Sive Morten
Special Consultant to the FPA
- Messages
- 18,771
Monthly
So, let’s in the beginning of our reserach briefly run through recent events and rumors.
As Reuters reports dollar rose across the board on Friday after a report showed an unexpected acceleration in U.S. job growth in October, lifting expectations the Federal Reserve may start scaling back its massive stimulus before the end of the year. Employers added 204,000 jobs last month, the Labor Department said, handily beating the consensus forecast for an increase of 125,000. The report suggested the economy was on a firm footing and that a partial government shutdown had less of an impact on the economy than feared. A cutback in Fed stimulus, at a time when the European Central Bank and Bank of Japan are in easing mode, will boost the dollar's yield appeal. The dollar has fallen in recent weeks on speculation the Fed may not start reducing its $85 billion per month bond purchases until next year.
"It's an impressively strong jobs number in the face of a government shutdown and underlying weakness in the U.S. economy. This number has totally rewritten the outlook for the U.S.," said Richard Franulovich, senior currency strategist at Westpac in New York. "I have been dismissive of a December taper from the Federal Reserve and now it looks like a possibility," he said.
The dollar index, which tracks the greenback against a basket of six currencies, rose 0.5 percent to 81.242, with the peak on the day a near two-month high of 81.482. Negative sentiment on the euro grew after the European Central Bank shocked investors by cutting the interest rate on Thursday and Standard & Poor's downgraded France's credit rating to AA from AA+. Money markets and the currency options market are suggesting the euro will grind lower in the near term as it loses its yield advantage over other major currencies. Citigroup put a sell recommendation, targeting a drop to $1.3050. "Given the ECB's view of a prolonged period of low inflation, any further slowing in CPI will raise the threat of negative deposit rates, which will be a big negative for the euro," said Chris Turner, chief currency strategist at ING.
Some analysts said the details of the jobs report still suggest worries in the labor market, such as the falling labor force participation rate, which has limited the dollar's rally. "The payrolls are a nice surprise but the Fed is in no condition to restart tapering talk having just reversed themselves seven weeks ago," said Joseph Trevisani, chief market strategist at WorldWideMarkets, in Woodcliff Lake, New Jersey.
After the jobs data, U.S. short-term interest rate futures suggested traders are expecting a 47 percent chance the Fed will hike rates in April 2015 and a 55 percent chance of a rate hike in June 2015. On Thursday, the April 2015 fed funds contract suggested a 43 percent chance of a rate hike and the June 2015 contract a 51 percent chance.
As you can see, most of this data is known for us already. Still I find some interesting moments. First is Citigroup target and second one is EU CPI in long-term period. Because it will determine the balance between inflation and interest rates in EU. Finally, fundamental data in US probably will get extremely importance as never before. Till december FOMC meeting we will get 2 NFP, 2 CPI and GDP first revision. They can significantly impact on Fed solution.
Now let’s turn to technical issues. November starts to show it’s character fast and pair is showing significant action right now. On previous week we’ve discussed situation on big quarterly picture trying to understand whether current bearish signs are just retracement or this is starting point of downward trend.
As we’ve said at first glance and by looking just at monthly chart we can say – “well, market has hit resistance and Agreement, minor bounce is possible in this case”. Indeed, market has touched 0.618 AB=CD target right at Fib resistance. In this case retracement to 1.32-1.33 area will not be look as curious. And now take a look – market has hit this level, that we could accept as ultimate depth of pullback due respect to target and resistance. Thus, it turns out that price stands at some sort of an edge. If it will move lower, then we will not be able to treat this move as retracement anymore. This riddle probably will be resolved within 1-2 weeks.
Second scenario, that is closer to my point of view, we could get “222” Sell pattern right from rock hard resistance – major 5/8 Fib level+Agreement and Yearly Pivot resistance 1. Take a look at AB-CD itself. CD leg is rather weak, especially it has become slow down even prior minor 0.618 target. This tells that upward momentum is not strong. CD leg itself is rather choppy with a lot of pullbacks. Currently we have October “Shooting star” pattern that simulteniously looks like W&R on previous swing high. This pattern suggests too deep retracement down that will be not acceptable for breakout of previous tops. In perspective, if November will become long black candle we could get Evening star pattern. And finally, we now that Pivot Resistance 1 holds retracement up if downward trend is still valid, right? That is what we see now. If you will draw trend lines, you’ll see that in fact, price action since April 2012 looks like rising wedge pattern. If we’re correct with our view, appearing of “222” Sell will lead price at minimum to 1.1950-1.20 area, it’s minor 0.618 extension. Now you can imagine where we could get if this will be Butterfly “Buy”, that we’ve discussed in previous research, dedicated to EUR. That’s right – 1.10. May be this is too pessimistic issue for EUR, and too far view, but anyway, right now I do not see valuable signs of EUR strength.
