, which measures the greenback against six rival currencies, rose to its highest since Oct. 27, closing in on a nearly four-month peak.
The strong data backed a slate of releases on U.S. growth and inflation from earlier in the week that pointed to a strong economy and further interest rate increases from the Federal Reserve.
“When we look at the big picture, we’re looking at a Fed that’s likely to hike in December and could very well have three hikes up its sleeve for 2018 and that is certainly a more hawkish outlook than we’re expecting from most other major central banks,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
The dollar had earlier fallen to its lows of the day after the release of October U.S. non-farm payrolls, which came in below expectations.
The jobs report showed its largest gain since July 2016, but missed economists’ expectations for an increase of 310,000 jobs, following a particularly weak reading in September.
The dollar index posted its third straight weekly increase, following its largest weekly percentage gain of the year last week. October was the dollar’s best monthly performance since February.
Chart of the Week: Storm-affected GDP reading points to solid US economic momentum
by Fathom Consulting
Last Friday’s advance estimate of US GDP showed that the economy expanded at an annualised pace of 3.0% last quarter. While this is lower than our forecast of 3.5%, the difference between the outturn and our forecast was mainly due to inventories ̶ otherwise, the underlying pace of expansion was solid.
Despite disruptions from the hurricanes, consumption rose 2.4%, while private non-residential fixed investment rose 3.7%. Inventories made a smaller positive contribution than we anticipated, as production by auto manufacturers failed to keep pace with a surge in demand for new vehicles – these inventories are likely to be replenished in Q4, boosting growth. Residential investment was negatively affected by the hurricanes, and fell 6.0% in Q3, but this component is likely to rebound in Q4. At this stage we expect GDP growth to exceed 3.0% in the final quarter of 2017.
СOT Report
Although we do not see many changes week by week, but in reality changes are coming, if we will take a look difference for month. Thus, for last 4 weeks net long position has dropped from record high and decreased for 26 K contracts, while open interest mostly stands that same around 438K contracts. It means that long position gradually have been replaced by shorts. This process now is going slow, but it just has started. Difference between ECB and Fed policy will continue to make impact on EUR/USD and probably will accelerate more closer to the end of the year:
So last week we've put solid fundamental background under strength on US dollar. Downside reversal that we saw last week is just shy steps in this direction and should accelerate. Currently we have different setups on other currencies as well - GBP, NZD, just to call some, but we're also interested with progress on our major setup on EUR. Last week first step of our setup has been completed and second step just has started. We thought that it should be a bit faster, but it goes as it goes...
Technical
Monthly
Last week market has continued downside action and November is becoming 3rd month of decreasing, although drop is not too fast by far. On monthly chart we do not see any reasons to change our analysis by far. Mostly it stands as we've suggested. Recent upside breakout to 1.21 area closer and closer comes to be treated as "failure" and "bullish trap" according to classical interpretation.
Market has dropped below lows of both - September and August. They were "indecision" candles. It means that we probably is getting new direction right now.
At the same time there are not many tools exist here, on monthly. Beyond of all-time support/resistance zone that cuts EUR/USD history by 1.20 edge, we have - rectangle consolidation and upside reversal swing. Making parallel to DXY chart, where we have downside reversal swing, here we also should suggest deep retracement down. This, in turn will push price back inside rectangle, which will be not good sign for bulls.
In this case of rectangle space will be open for price fluctuation and now it is impossible to say whether it will be deep retracement or real return back to lows.
Recent action, accompanied by fundamental background and parallel analysis of key financial markets mostly shows bearish picture and suggests downside action that could take large part of 2018 action.
Now market still feels support of 1.16 area, but as it will dive deeper - downside action could accelerate
Weekly
Last week we've discussed chances to see here DRPO "Sell" pattern. In general it's possible appearing would be logic, because it corresponds by it's nature to H&S pattern that we have on daily. But the problem with this pattern stands with strong upside action which it suggests as second top of DRPO needs to be formed here.
Another important condition - price should not reach important Fib support of DRPO's thrust.
Although theoretically it is still possible as price still stands above 1.1510 Fib support, but in reality, I suspect that DRPO chances looks phantom. Just because market already has got major impulse and it is mostly impossible to stop it, reverse up and return price back to 1.21 area.
Yes, 1.14-1.15 is strong support area. It includes multiple Fib levels (and K-areas), trend line supports and OS, and upside retracement indeed could happen here. But DRPO time mostly is gone - it was much simpler to appear 2 weeks ago when market was indecision and just crossed 3x3 DMA.
In such circumstances, it is more probable to get another bearish continuation pattern, that also suggests moderate upside retracement - this is "222" Sell. And it is very probable that it could start somewhere around 1.1450-1.15 area.
Last week action takes the shape of "Gravestone" doji and most has bearish mood. Between 1.16 and 1.15 EUR has free space that's why action could go faster and retracement on daily and intraday charts should be smaller. 1.1450-1.15 area is final point of second step of our long-term EUR analysis. Third step is meaningful retracement up, somewhere to 1.17-1.18 area before major collapse on EUR will happen:
Daily
Here guys, a few moments to consider. Last week when we've said that upside reaction should be mild to keep purity of bearish scenario, it was a bit unbelievable, just because price has reached daily K-support and OS. In such circumstances there was a great risk that EUR will jump above neckline again. But, everything has passed well, as we've suggested.
NFP release was mixed. Although numbers have not achieved 310 K level, but last 2 month data was revised upward and real NFP was around 300K that is enough to treat is as good result. The major reason why Friday drop on EUR was slow, is drop in hourly earnings, which indicates short-term inflation.
From technical point of view everything looks perfect by far. On Friday EUR has formed bearish reversal candle by creating weekly top and close below not even Thu but also Wed lows. In fact, our entry point has work perfectly as top was around 1.1689+. But, if you've missed this chance, you could watch for some minor retracement based on last downside candle. Market now is not at OS, and EUR has room to move lower.
Intraday
On 4-hour chart we've got "222" Sell pattern, and market has dropped below "C" point of our AB=CD pattern. This gives new direction.
Trend here also has turned bearish finally:
Now let's estimate what levels we could watch for potential entry:
Personally I like 1.1630-1.1633 area. Upside action should not be too deep. EUR has broken our flag pattern down and this area is combination of different resistances - WPP, Fib level and broken flag support:
Those who already have position, could move stops to break-even on first entry (as I did) and think about scale-in around 1.1630 area. Now we start monitoring second stage of our long-term trading plan - action down to 1.1450...
Conclusion:
Bounce up to H&S neckline has been completed. Our next target is 1.1450.
In longer perspective, before major collapse on EUR will happen - we should get deep retracement up. It is necessary to fade existed upside momentum, as EUR was standing in long term uptrend. So, this retracement has great chances to start somewhere around 1.1450 area. This is next, 3rd stage of our long-term trading plan.
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.