Sive Morten
Special Consultant to the FPA
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Fundamentals
(Reuters) The dollar on Friday posted its best weekly performance in more than seven months after strong U.S. retail sales and producer prices data for September reinforced expectations the Federal Reserve would raise interest rates in December.
The U.S. currency briefly trimmed gains versus the Japanese yen and euro after Fed Chair Janet Yellen said the U.S. central bank might need to run a "high-pressure" economy to reverse damage from the last financial crisis.
Her view of the economy did not alter expectations for a December rate hike, analysts said.
"Yellen's comments were more about the Fed looking down the road, and her concerns about the last financial crisis shed light on why the Fed has been so hesitant to raise interest rates," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
The dollar index, which tracks the greenback against a basket of six major currencies, rose 0.4 percent to 97.935 .DXY. It was up 1.4 percent for the week and 2.5 percent for the month so far.
The safe-haven yen and Swiss franc fell versus the dollar after risk sentiment got a boost from Chinese data showing producer prices rose for the first time in nearly five years. That boded well for the global economy which has been battling the threat of deflation in recent months.
The U.S. retail sales data, which showed a 0.6 percent rise last month after declining 0.2 percent in August, supported the dollar's gains. Other data on Friday suggested a pickup in inflation, with producer prices rising broadly last month to record their biggest year-on-year increase since December 2014.
The minutes of the latest Fed meeting in September, released on Wednesday, prompted investors to raise their bets of a U.S. rate increase in December, to a 70 percent chance.
Against the yen, the dollar rose 0.3 percent to 104.03. It was up 1.2 percent for the week.
The euro fell 0.6 percent to $1.0992, after earlier hitting $1.0983, its weakest level since late July. It was down 1.6 percent for the week, its worst weekly performance since late February.
Guys, as US elections gradually becomes topic #1, here we put recent research on perspectives of Trump victory.
News in Charts| Trump Lite or Donald Dark?
by Fathom Consulting
The emergence of Donald Trump as a political force reflects a mood of growing discontent about immigration, globalization and the distribution of wealth. As a consequence, regardless of whether or not Mr. Trump prevails, the forces that have brought him this close to Presidency are likely to remain in place. Indeed, it is increasingly evident that public opinion across much of the Western world has shifted away from the integrationist ideals of economists, towards a belief in the benefits of isolationism — of cutting oneself off from the rest of the world.
The prospect of Mr. Trump becoming the next US President has alarmed many economists and investors. We reflect those concerns in our downside scenario, ‘Donald Dark’, in which Mr. Trump’s victory is part of a broader shift towards isolationism, throwing globalization into reverse and threatening both financial market turmoil and recession. However, it is doubtful whether Mr. Trump intends to fully deliver the programme that he has set out – which politician ever does? And even if he wanted to, we doubt that he could. Thanks to Mr. Trump’s pledge to cut taxes and increase government spending, we can even envisage a ‘Trump Lite’ world, where US GDP is a little higher than it might have been otherwise. This is illustrated in the chart above, and is the most likely of our two simulations.
Plenty of sound and fury
A number of checks and balances exist to prevent the US President from having free rein: new US laws need to be approved by Congress (both the Senate and House of Representatives), not just the US President. The Supreme Court has the power to overrule these laws if they are deemed unconstitutional.
Assuming Mr. Trump wins next month’s election, the Republicans would probably keep control of both the Senate and House. But even then, there is no guarantee that they will pass the laws necessary for Mr. Trump to push through his agenda.
The US President cannot remove Supreme Court judges, or heads of independent agencies such as the Federal Reserve. However, the President can nominate candidates for vacant positions, which must then be approved by the Senate.
Donald Trump’s agenda in brief
Mr. Trump has campaigned to improve the fortunes of US workers by reducing the US trade deficit and increasing US manufacturing employment. To do so, he has pledged to tear up or renegotiate existing trade agreements such as the North American Free Trade Agreement (NAFTA) and walk away from trade deals in the pipeline such as the Trans-Pacific Partnership (TPP). He has also threatened to slap tariffs on imports from China and Mexico to the tune of 45% and 35% respectively, after branding the former a currency manipulator.
Mr. Trump has said he would deport an estimated 11 million illegal immigrants, increase border patrols and build a wall between the US and Mexico. These policies would reduce US population growth and US GDP growth.
