FOREX PRO WEEKLY, November 23-27, 2015

Sive Morten

Special Consultant to the FPA
Messages
15,514
Fundamentals

The euro tumbled against the dollar on Friday after two days of gains, pressured by comments from European Central Bank chief Mario Draghi who expressed willingness to add more stimulus to the euro zone economy to raise inflation.

Most major banks have stuck firmly to the view that the euro will fall toward parity with the dollar in the months ahead as the Federal Reserve begins to lift interest rates while the ECB takes the opposite course.

Draghi on Friday suggested that the ECB would do whatever it takes to raise inflation as fast as possible, and pointed to the benefits of a cut in deposit rates to aid an expansion of its quantitative easing program of bond-buying.

"The comments support expectations of additional, possibly aggressive, stimulus at the (ECB's) December policy meeting," said Shaun Osborne, chief currency strategist, at Scotiabank in Toronto.

Nomura's global head of FX strategy Jens Nordvig now expects the euro to hit parity with the dollar by mid-2016. He said it may take that long for the Fed to deliver its second interest rate hike.

Whether the euro can move substantially lower next year will depend on, among other factors, how low the ECB is willing to push the deposit rate, Nordvig said.

The dollar, meanwhile, was flat against the yen at 122.89 yen , but was up 0.6 percent versus the Swiss franc at 1.0186 francs .

Speculation among market participants of intervention by the Swiss National Bank intensified this week, weakening the Swiss currency. The euro slid 0.3 percent against the franc to 1.0843 francs .

Overall, there are still some doubts over the dollar's ability to rise in the sort of sustained fashion seen at the end of 2014.

For the short term, the options market has substantial barriers in place around $1.06, preventing the euro from falling further.

On Friday, the influential head of the New York Fed, William Dudley, further affirmed expectations of a rate hike next month. He said the Fed should "soon" be ready to raise rates as U.S. central bankers grow confident low inflation will rebound and that employment remains stable.

The same intention of ECB also is confirmed by Phantom Consulting:


European Central Bank press conference has strengthened our call that the Governing Council will vote to expand the Bank’s asset purchase program before the year is out. Although policy was unadjusted, there was a dovish undertone throughout the press conference and Mr Draghi confirmed that monetary policy will be re-examined in December.

While stressing that the asset purchase program offered sufficient flexibility in terms of adjusting its size, composition and duration, Mr Draghi also revealed that further cuts to the deposit rate had been discussed and that a few of the Committee members had wanted to ease right away. In response, euro area government bond yields dropped, the stock market rallied and the euro fell against the US dollar.

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In his introductory statement, Mr Draghi also reiterated the Governing Council’s view that downside risks to the euro area’s growth outlook remained. This, he said, reflected heightened uncertainties regarding developments in emerging market economies and their growth prospects.

In contrast, we remain of the view that China’s hard landing will have limited consequences for global growth and that it poses little direct threat to euro area activity. Indeed, as our chart demonstrates, the common currency grouping ranks well below the advanced economy average in terms of export exposure to China.

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Instead, the risks relate to China’s withering appetite for commodities and the subsequent wave of disinflationary pressure that this has unleashed. Put simply, China’s slowdown will matter for global inflation. Already, the euro area is awash with negative price growth and the euro area aggregate dipped back into deflation in September for the first time in five months.

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As the real rate of interest tightens, and with many of the region’s governments on the hook for copious amounts of debt, this fresh bout of disinflation will be received less favourably than it was at the turn of the century. Indeed, if prolonged, it is conceivable that this will have dangerous implications for both economic growth and debt servicing costs.
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In response, as we outline in our latest Global Economic and Markets Outlook, we expect the ECB to expand its QE program before the year is out. Yesterday’s ECB press conference strengthened that call, with Mr Draghi stating that ECB policymakers were “open to the full menu of monetary policy” and confirming that the degree of policy accommodation will be re-examined at the December monetary policy meeting.

