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Forex FOREX PRO WEEKLY, September 02 - 06, 2019

Discussion in 'Sive Morten- Currencies, Gold, Bitcoin Daily Video' started by Sive Morten, Aug 31, 2019.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals

    Last week has set the amount of new drivers for FX market in general and EUR in particular and we had really big discussion trying to estimate the whole picture and possible coming tendency on EUR. This week shows realization of new shape on the market, which confirms our suggestion as about EU/US economies relation balance as about US-Sino tariffs piking.

    The general conclusion that we've made last weeks sounds as follows:

    "We see the only reason for that to support existing economy pace as longer as possible. They try slightly to relief interest rate burden to economy, but not too much to not stimulate strong inflation, and let economy keep the course. They try to neutralize possible negative effects that yet to come in advance.

    This means two things to long-term perspective. First is, any upside bounce on EUR will be temporal and downside EUR/USD trend will continue, especially if more demand to safe haven assets will come. But volatility also will grow as dovish steps will increase the pullbacks on EUR/USD.

    Second, this rate cut injections should keep US economy pace at good level and keep positive statistics, which will be second supportive driving factor to USD against EUR in long-term."


    We suggest that major reasons of EUR drop this week is poor Germany statistics. Even in the beginning of the week situation was strained, when investors start to suspect something (the same things as we do, actually). And last straw was the data.

    Indeed Germany GDP this week shows worse numbers to expectations. On YoY basis GDP shows zero level at expectations of 0.4%, while first time turns negative on QoQ basis showing -0.1% and indicating recession. Retail sales in July has dropped for 2.1%, inflation shows negative numbers - August CPI was released at -0.2%. Even slightly better than expected French GDP was not able to relief situation. On a background of dovish Fed policy, combined with good US economy performance - EUR drop is absolutely reasonable market reaction, and all these stuff amazingly fits to our explanation of new reality of EUR/USD background.

    Concerning tariffs imposed on Chinese export - we always warn that this is the tool in hands of US and it serves only to its master. Any similar counter measures, tariffs by China will not help. This one-sided effect is based on too different structure of national economies of US and China which makes China very sensitive and fragile to tariffs imposing. Recent data that we've got on big debt default problems in corporate sector, hidden unemployment (which stands around 14% - two times greater than officially reported) and outstanding reminbi drop this week confirms our long-term view.

    With weak social domestic policy in pension retirement, social support, healthcare, etc. and strong massive people dependence on export to US gives no chances to hold long-term tariffs war. China will be broken and surrender at discretion.

    Now let's see what economists and market tells on recent events of this week.

    As Reuters reports - The euro fell below $1.10 on Friday to its weakest since May 2017 as a multi-day downward shift in the single currency intensified in afternoon trade.

    Traders had varied explanations for the drop, including that month-end rebalancing of portfolios heightened an existing bias. The longer-term trend, which has seen the euro fall 0.90% in August, has been driven by an economic slowdown in Europe among other factors.

    “We had a quick 50-odd point drop, which seems to be month-end related. Clearly the euro has been quite soft for some time. We touched below $1.10 earlier in August and we’ve struggled really to rebound from that point. The underlying softness that we’ve seen persist in the past month seems very much intact,” said Shaun Osborne, chief foreign exchange strategist at Scotia Capital.

    The move also began shortly after President Donald Trump tweeted that the euro was dropping “like crazy” and lamented the state of the U.S. dollar, attributing its strength to Federal Reserve policy. A weaker dollar would send the euro higher, suggesting the tweet did not have a direct effect on the pair. The euro was last trading at $1.0976 against the dollar, down 0.71% on the day.

    Poor euro zone economic data on Thursday reinforced views that the European Central Bank would cut its benchmark interest rate and announce a new round of quantitative easing at its September meeting. Christine Lagarde, the ECB’s next president, said the central bank still has room to cut rates if necessary, though divisions remain within the ECB.

    “There still seems to be a debate in the ECB if there will be a significant burst of easing or a more measured move next month,” said Osborne.

    At the September meeting, “we think rate cuts at least, though it may not be the time for renewed QE.”

    As the dollar rose, the offshore Chinese yuan headed toward its biggest monthly decline in 25 years as the two countries prepared for the implementation of new retaliatory tariffs on Sunday.
    [​IMG]
    The dollar index was 0.38% higher at 98.884, closing the month little moved after having been whipped around by trade headlines. Against the dollar, the offshore yuan was 0.28% weaker at 7.163, set for a 3.69% fall in August, it’s biggest monthly drop since 1994.

    An additional 5% tariff on $125 billion of goods from China is slated to kick in on Sunday. Investors fear the intensifying trade dispute could lead the U.S. economy into recession.

