FOREX PRO WEEKLY October 13-17, 2014

[Sive Morten]

Monthly
Weekly FX Tading Report prepared by Sive Morten exclusively for ForexPeaceArmy.com
According to Reuters news dollar firmed for a second straight session on Friday after three consecutive days of losses, bolstered by safe-haven bids on worries about the health of the global economy with slow-downs evident in Europe, Japan, and China.

"Dollar strength is still on the table here going forward and the driver behind that is policy divergence," said Andrew Dilz, currency strategist at Tempus Consulting in Washington.
"We're seeing a rate hike in the United States by the second half of the year. At the same time, we're seeing fractures elsewhere in economic growth such as Europe."

"If the dollar stays stronger for a longer, it keeps inflation down and helps the Federal Reserve to keep rates low longer," said Jack Flaherty, portfolio manager for the GAM Unconstrained Bond Fund of about $17 billion, in New York. "We are waiting for a more attractive entry point on the dollar."

The euro, meanwhile, slumped on concerns about the region's economic weakness, specifically Germany. Worries about the euro zone were echoed by European Central Bank President Mario Draghi, who said on Friday that a slowdown in the euro zone's economic momentum could weigh further on the reluctance of companies and households to invest.

Global growth worries, which sent stocks and commodities down across the board, pushed the safe-haven yen to a five-week high against the euro. The drop in oil prices to a four-year low below $90 took its toll on the Norwegian crown.
All of that has made markets much more jittery as seen in a jump in the CBOE volatility index, a measure of investor anxiety, to highs not seen since early February. Analysts said the pickup in volatility means the dollar's road higher is likely to get bumpier.

Societe Generale strategist Kit Juckes said the dollar had rallied too far, too fast since July, on the back of strong data and a small change in the U.S. Federal Reserve's language.


Recent CFTC report just minor changes in sentiment. Open interest has shown light decrease, while short positions has increased slightly. This information doesn’t confirm that action to 1.67 area could start right now and doesn’t exclude possible lower action to next support. As you know CFTC also prepares “legacy” report, that is a newer version and it shows not just “non-commercial” positions, but “asset-managers/Institutional”. Thus, this chart shows solid increase of short positions within previous 3 weeks – right after Scotland voting.
Non-Commercial Shorts:

Non-Commercial Longs:

Open Interest:

As you know CFTC also prepares “legacy” report, that is a newer version and it shows not just “non-commercial” positions, but “asset-managers/Institutional”. Thus, this chart shows solid increase of short positions within previous 3 weeks – right after Scotland voting.
Asset managers/Institutional shorts:

That makes us to be cautious on any possible upward action right now. And mostly suggests a bit deeper move and starting point of our B&B “Buy” on monthly chart.

Technical
Again – research on GBP, two cents on EUR. As we’ve said earlier EUR is interesting right now only on long term picture and our target is the same as we’ve specified it 3 weeks ago – 1.2170. So keep long-term shorts. In short term perspective as market is oversold on daily and weekly chart and has passed through all targets and Fib levels – use retracement for short entry and take profits at lows of former day/week, depending on your trading time frame. Right now we could monitor for possible DRPO “Buy” on daily EUR. But this will be weak DRPO – it has no support at the back. Actually – that’s all, nothing more interesting there right now.
So, GBP...
As we’ve said on previous week, Scotland referendum has made an impact and adjusted normal market’s behavior. Right now USD grow also presses on market. As political turmoil has gone to history market will try to correct the skew that was made by political impact. This in turn, could give us promising setups on different time scales. At the same time we agree that setups that we will discuss today mostly tactical, although they could last for considerable period of time. Also we understand that Scotland’s referendum has changed political sentiment and will lead to changes in domestic political process. The fact that political reasons were existed for referendum and referendum itself has happened – already is negative for Kingdom currency. That’s why we are not count that GBP will return soon at the same top as it was before referendum. You can see big drop in open interest before referendum – that was exit of big players, out from cable. It needs time to bring them back.
First of all take a look at long-term GBP chart. Here is long time 1.70-1.71 natural support/resistance area. Recall that before shadow of referendum has risen upon Great Britain – pound sterling was on nice upward march. BoE was at the eve of rate hiking and this has led to tremendous upside rally. In general market moves north longer than a whole year and has reached 1.70-1.71:

