FOREX PRO Weekly September 10-14, 2012

[Sive Morten]

Since we’ve discussed ECB and Fed QE-type programms in previous research, here I would like to add just few comment on M. Draghi speech. In fact, investors have got “aggresive” variant that is supportive for EUR. ECB has held rate and announce unlimited buyback of Spain and Italy sovereign debt. On the eve of ECB meeting we’ve said that if these two points will be announced that EUR could show significant appreciation and that is happening. Due to this, let’s call it hawkish decision, I can’t exclude EUR upward trend continuation in medium term perspective. But this appreciation is a bit fregile right now, because there is a significant difference in overall macroeconomic situation in US and EU, especially in terms of inflation. Take a look, while US has anemic inflation after injection of 2.3 Trln USD, EU already has inflation above 2% on the eve of starting QE. If inflation will increase pace it will become huge problem. Second, EUR/USD dynamic could become really sophisticated if Fed after current pause will decide to start QE III. But this is a farer future.

Monthly
Monthly trend holds bearish and market has passed through first Fib resistance level – 1.26 (I do not have it on this chart). As we’ve said previously, next significant resistance level is 1.2930-1.3150 Confluence resistance. Still, if even market will reach it – it will not erase bearish context, since trend will remain bearish. But if upward move will continue – that probably could force as to review long-term targets of 1.16. Again, as it was in 2008 and 2010 market has bounced from all-time 50% support level. For us important is that we see nice recovery from monthly support and next resistance is 200 pips higher. So, market has no barriers from monthly time frame right now.

Weekly
Here we have a lot of bullish signs. Trend is bullish as well. First is take a look that market has moved above Monthly Pivot Resistance 1. This could be a first bell of medium term reversal, since retracements usually holds by pivot resistance 1. Second, market has broken through long-term channel upper border. But what is most important – current swing up exceeds previous move down and breaks above previous low. All this stuff has been anticipated by butterfly “Buy” pattern.
So, we have bullish reversal that confirmed by multiple factors. What about targets? Nearest target, as we’ve said is K-resistance area 1.2930-1.3150, that is also weekly overbought. Also if we will take into consideration harmonic swings, then we will see, that previous retracement depth, dragged to current moment points on the same K-area.
In longer term perspecive, I would like to offer you a bit brave look at potential target. What if it will be 1.27 ultimate butterfly target? It stands in agreement with major 0.618 Fib resistance at 1.3833. Still for coming week, or may be for two weeks nearest area to watch is K-resistance.

Daily
Although on Friday I’ve said that EUR should show smooth upward continuation, but non farm payrolls release has done its deed and pair has skyrocketed above 1.28. So, no doubt that we see strong bullish context that also is confirmed by upper time frames. We do not have any bearish directional patterns here, so our context is bullish and we should search possibility for long entry here.
Still, as you can see market has pierced significantly an overbought line. In such circumstances I always recommend to wait a pullback and buy a deep. There are two levels that are suitable for that purpose. First is a fib support at 1.2696 that is also a WPP and a bit deeper Confluence support 1.2605-1.2622 that is also a WPS1=1.2606. Usually, when trend develops either WPP or WPS1 should hold it. If not – then it usually leads to deeper retracement or reversal. What particular level to take will depend on lower time frames, where we should get some signs or patterns of retracement first.
Take a look at WPR1=1.2921 - it stands very close to nearest K-resistance lower border.

4-hours
Trend here is strongly bullish as well as thrust up. Here we also can see that WPP is also a 4-hour Confluence support. Well at this chart we could get bullish B&B. Although thrust is not perfect in terms of shape, but it is supported by strong fundamental data and has minimum required number of bars. Retracement to 1.27 will give us bullish B&B. That is the first pattern to watch.

1-hour
Here, on hourly chart market has hit 1.618 extension target of pre-ECB meeting AB=CD. That also could a context for DRPO “Sell”. Still, I do not see any reversal patterns yet, that could put a foundation for downward retracement. Probably they should appear on Monday.

Conclusion:
Long-term bearish sentiment still holds. Pullback that now in progress on monthly chart should not surprise us, if we take into consideration the level importance where this bounce has started. From long-term perspective, even move to 1.30 will not erase bearish context. But now this is more political and fundamental picture rather than pure technical one. Since long-term sentiment on EUR/USD will mostly be depend on ECB and Fed QE programs equilibrium, as well as macro statistic data – inflation for EU and employment for US.
Short-term perspective is bullish. Since market stands at overbought it’s better to use clear patterns to enter long and buy deeps. Nearest target is 1.2930-1.3150 resistance area.




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.

 

[wilsiano]

Thank You Sir, for your qualitative analysis of the possible scenarios. God Bless You!!!

 

[woodstock]

Thanks Sive. Can you please send me your email id as well as your web address please ? Thanks. Richard

 

[Sive Morten]

EUR/USD Daily Update, Tue 11, September 2012

Good morning,
Unfortunately we didn't get either DRPO on hourly or B&B on 4-hour chart that could give us any lead for trading. Stil, market is moving out from oversold condition.

In fact, I can add nothing valuable to previous analysis. Still one thing makes me look at short-term perspective with some caution. In our weekly analysis we've said that this is first bullish upward swing on weekly chart. In most cases market shows deep retracement, since previous downward momentum is still strong, and hence, this is AB=CD retracement as a rule that leads to 0.5-0.618 support of total move up on daily time frame.
Now we are stepping in monthly resistance area and market has hit MPR1+daily overbought. Be ready to see any kind of reversal patterns on daily here. May be it will be some butterfly or something of that sort.
Keep your mind open (and eyes as well) and do not forget about perspective of deep retracement.
On intraday charts I do not see any patterns right now, that could appear valuable for trading. Looks like we need to wait a bit more.

