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Forex FOREX PRO WEEKLY, November 12 - 16, 2018

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Nov 10, 2018.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals

    Last week was really tough but interesting as well, It was a great discussion on forum, a lot of analysis and opinions. This is great.

    Let's see what inputs we have at the eve of new trading week.

    As Reuters reports - The U.S. dollar rose toward a 16-month high against the euro on Friday as falling equity prices spurred a flight to quality and the U.S. Federal Reserve reaffirmed its monetary tightening stance, citing the strong U.S. economy.

    The S&P 500 fell more than 1 percent, with shares of large technology, industrial and material companies taking a hit as weak Chinese data and a slide in oil prices raised concerns about global growth.

    Against the backdrop of a multi-billion dollar trade dispute between Washington and Beijing, Chinese data showed producer inflation fell for the fourth straight month in October on cooling domestic demand and manufacturing activity, while car sales fell for a fourth consecutive month.

    “(Chinese officials) look distressed - they don’t have the kind of control we’re used to assuming authorities driving an economy at 6-7 percent a year do. That’s putting pressure on the Aussie, Kiwi and feeding into a strong dollar and yen,” said David Gilmore, partner at FX Analytics.

    Equities also fell after the Fed on Thursday reaffirmed its plans to hike interest rates in December and beyond.

    The greenback had fallen broadly following U.S. congressional elections on Tuesday on expectations that the outcome would make further fiscal stimulus measures unlikely. But the currency bounced back, and on Friday returned to outperforming most major currencies, underpinned by the robust U.S. economy and rising interest rates.

    “We’re wary of selling the dollar too soon, because the Fed is still hiking rates into a tightening labour market and trade tensions haven’t gone away,” said Kit Juckes, chief FX Strategist at Societe Generale.

    As we've said last week overall sentiment around EUR stands moderately bearish and this week it has become even stronger.

    If we take a look at CFTC report - as speculators as hedgers have closed more bullish positions and opened bearish. Open interest mostly stands at the same value, but restructure of positions was direct and significant:

    upload_2018-11-10_13-11-55.

    As a result, net speculative short position has increased more this week:

    upload_2018-11-10_13-27-12.

    Source: CFTC.gov
    Charting by Investing.com


    Result of NFP release, US elections and Fed meeting have encourage investors to believe in USD. As a result, chances on rate increase in December have increased to 75.78% according CME Fed Watch Tool:

    upload_2018-11-10_13-30-36.

    Finally, guys, I've got a lot of questions on forum - how election results will impact USD and US economy.
    I've found this nice Fathom consulting research on this subject. They have prepared it before results were known and slightly has missed the point in favor of Democrats, but conclusions that they have made anyway dollar supportive, especially when we know that Republicans have kept domination. I will not put the whole research here, but extract moments that are important for us.

    News in Charts: Midterm elections and the US economy
    by Fathom consulting
    Fathom writes in the beginning of research on different possible results of elections and what will happen if Democrats still will get light majority.
    "And in any case, previous research we have done suggests that a US constitutional crisis would have a relatively small short-term impact on the economy. We still anticipate strong US GDP growth in 2018 and 2019, although we anticipate a recession in 2020. This is supported by recent economic data releases, including the advance estimate of Q3 GDP, which showed that the economy expanded at an annualised pace of 3.5% last quarter, and Friday’s nonfarm payrolls report for October, which showed 250,000 net new payrolls were added, and that annual wage growth jumped from 2.8% to 3.1%."

    [​IMG]

    Fathom has projected 51/47 Democrats/Republicans result in Senate. In reality it was 44/51 (+ seats in other parties) and 225/197 Democrats majority in House of Representatives. Here we can't sense even the smell of impeachment because 2/3 Senators have to support it. And in current balance it is impossible.

    "A ‘normal’ 33-seat swing would give the Democrats control of the House and most forecasters, including ourselves, expect them to achieve this." - Now we see that even this 33 seats gap has not been achieved.