Today, guys we probably will turn to GBP again, because we've said everything on EUR within last week. Here I just want to post long-term CFTC chart on EUR. IT shows that net position on EUR is bearish, but it is not ultimate yet, thus, from sentiment point of view, EUR still has room to drop further:
cot-EUR_USD.png


On GBP situation is a bit different. Here net speculative position just has started to be negative. But this turning stands with growing open interest at the back. Thus, drop also could continue.
cot-GBP_USD.png


Technicals

"As usual, we continue to keep our long-term analysis that we’ve made in December 2013 in our Forex Military School Course, where we were learning Elliot Waves technique.

Long Term Forecast on GBP rate


Our long term analysis suggests first appearing of new high on 4th wave at ~1.76 level and then starting of last 5th wave down. First condition was accomplished and we’ve got new high, but it was a bit lower – not 1.76 but 1.72. This was and is all time support/resistance area. Now we stand in final part of our journey. According to our 2013 analysis market should reach lows at 1.35 area. Let’s see what additional information we have right now."


Trend is bearish here, but GBP is not at oversold. Couple of months ago market has reached strong support area – Yearly Pivot support 1 and 5/8 major monthly Fib level. Market gradually was struggling through YPS1 but it seems that first attempt to pass through it has failed.
Our conclusion was - GBP will continue move down, but after some retracement. Right now it seems that downward action restarts. Also we have huge AB-CD pattern that specifies target with more precision. It is not quite 1.35, actually it is 1.3088.

August month has become bearish grabber that suggests taking out of 1.45 lows. So we have pattern on monthly chart that gives us clear direction for considerable time period. September has become also a bearish grabber and take a look October - as well. It means that market gradually was challenge upside action but fails within 3 recent month. November has started with miserable drop, may be it will become grabber as well... Anyway, now we see clear signs that market starts action to challenge 1.4650 support for second time and this time could become successful.

Appearing of these patterns let's us easily specify conditions of validity of bearish scenario. It probably will be valid until market will stay below 1.5930 top.

Since market has not taken out yet 1.4650 lows, theoretically, as opposite action to our bearish scenario we could suggest minor AB-CD upside action. But right now, this perspective is mostly just hypothetical, since Fundamental picture and technical analysis on lower time frames suggest further downward continuation. Mostly all real chances on this perspective, I mean AB-CD have been destroyed by BoE comments and decision. So, right now our next target here is 1.4650 lows.
gbp_m_23_11_15.png


Weekly
This chart has changed drastically as BoE brings clarity in overall picture. Upward scenario hardly will happen any time soon. Right now as EU as UK are hostages of their own monetary policy compares to Fed one. While Fed gets positive stats and prepares to rate hiking, EU brings dovish comments and increase QE program. So do UK. 2 weeks ago candle has become a bearish grabber, but simultaneously has completed its target.. Trend is bearish here.
Besides of 1.4550 lows, we have two other targets. First one is mostly strategical, and it stands around 1.42 area. It suggests taking out 1.4560 lows and trigger stops that right now are below it. This is butterfly destination point and minor 0.618 extension of large AB-CD pattern
But tactically, we have 1.48 oversold level. Although it does not coincide with any Fib support, this will be important area that could stop market for some time. We do not plot pivots just because Cable has broken MPS1 already. By the way this also tells on appearing new bear trend... Last week was the one of small range and does not impact significantly on overall picture.

gbp_w_23_11_15.png


Daily

On daily chart our expectation on upside retracement after miserable drop two weeks ago was correct. But when retracement has started, the major task has become - where it will stop. Unfortunately the shape of retracement couldn't form any clear pattern that could bring clarity.
As a result retracement was a bit higher then we've suggested and what we would like to see. But exceeding of our level was not dramatic.
As you can see on Friday GBP formed long black candle that engulfs almost three previous sessions on a way up. It would be better if it has become reversal candle, i.e. the one that creates new high but close below the lows of previous session range. But even without new high drop looks impressive. Trend holds bullish yet, but chances that it will be broken on next week are significant.
Probably we could say that upside reaction on Fib support and oversold is completed. We do not have here dollar index chart, guys, but it also moves higher and slowly but stably is approaching to long term target. Since it has not reached it yet, current tendency should continue:
gbp_d_23_11_15.png


