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Forex FOREX PRO WEEKLY, October 22-26, 2018

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Oct 20, 2018.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals

    This week EUR was driven by economical and technical factors and it has made price behavior more predictable. Market has hit all our targets. In general, long-term picture has not changed and major factors for EUR price action was short-term. The major one was EU/UK Brexit negotiations and rising concern on Italy national debt, of course. Previously we've mentioned that so called "Irish" border issue is a cornerstone of all Brexit problems. Now we hear the same said by politicians.

    As Reuters reports - The euro recovered from one-week lows against the U.S. dollar on Friday as investors took profits on bets against the currency, after it was burdened this week by concerns about Italy’s spending proposals and Britain’s plans to exit the European Union.

    The single currency had dropped after the European Commission on Thursday sent Rome a letter calling a draft budget an “unprecedented” breach of EU fiscal rules, the first step of a procedure that could end with Brussels rejecting the budget and fining Italy.

    The failure to reach a deal for Britain to exit the EU has also weighed on the euro and the British pound.

    EU negotiator Michel Barnier said a Brexit deal was 90 percent done, but also warned that failure to resolve the Irish border question could derail any agreement.

    It has been “quite a negative week for the euro, and I would say (it’s) drifting lower primarily because we’re no closer on Brexit than when we were at the start of the week,” said Greg Anderson, global head of foreign exchange strategy for BMO Capital Markets in New York.

    Closing out profitable trades, however, provided some support for the euro on Friday.

    “The market has added to shorts considerably during the week and so I’m not surprised that the down move ended today,” said Anderson, noting that traders are “taking profit on a short that’s worked for them.”

    Next week we have three major events. Bank of Canada rate decision, ECB meeting and US GDP 3Q preliminary report. All this stuff takes 5 stars of importance and could shake markets rather well.

    Speaking on Canada, chances that rate will be raised now looks better, mostly due Crude Oil price perspectives. You probably heard about Saudi Arabia turmoil with killed journalist and other stuff. Taking a wider picture, I see big political processes under cover of this event, which are promised to bring big problems to Saudi Arabia. Despite how situation will develop - either on hard way or soft one, any turmoil around oil kings will keep market in tension, which support demand on Crude oil. High price of major Canada export commodity, promised to support inflation, although now it stands at a bit lower levels that it was anticipated. That's why I think that rate has more chances to be increased, rather than kept intact.

    Reuters suggests mostly the same - the data is seen as unlikely to stop the Bank of Canada from raising interest rates again next week, though the inflation miss may make the central bank less likely to take a more hawkish view when doing so.

    “After the last meeting they discussed taking the word ‘gradual’ out of their communications and this cements ‘gradual’ will remain in communications,” Anderson said.

    On ECB we do not expect any rate change, but what Draghi will say on EU economy perspective is interesting. Mostly all attention will twist around mid 2019 assessment, because now this is main term, pointed by ECB, when first rate change is possible. Any hints on adjustments of this term could trigger strong action on EUR. But, I suspect with Italy turmoil on the back - M. Draghi will keep everything intact. IMO this is most probable scenario.

    US GDP is expected to be at 3,3% YoY basis, and based on the data that we've got in recent three months, this level looks achievable. Our regression GDP model shows that 70% of GDP value depends on Retail Sales data, which was good, on average. More eyes will be on PCE inflation, which expected to be at 2.1%.

    COT Report

    Despite strong rebound on Friday - overall sentiment doesn't look bullish on EUR. So, indeed it could be some profit taking. Net short position is risen. Although open interest has decreased, speculators have closed more longs than shorts. Closing of the shorts indeed confirms idea of profit taking, but, long closing gives warning hint that anticipation of EUR growth is phantom.
    We rare take a look at hedgers, but this time it makes sense to do this. Take a look hedgers simultaneously have closed shorts and open longs - they prepare for EUR drop. Hedgers take position in opposite direction to anticipated movement of the currency.

    upload_2018-10-20_12-20-5.
    Source: CFTC.gov
    Charting by Investing.com


    upload_2018-10-20_12-17-59.

    So, sentiment is not quite supportive for further EUR growth. Maybe due careful attitude to coming ECB meeting and anticipation of flat comments. We should be careful with taking any long position on EUR nowadays.

    Technicals
    Monthly


    Well, just I've decided to take a rest a bit and - look at it, what an activity on the FX forum thread. Great researches and updates, thanks to Stag and Deltoid.