    To control the Senate Democrats need 4-seats gap, but here they have minority of seats. As a result - with respect to trade policy, we understand that many laws, including Section 301 of the Trade Act of 1974, give the president powers to invoke tariffs, without the approval of Congress.

    So, no negative impact should follow on US economy, global economical and political plans. In fact, results has become dollar supportive.

    That's being said, fundamental and sentiment analysis supports dollar strength and makes phantom chances for EUR to re-establish bullish trend, at least on coming week. Major data that could bring volatility on the market - Germany & EU GDP, US Retail sales, CPI.

    Technical analysis
    Monthly


    Monthly chart comes to historical moment - 1.13 lows. Why it is important we've explained here and below.
    As monthly chart is driven significantly by fundamentals, which are looks supportive to USD - breakout has all chances to happen on coming week.

    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, 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_12_11_18.

    Weekly

    Last week, guys we've paid attention to anemic pullback up from 1.13 lows. Indecision candle is not the one that market should form on a reversal moment.

    Again, this week have the same fundamental background, not quite friendly to EUR. And technically, 1.13 lows are doomed. Take a look that we have bearish grabber which suggests drop below them.

    Next weekly target that market could reach is 1.1185 Fib support accompanied by MPS1.
    eur_w_12_11_18.

    Daily

    On daily chart our task is relatively simple. Based on information that we have - we need to find an area where we could take short position while market stands below 1.15 - which is weekly grabber invalidation point.

    Most probable pattern that we could get is butterfly "Sell". It agrees with our 3-Drive "Buy" idea that we've discussed last week. Also this pattern has two targets that match to important levels. First is 1.27 - it agrees with AB-CD OP target around 1.1250, second, 1.618 - coincides with weekly major Fib support area and MPS1.

    It is unlucky that EUR will drop more than 1.1180 area, because of weekly OS level and strong Fib support.

    So, where we could take position. Daily levels show two suitable areas. First is 1.1385, second - 1.1423-1.1430 K-resistance.
    eur_d_12_11_18.

    Intraday

    On 1H chart currently we could recognize only the hint on possible double bottom pattern. We have bullish grabber on the second bottom as well, which gives some hope that upside action will happen before breakout.

    Hourly chart also shows that 1.1385 is K-area as well and it coincides with WPP. It means that attempt to go short around this area with stops above second K-support on daily could be not bad strategy. Besides, double bottom pattern target also points on this level.

    On 4H chart this could look like B&B "Sell".

    Now another major question - could market drop immediately without any pullback. Well, actually it could. But if this will happen, hardly we will get chance to take position prior first 1.1250 target will be hit... If you worry to miss this action, and can't wait for retracement - split your position and take small parts at different Fib levels.

    eur_1h_12_11_18.

    Conclusion:

    Dollar supportive sentiment gives us confidence to look for short entry opportunity on coming week. Perfect scenario suggests entry around 1.1385 area with stops above 1.1435 and two targets - 1.1250 and 1.1185.



    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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    Hi guys, we can hardly find anybody talking about the bullish scenario on the Internet, so let me now represent the opposite side, just to give you a contrary view based on the larger pic, what sort of telltale signs I can see, which may result in a surprising turn that the majority may not see or consider at the moment.

    To sum it up, the decline from 1.1815 has an overlapping wave structure, consecutive waves of the drop became shorter with a waning momentum all the way down, and prices are trending above the midline of our base channel if we apply the KCT technique properly. We know furthermore that wave 3 must not be shortest by price when compared with waves 1 and 5 of the drop from 1.1815. These can be signs of the fifth wave within an impulsive decline off 1.2556 (but also can be an unfolding wave 1 from 1.1815, who knows).

    So, what does it mean in practice and what to look for to avoid a bear trap?

    If prices brake 1.1300 decisively and you see prices falling like a stone, it's fine. Forget my comments above, just trail your stop and enjoy the freefall towards 1.118. However, if prices just make a poke below 1.1300 or get muted at nearby levels, it can be the sign of a reversal and the decline from 1.1815 sets the stage for a rally attempt that should start preferably from not much below 1.1300 (though it is allowed to go lower under this scenario). If it is a correction of the impulsive decline from 1.2556, it should be the largest since the Euro peaked at 1.2556.