4-hour

This chart shows very clear picture. Final pattern we was able to recognize only on Friday (and posted it on our forum). Upward retracement is absolutely perfect. Here are pivots for last week. Market has reached major Fib resistance and WPR1. As WPR1 holds the upside action - this confirms validity of bearish trend and tells us that this upside action is just a retracement. On Friday market has dropped right to WPP.
GBP has finalized upside action by reversal butterfly "Sell" pattern. Recent two candles clearly indicate the signs of thrust down. All this picture tells that we probably could try to take short position and retracement up should be over. Trend has turned bearish.
gbp_4h_23_11_15.png


Hourly
Trend has turned bearish here as well. It seems that most suitable area for short entry will be around 1.5225-1.5240. This is Fib resistance, WPP and natural support resistance zone. So, on Friday GBP broke it down, but it could re-test it as resistance again. Deeper upside retracement is less probable since market is not at oversold yet and just has re-established move down.


Conclusion:
Our bearish long-term view has got confirmation from recent statistics and BoE decision. Fundamental analysis suggests that hardly situation will improve significantly in near term, thus, GBP mostly will gravitate to downside action, especially due opposite policy on USD by Fed. This let's us create target steps on a way
down. On coming week it will be 1.50 probably
On short-term charts it seems that upside retracement is over and we will be watching for 1.5225-1.5240 area first as potentially suitable level for short entry.


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.
 

Sive Morten

Special Consultant to the FPA
Messages
15,514
Good morning,

Reuters news report - dollar hovered near an 8-month peak against a basket of currencies on Tuesday, underpinned by expectations the U.S. Federal Reserve is on course to raise interest rates in December.

The dollar index had fallen to as low as 98.735 late last week in what was considered a corrective phase following days of strong gains fuelled by prospects of tighter U.S. monetary policy.

"About 90 percent of economists expect the Fed to raise interest rates next month and based on Fed fund futures, investors have pretty much priced in the move, which is why we firmly believed that last week's correction was technical and not fundamental," wrote Kathy Lien, managing director of FX strategy for BK Asset Management.

Futures prices showed investors see a near-75 percent chance the Fed will hike rates next month, according to CME Group's FedWatch.

"While it could be argued that the dollar sold off because the market had completely discounted a rate hike, with more than three weeks to go before the FOMC meeting, there's still juice in the long dollar trade," Lien added.

Caution should be used when piling further into the dollar as the Fed may take a measured approach to hiking rates, seeking not to rattle risk asset markets.

In a letter to U.S. consumer advocate Ralph Nader, Fed Chair Janet Yellen on Monday reiterated that the central bank should only gradually raise interest rates.

"With a rate hike seemingly priced in, market views are that the dollar could fall after the Fed delivers a hike in December," said Shinichiro Kadota, chief Japan FX strategist at Barclays in Tokyo.

"Focus is shifting to when the second rate hike would be, and how many times the Fed could hike rates next year."

In the meantime, the strength of the dollar's rebound allowed it to brush off lacklustre U.S. economic data. Indicators released on Monday showed manufacturing sector growth slowing to its weakest pace since October 2013 and existing home sales declining 3.4 percent last month.

The dollar was virtually flat at 122.75 yen , having crawled off last week's low of 122.62. Traders said position adjustments ahead of Thursday's U.S. Thanksgiving holiday capped the dollar against the yen.

The euro was stuck near a 7-month low of 130.375 yen , weighed down by prospects of the European Central Bank easing monetary policy further next month.

