Sive Morten
Special Consultant to the FPA
- Messages
- 18,679
Fundamentals
First is about a politics a bit. Global political situation shows new signs of changing and breaking of old order. Two weeks ago we've talked on new vector in EU political life, now we see signs of domination of developing countries across the Globe. Thus, China starts realization and preparation for some projects in Afghanistan while Russia and Tajikistan take army exercises at the border under cover of Collective Security Treaty Organisation.
CNN tells that Russia has warned the US military twice in the last week that its forces, along with Syrian regime units, are prepared to attack in an area where dozens of US troops are located, according to several US defense officials.. It means that patience is over. The fact that no response has followed follow and this event was covered by regular new spiral of Skripal affair to shift media attention and hide west coalition's going down in flames in Syria. This Skripal story becomes a bad manner already, so even EU politicians feel uncomfortable to remind it.
Now even Japan starts to talk on C-400 missile system. This is step-edge of US military weakness in the world. Article is written by Yoshio Hotta where he tries to explain why Saudi Arabia, Qatar, Turkey, India, China, Pakistan are turning to C-400 purchasing.
"The United States can not possibly survive, that Russia has created its analogue to the American "Patriot" and successfully implements it abroad. The characteristics of the Russian S-400 are much better, so the countries are lining up to get first-class weapons of the new generation. Especially the US is concerned about the shipments of anti-aircraft systems to Turkey and Saudi Arabia, since they were once allies and customers of the United States, "the Japanese edition of JB Press writes."
These are new breaks in the wall of new global order. So everything goes as we've discussed. Now let's take a look at economy.
Reuters reports that U.S. dollar rose broadly on Friday as U.S. job growth surged in August, but investors remained jittery about a possible escalation of the U.S.-Chinese trade conflict as U.S. President Donald Trump threatened China with more tariffs.
NFP report was really superb as in terms of overall number of employees as in terms of wage growth.
Strengthening wage growth underscores tight labour market conditions and cements the likelihood of a third interest rate increase from the Federal Reserve this year when policymakers meet on Sept. 25-26.
The Federal Reserve should keep raising U.S. interest rates in light of Friday’s strong jobs report, Dallas Fed President Robert Kaplan said on Friday.
According to Fed watch tool by CME group, it's almost 100% probability of rate increase on September meeting. December probability of 4th consecutive rate increase to 2.5% has raised for ~10% to 77.58% from week earlier.
“Today we are seeing the knee-jerk reaction as far as the dollar to just move on rate differentials and the bond market move,” said Steven Englander, global head of G10 FX research, Standard Chartered Bank, in New York.
President Trump warned on Friday that he has tariffs ready to go on $267 billion worth of Chinese imports in addition to the $200 billion of the Asian nation’s goods already facing the risk of duties.
“The current environment favours the U.S. dollar as a safe haven, if the trade war rhetoric continues and we see the materialization of the $200 billion in tariffs on Chinese goods,” said Alfonso Esparza, senior currency analyst at OANDA in Toronto.
Everything matches to our 6-12 month picture, that we've explained in the beginning of the summer. Our expectation is dollar bullish, mostly because US drives global economy life right now and EU takes a back seat. EU economy is too dependable from oversea business, as largest companies have big stake on US market. Bayer, Daimler, Siemens (more than 45% business stands in US). So, if EU will turn to aggressive tariff piking - it will lose. This situation makes their position foreseeable weaker and doesn't promise some EUR advantage in near term.
Thus, although we're taking about bounce on EUR, this bounce is retracement, not a trend change. Nearest US 10-year yield target is 3.35%, which could be reached quite soon. Now imagine, what carry trade processes will be launched when US rate is 2 times greater than in EU.
It's not better situation in UK. Recent Fathom consulting report points on Disappointing UK Credit Data which in turn Point to a Higher Saving Rate.
"we at Fathom expected to see an increase in the UK household saving ratio through this year. Last week’s money and credit data showed that unsecured lending to individuals slowed sharply in July. For the second time this year, the data were significantly weaker than expected, perhaps suggesting that household savings are indeed set to rise."
This expectation contradicts to MPC assessment of economical situation in UK and promises nothing good to GBP.
COT Report
EUR Speculative positions have turned positive again, but this changes is rather weak by far, and mostly reminds some correction issue. Open interest also has increased just for 6.5 K contracts. Position changing mostly has happened due shorts covering, while long positions mostly stands the same, according to recent CFTC report.
Speaking on short-term situation now we will watch - whether EUR will be strong enough to hold the strike of recent NFP report and positive change in US interest rates expectations.
Technicals
Monthly
Monthly chart brings nothing new to technical picture yet, as September is started as inside month.
