FOREX PRO WEEKLY October 27-31, 2014

[Sive Morten]

Monthly
Weekly FX Tading Report prepared by Sive Morten exclusively for ForexPeaceArmy.com
According to Reuters news The euro rose on Friday ahead of an official report on the health of the euro zone's main banks as investors continued a trend of covering their short-positions leading to buying of the currency against the U.S. dollar.
Despite Friday's weakness, the dollar is on track to close the week with a gain. Concerns about the first diagnosed case of Ebola in New York City, which stifled the dollar's rally late Thursday, have waned, strategists said.
The U.S. Federal Reserve will meet next Tuesday and Wednesday, and the consensus view is that it will wrap up asset purchases under its third round of quantitative easing.
A group of 25 banks have failed European stress tests, while up to 10 of those continue to have a capital shortfall, sources familiar with the matter told Reuters on Friday.
Bloomberg News first reported the results of the tests, which are due on Sunday. Currency strategists said this just added more fuel to the short-covering that has supported the euro's position.
"It is all speculation at this point and the ECB tried to remind us of that. It just highlights that this is a risk that is not as negative perhaps as was priced in," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto.
The euro zone's 130 biggest banks received the European Central Bank's final verdict on their finances on Thursday after a review aimed at drawing a line under persistent doubts about the health of the region's banking sector. They will not be made public until 1100 GMT on Sunday.
"The dollar rally has paused a bit here and I think one of the core reasons is a bit of added uncertainty as to how the Fed will react to the stronger dollar, and to the renewed worries about global growth concerns," said Brian Daingerfield, currency strategist at the Royal Bank of Scotland in Stamford, Connecticut.
The Fed's statement will be parsed for clues on how quickly the central bank might start raising interest rates, now not expected until late 2015.
"For the dollar to appreciate, you need the stock market to hold up in the face of a clean exit from QE3 by the Fed," said David Woo, head of global rates and currency research at Bank of America Merrill Lynch in New York.
Elsewhere, sterling rose to $1.6087 , up 0.37 percent. Third quarter gross domestic product data showed Britain's economy grew by 0.7 percent, down from 0.9 percent the quarter before, but in line with economists' expectations.

Investors’ interest still stands depressed on GBP, as trading volume of futures and options on CME as well as size of open interest still can’t restore previous levels. As investors participation on this part of FX futures market has dropped significantly, whether this information really shows clear picture? Anyway on recent CFTC reports most important is drop of short positions of speculators. Long positions also have decreased and all these contraction has led to drop in open interest. At the same time closing of shorts seems was more significant. We hope that this is a good sign for our monthly upside trade.

Non-Commercial Longs:

Open Interest:

Technical
Before we will continue discussion of cable – couple of words on EUR. We’ve checked it and currently do not see anything special. One thing that is worthy of our attention on coming week are stop grabbers on daily chart, that potentially could lead to appearing of upside AB=CD. That’s all. On monthly chart we do not see neccesity for comments – our target still stands ~ 1.21 Beside, EUR right now stands in the center of turmoil and is hit from all sides – inner domestic problems, geopolicy, etc. In fact EUR discussion demands separate research, but it will have shy relation to trading directly and will stand on long perspective. That’s why we probably will finish our B&B on GBP despite how it will end, and then turn to something else. Because here we’re mostly for trading but not for dry economical and political discussions, right?
In general, situation on monthly chart has not changed. Pound has closed just few pips lower compares to previous week. Our recent comments are still valid.
As we’ve said, Scotland referendum has made an impact and adjusted normal market’s behavior. Right now USD growth 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.
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:

In the beginning of the year market has tested YPR1 and now stands at YPP. So, we have not just 50% Fib support. And by result of previous week we see that YPP has suported market and led it to bounce higher.
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. Besides, thrust here is not tremendous – just minimum required number of candles up. 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 consequences 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. And still we will expect pattern that will let us to step in.
Weekly

Previously we’ve said that appearing of bullish hammer pattern could be the one that we awaitng for, especially taking in consideration that GBP stands at MPS1, YPP and 50% support. This pattern has not failed, as lows were kept untouch. Until it holds – chances on upward action will exist. Thus, gradually support area becomes more and more solid and there are real chances that upside bounce could start somewhere around.
Last we’ve got this high wave pattern. From one point of view it could be treated as retracement after hammer pattern. This is common thing, when market shows either hammer or bullish engulfing pattern. From another point of view high wave pattern is not a directional one. It indicates temporal equilibrium or indecision on market. And further direction mostly will depend on side of breakout.

