Forex FOREX PRO WEEKLY, November 16 - 20, 2020

Sive Morten

Special Consultant to the FPA
Messages
14,023
Fundamentals

It is a bit strange feeling this week of information vacuum as markets were mostly quiet after the storm of two - three consecutives weeks before the elections. Currently the major task for investors is to understand how Global balance will change on background of vaccine news and Biden's Presidency. Concerning D. Trump's attempt to contest results - this topic was out of top, but we do not hurry to write off this risk. It is pretty much time till 14th of December and it is early to relax. Here and there but some motion stands behind the scene.

This week, as I said, new President's policy and vaccine breakthrough have become top headlines. The dollar slipped on Friday, as investors’ enthusiasm about a possible COVID-19 vaccine was tempered by the second wave of the virus in the United States and Europe and the world’s top central bankers remained cautious about an economic recovery.

Global markets surged on Monday after Pfizer Inc said its experimental vaccine was more than 90% effective in trails. The news saw the dollar rise as traders quit their long-yen positions. But currency market traders became more risk-averse on Thursday and Friday, after the heads of the Federal Reserve and the European Central Bank (ECB) stressed that the economic outlook remains uncertain. The prospect of a vaccine is a source of relief but the euro zone will still suffer as a result of new lockdown measures, two ECB policymakers also said. Fed officials also look differently at the situation with pandemic and US economy conditions.

Jeremy Stretch, an FX analyst at CIBC, said that the market was caught between hopes for the vaccine in the future and the reality of the current COVID-19 numbers.
“It was the case that the negative news flow in terms of the number of COVID cases was causing a little bit of a ‘risk-off’ dynamic, but it seems now as if the market still wants to try and end the week on a slightly more risk-orientated bias,” he said. Stretch said he was waiting to hear about progress in the vaccine being developed by AstraZeneca and the University of Oxford - another advanced candidate in the vaccine race.


The latest U.S. weekly jobless claims report did not budge the dollar when it came out on Thursday morning. The report showed the pace of decline in claims had slowed to 709,000 compared with 757,000 the prior week and forecasts for 735,000 claims.

As Fathom consulting reports, the US added 683,000 net new nonfarm payrolls in October. The headline figure included a 268,000 drop in government workers, and private nonfarm payrolls increased by 906,000. This was close to the average over the past three months. Despite record job gains since May, US employment remains 6.6% below February’s level. It is in a deeper hole than the trough of any previous post-war recession. Nonetheless, the recovery has been strong. If the pace of employment gains experienced over the past three months can be sustained, the US would be back to its pre-COVID level of employment by September next year. However, there are reasons to think that this pace will not be sustained. For one, any further fiscal support is likely to be much less generous than in the spring. Meanwhile, daily new coronavirus cases are surpassing previous peaks. Against that backdrop, we expect softer employment growth in the months to come, with therapeutics or a vaccine possible tailwinds to jobs growth next year.

1605343713690.png


“There is a nervous calm in the capital markets today,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
While prices are not charting a new direction, nervousness stems from the outlook for the coronavirus pandemic, central banks’ future interest rate policies and the transition from last week’s U.S. presidential elections, Chandler said. The questions come amid possibly shifting views about the U.S. dollar’s role as a safe haven or as a ticket to gains from a strengthening global economy, he said.

The euro is trying to find its feet “after the vaccine-related storm of activity at the start of the week, and after the U.S. election news,” said Jane Foley, head of FX strategy at Rabobank. The euro, Chandler noted, has been trading between $1.16 and $1.20 since late July. “Being in the middle of a range makes nobody happy. Bulls nor bears can be happy,” he said.


Europe is grappling with surging infections and new COVID-19 restrictions, with Germany’s economic advisers trimming next year’s growth outlook. In the United States, cases continue to hit record levels. Germany’s health minister said on Friday that it was too early to say how long the latest lockdown would last, while the French prime minister said France’s measures would not be eased for at least two weeks.
Along with the virus, Republican U.S. President Donald Trump’s refusal to concede defeat to Democrat Joe Biden in last week’s election is also beginning to jangle investors’ nerves.

“The prospect of the Fed staying super-easy through the winter and beyond, while vaccine optimism, builds is dollar bearish,” Kit Juckes, an FX strategist at Societe Generale, wrote in a note. “The big winners in the longer-run are the higher-beta, growth and trade-sensitive currencies,” he said.

News of a vaccine against the novel coronavirus is positive but it will take some time before this has a positive impact on economic activity, European Central Bank policymaker Pablo Hernandez de Cos said on Friday.

