Sive Morten
Special Consultant to the FPA
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Fundamentals
The dollar rose across the board on Friday, hitting an eight-month high against a basket of currencies as speculation the Swiss National Bank would follow the European Central Bank in cutting deposit rates further pushed major competitors lower.
Expectations of growing interest rate differentials between the dollar and major European currencies have pushed the dollar index up to near its yearly peak of 100.390, the highest it has been since June 2003.
Most analysts anticipate the Federal Reserve will raise U.S. interest rates next month, strengthening the dollar, while the ECB and SNB are expected to announce further easing.
For the week, the dollar is up more than 1.1 percent against the Swiss franc , having touched a five-year high against the safe-haven currency on Friday. It was the second straight week of 1 percent gains for the dollar against the franc, having risen nearly 1.2 percent last week.
The euro rebounded in afternoon U.S. trading to move back above $1.06 after falling near seven-month lows in overnight trading. It was last down 0.1 percent against the dollar to $1.0596.
The single currency is down 3.7 percent versus the dollar so far this month as markets anticipate the ECB announcing a loosening of monetary policy at its Dec. 3 meeting.
The yuan was again fixed weaker by Chinese authorities and offshore rates fell ahead of the International Monetary Fund decision about whether to include it in the IMF's basket of reserve currencies. Offshore rates hit their weakest in more than two months ahead of the decision due on Monday .
The currency is expected to be added to the basket, but with a lower weighting than previously estimated, due to the relative scarce use of the RMB in financial transactions worldwide.
The 0.28 percent fall in the tightly controlled rate of the renminbi was much less than a more than 5 percent collapse in Shanghai share prices.
"It's significant we didn't see more of a fallout with regard to the Chinese equity market in currencies," said Dean Popplewell, chief currency strategist at Oanda in Toronto. "I suspect with the lack of participation (Friday), opening interest Sunday night/Monday morning will be certainly a lot higher than what we saw today."
Popplewell added that he expected to see trading increase as retail spending figures from the Thanksgiving holiday weekend are released. "But at the moment," he said, "we're still very much caught in holiday mode."
Sterling fell to a three-week low against the dollar on Friday after data confirmed the British economy slowed in the third quarter, bolstering market expectations that the Bank of England will not raise interest rates any time soon.
Despite upbeat growth forecasts from the Office for Budget Responsibility this week that accompanied the finance minister's spending review, Friday's numbers showed the UK economy grew just 0.5 percent from July to September, slowing from 0.7 percent the previous quarter. [nU8N0XW02B]
Sterling fell half a percent on the day to $1.5032 after the data, its lowest in three weeks and just five ticks away from a seven-month low of $1.5027 reached earlier in the month. It recovered some losses later on Friday but still traded down 0.3 percent at $1.5049.
"Broad dollar strength coupled with the drag that trade has had on growth was enough to send sterling lower," said Western Union corporate hedging manager Tobias Davis.
Against the euro, the pound was down 0.2 percent at 70.36 pence .
The pound got some relief earlier in the week after the
"Autumn Statement" by the finance minister, George Osborne, where he eased some spending cuts and dropped an unpopular plan to scrap some benefits for low earners.
That led some to hail the end of "austerity Britain", but Barclays currency strategist Hamish Pepper said the overall picture had not changed much. Fiscal tightening will still pick up next year, and a referendum on Britain's future in Europe may also weigh on growth.
Investors pushed back their expectations for when the BoE will start to raise rates to the end of 2016 after the bank's latest Inflation Report this month, when it warned of the disinflationary effect of a strong currency.
"We're starting to see some of the dovishness from the BoE come through in the currency," said Barclays's Pepper. "Rates markets have already been pricing that and I think we're getting some catch up in FX."
Pepper added that the Office for Budget Responsibility's forecasts for 2.4 percent growth in 2016 and 2.5 percent in 2017 were too bullish. Barclays expects growth to slow to 1.9 percent next year and to 1.6 percent in 2017.
Today, guys, again on GBP. Actually it was difficult choice what to look at - either EUR or GBP, but at the same time - there is no big difference among them. I mean our long-term scenarios are valid as on GBP as on EUR. But on GBP it seems that charts a bit brighter. EUR behaves more lazy.