Daily
So what do we have now? Market stands at strong support and has formed weekly bullish hammer pattern. On daily chart trend has turned bullish and MACD shows nice divergence right at support area. Also we have 1.27 Butterfly “buy” pattern. So all these factors point that may be we particularly this area could become the foundation for 1.6717 journey due monthly B&B “Buy” pattern.
“2-step forward, 1-step back” pattern has not been broken totally yet, but market has not created lower low again. Wedge pattern also has not been broken yet, but price coiling right around its border. Still we can’t be disappointed because market mostly has accomplished two initial steps of our trading plan. First, it has tested WPR1 on previous week and by this action has confirmed our confidence in shape of reverse H&S. Second – returned right back down and formed bottom of potential right shoulder. Next week probably will become a moment of truth and we will understand whether B&B will take start from our H&S or not.

4-hour
Our reverse H&S takes more and more clear shape. Still this picture just shows what could happen if reversal really will come. Pattern is accompanied by butterfly and this pattern very often becomes a part of H&S.
As we’ve said retracement down to right shoulder’s bottom will be our major point where we think about taking long position. Simultaneously this will be retracement back in the body of weekly hammer. That we have right now, in fact.
Alternative scenario is 3-Drive “buy” pattern but it suggests failure of weekly hammer and deeper downward action to next weekly support area. This scenario is also probable due some reasons as we’ve said above – but we’ve discussed it in details on previous week.

1-hour
On Friday we’ve said that market has chances to show another leg down, as there were some signs of weakness. Still, on GBP data market has rebound and shown upside action. Cable will open around WPP and here we will have to watch what will happen. We would like to see upside action and moving above WPP. It seems that we can search chances for taking long position as we still stand near bottom of right shoulder of our pattern. Stop probably should be placed below WPS1. If market will break it then it will put under question H&S itself, since it will be failure of the right shoulder. Usually market moves to bottom of the head then.

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 the importance and strength of support area and bullish signs that have appeared around it tells that may be B&B has started. Thus, on coming week we will search chances on taking long position. Major area to monitor is WPS1 and lows of right shoulder. They should hold to keep H&S pattern valid. Breaking below this area will vanish H&S and will force us to sit on the hand and wait new signals from the market.


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]

EUR/USD Daily Update Tue 28, October 2014

Good morning,


Reuters reports dollar nursed modest losses on Tuesday, having slipped overnight after soft economic data tempered risk appetite and pushed safe-haven U.S. debt yields lower.

Expectations of more dovish comments from the Federal Reserve, due to kick of its closely-watched two-day policy review later in the session, also weighed on the greenback.

The dollar was lifted earlier on Monday after a closely-watched Ifo report showed German business sentiment in October hit its lowest level in almost two years.

But support for the U.S. currency faded after weaker-than-expected U.S. housing data was released later in the session, pushing Treasury yields lower.

Data also showed U.S. services sector activity slowed in October to a six-month low, while manufacturing output in Texas dipped, pointing to some moderation in economic growth early in the fourth quarter.

The soft data reinforced expectations that the Fed will reassure markets that any interest rate hikes are a long way off even as it ends its massive bond-buying stimulus.

The Fed kicks off its policy review later on Tuesday and is all but certain to announce the completion of its quantitative easing program when it wraps up its two-day meeting.

"Trade overnight had a very distinctive feeling of 'wait and see'," said Evan Lucas, market strategist at IG.

"With the end of the asset purchase program a foregone conclusion, speculation is once again mounting about the movement of interest rates."

