Forex FOREX PRO WEEKLY, November 30 - 04, 2020

Sive Morten

Special Consultant to the FPA
Messages
14,581
Fundamentals

Markets across the board gradually are changing the shape. It is most signed on stock market and interest rates, partially on FX. Investors carefully but start to look over horizon, in post-pandemic world. The vector of interest is turning to inculcation moment, how much time it takes and what time lag will be till this process starts. Additionally, investors are looking more on the risky assets as uncertainty is melting. All these stuff make some pressure on US Dollar, especially on a background of power transition to J. Biden. December has high density of important events that should provide high volatility and multiple trading setups.

Appetite for riskier assets was evident across the board. Stocks and oil rose as progress made on COVID-19 vaccines, which had underpinned Wall Street overnight, boosted optimism about a quicker revival for the global economy. Trump acknowledged the head of the General Services Administration should go ahead with a transition to a government led by President-elect Biden, despite plans to continue with legal challenges.

Democratic allies to the Biden campaign said Yellen is expected to be nominated to become Treasury Secretary. She has called for increased government spending to lift the economy out of a coronavirus-induced recession. Yellen has called for more fiscal spending to revive an economy wrecked by the coronavirus pandemic. She would be the first person to head the Treasury, the Fed and the White House Council of Economic Advisers.

“From here, the Fed will prove a mere auxiliary to maximize fiscal impact by ensuring cheap funding,” said John Hardy, head of FX strategy at Saxo Bank. “On that note, it makes sense to have a former Fed chair helping to maximize that fiscal-monetary coordination under a Biden administration. So the long-term implications of the Yellen nomination are distinctly dollar negative,” Hardy added.

We should be realistic on vaccination

Some investors worry that slow vaccination rates may weaken next year’s expected economic recovery. Overall, 58% of Americans said in a Gallup poll here that ended Nov. 1 that they would get vaccinated, up from 50% who were willing in a September poll. 42 percent said they would be unwilling to get a vaccine, citing reasons such as the rushed development timeline and concerns about safety.

Delays in vaccine distribution or widespread refusal to be vaccinated would allow the virus to continue to circulate longer and delay the development of herd immunity, which occurs when enough people in a population have some form of protection that prevents the easy spread of a disease.

“To be certain that the world will be back to normal by mid-next year because a vaccine is available is an aggressive assumption,” said David Albrycht, chief investment officer at Newfleet Asset Management. “There’s a light at the end of the tunnel but we’re not sure how long that the tunnel is going to be,” he said, citing uncertainties including whether a vaccine will be free or covered by insurance plans, its rollout and its public acceptance rate.

Citi Research wrote in a note on Monday that herd immunity would not form until late 2021, boosting global Gross Domestic Product growth by only 0.7% next year compared with an estimated 3% gain in 2022 as vaccination rates rise.

The U.S. Food and Drug Administration will likely grant approval in mid-December for distribution of the vaccine developed by Pfizer Inc and German partner BioNTech and some healthcare workers could start getting shots a day or two later, Dr. Moncef Slaoui, chief scientific adviser for the U.S. government’s Operation Warp Speed, said on Sunday. Some 70% of the U.S. population of 330 million would need to be inoculated to achieve herd immunity, which is possible by May, he said.

Ramos said those estimates may be overly optimistic and the economic benefits of vaccinations will not be apparent until the second half of next year, increasing chances that the recent U.S. economic slowdown could worsen.

Targeted vaccinations could revive the economy even with delays in widespread adoption, said Jonathan Golub, chief U.S. equity strategist at Credit Suisse Securities.
“The successful vaccination of seniors and front-line workers could expedite the renormalization process well before herd immunity is achieved,” he said. The S&P 500 may reach 4,050 by the end of 2021, up about 13% from its current level, he estimated. If the situation were reversed and you had good data on cases and hospitalizations for COVID but vaccines were flops, the stock market would be cratering,” Buckingham said.