But Mr. Trump has proposed a number of pro-growth policies too. These include lowering energy costs (albeit at the expense of the environment), boosting labor participation by subsidizing childcare, cutting regulation, increasing government spending and cutting taxes. For these reasons, it seems, many US small business owners prefer Donald Trump to Hillary Clinton. Mr. Trump’s fiscal plans would cause US government debt to rise significantly; independent estimates range from US$2.6 trillion to US$9.5 trillion over ten years.
Trump Lite
In our central Trump scenario, which we call Trump Lite, nothing much changes. In this world, either Mr. Trump backs down on his more controversial proposals, or he is unable to pass the laws he needs to enact them. Accordingly, we assume only a small number of deportations and minor trade disputes with China and Mexico. Broadly speaking, business carries on as usual.
Less immigration and less trade would be bad for US GDP growth, but we think that Mr. Trump’s pro-business policies and fiscal package would offset this. Overall, we expect a small net positive boost to real US GDP in this scenario. Moreover, to the extent that Mr. Trump’s fiscal policies are inflationary, his victory may enable faster normalization of US interest rates. As we have highlighted in the past, we think that this would be good for the US economy.
Donald Dark
There is a risk that this all goes horribly wrong. The US President has relatively free reign to start a trade war by using existing US laws, thereby avoiding approval from Congress. A US President could, for example, slap tariffs and quotas on imports by invoking the International Emergency Economic Powers Act (1977) or sections of the Trade Act of 1974.
The legalities of these tariffs would be challenged in the courts by US firms and other countries, who are likely to retaliate. In short, things could get messy, with Mr. Trump’s presidency feeding the mood of isolationism and populist politics. It could also contribute to events such as a ‘hard Brexit’ and Marine Le Pen doing well in the French presidential elections, both of which would fuel concerns about the future of the European Union. In this world, we forecast a sharp fall in global trade, as well as a sharp slowdown in the annual rate of US population growth due to the mass deportation of illegal immigrants. US GDP falls sharply from baseline (the baseline in our simulation is the consensus implied path) and the global economy enters a 2008-style recession.
For all of Mr. Trump’s inflammatory rhetoric, we think that the most likely outcome of a Trump presidency would be something closer to Trump Lite. That said, investors should brace themselves for the risk of Donald Dark and hedge themselves against that outcome, where possible.
In either world, the US dollar appreciates
Assuming an initial risk-off reaction to a Trump victory, we think that the US dollar would rise due to safe haven demand. It may seem curious that the US dollar would benefit from safe haven demand, even though the US is the source of concern, but that is exactly what happened during the 2008 global financial crisis.
In the Donald Dark world, safe haven demand is likely to keep the dollar supported in the near- and medium-term. In our Trump Lite scenario, the initial appreciation of the dollar post-election may well be reversed, but as soon as it became clear that the US economy would continue to grow (indeed, grow faster than in our base case) the dollar would likely appreciate again. Higher US interest rates as a result of better-than-expected economic outcomes and higher inflation would also drive the dollar higher in the medium-term.
We also think that the US dollar would appreciate if Hillary Clinton wins, since US interest rates would climb faster than investors currently anticipate. Either way, in our view, now is a good time to buy the US dollar.
US Treasuries would also benefit from safe haven flows after a Trump victory. Under our Trump Lite scenario, we think that this would be short-lived, whereas in the Donald Dark world, Treasuries would continue to benefit from safe haven flows.
Equities fare very poorly under our Donald Dark scenario due to a significantly weaker growth outlook. Diminished trade results in a smaller economic pie, with labor’s share of that pie rising significantly due to greater bargaining power for workers as the available pool of labor shrinks. This is a double-whammy for equity holders who suffer from both a smaller pie and reduced share of that smaller pie.
In Trump Lite, the economy is a little bigger than it otherwise would be, although since labor’s share of income also rises in this world, equity holders are worse off than they would be in the consensus implied baseline (at least, before considering any changes to the US tax code).
Another way to benefit from a Trump victory is to hold a short position in either the Mexican peso or Mexican stock market going into the election. As our chart highlights, the Mexican peso falls and the Mexican stock market underperforms when Mr. Trump does well in the polls.
How did we get here, and where do we go next?
The emergence of Mr. Trump as a political force reflects a mood of growing discontent (in the developed world at least) about immigration, globalization, inequality and the benefits of free trade. Low earners in rich countries feel that globalization has not worked for them. Judging by the fall of labor’s share of income and the widening gap between the real income growth of the richest and poorest households, that concern may be valid.