But with U.S. inflation weak, the European economy stumbling and the dollar on the rise, markets are keen to see if Fed officials will acknowledge risks to their expectations that the U.S. recovery will continue to strengthen.

Sweden's Riksbank, another central bank under pressure to support its economy, was widely expected to announce stimulus steps later in the day and join peers with rock bottom rates already in place amid flagging demand from the euro zone.

The Riksbank is seen slashing its main interest rate, the repo rate, from 0.25 percent to a record low just above zero to fight stubbornly low inflation.

Looser monetary policy in the euro zone, which is Sweden's most important trading partner, generally spells a stronger Swedish crown versus the euro, adding to the downward pressure on inflation.

"The Swedish economy is in a very tough situation as it depends heavily on external demand. It has to try and alter currency levels to address this, but since such methods are considered taboo among developed economies, it has to accomplish its aim through monetary easing," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

Asia and Europe have little to offer in terms of market-moving economic data on Tuesday, leaving the focus on U.S. durable goods data due later in the day.



So, as you can see from the comments - market indeed is mostly flat and lazy. Thus, today we will just take a look at tactical issue that we've mentioned briefly on our weekly research.
Today we will need just daily chart of EUR. If you do not like EUR - you can see this scenario on CHF as well. They are almost similar but in opposite directions.

On daily chart we see that market has formed bullish grabber that suggests taking of previous highs. Potentially this could lead to either 0.618 or 1.0 AB=CD pattern. At the same time we see that strong resistance hardly will let market to reach highs immediately. Thus, WPR, MPP and daily overbought stand around 1.30 area. This probably will be first destination if any upside action will happen.
This is obviously to suggest that Fed meeting will be the trigger as investors expect dovish comments that could lead to temporal weakness of the US dollar. This will let EUR to reach grabber's targets...

 

[Sive Morten]

GBP/USD Daily Update, Wed 29, October 2014

Good morning,

Reuters reports held steady on Wednesday ahead of the latest guidance from the U.S. Federal Reserve, with the Fed seen likely to wind down its bond-buying stimulus, but taking a cautious tone on raising interest rates.

The Fed is all but certain to announce the end of its massive bond-buying stimulus when it wraps up a two-day policy meeting on Wednesday.

But the U.S. central bank is also likely to reassure markets that any interest rate hike is still a long way off with U.S. inflation weak and the European economy stumbling.

"To be honest I think a lot of risk has been taken off the table into this meeting, hence the recent ranges," said Jeffrey Halley, FX trader for Saxo Capital Markets in Singapore.

Any deviation from the prevailing market expectation for the Fed meeting could trigger a strong move, he added.

Data on Tuesday showing a big drop in demand for U.S.-made capital goods certainly gave dollar bulls nothing to celebrate as it offered further evidence the economy may have cooled.

Over the past couple of weeks, a recovery in global equities and investor risk sentiment has weighed on the safe-haven yen, helping the dollar bounce back from a one-month low near 105.19 yen touched in mid-October.

The Fed will probably maintain a pledge to keep interest rates near zero for a "considerable time" when announcing an end to its bond-buying stimulus programme, said Roy Teo, senior FX strategist for ABN AMRO Bank in Singapore.

"It should be positive for risk (sentiment)," Teo said.

Unchanged interest rates for a "considerable time" could weigh on the safe haven yen, although moves may be limited ahead of the Bank of Japan's policy meeting on Friday, he added.

Traders said big option expiries on the euro in the $1.2700-25 area could keep the common currency tethered in the near term.



Today we do not see interesting things in comments - almost the same, just wait for Fed. Thus, today we would like to return back to our GBP discussion. Our yesterday EUR setup is still valid and has started to work.
On daily GBP we see that market has stopped to form lower lows, but still can't create higher high yet. So, tendency down was stopped but not destroyed yet. At the same time picture looks moderately bullish - trend, price holds above WPP:

But the major reason why we've decided to shift back to GBP today - is 4-hour picture. Here you clearly see our reverse H&S pattern. It is nice if you have entered long somewhere around bottom of right shoulder, as we've suggested. But if you have missed this oportunity - today we have promising combination. Take a look - market has formed bullish grabber right below potential neckline of H&S pattern. Thus, appearing of this pattern provides chance to take long position near neckline, but to have tight stop - not below right shoulder (as it should be with H&S pattern), but under grabber's low:

The one problem with this setup still, is possible volatility on Fed speech.
On hourly chart we see that market dropped down mostly as reaction on WPR1 touch.