Overall uncertainty on timing of vaccination was also supported by AstraZeneca plans to review its Covid-19 vaccine candidate to clarify how effective it is. While it’s doing so, the UK group should probably do a separate review of how it communicates. Chief Executive Pascal Soriot said on Monday that AstraZeneca’s Covid-19 vaccine could be 90% effective. That was the first data point in a statement released by the company, but referred to a result from a small part of the study accidentally obtained by using the wrong dosage. Meanwhile the University of Oxford, its vaccine partner, released a separate statement that highlighted the average effectiveness of the remedy as 70% from two different dosing regimens. In fact, the most conservative number to use was a figure that appeared further down in both messages: 62%. That was the result obtained from two-thirds of the participants that took part in the trial. It’s understandable why Soriot favoured the best-case scenario. Vaccine trial results from U.S. peers Pfizer and Moderna showed stratospheric effectiveness of 95%. Yet AstraZeneca’s 62% equivalent remains impressive. It goes beyond the minimum 50% rate required by the U.S. Food and Drug Administration. AstraZeneca’s shares have fallen nearly 5% since it revealed its results on Monday.

As Fathom reports - Early evidence seems to suggest that conditions will remain very accommodative in the short term. In Europe, the ECB has already telegraphed that more stimulus is on the way in December. In the US, the change of guard at the White House also comes with lofty ambitions for further spending. If the appointment of Yellen to Treasury Secretary is a statement of intent, fiscal policy will be explicitly set by a former central banker.

Overall, given accommodative policies and some potentially easy ground to be made up, it is understandable why markets feel confident. We see the greatest upside potential in the short term coming from stocks strongly connected to economic fundamentals. However, it is important not to lose sight of the immediate risks in terms of the virus, the challenges associated with delivering a vaccination.

For example, implementing an effective, swift, mass-scale vaccination programme requires a standard of competence in the delivery of public policy that is somewhat above the level that we have been accustomed to recently. For the moment, it is hard to completely dispel the notion that the vaccine is becoming another short-term miracle solution, a deus-ex-machina which is helping to deflect public attention from the immediate shortcomings in the bureaucratic apparatus. The rollout of the vaccine programme may not be as seamless as current market sentiment appears to suggest.

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In general, guys, I'll try to explain what's the problem with massive vaccine production and its distribution and why significant delays might become a problem and postpone economy recovery. In two words speaking - invent the vaccine in high-end laboratory and test it is quite different think to produce in huge volumes. In fact, the production hardware has to be tuned absolutely equally to laboratory one. Otherwise, you'll get different result at best scenario, or, bad consequences in the worst. This is the same think as to bake the pie on the same receipt through the whole country. While you could get it tasty somewhere on East coast - it could be filth on the West coast. The same is with vaccine production - the plant has to have strict and absolutely equal hardware tune as in laboratory. This brings some difficulties. Additionally we should mention the transportation - Moderna and Pfizer vaccines should be stored at -20 and -70 C degrees correspondingly. This is the reason why different studies bring different results and why experts are careful on forecasts, trying to avoid brave promises and conclusions.

December ECB meeting

The European Central Bank expects prices in the euro zone to keep falling this year and rebound more slowly in 2021 than it previously thought even as the prospect of a coronavirus vaccine boosts the growth outlook, ECB vice president Luis de Guindos said in an interview published on Saturday. The ECB is due to unveil its new projections on Dec 10, along with a new stimulus package. De Guindos’ comments suggest a cut to the inflation forecast for this year, next year and possibly even 2022 is on the cards.

“Inflation will be negative until the end of the year and we expect that it will turn positive next year,” de Guindos told Finnish newspaper Helsingin Sanomat. “All in all, we expect inflation to be close to 1% in 2021 and to see it moving up towards 1.2% or 1.3% in 2022. Negative quarter-on-quarter growth is now the most realistic scenario for the end of the year,” de Guindos said. “But the medium-term outlook – mainly because of the ray of hope brought by news of the vaccine – looks brighter.”

The central bank has said it will announce the terms of its new stimulus package, mainly consisting of more bond purchases and subsidised loans to banks, at its December meeting.

Euro zone consumer prices are likely to have fallen further in November -- a 0.3% year-on-year drop is expected from next Tuesday’s “flash” reading.

The numbers won’t surprise the ECB, which expects inflation to average -0.2% year-on-year in Q4. But a fourth straight month of negative price growth may not sit well -- ECB chief economist Philip Lane warned recently against tolerating low inflation. And while a COVID-19 vaccine may lift growth prospects, it may not do much for inflation -- inflation-adjusted bond yields remain deeply negative. The data will only reinforce the need for more stimulus and that will come in December, with the ECB seen expanding bond-buying and cheap loans for banks.

