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FOREX PRO WEEKLY, October 01 - 05, 2018

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Sep 29, 2018.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals

    Today, guys it is difficult choice. We have setup on GBP, we also need to update EUR view and also it is interesting situation on CAD, as we expect Crude oil prices around ~90$ area.

    As Reuters reports - The dollar climbed to a two-week peak versus a currency basket on Friday, as concerns about the Italian budget weighed on the euro while the greenback drew support from an outlook for multiple U.S. interest rate hikes until 2020.

    The fact that Fed statement was underestimated on Wed-Thu we mentioned in daily updates. Problems with Italian budget is also not a surprise for us, because we've touched this subject couple weeks ago - Italy will have to re-finance 30% of its national debt in 2020. This really could lead to big problems if lack of liquidity will come. Even now, Italian debt volatility is rising and this is warning sign.

    "The reasons why the U.S. dollar was going up in the first place have not changed," said John Taylor, president of global macro research firm Taylor Global Vision in New York. "Rising U.S. rates at the same time the global economy is showing signs of slowing down and the ongoing trade war still provides a major barrier for any cyclically-sensitive currency, whether it's an emerging or developed market currency," he added.

    U.S. data on Friday all supported the view of an economy that is on a stable growth path.

    U.S. consumer spending rose 0.3 percent last month after an unrevised 0.4 percent gain in July, while a measure of underlying inflation remained at the Fed's 2 percent target for a fourth straight month.

    The Chicago Purchasing Management index for September was 60.4, slightly lower than the consensus forecast. The U.S. consumer sentiment index for September, on the other hand, was slightly lower than forecast at 100.1, but still the highest since March.

    The euro, meanwhile, slipped below $1.16 for the first time in two weeks after Italy's government agreed on a budget seen by some investors as defying Brussels.

    Political wrangling over the budget in heavily indebted Italy has put a lid on a recent revival in the euro's fortunes against the dollar. The euro posted its biggest one-day decline for nearly two months on Thursday as the battle over fiscal policy intensified in the euro zone's third-largest economy.

    Financial markets are nervous that the Italy's spending plans will boost the country's debt, which is already the second highest in the euro zone as a share of economic output after Greece, near 131 percent of gross domestic product (GDP). The government is targeting a budget deficit at 2.4 percent of GDP, inside the 3
    percent ceiling prescribed by European Union rules.

    Today, guys I would like to pay a bit more attention to Fed rate policy perspectives. Now we have two independent sources that suggest that rate will raise through 2019 and even 2020. In result, it is expected to be around 3.5%. It is December rate increase expected, 3 times in 2019 and last time somewhere in 2020.

    If you will take a look at market expectations on Fed rate policy - you'll see it is strongly undervalued. Thus, it is just 78% probability of rate increase in December and just 46-50% for single rate change till the May of 2019, while we count on three rate change in 2019:
    [​IMG]
    Markets think that probability that rate will be 3.25% by the end of 2019 is just 12%. It means that here we have huge support factor for US Dollar as no rate increase has been priced in yet. While market will start to price-in coming Fed meeting once we come closer to it - dollar should get gradual upside trend component particularly from pricing-in of Fed policy from one meeting to another.

    Also I would like to share with you new update from Fathom consulting. Here they take brief look at all important issues - US, EU, Brexit, China etc. Here we put most interesting things that have direct relation to our subject.

    We've talked about possible 2020 recession in previous research.
    "In short, with the US already operating above capacity, and with growth set to remain well above its post-crisis trend both this year and next, we believe the economy will overheat, with rising inflation and interest rates tipping the US economy into recession in 2020, dragging the global economy down with it. Perversely, a significant escalation of the Sino–US trade tensions is one of several factors that could postpone the correction. Ultimately, however, in this world we would anticipate an even bigger recession further down the line as global imbalances build.
    US economy expanded at a healthy clip in Q2, and we anticipate strong growth in the coming quarters. And while we have trimmed our 2019 headline inflation forecast due to a weaker outlook for oil prices, we still expect core inflation to rise a lot more than most other forecasters do."