 

[Sive Morten]

Good morning,

Reuters reports The dollar stayed on the front foot on Thursday, setting a 3-1/2 week high against a basket of currencies after the Federal Reserve surprised markets with a more hawkish policy tone and signalled its confidence in the U.S. economic recovery.

The Fed released a statement that underscored the improving U.S. labour market, dismissing recent financial market volatility, European growth challenges and largely weak inflation outlook.

While the central bank said interest rates would remain low for a "considerable time," the Fed's statement helped to push up U.S. yields and increased the greenback's appeal.

Although the Fed's statement was hawkish than markets had expected, Wall Street shares didn't fall much. It means that the market took the hawkish tone as the Fed's confidence in the U.S. economy." said Kengo Suzuki, chief forex strategist at Mizuho Securities.

Muzuho's Suzuki said the dollar may head toward the six-year high of 110.09 marked at the start of this month as soon as next week.

The yen showed limited reaction to comments by Japanese Prime Minister Shinzo Abe, who said on Thursday that a weak yen was positive for exporters, but also added that he will closely watch the negative impact from a weak currency on small firms and local areas.

Abe had made broadly similar remarks in early October, in the wake of the yen's drop to a six-year low against the dollar.


As Fed comments was more hawkish we need to adjust a bit our trading plan. Right now it is not clear yet the depth of market reaction. Whether market will treat it as long term signal for dollar buying or reaction will be limited.
Today we will take a look at EUR. On GBP our stop grabber failed and market dropped on Fed comments. At the same time, recall our surprising on a bit higher bottom of right shoulder. Thus, currently market returns right back and approaching to more realistic level. So, situation is returning back and again this low will be major point to watch for. Probably right around the bottom of right shoulder market will determing the destiny of monthly B&B...
On EUR situation is a bit simpler, since relation between EUR and USD is clearer in current moment. Mostly EU and US run on opposite course. That's why recent positive comments, especially if they will be confirmed by NFP on coming week could lead to downward continuation and reaching of our long-term target @1.21.
Daily chart shows that as grabber has failed - market could form butterfly "buy", that has 1.618 point very close to 1.21. We understand that here is some contradiction exists in perspectives of GBP (1.6717) and EUR (1.21), hardly EUR/GBP rate will chage so drastically as currencies mostly move in the same direction but in different speeds. Still, situation on GBP was distorted by voting and currently GBP market is rather thin, investors significantly reduce interest to it (at least on futures market). Thus, some inflow and different UK policy could lead to solid shifts.

On way down we will get some support levels and major one is MPS1 +1.27 butterfly point. Right now market also stands at WPS1. After yesterday's action market could take some pause and turn to shy retracement, at least before US session will open.

On 4-hour chart we do not see anything special. Trend is bearish as well, price has moved through major Fib supports and 0.618 AB-CD target. As drop is rather fast - next logical destination is 1.2540 - AB=CD target.

On hourly chart we have nicely looking thrust down that could become foundation for DiNapoli directional patterns. But before this will happen, market has to reach some support probably.

That's being said, as upside reversal has failed, reaching of our 1.21 target in medium term perspective seems probable, especially if dollar will get support from next week fundamental data.

 

[Sive Morten]

GBP/USD Daily Update, Fri 31, October 2014

Good morning,
GUYS, I'LL BE ON VACATION 1-10 NOVEMBER. RESEARCHES, VIDEOS AND UPDATES WILL APPEAR AS THEY SHOULD, BUT A BIT LATER (1-2 HOURS) WITHIN A DAY.