    As on previous week, we do not have big changes on technical side of long-term charts by far. Trading range was narrow - August range holds action of September and October.

    Here I just want to share with you a single observation that lightly disturbs me. EUR - hangs upon 1.14-1.15 support area. After strong drop and spike down - no meaningful upside action has followed. This is not good sign for bulls. It's already 5 months of laying upon this area. As longer EUR will stand here as greater chances on downside breakout will be.
    This is indirect sign of weakness, when market can't jump out from strong support area. It means that strong level could support price from collapse but its effort is not sufficient to start bullish action. Day by day buyers will be washed out around this level and EUR could break it, if nothing will change. So, let's keep this issue in mind. It is not vital by far, but still first warning signs already exist.

    On monthly chart 1.14-1.15 area is strong and very important support, because it includes YPP. Since our fundamental background supports dollar strength within a year or so - downside breakout should happen sooner or later. 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.

    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. Also this is monthly 50% support 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_22_10_18.

    Weekly

    Weekly picture has not changed significantly. EUR keeps our major weekly support and has formed tweezers bottom this week. This is short-term bullish sign. Price also was able to hold above MPS1. This lets us keep
    bullish scenario intact by far. It will be valid until market stands above 1.1450 lows.

    Still, taking in consideration negative CFTC data, I would focus only on some short-term upside targets, just within a single week, without dreaming on 1.20 by far. So, I keep here the picture of our AB=CD pattern, but overall situation makes me have some doubts that this action indeed will happen.
    eur_w_22_10_18.

    Daily

    Still, guys, even with doubts on large weekly AB-CD - we have good patterns to be busy the whole next week on daily chart. There are two of them. First one is perfect bullish engulfing, which suggests AB=CD action on intraday charts, and it will the first one that we will deal with.

    Second is, as I said on Friday - Double Bottom. Although I would prefer to see W&R of previous lows, but I'm not upset too much with its absence. Potentially, this pattern suggests action to 1.18 K-resistance area. There will be big events on coming week, 400 pips is much for EUR, but, who knows...
    Anyway, we start with engulfing pattern and then it will be clear what to do with Double Bottom.
    eur_d_22_10_18.

    Intraday

    First of all, we've got B&B "Sell" setup that I've mentioned on Friday on 4H chart. Since our short-term context is bullish, we do not call you to trade it (although it is possible as well), but existence of B&B "Sell" hints on retracement down, that we need to catch for long entry:
    eur_4h_22_10_18.

    Here is what we're gonna do on Monday. On upside action EUR has completed XOP. It means that market stands at 4H Agreement resistance, which, as we've said, good foundation for B&B "Sell". B&B suggests drop to 5/8 support of 1.1470. In general, this action agrees with idea of daily engulfing pattern.

    Still, as you can see, here we have strong K-support and Agreement area around 1.1490. And retracement theoretically could finish there. That's why better way is to split your position in two parts. Take first half at OP around 1.1490 and, if market will drop more - second half at XOP and Agreement with 1.1470.

    BTW, 4H B&B could be triggered by 1H DRPO "Sell"... but this is very short-term scale already... for those who thinks about B&B trading... Good luck.

    Conclusion:

    Despite the fact that EUR keeps bullish picture by far, we have to acknowledge appearing new risk factors that could turn equilibrium later to bears again. They are non supportive short-term sentiment, suspicious silence on monthly chart and fundamental EU problems.
    Next week we mostly will focus on trading short-term daily patterns that we have.


    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.
     
    #1 Sive Morten, Oct 20, 2018
    Last edited: Oct 20, 2018
  2. Stag

    Stag Sergeant

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    The market is smart and the Euro finally found its bottom in five waves just one pip above the ultimate boundary of the bullish scenario. The extent and shape of the recovery underway from 1.1433 will determine whether wave (i) of a larger recovery (bullish case) or wave (a) of a minor correction (bearish case) is underway. The former would unfold in five waves and exceed 1.1621 in wave (iii), the latter would result in a three-wave (a)(b)(c) rebound that should end below 1.1621.

    On the short term, the advance's internal structure along with the Kennedy channels suggest at least one more new high is probable before the corrective setback starts towards the 1.149x - 1.147x area. As long as 1.1502 continues offering support against a pullback a poke above 1.1534 would signal a top is in place.

    Good luck for the coming week!
     
  3. Deltoid88

    Deltoid88 Private, 1st Class

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    Looks like corrective wave 2 is finished so that bullish wave 3 can start on EURUSD. Very nice long set up with good risk to reward ratio.