ECB’s Lane warns against tolerating low inflation as more stimulus looms

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Crazy December

It has been a year many would prefer to forget and a month of 2020 still remains -- one replete with events that could trip up markets. Here they are:

Dec. 1: A month before the UK-EU transition deal ends.

Dec. 8: Deadline to complete U.S. state-level vote recounts and court contests over the election.

Dec. 10: European Central Bank meets and should increase emergency stimulus.

Dec. 11: U.S. government funding lapses unless lawmakers agree a 12-bill spending package.

Dec. 10-11: EU council meeting. Issues are Brexit and the risk that Poland and Hungary will scupper an EU stimulus spending plan.

Dec. 14: The U.S. electoral college votes, with the risk that some “faithless” electors break the rule requiring them to vote in line with the popular vote.

Dec. 15-16 - U.S. Federal Reserve meets. Will it expand bond-buying or signal a yield cap?

Dec. 28: European Parliament could vote on any Brexit deal.

An explosion in new COVID-19 infections and business restrictions have been undermining the U.S. labour market recovery so Friday’s November payrolls figures will be closely watched. Last month saw 638,000 new jobs amid signs the economy was healing from the pandemic-induced downturn. But it was the smallest gain since the jobs recovery started in May and left employment 10.1 million below its February peak.

November is likely to be the seventh straight month of jobs gains, but expectations are that only 520,000 jobs were added. U.S. weekly jobless claims rise as COVID-19 infections surge.
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Conclusion

Fundamental background puzzles well for further upward action on EUR. On political side - final J. Biden victory and appointment of Yellen as Secretary of Treasury promises wider and longer-term stimulus for economy. ECB clear hint on new supportive measures pack in December also plays in favor of EUR. Finally, overall market sentiment is rising as markets are in first euphoria on coming vaccination. This mood should last for few months, while later could start to fade as investors will start watching for real results of inoculation - real data should show how effective vaccines are. This results will come only in summer at best. Until this moment, governments and countries will keep try to escape larger harm from pandemic, using traditional tools - limitations and lockdowns. But, as EU is on the half way to the finish, supposedly in January, while the US and J.Biden are yet to start active struggle with CV19. These thoughts make us to keep our medium-term EUR forecast around 1.27 level on average.

Technicals

Monthly

Last week we've discussed two scenarios that are different on start but very similar at the finish stage. Recall that Our "basic view" suggests gradual action up from here, while "surprising scenario" is shown as butterfly. 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. This week shows that probably so be it - reversal bar stands in place with just single session till the end of the month.

Conversely, if "stormy scenario" with D. Trump successful effort to contest results will become a reality, "no deal" Brexit and worse out of lockdown - more probable US dollar appreciation in short-term. 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. The final relief on this concern we get only on 14th of December when electoral college votes. But, for the truth sake, this scenario is becoming more and more theoretical.
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Weekly

We're coming the resolving of the riddle on weekly chart as well. This week scenario was realized accurately as EUR hits 1.1960 target on Friday, and this is just one step to the clarity - either direct breakout or minor pullback and another preparing price swing for the rally. As we've mentioned through the week, we're mostly tending to first way. Here we have few nice bullish patterns as well - reversal, engulfing and bullish dynamic pressure. All of them together shows promising picture.

Only sharp reversal and drop below 1.1630, or, I would better say below K-area could turn context bearish.

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Daily

Trend stands bullish on daily chart. Friday performance was of a good pace and EUR has closed above Thu doji candle. Beside, now we have more clarity on fundamental background - investors stand in anticipation of new ECB measures and will "Buy on rumors", pushing EUR higher. Thus, the scenario that we also were keeping in mind last week, with possible pullback to 1.18 area now probably should be taken off the table.

Speaking on upside targets... we probably should not take in consideration 1.618 butterfly extension, as it stands slightly above the top. Massive stops hit should push price higher, in excess of this level. And it seems that we should focus on 1.2060 level - daily OP and the target of weekly engulfing pattern. Besides, daily Overbought level doesn't prevent price to reach it on next week.
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Intraday

As market is aimed on the top challenge as a bull on red color, we should not expect any deep retracements. If you haven't taken long position last week (or closed it), we could count only on minor pullback from 1.1975 - if we get lucky and it happens. In this case, once butterfly hits the target - keep an eye on two nearest levels again 1.1950 and 1.1940 K-area. Hardly we will get deeper pullback. In a case of direct upward continuation we still have another entry tool in reserve - Stop "Buy" order slightly below the daily top.
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Sive Morten

Special Consultant to the FPA
Messages
14,581
Morning everybody,

EUR keeps intact our general scenario - upward breakout with formed monthly reversal bar and signs of bullish dynamic pressure on the weekly. But, at the same time, on daily was relatively rare type of action that is a bit surprising. Market has come to the top but left it unspoiled. It doesn't exclude deeper retracement that we've discussed in weekly report.