So COT reports shows significant increase in speculative short positions that is accompanied by open interest growth. This is pure bearish combination. At the same time current net short position is far from it's peak. This makes possible further continuation down:
Technicals
Monthly
Here, nothing drastical has happened. Everything is OK. Market continues move down to our targets. This is even easier to understand, if you will take a look at dollar index chart and it's target:
"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 challenged upside action but failed 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.
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.
Daily
Right now market stands with our expectations and brings no surprises by far. As we've discussed on Friday - Cable shows another leg down and returns back to 1.50 lows, first butterfly target. Last time this level was accompanied by oversold and Fib support. This pushed it higher, but right now Fib level has been broken already and GBP is not at oversold.
This lets us hope on soon bearish breakout of this level. and downward continuation. I'm not sure that we could count on reaching next butterfly target right no coming week, may be market will need a bit more time. But we probably should reach the border of the wedge pattern.
Also - although we do not have any other Fib supports here, on daily chart - 1.4910 is major monthly level and it coincides with wedge border and with 1.618 butterfly extension. Last time it was penetrated for 300 pips, but for monthly chart this is acceptable. So, probably it is weak right now but it is still valid. You should understand it not as strict 1.4910, but mostly as support area. That could hold market for some time.
Hourly
So, on hourly chart market has broken our flag pattern down. Also it has reached 1.27 extension of butterfly. Theoretically here we could hope on possible upside retracement to re-test broken flag and touch WPP. But I'm afraid that this attempt to re-test already has happened by minor bounce right after 1.27 target been hit.
Taking in consideration fast drop, GBP probably will proceed to next destination point at 1.50. This will be by the way target of daily butterfly as well. So, may be after it will be hit, Cable will show retracement. Still I hope that you already hold bearish position, because there were multiple chances to do it and we've talked about it almost in every daily update.
Conclusion:
So, no big shifts in our long-term strategy. 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
In short-term picture it seems that Cable has finished retracement and hardly it will start another one before it will hit 1.50 area and clear stops around it. Potentially GBP could reach 1.49 area on coming week.
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.
The dollar rose across the board on Friday, hitting an eight-month high against a basket of currencies as speculation the Swiss National Bank would follow the European Central Bank in cutting deposit rates further pushed major competitors lower.
Expectations of growing interest rate differentials between the dollar and major European currencies have pushed the dollar index up to near its yearly peak of 100.390, the highest it has been since June 2003.
Most analysts anticipate the Federal Reserve will raise U.S. interest rates next month, strengthening the dollar, while the ECB and SNB are expected to announce further easing.
For the week, the dollar is up more than 1.1 percent against the Swiss franc , having touched a five-year high against the safe-haven currency on Friday. It was the second straight week of 1 percent gains for the dollar against the franc, having risen nearly 1.2 percent last week.
The euro rebounded in afternoon U.S. trading to move back above $1.06 after falling near seven-month lows in overnight trading. It was last down 0.1 percent against the dollar to $1.0596.
The single currency is down 3.7 percent versus the dollar so far this month as markets anticipate the ECB announcing a loosening of monetary policy at its Dec. 3 meeting.
The yuan was again fixed weaker by Chinese authorities and offshore rates fell ahead of the International Monetary Fund decision about whether to include it in the IMF's basket of reserve currencies. Offshore rates hit their weakest in more than two months ahead of the decision due on Monday .
The currency is expected to be added to the basket, but with a lower weighting than previously estimated, due to the relative scarce use of the RMB in financial transactions worldwide.
The 0.28 percent fall in the tightly controlled rate of the renminbi was much less than a more than 5 percent collapse in Shanghai share prices.
"It's significant we didn't see more of a fallout with regard to the Chinese equity market in currencies," said Dean Popplewell, chief currency strategist at Oanda in Toronto. "I suspect with the lack of participation (Friday), opening interest Sunday night/Monday morning will be certainly a lot higher than what we saw today."
Popplewell added that he expected to see trading increase as retail spending figures from the Thanksgiving holiday weekend are released. "But at the moment," he said, "we're still very much caught in holiday mode."