Indeed, as Edward Luce from the Financial Times noted in a recent article, “if Mr. Trump loses it will be due to character – not because of his message”. The forces that have brought Donald Trump this close to the Presidency are akin to those unleashed by the Brexit referendum in the UK, and to those behind the rise of extremist parties across the developed world. Those forces are likely to remain in place whether or not Mr. Trump prevails.
Let me add 2 cents. Although many people could say - this is not the fact yet that Trump will win and may be all that you've said above is just one of possible scenarios, but I'm sure that Trump will become a president, if of course he will escape Kennedy's destiny. First is, Mr. Roldugin is world famous cellist, said that "Wise people have said me that Mr. Trump will become a president". Mr. Roldugin is a close friend of Mr. Putin and public person and it is impossible to suggest that he said that just occasionally.
Second - we have two hints from the past:
Trump will become a president. This is matrix, guys
. Here is screenshots of 2000 Simpson cartoon and real photo of Trump on stairs.
Here is screenshot from "Rage against the Machine" Matrix soundtrack clip:
Thus, Im sure that Trump will become a president. As a result, Trump will make an accent on inner US affairs and problems and will work to normalize all this mess that now stands in US after neo-colonisators rulling time. It means that all that Fathom have said about "Donald Dark" scenario could be closer to reality than we think.
COT Report
CFTC data shows scenario that we've talked about and would like to get last week. Indeed, speculative net short position has increased, EUR dropped, open interest has increased as well. Thus, new shorts have come to market. Classical bearish changes during last week:
View attachment 28038
Technical
Monthly
Last week EUR finally has turned to activity. Our bearish view starts to get real confirmation by market action. Thus, major picture that we see on the monthly chart is the same - important bearish reversal candle and flag-shaped consolidation within last 3-4 months that has been broken down recently. This combination doesn't look really bullish for EUR here.
Currently EUR stands at rather strong support area. This is lower border of downward channel and all-time 5/8 Fib support. Here EUR has formed Butterfly "buy" and it has reached first 1.27 extension here. Probably it needs some time to pass through this level and supportive fundamental background of US strength.
EUR is forming typical reversal candle in May. Price has moved above April top and closed below April's lows. It could not get extended continuation, but usually market shows downward continuation within next 1-3 candles.
Sometimes reversal candles lead to collapse, as it was on EUR around 1.40 area. Thrust down has started particularly by reversal candle in March 2014.
Speaking on big scale bearish signs, we have these ones:
EUR was not able to reach YPR1 and returned right back down to YPP. Following this logic next destination could be YPS1 right around parity and 1.618 butterfly target. This is just another destination point that we have here.
Appearing of reversal candle brings nothing good to bulls. Currently we can't precisely forecast the consequences of its appearing, but even minor results will bring some months of downward action inside current 1.04 -1.15 consolidation... Although potential bearish impact could be even stronger.
Finally we have another bearish sign that looks like bearish dynamic pressure. Take a look that although trend holds bullish - market shows inablitity to move up, even from strong support area. Next strong support stands precisely at parity and will become a culmination of downward action, since this level includes support line, YPS1 and butterfly 1.618 target. Brexit results hardly will bring prosperity to EU and probably will become another bearish driving factor for EUR. We aleardy see consequences of Brexit on GBP, so, some negative impact on EUR also will happen, this is just a question of time.
Finally expectation of rate hike in US in Dec and continuation in 2017 will make additional pressure on EUR/USD rate in medium-term perspective.
Also take a look at different behavior near low border of channel. Previously when market has touched it - it shows immediate upside pullback, it was V-shape reversal. Right now behavior is absolutely different, price just hangs on the border and shows no upside action. Any tight consolidation near trendline could become a sign of coming breakout.
Thus, based on monthly chart we could make two major conclusions. First is - real bullish trend will be re-established only when EUR will erase reversal candle and overcome its top above 1.16. Second, if EUR will still keep moderate bearish sentiment, downside potential hardly will be lower than parity, due recent Fed dovish adjustments to its policy for 2017-2018.
View attachment 28039
Weekly
Last month situation here was mostly "indecision", as market was keeping valid as bullish patterns as some bearish signs that now still exist here. Last week finally we've got some clarity and our suspicious about bullish perspectives were confirmed. EUR has dropped. Drop, as you can see was rather solid. Trend has turned bearish and grabbers have been erased.