“They all shared similar concerns that a potential Covid-19 vaccine would not end the economic challenges of the pandemic,” said Deutsche Bank strategist Jim Reid.

Monday’s upbeat news from Pfizer about a COVID-19 vaccine sparked a heavy selloff in U.S. and European bond markets as investors jumped to price in a brighter outlook. That euphoria has faded as the week progressed, with latest coronavirus headlines again highlighting the toll the pandemic continues to take.

France said late on Thursday that there would be no easing for at least two weeks of the country’s second lockdown, with the number of people hospitalised with the virus now higher than at the peak of the first wave. With the euro zone likely heading back into recession this quarter, the ECB has already said it would provide more stimulus in December. This week’s ECB comments and concern about the impact from the second wave of the coronavirus have reinforced that expectation. A long-term indicator of the market’s euro zone inflation expectations, the five-year, five-year forward, fell to 1.1555% having hit its highest levels since September earlier this week above 1.21%.

Speaking on global situation in general, the world looks rather different than it did at the start of the week, after news emerged of a potentially game-changing coronavirus vaccine and a winner in the US presidential election. Pfizer and BioNTech told the world’s press on Monday that their coronavirus vaccine was 90% effective in initial results. That is nearly twice as effective as vaccines against influenza, which are estimated to work in 40% to 60% of cases. If the early findings hold good, this is excellent news, and it duly triggered bullishness in equity markets, with indices gaining around the world.

This week’s vaccine news is encouraging and bodes well for other vaccines in late-stage trials. If they too prove to be successful, the world could have more than five billion doses available by the end of next year. Relative efficacy is not the only thing likely to affect global rollout. The BioNTech/Pfizer vaccine is an mRNA vaccine, which must be kept at much lower temperatures than standard vaccines: -70 Celsius in its current form, which will require special distribution structures. The company only expects to produce 50 million doses by the end of December, enough to inoculate just 25 million people. By comparison, the Chinese firm Sinovac aims to produce 610 million doses by the end of the year, and more than one biIllion in 2021. Both vaccines require two doses. If all goes to plan, Sinovac may be able to inoculate 12 times as many people with the vaccines they produce this year – and its vaccine can safely be distributed at a normal fridge temperature of below 8 Celsius. However, with current orders from several developed countries already close to one billion, perhaps the most highly anticipated vaccine candidate is being produced by the University of Oxford and AstraZeneca. It too needs two doses and can be kept at a similar temperature to the Sinovac vaccine. However, estimates suggest that there is the capacity to make three billion doses at around $3 each – a tenth of the price currently offered by its Chinese competitor.
1605344952368.png

All things considered, the news about the BioNTech/Pfizer vaccine is unambiguously positive for the economic outlook. Admittedly, a vaccine will not arrive in time to prevent GDP from contracting in many European countries this quarter. However, it reinforces Fathom’s belief that economic activity will rebound strongly in 2021. One important tailwind through next year will be the savings that households in developed markets have built up since March. In the US, for example, aggregate personal savings over the past twelve months were $1.3 trillion higher in September than they were in February. If effective vaccines are rolled out, much of those savings will probably be unwound, with spending likely to be strong in badly hit services sectors such as hospitality and tourism. Improved confidence about future demand should boost business confidence now, and business investment should react ahead of widespread vaccinations. So, while the near-term economic outlook in Europe and the US is weak or sluggish, Fathom has a greater conviction in a pronounced rebound in confidence and spending through 2021.

1605345181554.png


Finally, as we're coming to the last round of EU/UK Brexit opera, Michel Barnier, the EU’s chief negotiator, is in London for talks on a trade deal as the clock ticks towards the end of the UK’s transition period. The mood music appears to have improved, with speculation that Mr Biden’s electoral victory will increase the pressure on London to come to an arrangement. It appears more probable than not that the two sides will strike a deal. However, investors appear even more bullish than that. Fathom’s Sterling Relative Risk Metric, which calculates the relative risk across sterling assets compared to other developed markets, is relatively muted. Should talks break down, expect a spike higher.
1605345259632.png


ING FX strategists wrote in a note to clients that they expect a deal to be reached. “We therefore lean in favour of a GBP-positive outcome, although the lack of short-term risk-premia or net-short positioning in GBP both highlight lingering complacency to no-deal risk and a magnified downside risk if negotiations collapse,” they wrote.