    EURUSDkH1.
    EURUSDkH4.
     
  4. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    Situation has turned from top to bottom just in one session, at least intraday picture. On daily bullish scenario is possible still. So, EUR shows not natural too deep action back inside engulfing pattern's body. This brings nothing good to bulls. Besides, yesterday we've got bearish grabber which suggests drop below recent lows.
    It seems that our worry about bearish sentiment was reasonable.
    These patterns, suggest drop below recent lows. The nearest target that we have is COP at 1.14 area. Bullish Double top is still possible, but market needs to show a kind of W&R and fast rally up from 1.14 target. If market will stuck below this level - chances will melt fast. That's being said, now we forget about longs and watching for short position which could be played within 1-2 sessions:
    eur_d_23_10_18.

    On 4H chart market could form Butterfly "buy" which will finalize downside leg. Its 1.27 extension coincides with daily COP at 1.14
    eur_4h_23_10_18.

    It means that on hourly chart we will be watching for some upside pullback. For example, we could get "222" Sell pattern somewhere around 50% or 5/8 Fib levels. At the same time retracement could be "V" shape, this will not change the core. Upside action could start by DRPO "Buy". This upside action could give us good entry area for taking short position with 1.14 destination point:
    eur_1h_23_10_18.
     
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  5. Stag

    Stag Sergeant

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    The Euro made a new high above 1.1534 as expected followed by a reversal. The decline off 1.1550 completed three waves at 1.1439 but there is no evidence a bottom is in. We have to see prices above 1.1476 to confirm it has. Note that any new low would negate the bullish scenario.
     
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  6. Deltoid88

    Deltoid88 Private, 1st Class

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    In my opinion bullish picture still intact. Yes, retracement is deeper then I expected, but that could just provide even better entry point for long position. COT report which Sive mention in his analysis probably creates this downward pressure, which if gets negated now, later would just provide stronger bullish action since many traders would end up on wrong end and stops would be triggered. I still think this is 5 wave up to zone above 1.1620.


    EURUSDkH1.
     
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  7. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    Picture has not changed significantly, tomorrow we will get ECB meeting, so hardly strong activity will happen today. Mostly I keep our expectations the same - drop at least to 1.14 area. Yes, ECB could change this scenario, but right now technical picture shows EUR weakness.

    Monday's drop back to the bottom is not a retracement IMO. Yesterday action confirms this - it is lazy standing above the lows with no upside impulse. This is not the price behavior of the market after retracement. Besides, don't forget about grabber that we have...
    So, on daily EUR could keep bullish perspective, if, it will show just spike down and fast return up within one session. A kind of W&R of previous lows. Otherwise, if price will stuck below the lows - this will be negative sign and tell that downward action will continue:
    eur_d_24_10_18.

    On 4H chart we still keep our butterfly "Buy":
    eur_4h_24_10_18.

    Here, on 1H our yesterday setup has been completed - we've got a bit steep but "222" Sell around 50% fib resistance:
    eur_1h_24_10_18.

    So, if you've got shorts - keep them, move stops to b/e. If you haven't - theoretically chance exists that there will be more harmonic "222" as well, so you could wait for it. Conversely, if market will start dropping below 1.1440-1.1445 lows - it will mean that drop is continuing and no higher pullback will be.
     
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  8. Deltoid88

    Deltoid88 Private, 1st Class

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    Obviously wave count was wrong. Here are my views what I think is going on right now on EUR.

    Primary scenario: I expect red wave B to end somewhere in rectangle zone, after that true bullish red wave C can start. Chasing long entry in 1.13-1.1385. This is going to be my trade set up.

    EURUSDkH4.

    Alternative scenario: if price break down 1.13 support, that would negate bullish scenario. If that happens I expect deeper drop below 1.12

    EURUSDkDaily.
     
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  9. Deltoid88

    Deltoid88 Private, 1st Class

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    It looks like short term bounce started, can it last? Probably not, probably more downside will follow before real bounce can start.

    EURUSDkH4harmonic.
     
  10. Deltoid88

    Deltoid88 Private, 1st Class

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    Update on wave count. 1.13 is not key support as I thought, red wave B can go all the way down to 1.10 where bounce to upside can happen and start of bullish red wave C. I think it is very probable that 1.12 level will be tested where important 61.8 fib is. Most probable reversal zone is 1.11-1.12.

    EURUSDkWeekly.
     

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