As market is not at oversold here, it should continue downward action. On weekly chart our major AB=CD pattern starts right from the top. On Brexit drop market has completed it's 1.0 target, i.e. AB=CD, after that we've got upside 5/8 retracement and now EUR is re-established downward action. Since 1.09 target already has been hit, following the logic of AB=CD extensions, it should continue to next one, 1.618 target that stands around 1.06 area.
Also take a look that downward action could take the shape of butterfly with the same 1.0630 target, as 1.618 extension. In general, breakout of 1.09 area stands in a row with our daily analysis, since this is Head of our H&S pattern. As it has failed already, this process should be completed by drop through the head's low.
Daily
On daily chart last week sell-off was really strong. Market has shown response on butterfly 1.618 target that we were tracking last week, but this reaction was shy and Friday's collapse has followed then. Next daily target stands around 1.0930-1.0960 range. Here we do not have clear patterns. If EUR will show meaningful pullback on next week, may be to WPP - this could become chance to go short that we will monitor.
The question is whether pullback will happen after EUR will hit 1.0930 target or before that...
4-hour
Last week we've got neither B&B "Sell" nor DRPO pattern here. Actually this was a kind of B&B "Sell" Look-alike (LAL), since everything was looked like normal B&B except reaching of major Fib level. It seems that selling pressure was so strong that price wasn't able even to reach Fib resistance.
In the beginning of the next week we need to see signs of possible upward retracement and it should start by some bullish reversal pattern on intraday chart. For example, it could be 3 Drive "Buy". It's reversal point coincides with daily 1.618 target and this makes overall situation interesting. Also we could get simple 1.618 Butterfly instead of 3-Drive, but this will not change overall analysis. This is just different shape - how price will reach 1.0930.
If we will get this pattern and following upside retracement on daily chart, next step will be is to watch for chances to go short and sell the rally.
Please read conclusion carefully to avoid any misapprehension.
Conclusion:
Our long-term view mostly bearish for EUR, based on action that it shows around major support and due anticipation of more agressive Fed policy. Bearish view will be valid until market will stand below 1.16 top.
In shorter -term perspective our conclusion stands as follows:
- Watch for upside retracement on daily chart, at least to WPP;
- Use this retracement 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.
(Reuters) The dollar on Friday posted its best weekly performance in more than seven months after strong U.S. retail sales and producer prices data for September reinforced expectations the Federal Reserve would raise interest rates in December.
The U.S. currency briefly trimmed gains versus the Japanese yen and euro after Fed Chair Janet Yellen said the U.S. central bank might need to run a "high-pressure" economy to reverse damage from the last financial crisis.
Her view of the economy did not alter expectations for a December rate hike, analysts said.
"Yellen's comments were more about the Fed looking down the road, and her concerns about the last financial crisis shed light on why the Fed has been so hesitant to raise interest rates," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
The dollar index, which tracks the greenback against a basket of six major currencies, rose 0.4 percent to 97.935 .DXY. It was up 1.4 percent for the week and 2.5 percent for the month so far.
The safe-haven yen and Swiss franc fell versus the dollar after risk sentiment got a boost from Chinese data showing producer prices rose for the first time in nearly five years. That boded well for the global economy which has been battling the threat of deflation in recent months.
The U.S. retail sales data, which showed a 0.6 percent rise last month after declining 0.2 percent in August, supported the dollar's gains. Other data on Friday suggested a pickup in inflation, with producer prices rising broadly last month to record their biggest year-on-year increase since December 2014.
The minutes of the latest Fed meeting in September, released on Wednesday, prompted investors to raise their bets of a U.S. rate increase in December, to a 70 percent chance.
Against the yen, the dollar rose 0.3 percent to 104.03. It was up 1.2 percent for the week.
The euro fell 0.6 percent to $1.0992, after earlier hitting $1.0983, its weakest level since late July. It was down 1.6 percent for the week, its worst weekly performance since late February.
Guys, as US elections gradually becomes topic #1, here we put recent research on perspectives of Trump victory.
News in Charts| Trump Lite or Donald Dark?
by Fathom Consulting
The emergence of Donald Trump as a political force reflects a mood of growing discontent about immigration, globalization and the distribution of wealth. As a consequence, regardless of whether or not Mr. Trump prevails, the forces that have brought him this close to Presidency are likely to remain in place. Indeed, it is increasingly evident that public opinion across much of the Western world has shifted away from the integrationist ideals of economists, towards a belief in the benefits of isolationism — of cutting oneself off from the rest of the world.
