Forex FOREX PRO WEEKLY, September 13 - 17, 2021

Sive Morten

Special Consultant to the FPA
Messages
15,067
Fundamentals

Finally we've got the week where the minimal amount of fundamental events that lets us to not overload report with information and analysis. In fact, we have just two of them - ECB meeting and US PPI data. Next major event we get on Sep 21-22 - FOMC meeting. The coming week should be relatively quiet as we get mostly CPI data across the Globe and US Retail Sales which seems to be important. So market society has enough time to think about recent statistics, Fed and ECB steps to make common opinion and set the direction hopefully.

Market overview

The European Central Bank signalled on Thursday - it will only slightly reduce its emergency bond purchases over the coming quarter, as widely expected. The ECB, while taking a token step towards unwinding the emergency aid, gave no signal of its next policy move, including how it might dismantle the 1.85-trillion-euro Pandemic Emergency Purchase Programme (PEPP), which has kept borrowing costs low for governments and businesses.

The European Central Bank will trim emergency bond purchases over the coming quarter, it said on Thursday, taking a first small step towards unwinding the emergency aid that has propped up the euro zone economy during the coronavirus pandemic. After the ECB pulled out all the stops last year as COVID-19 ravaged the economy, high vaccination rates across Europe are bolstering recovery prospects and policymakers have been under pressure to acknowledge that the worst is over.

The ECB did so by slowing the pace of its Pandemic Emergency Purchase Programme (PEPP), which has kept borrowing costs low as governments took on unprecedented amounts of debt to finance the response to the pandemic. But with rising U.S. infection rates making the Federal Reserve hesitant to wind down its stimulus, the ECB was keen to stress it wasn't about to close the money taps.



"The lady isn't tapering," ECB President Christine Lagarde told a news conference to explain the decision, using a turn of phrase reminiscent of former British Prime Minister Margaret Thatcher's famous declaration "the lady's not for turning. What we have done today ... unanimously, is to calibrate the pace of our purchases in order to deliver on our goal of favourable financing conditions. We have not discussed what comes next," she said.

Lagarde pushed back a decision on how to wind down the 1.85 trillion euro PEPP to December and stressed that, even if that happens, the ECB will continue keeping credit cheap in its quest to boost inflation to its target.

"The day when PEPP is over ... the job is not finished because we are still targeting 2%," Lagarde said.

With the economy now on a stronger footing, the ECB said that favorable financing conditions could be maintained with a "moderately lower pace" of asset purchases compared to the 80 billion euros it bought per month during the past two quarters.

It provided no numerical guidance for the three months ahead, but three sources with knowledge of the discussion said that policymakers set a monthly target of between 60 billion and 70 billion euros, with flexibility to buy more or less, depending on market conditions.

While Lagarde struck an optimistic tone on the labour market, she stressed that future recovery prospects still depended on the continued success of Europe's vaccination programme and the trajectory of infections across the world.

"We are not out of the woods, we are not on the green, as the golf players will appreciate," Lagarde said.

The ECB upgraded its growth forecast for this year to 5% from a previous 4.6% target and raised inflation expectations. Inflation is now seen at 2.2% this year, falling to 1.7% next year and 1.5% in 2023 - well below the ECB's 2% target.

But Lagarde said policymakers continued to believe that wage pressures were modest and that supply bottlenecks currently hitting materials and equipment would start to ease.

With Thursday's decision, the ECB's key rate remains unchanged at minus 0.5%, PEPP remains on track to end next March and purchases under the older Asset Purchase Programme (APP) remain at 20 billion euros a month.

But Lagarde skirted the big issue around the exact end of emergency support, leaving that contentious decision for December's meeting.

"Today’s meeting confirms our earlier expectations that PEPP will end after March. That said, the ECB clearly remains data-dependent, and has kept all options open for December," Rabobank analysts wrote in a note. That desire to remain flexible is also underscored by the avoidance of the word ‘tapering’, and the message that today did not mark a turning point for PEPP."

Analysts now expect the ECB to outline plans for major policy changes by December, and a gradual phasing out of the PEPP by March 2022.