So price still stands at yearly Pivot and we said that this is more the range rather than precise number. Now we see that price feels some gravitation around it and it will be particular interesting and important what reaction price will show on it. This is major 50% Support area as well.
In general reaction that we see within recent 1-2 weeks was not bad and it seems that our expectations are started to realize by price action. This level 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. Price has problems with breaking borders of any consolidation, but it has no barriers inside and could freely move from up to bottom.
Another important moment here - our pennant. In fact, EUR shows right now failure breakout, "bearish trap". Usually it least to opposite breakout, which corresponds to our view on weekly chart.
On Friday EUR has got solid hit, and now we need to estimate either this was a knockdown or it will become a knockout .
Weekly
Weekly analysis is not damaged by Friday's drop. In fact, EUR stands even higher the levels that we've expected to see. And everything perfectly matches to our view. Now price shows normal pullback inside morning star body. This is common practice that happens in 80% cases, when morning star or engulfing pattern been formed.
As we've mentioned previously once bearish reversal swing has been formed - market turned to reasonable upside bounce from major 50% Fib support, weekly Oversold. Last week we recognized here morning star pattern, which suggests upside continuation in a shape of AB-CD pattern on lower time frames. Our approximate target of this action is at least to 1.18-1.19 area.
our basic scenario and anticipated 1.20-1.21 area is 5/8 Fib resistance level.
Daily
Recent NFP release brings new issues in our short-term view. On Friday morning we said that while bullish grabbers lows will hold - we will keep bullish scenario. Currently it is a bit difficult to imagine, especially with such nasty black candle with tail close, but upside reversal still could happen, as grabber's lows are still valid. Recall that one of our scenarios is butterfly "Sell" and it will be vanished only if recent lows will be taking out. So, this is first scenario that we will keep in mind in the beginning of the week.
Intraday
Common sense also suggests opposite scenario. Here probably there is no explanation is needed. Classical AB=CD retracement down to 1.1465, which could give us large "222" Buy. Here also you could recognize H&S pattern...
Final part of this action could take the shape of butterfly "Buy", which has 1.618 target at the same area - circa 1.1450, but this is not necessary:
So, if market will break recent lows we will turn to intraday bearish scenario. Overall situation is not too complicated still. The bullish context is not broken yet totally.
Conclusion:
Long situation has not changed much. Our monthly and weekly trading plan stands without big changes by far.
NFP has adjusted short-term picture a b it and on coming week we will be busy with two scenarios of upward continuation, according to our trading plan.
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.
First is about a politics a bit. Global political situation shows new signs of changing and breaking of old order. Two weeks ago we've talked on new vector in EU political life, now we see signs of domination of developing countries across the Globe. Thus, China starts realization and preparation for some projects in Afghanistan while Russia and Tajikistan take army exercises at the border under cover of Collective Security Treaty Organisation.
CNN tells that Russia has warned the US military twice in the last week that its forces, along with Syrian regime units, are prepared to attack in an area where dozens of US troops are located, according to several US defense officials.. It means that patience is over. The fact that no response has followed follow and this event was covered by regular new spiral of Skripal affair to shift media attention and hide west coalition's going down in flames in Syria. This Skripal story becomes a bad manner already, so even EU politicians feel uncomfortable to remind it.
Now even Japan starts to talk on C-400 missile system. This is step-edge of US military weakness in the world. Article is written by Yoshio Hotta where he tries to explain why Saudi Arabia, Qatar, Turkey, India, China, Pakistan are turning to C-400 purchasing.
"The United States can not possibly survive, that Russia has created its analogue to the American "Patriot" and successfully implements it abroad. The characteristics of the Russian S-400 are much better, so the countries are lining up to get first-class weapons of the new generation. Especially the US is concerned about the shipments of anti-aircraft systems to Turkey and Saudi Arabia, since they were once allies and customers of the United States, "the Japanese edition of JB Press writes."
These are new breaks in the wall of new global order. So everything goes as we've discussed. Now let's take a look at economy.
Reuters reports that U.S. dollar rose broadly on Friday as U.S. job growth surged in August, but investors remained jittery about a possible escalation of the U.S.-Chinese trade conflict as U.S. President Donald Trump threatened China with more tariffs.
NFP report was really superb as in terms of overall number of employees as in terms of wage growth.
Strengthening wage growth underscores tight labour market conditions and cements the likelihood of a third interest rate increase from the Federal Reserve this year when policymakers meet on Sept. 25-26.
The Federal Reserve should keep raising U.S. interest rates in light of Friday’s strong jobs report, Dallas Fed President Robert Kaplan said on Friday.
According to Fed watch tool by CME group, it's almost 100% probability of rate increase on September meeting. December probability of 4th consecutive rate increase to 2.5% has raised for ~10% to 77.58% from week earlier.