    Speaking on China - "we think that China’s growth has peaked, and we expect real growth to slow by more than the government’s official forecasts imply. Trade tensions are reflected in the drop in our China Exposure Index"
    [​IMG]

    In ‘Brexit Britain’ more or less anything could happen — politically and economically — over the next few months. On balance, we feel that the prospects of a ‘No Deal’ departure next March are slightly overdone. Nevertheless, we have reduced the weight we attach to our central scenario, which sees the UK leave with a withdrawal agreement, ushering in a long period of transition where uncertainty about the terms on which the UK will trade with the rest of the EU remains elevated for some time. The probabilities we attach to the ‘tail risks’ of a ‘No Deal’ Brexit, or indeed no Brexit at all, have risen. The distribution of possible outcomes for the UK economy is correspondingly large. To illustrate, we see GBPUSD lying anywhere between something close to parity and something north of $1.50 by the middle of next year. In our central scenario, we have revised up our end-2019 forecast for GBPUSD from 1.27 to 1.35.

    Here I would like to make a note on GBP forecast. To be honest, guys, I see political background in Brexit, but not purely economical as it is represented in media. Political factors are less flexible, especially when divorce already stands under way. Thus, I gravitate more to negative GBP performance rather than 1.50$ area. BTW, our long-term GBP bearish target is 0.95$ - very close to Fathom's parity expectation...

    Finally - Our forecasts for GDP growth and inflation in the euro area are little changed, although we have cut our end-2019 forecast for the European Central Bank’s policy rate by 25 basis points. For this reason, as well as recent developments in the bond market, we have trimmed our forecast for ten-year German Bund yields from 1.00% to 0.70% and 1.40% to 1.10% for end-2018 and end-2019 respectively.

    As forecast on interest rates have decreased, it means that no solid EUR appreciation is expected through 2019. This in general, agrees with our long-term EUR/USD view.

    COT Report

    Recent CFTC data doesn't show big changes in net EUR speculative position. But next week COT report will include impact of recent Fed meeting and we should get more changes.
    upload_2018-9-29_13-5-39.
    Source: CFTC.gov
    Charting by Investing.com

    Technicals
    Monthly


    On monthly chart we do not see big changes yet. 1.15 area is strong and very important support, because it includes YPP. Still Fundamental background that we've read above suggests that it will be broken sooner or later, which corresponds to our long-term view here. The fact that EUR has turned down precisely from YPR1 area tells that recent 1.05-1.26 action was an upside retracement within long-term bear trend. And YPP break could become another vital confirmation of this scenario.

    So price still stands at yearly Pivot and we said that this is more the range rather than precise number. Now we see that price feels some gravitation around it and it will be particular interesting and important what reaction price will show on it. This is major 50% Support area as well.

    In general reaction that we see within recent weeks was not bad and it seems that our expectations are started to realize by price action. Now we turn to final stage of upside retracement and will see whether market will show 1.19 leg or not.

    In general 1.14-1.15 is important not just because of YPP. Take a look - this is upper border of former 1.05-1.14 consolidation. If price will drop back inside it - it will open road to the bottom of 1.05 area. Price has problems with breaking borders of any consolidation, but it has no barriers inside and could freely move from up to bottom.
    eur_m_01_10_18.

    Weekly

    Here, guys we come closer to next week trading plan. Last week's action significantly simplifies our task on coming week. We've got bearish engulfing pattern and bearish reversal week. This combination gives good chances on downside continuation to 1.1450 area.

    Another important issue here is new October MPS1. It stands precisely at the same level. It will be very important to see what will happen around it. If it will hold price - chances on upside reversal and leg to 1.19 that we are expected, will be better. Downside breakout will be negative for our daily bullish scenario, because, it uses 1.1450 support area as cornerstone.
    eur_w_01_10_18.