    Again, that does not mean that will be the case. Just have a plan and be ready for the unexpected.
     
    #2 Stag, Nov 11, 2018
    Last edited: Nov 11, 2018
  3. gwynfor

    gwynfor Private

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    In the spirit of looking for an interpretation consistent with Sive's view I wonder whether the 3 Drive is the same as an Ending Diagonal.

    But I think the third drive will start from above 1.15. - remember Sive's OP from last week at 1.1505. Does 1.1499 qualify?

    If I am proved correct I might post a chart. Until then, I'll celebrate a long awaited rugby win and play DRPO among the Aussie pairs;)
     
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  4. tun13

    tun13 Private, 1st Class

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    Hello Sir Sive, thanks for your analysis. Please can you shed some light on the GBP/USD ? Thanks in advance for your help.

     
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  5. Robban68

    Robban68 Private, 1st Class

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    Flat as a pancake. closed all shorts at the Sive target @1.125. The Daily ATR some stretched at this level. 1.1318 is a level to track today for the London close CET 17:30, 1.1344 for the weekly. The SOMA later this week (Thursday) will probably gain dollar during that day. Something to keep in mind if there will be a bounce before.
     
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  6. PassPP

    PassPP Private

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    hi Stag , we are at 1.125x do you think a reversal still possible ?the only thing worries me to be brearish is just to simple .thanks
     
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  7. gwynfor

    gwynfor Private

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    Looks like the market answered that little query. :rolleyes:
     
  8. Stag

    Stag Sergeant

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    Yes, that scenario is valid as long as prices are above 1.118.

    Currently, the Euro is still below the base channel of the drop from 1.1359 and within the acceleration channel. A sustained breach of key level at 1.1282 would signal a rally attempt, and a break above structural resistance at 1.1316 would bolster the case for a bottom may be in.
     
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  9. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    Thanks Stag for counter view. It is always useful to take critical view on common expected direction. I'm not expert in EW, but our view also suggests moderate pullback but from 1.1180-1.1185 area. Maybe somehow it corresponds to your scenario...

    So, in general we were correct on direction but it was real challenge to open position on EUR as drop has happened immediately after Monday open. This is the reason why we often recommend to split position and take it from different levels in parts, if your risk management lets you to do it, of course...

    There are some important moments on daily chart that we need to comment. Our 3-Drive pattern is valid and we still look for 1.1180 area as final destination point. Commonly, when we see strong acceleration on 3-rd drive action, as we see it here - this makes pattern weaker and could become the reason of either the failure or inability to hit 3-Drive target, which is top between 2nd and 3rd Drive.
    Our opinion particular in this case - pullback will happen but 3-Drive could miss the target and retracement could be shallow. Recall that we have major weekly 5/8 Fib support and MPS1 at 1.1185 area. So, this is good background for moderate pullback, although not as high as 1.15 tops.

    Second - market has passed through OP target without any respect. The reason why we see the pause right now is daily OS. It means that this pause will be short-term, somewhere to 1.1270-1.1285 area. Then market probably will continue action down.
    eur_d_13_11_18.

    On 4H chart we do not see something special, except perfect thrust down. If somehow retracement will be greater and market will hit 1.13 K-resistance area - we could get B&B "Sell". But right now there are no signs yet, that this should happen, no patterns have been formed.
    eur_4h_13_11_18.

    On 1H chart EUR keeps harmonic pullbacks very well. Since we're at daily OS - I suggest to get x2 harmonic retracement up, in a shape of "222" Sell pattern. It should reach, as we've said 1.1270-1.1285 area, depending from which level second CD leg will start.

    If you suggest to enter short with this trading plan - keep initial stop above 1.1325 4H K-resistance area.
    Target - 1.1180-1.1185.
    eur_1h_13_11_18.
     
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  10. Deltoid88

    Deltoid88 Corporal

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    My expectation for EUR.

    Weekly chart:

    EURUSDkWeekly.
    1H chart:

    EURUSDkH1.
     
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