“Today we are seeing the knee-jerk reaction as far as the dollar to just move on rate differentials and the bond market move,” said Steven Englander, global head of G10 FX research, Standard Chartered Bank, in New York.
President Trump warned on Friday that he has tariffs ready to go on $267 billion worth of Chinese imports in addition to the $200 billion of the Asian nation’s goods already facing the risk of duties.
“The current environment favours the U.S. dollar as a safe haven, if the trade war rhetoric continues and we see the materialization of the $200 billion in tariffs on Chinese goods,” said Alfonso Esparza, senior currency analyst at OANDA in Toronto.
Everything matches to our 6-12 month picture, that we've explained in the beginning of the summer. Our expectation is dollar bullish, mostly because US drives global economy life right now and EU takes a back seat. EU economy is too dependable from oversea business, as largest companies have big stake on US market. Bayer, Daimler, Siemens (more than 45% business stands in US). So, if EU will turn to aggressive tariff piking - it will lose. This situation makes their position foreseeable weaker and doesn't promise some EUR advantage in near term.
Thus, although we're taking about bounce on EUR, this bounce is retracement, not a trend change. Nearest US 10-year yield target is 3.35%, which could be reached quite soon. Now imagine, what carry trade processes will be launched when US rate is 2 times greater than in EU.
It's not better situation in UK. Recent Fathom consulting report points on Disappointing UK Credit Data which in turn Point to a Higher Saving Rate.
"we at Fathom expected to see an increase in the UK household saving ratio through this year. Last week’s money and credit data showed that unsecured lending to individuals slowed sharply in July. For the second time this year, the data were significantly weaker than expected, perhaps suggesting that household savings are indeed set to rise."
This expectation contradicts to MPC assessment of economical situation in UK and promises nothing good to GBP.
COT Report
EUR Speculative positions have turned positive again, but this changes is rather weak by far, and mostly reminds some correction issue. Open interest also has increased just for 6.5 K contracts. Position changing mostly has happened due shorts covering, while long positions mostly stands the same, according to recent CFTC report.
Speaking on short-term situation now we will watch - whether EUR will be strong enough to hold the strike of recent NFP report and positive change in US interest rates expectations.
Technicals
Monthly
Monthly chart brings nothing new to technical picture yet, as September is started as inside month.
So price still stands at yearly Pivot and we said that this is more the range rather than precise number. Now we see that price feels some gravitation around it and it will be particular interesting and important what reaction price will show on it. This is major 50% Support area as well.
In general reaction that we see within recent 1-2 weeks was not bad and it seems that our expectations are started to realize by price action. This level 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. Price has problems with breaking borders of any consolidation, but it has no barriers inside and could freely move from up to bottom.
Another important moment here - our pennant. In fact, EUR shows right now failure breakout, "bearish trap". Usually it least to opposite breakout, which corresponds to our view on weekly chart.
On Friday EUR has got solid hit, and now we need to estimate either this was a knockdown or it will become a knockout .
Weekly
Weekly analysis is not damaged by Friday's drop. In fact, EUR stands even higher the levels that we've expected to see. And everything perfectly matches to our view. Now price shows normal pullback inside morning star body. This is common practice that happens in 80% cases, when morning star or engulfing pattern been formed.
As we've mentioned previously once bearish reversal swing has been formed - market turned to reasonable upside bounce from major 50% Fib support, weekly Oversold. Last week we recognized here morning star pattern, which suggests upside continuation in a shape of AB-CD pattern on lower time frames. Our approximate target of this action is at least to 1.18-1.19 area.
our basic scenario and anticipated 1.20-1.21 area is 5/8 Fib resistance level.
Daily
Recent NFP release brings new issues in our short-term view. On Friday morning we said that while bullish grabbers lows will hold - we will keep bullish scenario. Currently it is a bit difficult to imagine, especially with such nasty black candle with tail close, but upside reversal still could happen, as grabber's lows are still valid. Recall that one of our scenarios is butterfly "Sell" and it will be vanished only if recent lows will be taking out. So, this is first scenario that we will keep in mind in the beginning of the week.
Intraday
Common sense also suggests opposite scenario. Here probably there is no explanation is needed. Classical AB=CD retracement down to 1.1465, which could give us large "222" Buy. Here also you could recognize H&S pattern...
Final part of this action could take the shape of butterfly "Buy", which has 1.618 target at the same area - circa 1.1450, but this is not necessary:
So, if market will break recent lows we will turn to intraday bearish scenario. Overall situation is not too complicated still. The bullish context is not broken yet totally.
Conclusion:
Long situation has not changed much. Our monthly and weekly trading plan stands without big changes by far.
NFP has adjusted short-term picture a b it and on coming week we will be busy with two scenarios of upward continuation, according to our trading plan.
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.