The Australian dollar stood firm at $0.7199 . It hit a 3-1/2-week high of $0.7250 on Friday before being dragged down by weaker commodity prices.

Copper, a major Australian export, has dropped to 6-year lows, hurt by worries about global demand and a stronger greenback.

As Action on EUR is anemic, we will take a look at GBP again. On Monday market has not reached WPP as we've suggested and dropped further. As a result, daily trend has shifted bearish, so right now we have bearish context on daily chart. In general Cable behaves well, as bearish market should to. So no problems. Our next short-term destination point is 1.618 butterfly extension around 1.4850 area.
Since market has reached WPS1, it could show some minor bounce and we could use it for short entry:
gbp_d_24_11_15.png


On 4-hour chart we see that this is also Fib support. Recent swing down is revesal one - because it is greater than previous swing up. Usually (but not always) market could form AB-CD shape of upside retracement and may be it still will reach WPP:
gbp_4h_24_11_15.png


Trend on hourly chart is bullish. It means that GBP stands in upside retracement and this is chance for short entry. Theoretically this move up should not be too significant, since major retracement just has finished on Friday. Normal market behavior suggests reaching of WPP as maximum destination. But right now GBP looks heavy and it is probable that bounce will be even smaller:
gbp_1h_24_11_15.png
 
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Sive Morten

Special Consultant to the FPA
Messages
15,514
Good morning,

Reuters reports today - dollar nursed broad losses early on Wednesday as investors cut crowded long positions in the lead-up to the U.S. Thanksgiving holidays, and amid heightened geopolitical tensions after Turkey downed a Russian warplane.

It was one of the most serious publicly acknowledged clashes between a NATO member country and Russia for half a century and prompted President Vladimir Putin to warn of "serious consequences".

"I was a bit worried yesterday. So far Russia seems to be taking a "grown-up" attitude, which was good but the market may remain a bit anxious," said Takako Masai, head of market research at Shinsei Bank in Tokyo.

Investors generally shrugged off data showing the U.S. economy grew at a healthier clip in the third quarter than initially thought, an outcome that supported the case for the Federal Reserve to hike interest rates next month.

"Robust U.S. domestic demand growth remains the main driver of U.S. economic activity and justifies a December Fed funds rate increase. Still, we expect the Fed's tightening cycle to be gradual which will limit significant USD upside," said Elias Haddad, senior currency strategist at Commonwealth Bank.

The euro rose as far as $1.0676 , and last traded at $1.0667, up 0.2 percent from late U.S. levels.

Commodity currencies also fared well, thanks in part to rebound in oil prices.

The Canadian dollar strengthened to C$1.3306 per U.S. dollar , pulling well away from Monday's trough of C$1.3436 per dollar.

The Australian dollar hit a one-month high of $0.7276 and last stood at $0.7265, up 0.2 percent from late U.S. levels.

It was already bid after Reserve Bank of Australia Governor Glenn Stevens, in a speech late on Tuesday, dampened expectations for further rate cuts.

"With euro zone bond yields plunging to negative, there are not many countries that have two-year yields of around two percent in the developed world," said Shinsei Bank's Masai.

"So I suspect the Aussie cannot weaken much and this is why the currency is getting revaluated."

The Aussie also hit a 4 1/2-month high against the euro of A$1.4626 per euro.

Ahead of the Thanksgiving holiday on Thursday, a run of U.S. economic data will be published on Wednesday, including durable goods orders, personal consumption, initial jobless claims and house prices.