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Since we have no intention to trade it short, it barely impacts on our trading plan. Because if retracement happens - that' great, we use it. If not - well, we try to use Stop "Buy" order on upward breakout.

4H chart shows 1.1850 level as good support if pullback still will happen:
eur_4h_01_12_20.png


But also it makes sense to consider higher standing level around 1.1875 as it creates an Agreement with potential AB-CD target if pullback happens:
eur_1h_01_12_20.png


Together they provide great chance to buy at Agreement slightly above major K-support area. But unfortunately it's not the fact that we will get it. Thus, we have few options now - wait for retracement and do nothing, second - split position, buy small part right now and scale-in at next support levels. Finally, with direct upward action - we recall again our Stop 'Buy" tool.
 

Sive Morten

Special Consultant to the FPA
Messages
14,581
Morning folks,

So, 1.2060 is done, and now is the time to set the next one. Also we discuss possible pullback before upside continuation.

In general our long-term target stands around 1.2860 but on a way up we have strong monthly resistance around 1.25 area. On daily chart we also have additional targets that are based on the patterns that we have here. First is XOP of our AB-CD pattern around 1.2250. Second - classical target of rectangle breakout that is equal to its height. Mostly it coincides with the XOP. Finally, XA extension of downside retracement stands at the same area:
eur_d_02_12_20.png


Speaking on retracement, EUR has the feature to show very small pullbacks when it stands in thrusting action. The harmonic swing on daily chart shows that pullback could be to 1.1910 area. While on 4H chart personally I like 1.1980 K-support. It stands not too deep inside the triangle and could be reached on re-testing of broken top. Currently retracement is not started yet and we do not have any additional hints. But for the purity of bullish context 1/2 of harmonic swing to 1.1980 is quite enough to respect daily OP.
eur_4h_02_12_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,581
Morning everybody,

Today is small update as everything mostly stands the same. As we haven't got pullback yesterday, this setup is automatically transpose to today. Waiting for the same scenario but levels now stand a bit different as price has moved slightly higher.

On daily chart, EUR hits minor 1.27 extension that we've mentioned yesterday. So, hopefully it could trigger the pullback as before NFP market could be a bit more quiet.
eur_d_03_12_20.png


On 4H chart we're watching for the same levels and mostly 1.20 K-area as it stands right around former top:
eur_4h_03_12_20.png


In general, chances on pullback are not anemic as EUR takes too fast pace, forming wedge pattern that might be the reason for retracement:
eur_1h_03_12_20.png


Anyway, as we do not intend to short the EUR - whether we get the pullback, that's good, if not - no problem, will wait for another setup.
 

Sive Morten

Special Consultant to the FPA
Messages
14,581
Morning everybody,

As EUR shows the same action, it makes no sense to repeat the same setup as we did yesterday. Let's take a look at GBP. Cable has shown very small reaction on our resistance that was made by daily OP, "222" Sell pattern and 3-Drive "Sell on intraday charts. In fact, patterns have not reached the minimal targets and GBP was moving higher.

It means that context is bullish and we should expect upside extension. Just to remind you - on monthly chart we have huge bullish grabber that is still valid and suggests further upward action. On daily chart the nearest target stands around 1.37 - this is butterfly extension and XOP target of the same AB-CD pattern. As both targets stand above Overbought level, probably they could be hit on the next week:
gbp_d_04_12_20.png


Meantime on 4H chart we have another OP. This is minor target but price could try to hit it today, maybe on the background of NFP report:
gbp_4h_04_12_20.png


Thus, to possess for this target, we could use 1H chart and consider long entry from nearest two levels. Again, better to use split position and scale-in, because technical situation doesn't suggest deep retracement, and market could re-start upward action from any of these levels:
gbp_1h_04_12_20.png
 
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