    CFTC data shows that Investors still keep short position and slightly increase it this week:
    upload_2019-8-31_13-11-39.
    Source: cftc.gov
    Charting by Investing.com


    It seems that Fathom consulting also feels something and released update on Germany sentiment - Fathom’s sentiment indicators reflect grim outlook for German manufacturing:

    Fathom’s Economic Sentiment Indicators (ESIs) distil the information contained within numerous surveys into composite measures of underlying sentiment. Since peaking at the beginning of last year, the euro area ESI has fallen sharply almost one percentage point as growth slipped and sentiment soured following 2017’s economic boom. The decline in sentiment over the past two years is remarkable, with the gap that emerged between the hard and soft data now fully closed. Fathom had expected this to happen, with weaker sentiment (rather than higher growth) always likely to be the cause.
    [​IMG]

    The turnaround in sentiment is particularly striking in Germany; Fathom’s whole-economy ESI fell to 0.0% in July, its lowest level since 2009, amid trade uncertainty and ongoing weakness in the manufacturing sector. Indeed, the German ESI’s manufacturing sector sub-component is now deeply in negative territory. The weakness in manufacturing sentiment is also reflected in hard data (such as the new orders report), which appear to offer an equally pessimistic indication of where production is likely to go from here.

    [​IMG]
    The deterioration in sentiment through 2018, and the early part of 2019, trailed behind falls in production, with firms perhaps slow to recognise the trade shock and hence its persistence. Given the importance of trade to German manufacturers, it is hardly surprising that growth, and subsequently sentiment, have been hit hard.

    [​IMG]

    Thus far, output in the non-manufacturing economy has remained relatively resilient which has limited the impact of the shock. However, if the manufacturing weakness persists and if it were to start spilling over into employment, then the downturn could spread to other sectors of the economy. Even if this does not happen, the relative importance of manufacturing to the German economy points to a high likelihood of a second consecutive quarterly contraction in GDP.

    [​IMG]


    So, as a bottom line to fundamental part we could say that this week starts to show progress in realization of new driving factors, which in two words could be described as "new Fed supportive advanced policy to last US good performance as long as possible and EU worsening situation." This perfectly matches to our suggestion of last week.

    As you can see, EU and US stand at absolutely different conditions. Fed feels itself much better as it has significant rate reserve to cut more and positive economy performance. Taking steps in advance they prolong good economy pace as longer as possible. EU has no rate reserve and now new stage of QE appears on horizon. Bad GDP numbers tell that situation becomes worse. This disbalance will lead to further EUR/USD downside acceleration this year.

    Fathom even suggests that next quarter Germany data again will be poor. If Fathom sees that, ECB also should. So, on September meeting again some stronger measures could be taken, instead of just talking that "ECB is ready to act accordingly".

    Technicals
    Monthly


    Well, technical part is just a reflection of fundamental situation. Poor CNY we already saw above. Now is EUR turn.

    On Friday we already have mentioned monthly engulfing pattern, now it shows continuation.

    Taking in consideration everything that we've said above - the long-term technical situation is yet to become interesting as investors are just starting the reaction on Fed strategy. Despite all talks on USD weakness July showed good performance as dollar strengthen and broken major 5/8 Fib support ignoring any revanchist sentiments of dovish policy followers.

    So, in shorter-term we keep moving with bearish engulfing pattern here. In longer-term view, take a look that EUR stands for a long time below upper border of rectangle, while normally, bullish market has to jump up after re-testing it. Dropping back inside rectangle and standing there, although near the border, is a sign of weakness.

    Nearest downside target stands around 1.0950 - YPS1.

    eur_m_02_09_19.

    Weekly

    So, once we've started this week trading on a background of Jerome Powell bullish momentum, thinking about continuation, by the end of the week situation has turned at 180 degrees. EUR has shown downside breakout of the channel. No oversold, no significant Fib levels below - relatively free space.

    Technically previous upward action was reaction on COP target, and downside action that we see right now should be continuation of major tendency to the next target, which is OP at 1.05 area. As it stands rather far and below weekly oversold level - we should find something closer on daily and intraday charts.
    eur_w_02_09_19.

    Daily

    Indeed, on daily chart we have few closer stand extensions. First is our initial minor ab-cd pattern. Its xop target has not been hit yet. More extended is larger AB=CD and its OP around 1.0860.

    Speaking on butterfly pattern, as we've suggested, EUR hits 1.27 extension. Stops below recent lows make it easier and only oversold has stopped further drop. Thus, as EUR shows acceleration down, it should proceed to 1.618 extension around 1.0885 area. In general all these targets envelop YPS1 area. As EUR stands at oversold, the next week probably will start from upside bounce.
    eur_d_02_09_19.