So let's take a look at EUR today. GBP has dropped further so it does need any additional comments right now.
On EUR - our strategical view is the same - down. Major pattern that we work with right now is daily AB-CD with 1.0450 destination. Market is not at oversold and at any support. Trend is bullish on daily, but price action does not support it and moves down. It looks like bearish dynamic pressure. That's being said, hardly some big changes will happen prior EUR will hit the target:
eur_d_25_11_15.png


At the same time, on 4-hour chart market is forming wedge pattern. Usually it indicates exhausting of the market, but sometimes could be broken down as well with acceleration. THus, in short-term strategy we should take in consideration both ways:
eur_4h_25_11_15.png


On hourly chart it seems that 1.0705-1.0710 is not bad area for short entry. This will be Agreement resistance and upper border of wedge pattern. If even market later will continue move up - it probably will show technical respect of this area by drop for 35-40 pips to WPP:
eur_1h_25_11_15.png

This should let you to move stop to breakeven. That's why we alsways recommend to take positions around strong levels.
Why market could move higher? The point is EUR lately shows harmonic bounces and it could do it again - this could lead price to WPR1.
That's why it is must to protect potential position by breakeven stop ASAP. Otherwise, you could ignore this setup. Tomorrow is Thanksgiving and market will be thin... It depends on your wish to keep position through weekend.
 
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Sive Morten

Special Consultant to the FPA
Messages
15,514
Good morning,

Reuters reports - dollar was back on a bullish footing on Thursday, dusting off its latest setback helped by upbeat U.S. data and monetary easing expectations that dragged down the euro.

The dollar index was steady at 99.768 after scaling an 8-1/2-month peak of 100.170 following strong U.S. manufacturing output and business investment plan numbers on Wednesday that reinforced the case for the Federal Reserve to raise interest rates.

The index sunk as low as 99.312 the day before in the wake of rising geopolitical tensions following the downing of a Russian warplane by Turkey that led investors to cut crowded long positions.

The euro was shaky, having slid to its lowest in more than seven months after ECB officials told Reuters they were considering options such as whether to stagger charges on banks hoarding cash or to buy more debt, ahead of next week's policy review.

"The proximate cause has been a Reuters report suggesting that the ECB is looking at a tiered system for the negative deposit rates to be charged to banks posting excess cash at the central bank," said Ray Attrill, global co-head of FX strategy at National Australia Bank.

The euro skidded as far as $1.0565 , reaching a low not seen since mid-April. It last traded at $1.0618. Against the yen, it touched a seven-month low of 129.77 before edging back to 130.21.
"The euro slid as it is easier for the market to react on speculation prior to the actual event, in this case the


ECB policy meeting on Dec. 3," said Daisuke Karakama, market economist at Mizuho Bank in Tokyo.
Karakama said a comparable situation was the ECB imposing negative interest rates in June last year, which caused a prolonged downturn by the euro. But he said that the currency's decline was likely to be shorter in duration this time.


"The key difference with last year is expectations towards the Fed. In 2014, focus was simply on the Fed normalising policy. But now it is about how actively it will continue to hike - there are even concerns it could stop after delivering the first hike," Karakama said.
The dollar was little changed at 122.62 yen after pulling away from an overnight low of 122.26.


The Australian dollar was a noticeable mover in an otherwise subdued session due to U.S. markets being shut for the Thanksgiving Day holiday. The Aussie was down 0.3 percent at $0.7231 after surprisingly weak investment data dealt a blow to Australia's economic growth prospects.

So, today markets mostly should be quiet due Thanksgiving in US. BTW, Happy Thanksgiving everybody! I hope you'll spend time with your close ones in atmosphere of family warm and love. It is so few days that we spend in this way within a year. So, we need care of it...

Well, on EUR we have no big changes. On daily chart all stuff is the same - we expect 1.0450:

eur_d_26_11_15.png


On 4-hour chart we see some bearish signs with wedge pattern. Take a look that EUR was not able even to reach our predefined 1.07-1.0710 area - upper border of the pattern. Usually when wedge can't work as reversal pattern, it leads to fast acceleration in a moment of breakout down. And here, guys, we could get the same action:

eur_4h_26_11_15.png

Hence, on hourly chart EUR has failed to reach 1.618 AB-CD target and our potential entry level. Market just tested WPP and collapsed right to WPS1 and lower border of the wedge. Upside retracement already has happened to 50% Fib level. So, as we havn't got entry point yesterday, today may be also not bad chance...


eur_1h_26_11_15.png
 
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Sive Morten

Special Consultant to the FPA
Messages
15,514
Good morning,

Reuters reports today The dollar, euro and yen stuck to familiar ground on Friday in thin trade after the U.S. Thanksgiving Day holiday.