The prospect of Mr. Trump becoming the next US President has alarmed many economists and investors. We reflect those concerns in our downside scenario, ‘Donald Dark’, in which Mr. Trump’s victory is part of a broader shift towards isolationism, throwing globalization into reverse and threatening both financial market turmoil and recession. However, it is doubtful whether Mr. Trump intends to fully deliver the programme that he has set out – which politician ever does? And even if he wanted to, we doubt that he could. Thanks to Mr. Trump’s pledge to cut taxes and increase government spending, we can even envisage a ‘Trump Lite’ world, where US GDP is a little higher than it might have been otherwise. This is illustrated in the chart above, and is the most likely of our two simulations.
Plenty of sound and fury
A number of checks and balances exist to prevent the US President from having free rein: new US laws need to be approved by Congress (both the Senate and House of Representatives), not just the US President. The Supreme Court has the power to overrule these laws if they are deemed unconstitutional.
Assuming Mr. Trump wins next month’s election, the Republicans would probably keep control of both the Senate and House. But even then, there is no guarantee that they will pass the laws necessary for Mr. Trump to push through his agenda.
The US President cannot remove Supreme Court judges, or heads of independent agencies such as the Federal Reserve. However, the President can nominate candidates for vacant positions, which must then be approved by the Senate.
Donald Trump’s agenda in brief
Mr. Trump has campaigned to improve the fortunes of US workers by reducing the US trade deficit and increasing US manufacturing employment. To do so, he has pledged to tear up or renegotiate existing trade agreements such as the North American Free Trade Agreement (NAFTA) and walk away from trade deals in the pipeline such as the Trans-Pacific Partnership (TPP). He has also threatened to slap tariffs on imports from China and Mexico to the tune of 45% and 35% respectively, after branding the former a currency manipulator.
Mr. Trump has said he would deport an estimated 11 million illegal immigrants, increase border patrols and build a wall between the US and Mexico. These policies would reduce US population growth and US GDP growth.
But Mr. Trump has proposed a number of pro-growth policies too. These include lowering energy costs (albeit at the expense of the environment), boosting labor participation by subsidizing childcare, cutting regulation, increasing government spending and cutting taxes. For these reasons, it seems, many US small business owners prefer Donald Trump to Hillary Clinton. Mr. Trump’s fiscal plans would cause US government debt to rise significantly; independent estimates range from US$2.6 trillion to US$9.5 trillion over ten years.
Trump Lite
In our central Trump scenario, which we call Trump Lite, nothing much changes. In this world, either Mr. Trump backs down on his more controversial proposals, or he is unable to pass the laws he needs to enact them. Accordingly, we assume only a small number of deportations and minor trade disputes with China and Mexico. Broadly speaking, business carries on as usual.
Less immigration and less trade would be bad for US GDP growth, but we think that Mr. Trump’s pro-business policies and fiscal package would offset this. Overall, we expect a small net positive boost to real US GDP in this scenario. Moreover, to the extent that Mr. Trump’s fiscal policies are inflationary, his victory may enable faster normalization of US interest rates. As we have highlighted in the past, we think that this would be good for the US economy.
Donald Dark
There is a risk that this all goes horribly wrong. The US President has relatively free reign to start a trade war by using existing US laws, thereby avoiding approval from Congress. A US President could, for example, slap tariffs and quotas on imports by invoking the International Emergency Economic Powers Act (1977) or sections of the Trade Act of 1974.
The legalities of these tariffs would be challenged in the courts by US firms and other countries, who are likely to retaliate. In short, things could get messy, with Mr. Trump’s presidency feeding the mood of isolationism and populist politics. It could also contribute to events such as a ‘hard Brexit’ and Marine Le Pen doing well in the French presidential elections, both of which would fuel concerns about the future of the European Union. In this world, we forecast a sharp fall in global trade, as well as a sharp slowdown in the annual rate of US population growth due to the mass deportation of illegal immigrants. US GDP falls sharply from baseline (the baseline in our simulation is the consensus implied path) and the global economy enters a 2008-style recession.
For all of Mr. Trump’s inflammatory rhetoric, we think that the most likely outcome of a Trump presidency would be something closer to Trump Lite. That said, investors should brace themselves for the risk of Donald Dark and hedge themselves against that outcome, where possible.