Weekly
As market has passed significantly lower – upside risks that we’ve specified previously (stop grabber and butterfly) are not valid. Grabber was not formed, since price just has turned trend bearish and prespective of butterfly looks weak by some reasons. First of all, market has broken swing harmony and shows downward move greater than previous one. It means that price could double it. This leads EUR to next K-support level around 1.3150 area. This is strong support since it includes monthly major 3/8 support levels. Second reason – price has moved below MPS1 and this could be a sign of downward continuation and tells that current move down is not just retracement. Market now holds at K-support area but it has pierced it significantly. This could mean that K- support does not have sufficient support power for the market. Finally, bearish engulfing has been triggered and it has the same target – around 1.3150 K-support. By the way, this level stands very close to Citigroup one. Market is not at oversold right now on weekly chart. So, look like here we have bearish setup and should use any rally on lower time frames for short entry.
Daily
Thus, by major events market was significantly pressed and price has shown solid move down. Under press of the eve of these events market had even no chance to show even minor bounce on previous consolidation. Still, turmoil, nervousness and rush has passed by now. As a result market has hit oversold at daily/weekly K-support and natural support area. Price also has formed reversal swing – take a look, move down is greater than most recent move up. These facts confirm possible downward continuation, but after some retracement. Very often after reversal swing some meaningful retracement could happen. So, we need some rally to sell. Also guys, take a look – this downward swing is not perfect but acceptable for DiNapoli direction, may be even for B&B “Sell”. We have 8 bars down and previous consolidation was absolutely flat so price has not reached any Fib resistance. May be B&B is what we will get on next week, who knows…
4-hour
I suggest that here we should keep an eye on 1.35 area as potential target of retracement. It includes WPR1 for coming week and major 3/8 Fib support. At the same time, deeper retracement, even to 1.3630 will be normal, because reversal swing just has been formed and very often market shows compound AB=CD retracements after it. At the same time EUR likes 50% levels, thus, may be 1.35-1.3575 is an area that we will monitor. In general this level is suitable for possible B&B on daily, if it will appear at all, of cause...
As you can see, here market has formed small bearish grabber. I wouldn’t bet on it’s performance, may be it will work. In this case we could get, say, Butterfly “Buy” as short-term reversal pattern here. Personally right now I have no intention to take long position here. I’m speaking this mostly for those who trade on short-term chart, just to warn about possible new low before retracement will start.
Conclusion:
In longer term perspective bearish signs could appear to be stronger than they seem right now and could lead market to serious consequences with ultimate move even to 1.10.
In short-term perspective bearish context holds, but market stands at support and oversold. To take short position we need to get some rally up first.
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.
So, let’s in the beginning of our reserach briefly run through recent events and rumors.
As Reuters reports dollar rose across the board on Friday after a report showed an unexpected acceleration in U.S. job growth in October, lifting expectations the Federal Reserve may start scaling back its massive stimulus before the end of the year. Employers added 204,000 jobs last month, the Labor Department said, handily beating the consensus forecast for an increase of 125,000. The report suggested the economy was on a firm footing and that a partial government shutdown had less of an impact on the economy than feared. A cutback in Fed stimulus, at a time when the European Central Bank and Bank of Japan are in easing mode, will boost the dollar's yield appeal. The dollar has fallen in recent weeks on speculation the Fed may not start reducing its $85 billion per month bond purchases until next year.
"It's an impressively strong jobs number in the face of a government shutdown and underlying weakness in the U.S. economy. This number has totally rewritten the outlook for the U.S.," said Richard Franulovich, senior currency strategist at Westpac in New York. "I have been dismissive of a December taper from the Federal Reserve and now it looks like a possibility," he said.
The dollar index, which tracks the greenback against a basket of six currencies, rose 0.5 percent to 81.242, with the peak on the day a near two-month high of 81.482. Negative sentiment on the euro grew after the European Central Bank shocked investors by cutting the interest rate on Thursday and Standard & Poor's downgraded France's credit rating to AA from AA+. Money markets and the currency options market are suggesting the euro will grind lower in the near term as it loses its yield advantage over other major currencies. Citigroup put a sell recommendation, targeting a drop to $1.3050. "Given the ECB's view of a prolonged period of low inflation, any further slowing in CPI will raise the threat of negative deposit rates, which will be a big negative for the euro," said Chris Turner, chief currency strategist at ING.
Some analysts said the details of the jobs report still suggest worries in the labor market, such as the falling labor force participation rate, which has limited the dollar's rally. "The payrolls are a nice surprise but the Fed is in no condition to restart tapering talk having just reversed themselves seven weeks ago," said Joseph Trevisani, chief market strategist at WorldWideMarkets, in Woodcliff Lake, New Jersey.
After the jobs data, U.S. short-term interest rate futures suggested traders are expecting a 47 percent chance the Fed will hike rates in April 2015 and a 55 percent chance of a rate hike in June 2015. On Thursday, the April 2015 fed funds contract suggested a 43 percent chance of a rate hike and the June 2015 contract a 51 percent chance.