The dollar index stood at 99.844, up slightly and not far from an 8-1/2 month peak of 100.170 scaled on Wednesday. For the week, it was up about 0.2 percent.

Against the yen, the dollar was nearly flat at 122.60 , remaining in consolidation mode after reaching a three-month high of 123.77 on Nov. 18, and up from this week's low of 122.26.

Japanese data on Friday painted a mixed picture, though some market watchers were optimistic overall.
Japan's core consumer prices fell for the third straight month, mostly due to the effect of falling energy costs, and household spending slumped in October. But the jobless rate fell to 3.1 percent, its lowest since July 1995.


"Forex doesn't respond much to Japanese releases, but the overall sentiment is quite solid. There's a base forming," said Bart Wakabayashi, head of foreign exchange for State Street Global Markets in Tokyo.
"Household spending was bad, which is always a concern," he said.


Japanese Economics Minister Akira Amari told reporters on Friday that the unexpected fall in household spending shows that some consumers still lack confidence in the economy.

Amari said the government will maintain its target of halving the primary budget deficit in fiscal 2015 when it compiles an extra budget for economic stimulus.

Japanese Finance Minister Taro Aso said on Friday that the cabinet was instructed by Prime Minister Shinzo Abe to compile an extra budget for the current fiscal year.

Against the yen, the euro edged up slightly to 130.09 , but was still not far off a 7-month low of 129.77 plumbed on Wednesday.

The euro managed to hold above $1.0600 and last stood at $1.0610, but it remained within reach of a 7-1/2 month trough of $1.0565 set on Wednesday.

The prospect of more easing from the European Central Bank at next week's policy review has been keeping the euro under pressure. In contrast to the ECB, the Federal Reserve is widely expected to hike U.S. interest rates in December.

Market participants expected trading would remain subdued for the rest of the session, with an early post-Thanksgiving close for U.S. markets on Friday extending the holiday lull.

"Lacking impetus from offshore markets and as our North American cousins continue to make inroads into the 46 million turkeys they typically consume each Thanksgiving, it promises to be a slow Asia-Pacific Friday," said Ray Attrill, global co-head of FX strategy at National Australia Bank.

Next week promises to be more eventful, with the ECB policy review on Thursday to take centre stage. The Reserve Bank of Australia and Bank of Canada also hold their respective policy meetings in the week ahead.
The International Monetary Fund (IMF) is expected to announce on Monday whether it will include the yuan, also known as the renminbi, in its $280 billion basket of currency reserves, known officially as Special Drawing Rights, or SDR. Its inclusion in the basket would mark a major diplomatic victory for Beijing's campaign to internationalise the currency.


So, today on GBP... By looking at dollar index chart, it should continue to strengthen further. That's why as on EUR as on GBP our strategical view is the same - down. Most expected targets are 1.4980 and 1.4850. They are based on daily butterfly. As market has dropped dramatically to 1.27 target it should continue acton to 1.618 as retracement up mostly has done already:
gbp_d_27_11_15.png

On 4-hour chart we see big wedge pattern that is forming and it's lower border also stands around 1.4980 area:

gbp_4h_27_11_15.png

On hourly chart GBP is forming flag pattern that is usually bearish continuation pattern. Upside retracement was stopped by K-resistance area. So, may be this flag will become not bad consolidation for taking short position. At least currently we do not see any signs of possible bullish reversal here:

gbp_1h_27_11_15.png
 
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