Rumors around Scotland voting have not appeared suddenly but previously they weren’t treated seariously as they should to. On autumn of 2014 public opinion surveys start to show that percent of “Yes” voters are not really small and approaches to 50%. And this has started to worry investors, forced them to leave cable and logically has led to negative impact on GB currency.
As political force was eliminated after voting – we see that market logically should return to previous action and at least return some previous looses. Besides, pure technical view suggests existing of previous upside momentum that has not dissapeared but was temporally muted by political mess. This leads to appearing of monthly DiNapoli B&B “Buy” setup, as it is shown no second chart:

On previous week I’ve missed to look at yearly pivots, and now we see even better picture. In the beginning of the year market has tested YPR1 and now stands at YPP. So, we have not just 50% Fib support.
According to B&B rules market has to reach some significant Fib support level within 3 periods of closing below 3x3 DMA. Although we previously expected that B&B has chances to start from 3/8 Fib support, but this has not happened. But following to rules – market can start B&B as from 50% Fib level as from 5/8.The major condition - this level has to be reached within 3 periods after 3x3 DMA has been crossed. And you can see that October is a third period. Hence – we know that B&B will start in October, but we do not know from which level – 50% or 5/8. Right now GBP stands at 50% support. As we’ve find out existing of YPP – situation has changed and chances on upward action right from here increases.
The target of this pattern is 5/8 Fib resistance of total move down after thrust up. As you will see later - right now this is 1.6717 area.
Although B&B is very reliable pattern because it is based not on some trader’s view or opinion or some men-invented patterns, but on real market mechanics, sometimes it still could fail. That’s why reaching of strong support and completion of other conditions are not enough to take position. Since this is monthly pattern – upward action should be visible on lower time frames and probably should start from some clear upside reversal pattern on daily chart. Advantage of this one B&B stands also with its political background – there was a “problem” that now is mostly gone, although some consecquences probably will remain. Anyway this should let market to return previous positions, at least partially and 5/8 upside retracement looks really as a mite and rather realistic target.
Previously we have been able to verify the need for a reversal pattern. If we took a long position blindly, only with the support - we would now be in a very uncomfortable situation.
Weekly

On weekly chart trend is bearish. We do not have many clues here. Previously we’ve mentioned high wave pattern that has appeared right after voting and we’ve said depending on breakout direction market will follow in the same one. In fact, right now we have simple task – understand from which level B&B will start. Right now here is GBP at MPS1, YPP and 50% support, level of oversold coinsides with 5/8 Fib level. Recent week mostly was inside one, attempt to move higher was shallow and has not changed the view on weekly chart.

Daily
Here we have two moments to discuss. First one is untouched 1.27 extension of butterfly pattern. Now we understand why this has happened – mostly due reaching of YPP that brings strong additional support to market.
Second – take a look that we’ve got bullish grabber that could get absolutely special meaning right now. Previously we mostly stand on point that downward continuation is more probable that starting of B&B right from 50% support. Right now – odds change in favor of second scenario and appearing of stop grabber could be valuable advantage. This is not the type of grabbers that we prefer to trade but may be we do not need it to, since we already should have long position as we’ve discussed in our weekly research. That was the first stage in our plan by the way. But grabber could serve as some kind of indicator. If market really will start move up with B&B, then grabber probably will survive. Conversely, taking out of grabber’s lows will suggest that upside action has not started yet. If you want you can trade grabber separately as independent pattern. This is also not forbidden. But again, for us the major value of this grabber is in possibility to take long position, but to get confidence with current upward action, or get warning on possible downward continuation.
By the way, in fact, on daily we had another B&B “Sell” that was completed…

4-hour
When we speak on “long term” pattern on big picture and then talk on “extended” reversal pattern that could be the trigger of monthly B&B – we assume particularly what we’ve said. Thus, on 4-hour chart we see butterfly and it is “extended” one by itself. But take broader view – we could get reverse H&S that could become true reversal pattern and current butterfly will be just a part of it. Besides, we already in this trade.
4-hour chart shows tactical riddle. If grabbers will work – market should turn to some sort of AB=CD that has target right at daily overbought. If this will not happen and market will drop to 1.5950 lows – action to 1.5750 will become more realistic. That’s being said coming week will be mostly tactical, we continue to hold longs, and watch what will happen with grabber and AB=CD...