In either world, the US dollar appreciates
Assuming an initial risk-off reaction to a Trump victory, we think that the US dollar would rise due to safe haven demand. It may seem curious that the US dollar would benefit from safe haven demand, even though the US is the source of concern, but that is exactly what happened during the 2008 global financial crisis.
In the Donald Dark world, safe haven demand is likely to keep the dollar supported in the near- and medium-term. In our Trump Lite scenario, the initial appreciation of the dollar post-election may well be reversed, but as soon as it became clear that the US economy would continue to grow (indeed, grow faster than in our base case) the dollar would likely appreciate again. Higher US interest rates as a result of better-than-expected economic outcomes and higher inflation would also drive the dollar higher in the medium-term.
We also think that the US dollar would appreciate if Hillary Clinton wins, since US interest rates would climb faster than investors currently anticipate. Either way, in our view, now is a good time to buy the US dollar.
US Treasuries would also benefit from safe haven flows after a Trump victory. Under our Trump Lite scenario, we think that this would be short-lived, whereas in the Donald Dark world, Treasuries would continue to benefit from safe haven flows.
Equities fare very poorly under our Donald Dark scenario due to a significantly weaker growth outlook. Diminished trade results in a smaller economic pie, with labor’s share of that pie rising significantly due to greater bargaining power for workers as the available pool of labor shrinks. This is a double-whammy for equity holders who suffer from both a smaller pie and reduced share of that smaller pie.
In Trump Lite, the economy is a little bigger than it otherwise would be, although since labor’s share of income also rises in this world, equity holders are worse off than they would be in the consensus implied baseline (at least, before considering any changes to the US tax code).
Another way to benefit from a Trump victory is to hold a short position in either the Mexican peso or Mexican stock market going into the election. As our chart highlights, the Mexican peso falls and the Mexican stock market underperforms when Mr. Trump does well in the polls.
How did we get here, and where do we go next?
The emergence of Mr. Trump as a political force reflects a mood of growing discontent (in the developed world at least) about immigration, globalization, inequality and the benefits of free trade. Low earners in rich countries feel that globalization has not worked for them. Judging by the fall of labor’s share of income and the widening gap between the real income growth of the richest and poorest households, that concern may be valid.
Indeed, as Edward Luce from the Financial Times noted in a recent article, “if Mr. Trump loses it will be due to character – not because of his message”. The forces that have brought Donald Trump this close to the Presidency are akin to those unleashed by the Brexit referendum in the UK, and to those behind the rise of extremist parties across the developed world. Those forces are likely to remain in place whether or not Mr. Trump prevails.
Let me add 2 cents. Although many people could say - this is not the fact yet that Trump will win and may be all that you've said above is just one of possible scenarios, but I'm sure that Trump will become a president, if of course he will escape Kennedy's destiny. First is, Mr. Roldugin is world famous cellist, said that "Wise people have said me that Mr. Trump will become a president". Mr. Roldugin is a close friend of Mr. Putin and public person and it is impossible to suggest that he said that just occasionally.
Second - we have two hints from the past:
Trump will become a president. This is matrix, guys
. Here is screenshots of 2000 Simpson cartoon and real photo of Trump on stairs.
Here is screenshot from "Rage against the Machine" Matrix soundtrack clip:
Thus, Im sure that Trump will become a president. As a result, Trump will make an accent on inner US affairs and problems and will work to normalize all this mess that now stands in US after neo-colonisators rulling time. It means that all that Fathom have said about "Donald Dark" scenario could be closer to reality than we think.
COT Report
CFTC data shows scenario that we've talked about and would like to get last week. Indeed, speculative net short position has increased, EUR dropped, open interest has increased as well. Thus, new shorts have come to market. Classical bearish changes during last week:
View attachment 28038
Technical
Monthly
Last week EUR finally has turned to activity. Our bearish view starts to get real confirmation by market action. Thus, major picture that we see on the monthly chart is the same - important bearish reversal candle and flag-shaped consolidation within last 3-4 months that has been broken down recently. This combination doesn't look really bullish for EUR here.
Currently EUR stands at rather strong support area. This is lower border of downward channel and all-time 5/8 Fib support. Here EUR has formed Butterfly "buy" and it has reached first 1.27 extension here. Probably it needs some time to pass through this level and supportive fundamental background of US strength.
EUR is forming typical reversal candle in May. Price has moved above April top and closed below April's lows. It could not get extended continuation, but usually market shows downward continuation within next 1-3 candles.