As you can see, most of this data is known for us already. Still I find some interesting moments. First is Citigroup target and second one is EU CPI in long-term period. Because it will determine the balance between inflation and interest rates in EU. Finally, fundamental data in US probably will get extremely importance as never before. Till december FOMC meeting we will get 2 NFP, 2 CPI and GDP first revision. They can significantly impact on Fed solution.
Now let’s turn to technical issues. November starts to show it’s character fast and pair is showing significant action right now. On previous week we’ve discussed situation on big quarterly picture trying to understand whether current bearish signs are just retracement or this is starting point of downward trend.
As we’ve said at first glance and by looking just at monthly chart we can say – “well, market has hit resistance and Agreement, minor bounce is possible in this case”. Indeed, market has touched 0.618 AB=CD target right at Fib resistance. In this case retracement to 1.32-1.33 area will not be look as curious. And now take a look – market has hit this level, that we could accept as ultimate depth of pullback due respect to target and resistance. Thus, it turns out that price stands at some sort of an edge. If it will move lower, then we will not be able to treat this move as retracement anymore. This riddle probably will be resolved within 1-2 weeks.
Second scenario, that is closer to my point of view, we could get “222” Sell pattern right from rock hard resistance – major 5/8 Fib level+Agreement and Yearly Pivot resistance 1. Take a look at AB-CD itself. CD leg is rather weak, especially it has become slow down even prior minor 0.618 target. This tells that upward momentum is not strong. CD leg itself is rather choppy with a lot of pullbacks. Currently we have October “Shooting star” pattern that simulteniously looks like W&R on previous swing high. This pattern suggests too deep retracement down that will be not acceptable for breakout of previous tops. In perspective, if November will become long black candle we could get Evening star pattern. And finally, we now that Pivot Resistance 1 holds retracement up if downward trend is still valid, right? That is what we see now. If you will draw trend lines, you’ll see that in fact, price action since April 2012 looks like rising wedge pattern. If we’re correct with our view, appearing of “222” Sell will lead price at minimum to 1.1950-1.20 area, it’s minor 0.618 extension. Now you can imagine where we could get if this will be Butterfly “Buy”, that we’ve discussed in previous research, dedicated to EUR. That’s right – 1.10. May be this is too pessimistic issue for EUR, and too far view, but anyway, right now I do not see valuable signs of EUR strength.
Weekly
As market has passed significantly lower – upside risks that we’ve specified previously (stop grabber and butterfly) are not valid. Grabber was not formed, since price just has turned trend bearish and prespective of butterfly looks weak by some reasons. First of all, market has broken swing harmony and shows downward move greater than previous one. It means that price could double it. This leads EUR to next K-support level around 1.3150 area. This is strong support since it includes monthly major 3/8 support levels. Second reason – price has moved below MPS1 and this could be a sign of downward continuation and tells that current move down is not just retracement. Market now holds at K-support area but it has pierced it significantly. This could mean that K- support does not have sufficient support power for the market. Finally, bearish engulfing has been triggered and it has the same target – around 1.3150 K-support. By the way, this level stands very close to Citigroup one. Market is not at oversold right now on weekly chart. So, look like here we have bearish setup and should use any rally on lower time frames for short entry.
Daily
Thus, by major events market was significantly pressed and price has shown solid move down. Under press of the eve of these events market had even no chance to show even minor bounce on previous consolidation. Still, turmoil, nervousness and rush has passed by now. As a result market has hit oversold at daily/weekly K-support and natural support area. Price also has formed reversal swing – take a look, move down is greater than most recent move up. These facts confirm possible downward continuation, but after some retracement. Very often after reversal swing some meaningful retracement could happen. So, we need some rally to sell. Also guys, take a look – this downward swing is not perfect but acceptable for DiNapoli direction, may be even for B&B “Sell”. We have 8 bars down and previous consolidation was absolutely flat so price has not reached any Fib resistance. May be B&B is what we will get on next week, who knows…
4-hour
I suggest that here we should keep an eye on 1.35 area as potential target of retracement. It includes WPR1 for coming week and major 3/8 Fib support. At the same time, deeper retracement, even to 1.3630 will be normal, because reversal swing just has been formed and very often market shows compound AB=CD retracements after it. At the same time EUR likes 50% levels, thus, may be 1.35-1.3575 is an area that we will monitor. In general this level is suitable for possible B&B on daily, if it will appear at all, of cause...
As you can see, here market has formed small bearish grabber. I wouldn’t bet on it’s performance, may be it will work. In this case we could get, say, Butterfly “Buy” as short-term reversal pattern here. Personally right now I have no intention to take long position here. I’m speaking this mostly for those who trade on short-term chart, just to warn about possible new low before retracement will start.
Conclusion:
In longer term perspective bearish signs could appear to be stronger than they seem right now and could lead market to serious consequences with ultimate move even to 1.10.
In short-term perspective bearish context holds, but market stands at support and oversold. To take short position we need to get some rally up first.
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.