Ireland’s foreign minister, Simon Coveney, said that Biden’s election victory could have an impact on Brexit negotiations, because Biden is “a real friend of Ireland”.

Hopes of a strong “V” or even a “U” -shaped recovery faded after a second wave of infections forced major economies to lock down again, setting them up for a double-dip “W” growth path. Upcoming readings on Chinese and U.S. industrial output will show whether a speedy economic rebound is still possible. But even if a vaccine rollout happens sooner than expected, pandemic damage won’t be easily undone. W, V, or whatever the shape of recovery, central bank stimulus will stay in place.

1605345752055.png


The summertime easing of lockdown restrictions allowed a chunk of European and U.S. companies to post better-than-expected Q3 earnings but U.S. hegemony remains in place. European companies are expected to report a 23.8% year-on-year decline in Q3 earnings, compared to 50.8% tumble in Q2, according to Refinitiv I/B/E/S data. But the U.S. Q3 profit drop is expected at just 7.8%.

That’s because of the larger European exposure to cyclical sectors such as travel or luxury or banks, which are more closely tied to the state of the economy.

The upside is that a credible vaccine could help Europe Inc roar ahead. Indeed, recent vaccine news induced investors to up forecasts for Europe to 30% for the first 2021 quarter -- double the S&P500's rate. Graphic: Europe vs U.S. earnings:

1605345796566.png



That's being said, situation beyond IIQ of 2021 looks blur right now. In nearest 2-3 months investors will keep an eye on CV19 situation and stimulus providing together with Central Banks policy. These two factors mostly suggest EUR advantage, because EU has better CV19 situation and with current 2nd "Light" lockdown should get improvement faster than US where no measures are taken yet against pandemic and Biden is still yet to take them. Second, Democrats' government promises more stimulus, higher inflation and faster growth that at first stage could make US Dollar weaker in a case of 2nd stimulus pack in excess of $2 Trln. Later, in the 2nd part of 2021, when US economy will accelerate and virus will be under control, the domination could turn in favor of US Dollar, but right now, in perspective of 2-3 months supposedly we get sideways or gradual upward action on EUR.

Technicals

Monthly

Currently we have interesting situation when longer-term perspective of two scenarios mostly stands the same while nearest future could be different. In a longer-term perspective, as we've said EUR supposedly should get an advantage on a background of new US stimulus, low interest rates held by the Fed, wider US budget deficit, better EU CV 19 situation. It should let EUR to reach 1.28-1.30 level. And technical picture supports this scenario. "CD" leg action looks strong while retracement after COP is tight and small. Market is not at overbought and major resistance stands around 1.25 area that already has been tested once in 2017. OP target stands relatively close around 1.28.

Thus, if our central scenario starts to realize, especially in a case of "Blue wave" (Although it doesn't look probable now), EUR could continue upward action immediately, forming reversal November month with nearest 1.25 target and completion of AB=CD pattern target.

Conversely, if "stormy scenario" with D. Trump successful effort to contest results will become a reality, it definitely takes more time (1-2 months), and markets start its pricing gradually, as any court cases demand time. Technically, it could take a shape of gradual downside drift. Once D. Trump political resurrection becomes obvious - different pattern here could be formed that suggests deeper retracement initially. For instance, it could be butterfly "Sell". But longer-term consequences and final target stands intact, as major fundamentals remain the same.
eur_m_16_11_20.png


Weekly

This time frame shows mostly the same picture. As we've said previously, despite that trend stands bearish, we have bullish reversal week here, erasing of downside AB-CD pattern that makes us to consider upward continuation and challenge of previous top. Overbought level stands far enough and let market to do it.

At some part we could treat it as DRPO "Failure", although personally, I do not like the shape of the DRPO that actually doesn't have the 2nd top, although it has two closes below 3x3 DMA.

Combination around "Reversal" bar forms Bullish engulfing pattern. Through the week we've discussed the technical pullback inside it's body that now supposedly is done.
eur_w_16_11_20.png


Daily

The major hypothesis that we have to check on coming week is whether upward action starts immediately or downside AB-CD still will be formed. Currently both scenarios keep chances to happen. Still, I slightly more gravitate to idea of immediate run because of price action through the week.
eur_d_16_11_20.png