    Daily

    On daily chart we schematically show possible price action that is logical to suggest when you have weekly bearish engulfing. As a rule, engulfing pattern takes the shape of AB=CD on lower time frame. EUR stands close to oversold and Fib support around 1.15-1.1520 area. This is potential range where upside action could start. To find out this, we need to take a look at intraday charts, what's going on there.

    Ultimately it is possible, of course, that no bounce will happen and EUR just drop further. But this scenario brings no hazard to us, we just will not get our entry points... Also you probably could recognize the H&S shape here as well.

    eur_d_01_10_18.

    Intraday

    Here we do not have enough information just yet. All our targets have been exceeded, as market has dropped below our XOP on Friday. Now we have bullish engulfing pattern and support area 1.1520-1.1550.

    There are two things we need to mention here. First is - real upside pullback that we've shown on daily chart hardly will start without clear bullish reversal pattern on hourly chart. Bullish engulfing that we have here is not enough for this purpose. Thus, if you want to take long position on this action - you need to wait a bit more.

    Engulfing pattern that we have could be used by scalp traders for very fast trade. Also we have a kind of B&B "Sell" LAL pattern here. But all of them are very short-term.

    Thus, here our conclusion as follows - it seems that it would be better to wait when EUR will hit support area and watch for patterns then.
    eur_4h_01_10_18.

    Conclusion:

    Long-term situation has not changed much. Our monthly and weekly trading plan stands without big changes by far.
    In shorter-term, although EUR keeps bullish context valid, 1.1450 area will be crucial for daily scenario. Weekly patterns gives clear trading setup and we will watch how it will be realized through the 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.
     
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  2. Lolly Tripathy

    Lolly Tripathy Master Sergeant

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    Thank you very much sive sir. .
    Kindly continue on gbpusd also..
    Thanks a million..
     
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  3. knot777

    knot777 Recruit

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    Hi Sive,

    Thank you for the analysis, I have been practicing my own. I am quite happy as I have managed to spot 80% of what you have presented, and as it normally happens you have given me new areas to review.
    Like Lolly has asked, if you have sometime free could you post your thoughts on the GDPUSD? I would like to see what I have missed.

    Thanks again.
     
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  4. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Hi guys,
    We will take a look at GBP in daily update probably. Just keep in mind that we have weekly B&B "Sell" and it is not completed yet. This explains everything.
     
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  5. Joh

    Joh Sergeant Major

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    Sir Sive,
    As i have said before thank you for being in my life. your report are simply the most :)
     
  6. Joh

    Joh Sergeant Major

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    Wow, sensational Sive we are blessed to have us guide you, may i also be so bold to ask you re the G/U and U/Y as i need to get further clarity in this chaotic Forex world- God bless you.
     
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  7. Joh

    Joh Sergeant Major

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    Lolly, :) your baby looks a gift from God, how beautiful! hug!
     
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  8. Lolly Tripathy

    Lolly Tripathy Master Sergeant

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    Thank you dear friend... Yes he is the real gift of my life..
     
  9. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Hi Joh,
    we will take a look at GBP in our daily updates. Concerning Yen - check last week thread, there are a lot of analysis from me, Deltoid and Stag at the final posts of the thread
     
  10. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    as we've promised today we will take a look at GBP. The major thing that we have to recall is weekly B&B "Sell' and this pattern is still valid. It means that our major destination level on daily chart is 1.29 support.
    Hence, any pullback that we could get now should be treated as a pause, just a retracement before downside continuation. This is important:
    gbp_d_02_10_18.

    Meantime 4H chart shows completion of our AB=CD pattern that we've specified last week. here two points we need to mention. First one is - OP target has not been reached yet. It means that GBP should show another leg down. Second, CD leg is slower than AB, which suggests upside retracement as soon as OP target will be touched:
    gbp_4h_02_10_18.

    OP target could be reached by hourly butterfly "Buy". If you do not trust butterflies, then you could wait a bit more and see whether it will turn to reverse H&S, just to get more confidence.

    Those, who trade B&B could watch for bearish continuation patterns when pullback will be over, i.e. use potential rally to sell into.
    gbp_1h_02_10_18.
     
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