Sometimes reversal candles lead to collapse, as it was on EUR around 1.40 area. Thrust down has started particularly by reversal candle in March 2014.
Speaking on big scale bearish signs, we have these ones:
EUR was not able to reach YPR1 and returned right back down to YPP. Following this logic next destination could be YPS1 right around parity and 1.618 butterfly target. This is just another destination point that we have here.
Appearing of reversal candle brings nothing good to bulls. Currently we can't precisely forecast the consequences of its appearing, but even minor results will bring some months of downward action inside current 1.04 -1.15 consolidation... Although potential bearish impact could be even stronger.
Finally we have another bearish sign that looks like bearish dynamic pressure. Take a look that although trend holds bullish - market shows inablitity to move up, even from strong support area. Next strong support stands precisely at parity and will become a culmination of downward action, since this level includes support line, YPS1 and butterfly 1.618 target. Brexit results hardly will bring prosperity to EU and probably will become another bearish driving factor for EUR. We aleardy see consequences of Brexit on GBP, so, some negative impact on EUR also will happen, this is just a question of time.
Finally expectation of rate hike in US in Dec and continuation in 2017 will make additional pressure on EUR/USD rate in medium-term perspective.
Also take a look at different behavior near low border of channel. Previously when market has touched it - it shows immediate upside pullback, it was V-shape reversal. Right now behavior is absolutely different, price just hangs on the border and shows no upside action. Any tight consolidation near trendline could become a sign of coming breakout.
Thus, based on monthly chart we could make two major conclusions. First is - real bullish trend will be re-established only when EUR will erase reversal candle and overcome its top above 1.16. Second, if EUR will still keep moderate bearish sentiment, downside potential hardly will be lower than parity, due recent Fed dovish adjustments to its policy for 2017-2018.
View attachment 28039
Weekly
Last month situation here was mostly "indecision", as market was keeping valid as bullish patterns as some bearish signs that now still exist here. Last week finally we've got some clarity and our suspicious about bullish perspectives were confirmed. EUR has dropped. Drop, as you can see was rather solid. Trend has turned bearish and grabbers have been erased.
As market is not at oversold here, it should continue downward action. On weekly chart our major AB=CD pattern starts right from the top. On Brexit drop market has completed it's 1.0 target, i.e. AB=CD, after that we've got upside 5/8 retracement and now EUR is re-established downward action. Since 1.09 target already has been hit, following the logic of AB=CD extensions, it should continue to next one, 1.618 target that stands around 1.06 area.
Also take a look that downward action could take the shape of butterfly with the same 1.0630 target, as 1.618 extension. In general, breakout of 1.09 area stands in a row with our daily analysis, since this is Head of our H&S pattern. As it has failed already, this process should be completed by drop through the head's low.
Daily
On daily chart last week sell-off was really strong. Market has shown response on butterfly 1.618 target that we were tracking last week, but this reaction was shy and Friday's collapse has followed then. Next daily target stands around 1.0930-1.0960 range. Here we do not have clear patterns. If EUR will show meaningful pullback on next week, may be to WPP - this could become chance to go short that we will monitor.
The question is whether pullback will happen after EUR will hit 1.0930 target or before that...
4-hour
Last week we've got neither B&B "Sell" nor DRPO pattern here. Actually this was a kind of B&B "Sell" Look-alike (LAL), since everything was looked like normal B&B except reaching of major Fib level. It seems that selling pressure was so strong that price wasn't able even to reach Fib resistance.
In the beginning of the next week we need to see signs of possible upward retracement and it should start by some bullish reversal pattern on intraday chart. For example, it could be 3 Drive "Buy". It's reversal point coincides with daily 1.618 target and this makes overall situation interesting. Also we could get simple 1.618 Butterfly instead of 3-Drive, but this will not change overall analysis. This is just different shape - how price will reach 1.0930.
If we will get this pattern and following upside retracement on daily chart, next step will be is to watch for chances to go short and sell the rally.
Please read conclusion carefully to avoid any misapprehension.
Conclusion:
Our long-term view mostly bearish for EUR, based on action that it shows around major support and due anticipation of more agressive Fed policy. Bearish view will be valid until market will stand below 1.16 top.
In shorter -term perspective our conclusion stands as follows:
- Watch for upside retracement on daily chart, at least to WPP;
- Use this retracement 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.