    Intraday

    Here is our OP target has been hit. The most probable upside reaction will be either to 1.1040 or 1.1075 K-resistance area. Thus, we need to watch for "222" patterns that potentially end there.
    eur_4h_02_09_19.

    Conclusion:

    The new information on Fed policy does't change our long-term bearish view as the policy doesn't suggest real dovish interest rate cycle, which could be interpreted as coming recession but mostly as accommodative, supportive policy to US economy. Although rate cuts will trigger upside short-term emotional reactions on EUR/USD and increase volatility they should not break the major downside tendency as rate cuts aimed on US economy pace support at current levels but not struggle with recession. Besides, recent data shows that situation in EU becomes worsen, thus, EUR/USD disbalance should become stronger.


    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.
     
  2. Stephen206

    Stephen206 Recruit

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    Nice one Sive
     
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  3. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning everybody,

    let's keep up with the EUR. So, our minor XOP has been hit (as well as on dollar index, by the way), next one is 1.618 extension of butterfly pattern around 1.0890 area. But, as market stands also at oversold - today we could get some retracement up.

    In general, right now all eyes stand on Friday. Not because of NFP, but because of EU GDP release for II Q. The intrigue stands around QoQ numbers, because Germany data has shown recession. The data will have direct impact on September ECB meeting. So, downside action EUR/USD could accelerate soon...
    eur_d_03_09_19.

    On 4H chart we also see inner AB=CD pattern to butterfly, which already has passed OP with minimal reaction, showing acceleration on CD leg. XOP stands around 1.0845:
    eur_4h_03_09_19.

    On 1H chart we could consider following Fib levels and harmonic swing. Thus, if we will get "222" Sell around K-resistance area, we consider taking of new short position. Pullbacks could be small, as we do not have any major Fib levels till 1.03 lows. All of them were broken already. Support could come either from targets and pivots, or oversold areas...
    eur_1h_03_09_19.
     
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  4. anthony egbiwe

    anthony egbiwe Private

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    Good day Mr sieve,
    please how can i recognize these k support and resistance areas in any chart . I red through your course but I could not get it.
     
  5. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Hi Anthony, please specify what particular moments are unclear to you.

    In general you need to start with building major Fib levels, undertsand difference between support and resistance levels. Then, you could combine levels from different lows and tops to get K-levels.
     
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  6. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning folks,

    Let's keep up with EUR retracement as indeed it has started. At first glance action looks quiet, but in fact EUR provides chain of trading setups on intraday charts.

    On daily, as we've got hammer pattern, retracement up should be higher, at least to 1.1025 area of previous lows, because hammer works in the same manner as enguling. Its min target is the length of the candle, which is approx. around 1.1025:
    eur_d_04_09_19.

    On 4H chart the first trade that we could get is B&B "Sell" Look alike (LAL) pattern. It is LAL because price already stands above 3x3DMA longer than just 3 candles. But, downside thrust and its momentum is still here and it means that B&B will be formed from one of the strong resistance levels. First one that we have is 1.10-1.1016 K-area. Thus, this is our 1st trade - B&B "Sell" somewhere around 1.1015 with min target around 1.0950 - 5/8 retracement of upside action from daily XOP:
    eur_4h_04_09_19.

    But this is not all yet. As we've said, retracement up should be more extended and it means that market should form some visible pattern that will trigger it. On 1H chart B&B action could become the part of reverse H&S, it's right shoulder, in particular. This is our 2nd trade - once B&B will be completed, consider long entry around 1.0950 with target around 1.1025. BUT... -

    If H&S will not fail, of course, on EU GDP release. So, here is we could get opposite signal as well. Anyway, as you can see, overall situation is interesting and provides good setups. By the way, if H&S will work as it should, then around 1.1025 we will get 3rd pattern - "222" Sell, for position taking in major bearish daily trend.
    eur_1h_04_09_19.
     
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  7. minimax

    minimax 2nd Lieutenant

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    I think this is ED, 3rd was too short and now repairing, so pullback below 1,09797 should follows before higher.. This should happen very fast to remain in the channel.. or further corrections follow.
     

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    #7 minimax, Sep 4, 2019
    Last edited: Sep 4, 2019
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  8. Lolly Tripathy

    Lolly Tripathy Sergeant Major

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  9. minimax

    minimax 2nd Lieutenant

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    We will see the reaction at hitting low of 1st wave. I think that target of this move is establishing weekly fractal above 1,11639.
     

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  10. Lolly Tripathy

    Lolly Tripathy Sergeant Major

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    Minimax dear can you please share gbpusd chart
    thanks
     

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