Conclusion:
So, we are tempted by appetite setup on monthly chart of GBP that looks promising, at least right now. Since this pattern is forming on big picture – it could lasts for weeks and particularly by this reason it looks attractive. Currently we’ve estimated the target of this pattern at 1.6717
In shorter-term perspective situation is relatively positive. Since we already have long position, we’ve found that market stands on Yearly Pivot as well among other support indicators; cable has not bad chances to start upward action from here. On coming week we mostly will watch for tactical issues – whether market will turn to upside AB=CD or continue move down.


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]

Good morning,

Reuters reports dollar rebounded modestly against the yen and euro on Tuesday following steep falls overnight, although risk aversion amid the fall in global equities and uncertainty on the timing of Federal Reserve interest rate hikes put a firm cap on the currency.

The greenback suffered a heavy blow overnight against the safe-haven yen as Wall Street took large hits, with the S&P 500 slide to a five-month low.

"There is some bargain hunting for the dollar but it looks poised to test further lows against the yen for the time being. With U.S. stocks falling this much, risk-off bids for the yen stand out," said Shinichiro Kadota, chief Japan FX strategist at Barclays Bank in Tokyo.

The dollar also attracted demand when global growth concerns began to sour a while back, but sliding U.S. equities have accentuated the 'risk-off' bids for the yen, Kadota said.

Weak signals from Germany, the euro zone's largest economy, and signs of uneven growth in China have contributed to recent global growth concerns.

Global equities slid in the face of these concerns, with the widening Ebola epidemic further undermining risk sentiment.

Federal Reserve officials warned at the weekend that if the global recovery stumbled, it could delay an increase in U.S. interest rates.

Expected divergence between U.S. monetary policy and those of the euro zone and Japan was a key ingredient fuelling the dollar's surge to a two-year high versus the euro and six-year peak against the yen at the start of the month.

With Germany's economic outlook and its potential impact on the Fed's views on the global economy in recent focus, the currency market will scrutinise Germany's ZEW sentiment index and euro zone industrial output due later in the session.

"Deteriorating economic conditions are to be expected, but worse-than-forecast numbers will weaken the euro and also exacerbate the dollar/yen fall by taking equities and U.S. yields lower," said Masafumi Yamamoto, market strategist for Praevidentia Strategy in Tokyo.



Today we will take a look shortly as EUR as on GBP. On EUR we have some tactical setup. As we've suggested, market has shown retracement right to 50% FIb level, that is also OB, WPR1 and target of engulfing. Yesterday market again has tested this area and has formed bearish Stretch pattern - combination of OB and Fib resistance:

On 4-our chart this could lead to re-testing of 1.2650 area at minimum - 0.618 AB-CD down and trend line support, or even to AB=CD:

If market will hold above 1.2650, then, theoretically it could form butterfly "sell". Let's keep an eye on this chance as well.

On GBP - market gives more and more signs that comfirm our initial thought on possible downward continuation. Daily chart now clearly shows bearish dynamic pressure that suggests taking out of recent lows:

Overall action on intraday charts also does not look like reversal, very choppy and has no thrusting action. Besides, recently we've got bearish grabber here as well, and market now stands below WPP. This suggests downward action. Also we could get here minor butterfly "buy:

 

[Sive Morten]

GBP/USD Daily Update, Wed 15, October 2014

Good morning,


Reuters reports euro wallowed on Wednesday after disappointing data out of Europe knocked the single currency, lifting the dollar index to a one-week high.

Adding to the gloom, China's inflation rate slowed more than expected in September to a near five-year low, heightening concerns that global growth is cooling and raising the pressure on governments to take bolder measures to shore up their economies.