The difficulty is that the bank must signal the end of PEPP, its biggest asset-purchase scheme, as the coronavirus crisis ends, while promising to maintain support via other tools because inflation is still too low. That will require the ECB to shift its focus to the more rigid, longer-established APP, the bank's primary stimulus tool before the pandemic.

But to make the APP fit for purpose, the ECB must increase purchase volumes and make its rules more flexible - which conservative members of the Governing Council could resist, fearing that the ECB is already acting beyond its mandate.

"I think the council is far too divided for her to start deliberating on that," Gilles Moec, chief economist at French insurer AXA Group, said.

Analysts polled by Reuters had said they saw bond buying under the ECB's pandemic emergency purchase programme (PEPP) falling to possibly as low as 60 billion euros ($71 billion) a month, before a further fall early next year and the scheme's end in March

“The ECB is delivering mainly as expected today,” analysts at TD Securities said in a report on Thursday. “Looking ahead, the focus will be on how the ECB defines "moderately" - anything less than €60bn/mo could be bearish.”

Data on Thursday showed that the number of Americans filing new claims for jobless benefits fell last week to the lowest level in nearly 18 months, offering more evidence that job growth was being hindered by labor shortages rather than cooling demand for workers.

Investors are also focused on when the U.S. Federal Reserve is likely to begin paring bond purchases, though a move is unlikely to be announced until at least later in the year after a weaker than expected jobs report on Friday. The August slowdown in job growth will not throw off the Fed's plans to reduce its asset purchases this year, four Fed officials said on Wednesday, though some cautioned a final decision requires more data.

China's factory gate inflation hit a 13-year high in August despite Beijing's attempts to cool them while consumer inflation slowed unexpectedly in a sign of soft consumption. However, Piron reckons that more monetary policy stimulus will push the onshore exchange rate to 6.55 yuan per dollar by the end of September and 6.6 by year-end as China's yields become less attractive relative to U.S. Treasury yields.

"USD/CNY is surprisingly nonchalant amid rising concerns over China's property debt cycle and disappointing growth data," said BofA strategist Claudio Piron.

U.S. producer prices increased solidly in August, leading to the biggest annual gain in nearly 11 years, suggesting that high inflation is likely to persist for a while as the unrelenting COVID-19 pandemic continues to pressure supply chains. The producer price index for final demand rose 0.7% last month after two straight monthly increases of 1.0%, the Labor Department said. The gain was led by a 0.7% advance in services following a 1.1% jump in July.

Strong demand and supply constraints were underscored by other data on Friday showing the pace of inventory accumulation at wholesalers slowed in July. It is now taking wholesalers the fewest months in seven years to clear shelves.

"Supply chain bottlenecks have persisted longer and more intensely than most predicted at the beginning of this year, and widespread labor shortages are among the main input issues producers are dealing with," said Will Compernolle, a senior economist at FHN Financial in New York. "This means consumer price inflation should remain elevated for a while."

In the 12 months through August, the PPI accelerated 8.3%, the biggest year-on-year advance since November 2010 when the series was revamped, after surging 7.8% in July.

U.S. wholesale inventory accumulation slowed in July, lagging further behind sales, and it is now taking wholesalers the shortest time in seven years to clear shelves. The Commerce Department said on Friday that wholesale inventories rose 0.6% as estimated last month. Stocks at wholesalers increased 1.2% in June. Wholesale inventories climbed 11.5% in July from a year earlier. Inventories are a key part of gross domestic product. The component of wholesale inventories that goes into the calculation of GDP increased 0.7% in July.

Business inventories were depleted in the first half of the year, but shortages amid persistent supply bottlenecks because of the COVID-19 pandemic and recent ports congestion in China are frustrating efforts to replenish stocks. Sales at wholesalers increased 2.0% in July after accelerating 2.3% in June. At July's sales pace it would take wholesalers 1.20 months to clear shelves, the fewest since July 2014, from 1.22 in June.

"Producers are struggling to replenish their stockpiles against surging demand," said Matt Colyar, an economist at Moody's Analytics in West Chester, Pennsylvania.

With inventories tight, producers are easily passing on the higher costs to consumers. Federal Reserve Chair Jerome Powell has steadfastly maintained that high inflation is transitory.