Intraday

On daily chart, as you could see, we haven't got the bullish grabber, as market was not able to reach 5/8 support and complete downside AB-CD target. As it is often happened, EUR stops at favorite 50% Fib level. Sharp upside rebound suggests that it might be direct upside action on next week. Recall that in our videos we mentioned possible reverse H&S pattern that could become an early signal of this action. Now, on 1H chart it stands in progress. Thus, our task on next week stands around this pattern - consider long entry around right arm, as usual, and second - control the validity of H&S pattern. In case of its failure, we turn back to downside AB=CD scenario... Thus, 1.1785 area is a fulcrum and decisive point of the next week.

eur_1h_16_11_20.png
 
Last edited:

Sive Morten

Special Consultant to the FPA
Messages
14,023
Morning guys,

Markets stand quiet, reaction on Moderna vaccine was shy as it doesn't make major breakthrough in decision of pandemic problem as markets mostly wait for AstraZeneca pill. EUR shows upward action but it shows absolutely in different manner compares to what we've suggested in our report. In two words speaking - we treat current context as weak and insufficient for long entry. But this relates only to "new positions" if you already bought the EUR - you could keep it, just tight the stops.

On daily chart here is our major AB-CD pattern that we intend to follow, and nearest target, based on its shape stands around 1.1940 - COP extension. At the same time upward action now doesn't look like continuation of AB leg, showing no thrust, looking choppy and slow.
From that standpoint, personally I prefer to get another leg down, forming "222" Buy that could be at least something that could justify long entry here:
eur_d_17_11_20.png


On 1H chart we haven't got desirable H&S pattern and no pullback to 1.1785 area has happened yesterday. Thus, the shape of the market stands different. Maybe we're wrong and market accelerates later but now, In such circumstances, I would prefer to wait 1-2 sessions more to get some clarity, especially because currently price action doesn't show any signs of thrusting, impulse action. This keeps chances on second leg down valid.
eur_1h_17_11_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,023
Morning everybody,

Today, I think we could update GBP view because bearish setup that we've discussed on Friday has not been formed, as GBP missed to complete bearish grabber on weekly chart. It means that cable should continue upside action in near term.

Thus, on daily chart we have AB=CD pattern that actually is a part of "222" Sell. To complete it, price should reach ~ 1.3350-1.3360 area:
gbp_d_18_11_20.png


On 4H chart AB-CD could be finalized by minor butterfly as well. Also take a look puny AB-CD inside. It suggests that price should reach 1.33 then minor pullback could happen and right wing of butterfly starts to forming. Finally - upside continuation to 1.3360 target. If indeed everything happens as we suggest - 1.32-1.3220 area could become suitable to consider long entry.
gbp_4h_18_11_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,023
Morning everybody,

So, today we see some strength in US dollar across the board - EUR, GBP, Gold, US yields turn down again while VIX is slowly rising. On Daily GBP we're aimed on 1.3360 area where daily OP stands and potential trigger of "222" Sell pattern. Downside reaction should be at least to ~1.31 area:
gbp_d_19_11_20.png


On 4H chart our small AB-CD and "222" Sell stands in place and downside reaction has started as we've suggested. Now the right wing of potential butterfly is forming. Besides, we have here 3-Drive Sell pattern that is perfect for finalizing daily AB-CD and downside reaction starting:
gbp_4h_19_11_20.png


ON 1H chart, those who would like to make scalp Buy trade have to keep an eye on right wing's bottom. Potentially it could happen either right here, as price stands at K-area, or, around 5/8 Fib level. Right now it is difficult to say this definitely. That's why, one of the decision that could be made is to split the entry.
gbp_1h_19_11_20.png


Bears need to wait either 1.3360 target completion or downside breakout below 1.31 area.
 

Sive Morten

Special Consultant to the FPA
Messages
14,023
Welcome everybody,

Markets stand relatively quiet so, just minor update today. GBP again is more interesting than EUR and we're keep going with our trading plan. So upward action on daily chart continues and we watch for our target here - 1.3360 area, "222" Sell and inner OP objective point:
gold_d_20_11_20.png


On 4H chart we have 3-Drive Sell that should trigger downside reaction from 1.3360 area that agrees well with daily targets. If everything goes perfect, downside action could reach at least 1.31 area - bottom between 2nd and 3rd Drives:
gold_4h_20_11_20.png


On 1H chart upward action has started well, accurately from our K-support and right wing of 4H butterfly stands in progress. Thus, it's time to move stops to breakeven. Theoretically scenario with deeper AB=CD retracement exists either, but we do not see any reasons to hold loosing trade if price drops below K-area. In this case it would be better out on breakeven and re-enter later. Still, this scenario looks less probable than direction continuation:
gold_1h_20_11_20.png
 
Top