The dollar also gained on the yen, whose status as a perennial safe-haven favourite is gradually fading.

"It's a different scenario than it was before, when the yen usually gained in risk-off environments on safe-haven bids," said Ayako Sera, senior market strategist at Sumitomo Mitsui Trust Bank in Tokyo.

Higher import costs resulting from a weaker currency has in turn eroded Japan's balance of trade, further undermining the yen.

Japanese Economics Minister Akira Amari said in parliament on Wednesday that the government is not pursuing a policy to intentionally weaken the yen, and that it is necessary to monitor any negative impact from rising import prices.

It pulled away from a nearly one-week high of $1.2770 on Tuesday, after a closely watched ZEW survey showed German analyst and investor morale fell below zero for the first time in nearly two years in October.

Also on Tuesday, the German government cut its growth forecasts, euro zone industrial production fell, and Fitch warned it may cut France's credit ratings, saying the outlook for the country's economy had deteriorated.

Those factors added to worries about global growth at a time when the U.S. Federal Reserve is unwinding its massive stimulus programme and preparing to raise interest rates at some point.

"ECB President Mario Draghi will have more opportunities to convince markets of the ECB's resolve when he delivers remarks at two different conferences Wednesday," analysts at BNP Paribas wrote in a note to clients.

"Euro zone 5y5y (5-year forward, 5-year breakeven)inflation expectations fell to a new low of 1.8 percent, suggesting the ECB has an uphill battle ahead. We continue to expect further easing measures in Q1, and would look for ECB officials to continue to stress willingness to do more if necessary," they said.

Sterling also came in the cross hairs of sellers after data on Tuesday showed British inflation slowed in September to its lowest level in five years, prompting markets to push out the likely timing of an interest rate hike by the Bank of England.

The lack of inflationary pressure across many developed economies, helped in part by a 26 percent slide in oil prices since June, has knocked government bond yields lower.

Even with the Fed on track to wind up its bond-buying programme soon, the 10-year Treasury yield has dropped back below 2.2 percent, reaching 16-month lows. Normally, that would dampen the allure of the greenback.


Today again we will take a look at GBP. Our suspicious on recent upward action has been confirmed by yesterday's plunge. The last question that we have right now is how far market could fall and whether it will reach next major Fib support at 1.5750 as we've suggested in our weekly research.
Here we can point on some important moments. Yesterday's drop was fast, market has passed through solid support area that was MPS1, 50% weekly 50% fib support, daily oversold and YPP~1.5990, although market still stands close to it:

Anyway, plunge was fast...
By taking a look at 4-hour chart we see multiple targets right around 1,5750 area. Big and small butterfly 1.618, downward AB-CD target. Moving to 1.27 target was fast and usually this leads to action to next extension level, if even some retracement will happen.

That's being said, our conclusion stands that odds stand mostly in favor of action to 1.5750 monthly fib support rather than immediate reversal.

 

[Sive Morten]

EUR/USD Daily Update Thu 16, October 2014

Reserved for update 3


Reuters reports dollar was sharply lower on Thursday, its appeal deeply dented after poor U.S. data added to growth concerns that sent equities tumbling and Treasury yields plunging.

Already on shaky ground after being buffeted by growth concerns over the past few sessions, a string of downbeat economic data including weak retail sales and manufacturing activity numbers dealt Wall Street a fresh blow overnight, sending the S&P down by as much as 4.4 percent at one point.

Safe-haven U.S. Treasuries rallied in response, with the poor data further diminishing prospects for an early rate hike by the Federal Reserve. The benchmark 10-year yield momentarily sliced below the 2 percent threshold to a 17-month trough.

"There are those out there buying the dollar on dips, but it is difficult for them to commit themselves unless U.S. equities first recover and stop the decline in Treasury yields," said Junichi Ishikawa, a market strategist at IG Securities.

"There was a fair number of long positions on the dollar that had built up and the recent volatility has provided a good opportunity for fast money accounts to clear out their positions before their books close in November," he said.

Factors including poor data, seemingly dovish views expressed at September's Fed policy meetings and worries of a slowing euro zone recovery weighing on the global economy have since curtailed such expectations.