Recent Retures comments tell yen tumbled to its lowest level in almost seven years against the dollar on Friday after the Bank of Japan shocked markets by unexpectedly easing policy further, citing mounting risks it would miss its inflation goal.

The BOJ raised its monetary base target to an annual increase of 80 trillion yen($724.5 billion) from 60-70 trillion yen and tripled its purchase of risk assets such as exchange traded funds (ETFs) and real estate investment trusts (REITs).

While a small number of market players had expected some easing, most had thought any additional easing was months away as Governor Haruhiko Kuroda had voiced optimism over the Japanese economic outlook even after soft data.

"We salute the BOJ for admitting that they weren't going to reach their goals on inflation or GDP, though do note that the new policy equates to about $60 billion of QE per month," said Sean Callow, a currency strategist at Westpac in Sydney.

"This perspective does raise the question of just how much impact monetary policy is having," he added.

Adding to the pressure on the yen, a Japanese government panel overseeing the Government Pension Investment Fund (GPIF) approved plans for the fund to raise its holding of foreign stocks to 25 percent of its portfolio from 12 percent, sources said on Friday.

U.S. gross domestic product grew at an annual pace of 3.5 percent in the third quarter, beating a forecast of 3.0 percent.

Yet some analysts said it was not all that rosy and a closer look at the details could explain why dollar bulls had been more circumspect.

"The upside surprise was mostly located in defence spending, inventories and, to a lesser extent, net foreign trade. All three of these categories tend to be associated with payback the following quarter," analysts at JPMorgan wrote in a note to clients.

"As a result we are lowering our early estimate for Q4 GDP growth from 3.0 percent to 2.5 percent."

In European trade, all eyes will be on the region's latest inflation figures.

Data on Thursday showed annual inflation in Germany unexpectedly slowed in October, while Spanish consumer prices fell, suggesting the risk of deflation in the euro zone has not yet abated.


Today is last day of October and we need to make some comments on GBP. Our monthly B&B has not been totally erased yet, but hang by just single thread. Drift lower mostly stands due USD appreciation rather than some problems with Cable. On daily chart we clearly see our H&S pattern and at least here we do not miss . Anyway, currently we have bullish grabber right at the bottom as right as left shoulder. This is most important moment. If market will fail here - it will follow to head bottom. In this cases some long chance will hold that B&B still happen, but we will loose pattern and foundation for long entry and we will need to watch for another one or for anything whatever will appear to clarify situation:

ON 4-hour chart we do not have something special right now. The one thing that worries me is solid sell-offs in second part of H&S. This really makes this pattern suspicious, at least significantly increases chance on failure. It will be miracle if it will work.
But still, right now we can't say that everything has failed, not yet:

Of cause we would prefer to get situation's progress with easier price behavior. Right now we just can watch whether B&B will start any time soon or not because market already has reached final point as in terms of price as in terms of time...

 

[Brett Reynolds]

Hmm. All looks very appetising as you say Sive. I am still short on Cable. I will hold position until the there is brake and daily hold above last weeks Hammer Candle around 1.6120. I have a monthly trend line drawn in at 1.5760 area.

 

[Chris Houston]

Hi Sive, do you know that you can copy trendlines in MT4? It might save you time in your videos:

1. Double click any trendline (to select it).
2. Press and hold Control.
3. Place cursor anywhere over the trendline (still holding control).
3. Click and hold the left button on the mouse and drag the cursor away from the trendline.
4. You should have an exact copy trendline to place where you want.
5. The original trendline is automatically deselected during this process.

Hope that helps (it's easier than it looks written down!)

 

[Ghandi1]

Hmm. All looks very appetising as you say Sive. I am still short on Cable. I will hold position until the there is brake and daily hold above last weeks Hammer Candle around 1.6120. I have a monthly trend line drawn in at 1.5760 area.

The monthly trendline will be there even if we first are going to 1.67.

 

[Ghandi1]

Maybe a B&B (weekly TF), is on its way

 

[Forex159]

Dear Sir,

What charts are you using here? They are different on my MT4. Please help!