 

[Sive Morten]

EUR/USD Daily Update, Wed 12, September 2012

Greetings everybody,
today analysis again will be poor, since I do not see anything valuable. Still, I suppose I've got my thoughts on current situation and how I will act here. So, my thoughts are (recall our analysis of weekly time frame):

On weekly chart market has shown bullish reversal swing and move above MPR1. This is common for medium term reversal, or at least suggest some upward continuation. Trends are bullish on daily and weekly.

Analysis of weekly time frame - as extension of previous retracement as harmonic swings suggest existing of strong resistance right around monthly K-resistance area.

Since this is first bullish swing on weekly and bearish momentum is strong - market usually shows deep retracement and, as a rule, this is AB=CD retracement.

If combine all these statements, I prefer to see extended reversal pattern on daily around 1.2950-1.3130 area and sell. If it will be AB=CD retracement, then it should lead market to ~1.25 area. There will be time to search for long entry opportunities.

So, I probably better will skip 100 pips up of choppy price action rather than will take a side against odds. But this is not the time to sell either, since there is no foundation for that.

On hourly chart we see solid divergence. Price action here could be treated, probably as some harmonic pattern, market has reached 1.618 extension of it.

So, if you're intraday trader, you probably could catch some pullbacks for long entry and exit on previous highs. That is normal tactics when market at daily overbought, but I do not take such risk usually.

 

[Sive Morten]

EUR/USD Daily Update, Thu 13, 2012

Good morning,

So, intention is growing. Market stands few pips lower of 1.27 extension, as Lolly said, butterfly. This is also WPR1 and Daily overbought. On intraday charts I see nothing except divergences and something like wedge on hourly chart. So, what could be done today?

For positional traders my boring advise - wait. As I've said yesterday I do not want to jump in, till I see any significant pattern. I feel that our expectation will be rewarded since retracement should be deep, probably to 1.23-1.25 area. And I suspect that we stand on the eve of when this pattern will start to form. There are already signs of exhausting on intraday charts.

For scalpers there is one DiNapoli method of "Stretch" kind. IT calls Kibby trade. ITs idea in combination of overbought and some extention target. So, when market will hit 1.27 on daily, drop your time frame to hourly chart, wait when trend will shift bearish and enter short on nearest 3/8 retracement. Apply AB-CD extension to estimate target or use any method for that. Protect your position with breakeven s/l as soon as possible.
If you have time to sit in front of PC and you would like to try this stuff - you may.

 

[Sive Morten]

EUR/USD Daily Update, Fri 14, September 2012

Good morning,
Today we have a lack of patterns mostly. So my speech will be mostly concerning US QE III.

Although I was flat and I've told you that I will be flat, because I do not want enter long at monthly K-resistance and overbought and do not want enter short either since I do not see any bearish patterns yet. Previously I've said that have some suspicions about Fed QE III start. At least based on speech in Jackson Hole Bernanke has given such hint. But even not this speech was the reason.
Currently it seems that QE programs is like artificial lung - while it in progress rates are low and NFP is growing, economy pace is growing as well, but when it has been stopped - we see that economy can't support itself. New jobs have started to decrease, as retail sales, production and other significant parts of GDP.
That's why I've thought that Fed probably need to wait a bit, to uderstand how QE impacts and to see - will it bring some unexpectable risks, such as inflation acceleration or other.
But they do not want to wait. Another moment that come to my mind - this QE III start was partially a political even either. Before elections, government needs to calm people, since many americans invest in stocks, for instance. Starting QE in september definitely supports risky assets and support historical stock market behavior on election's eve.

Now It reminds me currency wars - if increase supply EUR and USD proportionately - rate could hold, but value of each currency will not. It is quite anxious fuss on both sides and it makes me think about long term perspective. And I oftener and oftener start to think about switching on other assets, that nominated in CHF and AUD...

Speaking about technical picture - my plan is the same. Currently on market mostly emotions rather than fundamentals. It needs some time to adopt a lot of new events that have come on previous 1-2 weeks.
On daily time frame there is a context for possible DRPO or B&B. That's all that I see now. On intraday charts I see nothing interesting. Trends are bullish, on hourly chart some steep upward channel is forming.
So, again - I do not want enter long here, but I can't yet enter short either.

 

[FringFX]

appreciate your posts, Sive.

a few questions:
1. which part of your analyses comprise Dinapoli's methods?
2. do you find it works best in currencies/any currency pair? do you use it in other instruments? does it work just as well?

 

[nirmal098]

In daily chart there form an obvious bearish divergence. Is it significant for technical point of view? Can it be a signal for market pull back?

 

[Sive Morten]

appreciate your posts, Sive.

a few questions:
1. which part of your analyses comprise Dinapoli's methods?
2. do you find it works best in currencies/any currency pair? do you use it in other instruments? does it work just as well?

Well, approx.80%. I use DiNapoli+Pivots+Harmonic patterns
It works on all liquid markets - bonds, futures, stocks, currencies - any market. Obviously that market should not be artificially controlled, by, say, government.

In daily chart there form an obvious bearish divergence. Is it significant for technical point of view? Can it be a signal for market pull back?

Divergence is a tricky pattern. In two words, I do not rely on it too much and look at it only when I see other signs of exhausting in price action. But this is a bit personally and depends on analysis methods that you apply.