"It is a tough time for dollar bulls. Even prospects for a rate hike by the Bank of England are being pushed back. It's prompting a rethink on the whole concept in which higher rates in the UK and U.S. contrast with low rates in the euro zone and Japan," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

The common currency, battered by prospects of the European Central Bank easing monetary policy further to stave off deflation in the euro zone, had stooped to a two-year low of $1.2500 earlier this month before the dollar's fortunes took a turn for the worse.

The currency market will once again brace for U.S. data, such as September industrial output and weekly jobless claims due later in the session, and their impact on equities and Treasuries.



Today we will take a look at EUR, but mostly on tactical 1-2 session perspective, since we probably need some more time to calm market down. Right now investors stunned by too much inputs - oposite directions of Central bank courses in EU and US, suprising negative data accross the world - China, Germany, recent US, Ebola spreading, unclarity with geopolitical tensions around the globe. This makes overal situation very difficult.

In tactical perspective we should be ready for downward retracement o EUR. Market has hit daily overbought and it is possible bounce down to 1.2712-1.2740 K-support area. This also could be some kind of Gartley "222" Sell pattern:

On 4-hour chart we simalteniously have multiple patterns. Thus, we've got upward AB=CD, that has not completed yet, 3-Drive "Sell" (completed) and Butterlfy "Sell"

As you can see market slightly has not completed AB=CD and Butterfly patterns. It seems that this has happened due daily overbought. Still, as thrust up yesterday was really strong, by upside momentum market could try to reach this targets first and start retracement second.
Still, when you deal with nervous market - you can't be sure with anything. That's why if you will decide to trade this setup, think about scale-in. Partially here, and partially if market still will reach 1.29 area.

 

[Sive Morten]

EUR/USD Daily Update Fri 17, October 2014

Good morning,


According to Reuters news yen was off its recent highs on Friday after another choppy session overnight where some calm returned to Wall Street thanks to encouraging U.S. data that helped take the edge off global growth jitters.

Also aiding risk sentiment, the head of the St. Louis Federal Reserve Bank, James Bullard, said the U.S. central bank may want to keep up its bond buying stimulus for now given a drop in inflation expectations.

His comments came after data showed the number of Americans filing new claims for jobless benefits fell to a 14-year low last week and industrial output rose sharply in September.

"Wall Street halting its slide has helped the dollar for now, but it's difficult to say whether risk aversion has gone away. I see it more as a natural rebound by the dollar," said a trader at a large Japanese bank in Tokyo.

"The dollar fell so much against the yen that it was bound to bounce some time. However, Treasury yields are still so low that any rise by the dollar is likely to face resistance and peter out," he said.

After steadying Wall Street tempered rallying bonds overnight, the two-year Treasury yield was a shade higher at 0.347 percent , edging away from a 17-month low of 0.244 percent hit mid-week.

The yield, which offered almost 0.60 percent at the start of this month, was still on track for a 10 basis point drop on the week.

"It was largely a cool-down session, spiced up by solid U.S. data and a surprisingly dovish comment from Fed member Bullard," analysts at CitiFx wrote in a note to clients.

Sentiment for the euro, however, remained fragile following yet another selloff in peripheral euro zone bonds overnight and a disappointing auction of Spanish debt.

Borrowing costs for some of the bloc's most highly indebted southern states shot higher for a third session as confidence that the European Central Bank could avert another debt crisis in the bloc appeared to have waned.

Data on Thursday showed deflation in Greece, Spain, Italy, Slovenia and Slovakia and the overall euro zone inflation stuck in the ECB's 'danger zone' for a 12th month.

Investors seemed to have found some comfort in sterling as they sold the euro, helping the British currency gain broadly overnight.

Later in the day, European Central Bank member Benoit Coeure speaks on 'Have we learnt anything from the crisis' and Federal Reserve Chair Janet Yellen will speak about 'Economic opportunity' at separate events.

Yellen will be in particular focus after media reported this week that the Fed chief had expressed confidence in U.S. recovery.