Sterling fell to a three-week low against the dollar on Friday after data confirmed the British economy slowed in the third quarter, bolstering market expectations that the Bank of England will not raise interest rates any time soon.
Despite upbeat growth forecasts from the Office for Budget Responsibility this week that accompanied the finance minister's spending review, Friday's numbers showed the UK economy grew just 0.5 percent from July to September, slowing from 0.7 percent the previous quarter. [nU8N0XW02B]
Sterling fell half a percent on the day to $1.5032 after the data, its lowest in three weeks and just five ticks away from a seven-month low of $1.5027 reached earlier in the month. It recovered some losses later on Friday but still traded down 0.3 percent at $1.5049.
"Broad dollar strength coupled with the drag that trade has had on growth was enough to send sterling lower," said Western Union corporate hedging manager Tobias Davis.
Against the euro, the pound was down 0.2 percent at 70.36 pence .
The pound got some relief earlier in the week after the
"Autumn Statement" by the finance minister, George Osborne, where he eased some spending cuts and dropped an unpopular plan to scrap some benefits for low earners.
That led some to hail the end of "austerity Britain", but Barclays currency strategist Hamish Pepper said the overall picture had not changed much. Fiscal tightening will still pick up next year, and a referendum on Britain's future in Europe may also weigh on growth.
Investors pushed back their expectations for when the BoE will start to raise rates to the end of 2016 after the bank's latest Inflation Report this month, when it warned of the disinflationary effect of a strong currency.
"We're starting to see some of the dovishness from the BoE come through in the currency," said Barclays's Pepper. "Rates markets have already been pricing that and I think we're getting some catch up in FX."
Pepper added that the Office for Budget Responsibility's forecasts for 2.4 percent growth in 2016 and 2.5 percent in 2017 were too bullish. Barclays expects growth to slow to 1.9 percent next year and to 1.6 percent in 2017.
Today, guys, again on GBP. Actually it was difficult choice what to look at - either EUR or GBP, but at the same time - there is no big difference among them. I mean our long-term scenarios are valid as on GBP as on EUR. But on GBP it seems that charts a bit brighter. EUR behaves more lazy.
So COT reports shows significant increase in speculative short positions that is accompanied by open interest growth. This is pure bearish combination. At the same time current net short position is far from it's peak. This makes possible further continuation down:
Technicals
Monthly
Here, nothing drastical has happened. Everything is OK. Market continues move down to our targets. This is even easier to understand, if you will take a look at dollar index chart and it's target:
"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 challenged upside action but failed 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.
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.
Daily
Right now market stands with our expectations and brings no surprises by far. As we've discussed on Friday - Cable shows another leg down and returns back to 1.50 lows, first butterfly target. Last time this level was accompanied by oversold and Fib support. This pushed it higher, but right now Fib level has been broken already and GBP is not at oversold.
This lets us hope on soon bearish breakout of this level. and downward continuation. I'm not sure that we could count on reaching next butterfly target right no coming week, may be market will need a bit more time. But we probably should reach the border of the wedge pattern.
Also - although we do not have any other Fib supports here, on daily chart - 1.4910 is major monthly level and it coincides with wedge border and with 1.618 butterfly extension. Last time it was penetrated for 300 pips, but for monthly chart this is acceptable. So, probably it is weak right now but it is still valid. You should understand it not as strict 1.4910, but mostly as support area. That could hold market for some time.
Hourly
So, on hourly chart market has broken our flag pattern down. Also it has reached 1.27 extension of butterfly. Theoretically here we could hope on possible upside retracement to re-test broken flag and touch WPP. But I'm afraid that this attempt to re-test already has happened by minor bounce right after 1.27 target been hit.
Taking in consideration fast drop, GBP probably will proceed to next destination point at 1.50. This will be by the way target of daily butterfly as well. So, may be after it will be hit, Cable will show retracement. Still I hope that you already hold bearish position, because there were multiple chances to do it and we've talked about it almost in every daily update.
Conclusion:
So, no big shifts in our long-term strategy. 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
In short-term picture it seems that Cable has finished retracement and hardly it will start another one before it will hit 1.50 area and clear stops around it. Potentially GBP could reach 1.49 area on coming week.
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.