Currently market will be watch for two major points. What Yellen will say and whether any consequences will follow after Bullard's hints. Second - earning reports of US companies. If they will confirm positives shifts in US economy, then, market will calm down a bit.
Thus, currently we do not see any solid setups across the board and will take a look at EUR again.
YEsterday we said that EUR could show retracement right to K-support area, but it has not completed intraday AB=CD. Right now it seems that EUR will do both targets. Retracement yesterday has happened and as return back was fast - today probably we will see reaching of upside targets.
Still, currency stands at overbought. That's why upside action will be limited and just slightly could exceed recent highs. Probably some small reversal pattern (may be it will be butterfly as it is shown on hourly chart)
will be formed at top, right around AB=CD completion point:

 

[Synchronicity]

Thanks as ever Sive.

As the Scottish referendum fades into the past there is increasing focus on the far right UKIP. They have just won their first seat in Parliament and look poised to have a serious impact in the next general election which will be in May 2015 unless called earlier.
Even if they don't win a lot of seats they are likely to push the main parties to the right in an effort to avoid losing votes.

This is likely to build up over time but watch out for minor earthquakes along the way!

All the best

Michael

 

[stelore]

Dear Sive,
I entered long a bit later and market took my stop for 1 pip...........

I hope we'll get another chance to enter!

Thanks for all again.

 

[ochills]

MY Commander in pips,
Thanks as usual.
Now am back to carefully listen, read and watch the Master as he dissect the market and roll the dice for green.
Thanks commander in pips.

 

[lobotrader]

Hello Sive

you could not follow F1 even though it happened in Sotchi ... first time ever in Russia because you rather worked to share your view of the markets with us ... I thank you for that

Following you for months and so much to learn from you ...

EURUSD main trad direction short targetting 1,21xx and GBPUSD main trade ..... Long (to be confirmed) .... targetting 1,67xx .... similar 500 PIP´s both the EUR and the GBP ...

But isn´t it the USD which will make the prices change ? EUR and more not the GBP will be like "feathers in the wind" compare to the USD .

View Friday last week, 3rd of Oct ... USD blew all , the EUR , GBP , Gold Silver all reacted the same ....

Guess my questions is ... I understand that the GBP and EUR are some different to one the other, only a bit familiar .... but is difference amongst both
that dominant, that one could be trade long with the USD whilst the other trends short ?

My view probably being very naiv , you might help me out please and explain a bit or have some links to read more for better understanding ?

Thanks once more
Lobo

 

[Sive Morten]

Hello Sive

you could not follow F1 even though it happened in Sotchi ... first time ever in Russia because you rather worked to share your view of the markets with us ... I thank you for that

Following you for months and so much to learn from you ...

EURUSD main trad direction short targetting 1,21xx and GBPUSD main trade ..... Long (to be confirmed) .... targetting 1,67xx .... similar 500 PIP´s both the EUR and the GBP ...

But isn´t it the USD which will make the prices change ? EUR and more not the GBP will be like "feathers in the wind" compare to the USD .

View Friday last week, 3rd of Oct ... USD blew all , the EUR , GBP , Gold Silver all reacted the same ....

Guess my questions is ... I understand that the GBP and EUR are some different to one the other, only a bit familiar .... but is difference amongst both
that dominant, that one could be trade long with the USD whilst the other trends short ?

My view probably being very naiv , you might help me out please and explain a bit or have some links to read more for better understanding ?

Thanks once more
Lobo

Hi Lobo,
There are some points that we should mention here. First of all, 1.21 on EUR is long-term target on monthly chart, but it absolutely does not mean that market should go straight forward immediately. Bounces and minor rallies could happen, right?
Second clue is volatility. GBP has greater volatility and it can show stronger action although it could be in the same direction. IT means that some retracment could happen, but GBP will pass greater distance and hit our 1.6750 target, while EUR will show smaller retracement. After that they may go down together...
We just have a bit different patterns on EUR and GBP, may be they will move together, but it could turn so, that EUR has major downward AB=CD pattern, while GBP pattern could be just tactical retracement within major downward action. Do not know how to describe better.