Though most economists share this view, some argue that strong wage growth from a tightening labor market suggests inflation could be more persistent.

"Today's data on wholesale prices should be eye-opening for the Fed, as inflation pressures still don't appear to be easing and will likely continue to be felt by the consumer in the coming months," said Charlie Ripley, senior investment strategist at Allianz Investment Management.

The Fed's preferred inflation measure for its flexible 2% target, the core personal consumption expenditures price index, increased 3.6% in the 12 months through July after a similar gain in June. Data next week will likely show the consumer price index rising 0.4% in August and increasing 5.3% on a year-on-year basis, according to a Reuters survey.

High inflation and supply constraints, which tanked motor vehicle sales in August, have prompted economists to slash their third-quarter gross domestic product growth estimates to as low as a 3.5% annualized rate from as high as 8.25%. The economy grew at a 6.6% rate in the second quarter.



"The danger with inflation is once prices go up, they don't go back down and the economy and producers and consumers all have to live in a costlier world where many don't have the means to do more than just barely survive," said Chris Rupkey, chief economist at FWDBONDS in New York.

There are, however, signs that inflation is likely nearing its peak. Excluding the volatile food, energy and trade services components, producer prices rose 0.3%, the smallest gain since last November. The so-called core PPI shot up 0.9% in July. In the 12 months through August, the core PPI accelerated 6.3%. That was the largest rise since the government introduced the series in August 2014 and followed a 6.1% increase in July.

Details of the PPI components, which feed into the core PCE price index, were mixed. Healthcare costs fell 0.2%. Portfolio management fees rose 1.1% and airline tickets increased 8.9% after soaring 9.1% in July.

"Soft medical services suggest that evidence of persistently stronger inflation in PCE may be more limited," said Andrew Hollenhorst, chief U.S. economist at Citigroup in New York.

"Headlines reflecting the highest annual producer price increases in decades won’t give those worried about inflation much comfort, but the smaller month-over-month increase and recent evidence indicating supply chain bottlenecks are no longer intensifying suggest a peak in producer inflation may be near," said Marc Zabicki, director of research for LPL Financial.

"With the ECB raising its economic projections for 2022 and beyond, it appears that the high-water mark in policy accommodation has been passed," said Mark Dowding, chief investment officer at BlueBay Asset Management. Looking ahead, Dowding said next week's U.S. inflation print could help dictate near-term market direction.

Despite the prospect of reduced stimulus packages, Mark Haefele, chief investment officer at UBS Global Wealth Management, said he expected central banks to keep interest rates low.

"In currencies, we think going long GBP and NOK and short EUR and CHF should provide a mid- to high-single-digit percentage upside on a total return basis over the next six to 12 months."


The dollar rose on Friday in line with higher U.S. Treasury yields as investors focused on when the Federal Reserve is likely to begin reducing its asset purchases.
The greenback has risen from a one-month low reached last Friday after jobs data for August showed that jobs growth slowed, while wage inflation rose more than expected. It has not yet been able to establish a strong trend, however, as investors wait on new clues on when the Fed is likely to begin paring its bond purchases and, eventually, raise rates.

“That to me is the most important thing, is when does the Fed hike rates, and unfortunately we may not know that for a little while,” said Erik Nelson, a macro strategist at Wells Fargo in New York.

Fed officials are grappling with rising price pressures while jobs growth remains below their targets. The Wall Street Journal on Friday wrote that Fed officials will seek to make an agreement at the Fed’s September meeting to begin paring bond purchases in November.

COT Report


This week data shows increasing of net long position but on a background of following open interest, which means that change mostly stands due to closing of shorts rather than open of new longs:
1631346085612.png


In general, hardly we could call this change as "bullish" as longs positions also being closed. The data stands for Wed, before ECB, but hardly anemic ECB statement impacts on EUR. We should treat this change as a bearish. Recall that last week we've got poor NFP release, and some other statistics across the Globe suggest slowdown in global economy, US rate change is postponed. With this positive background we do not see enthusiasm and new purchases on EUR - only shorts have been closed. This way of reaction suggests that EUR sentiment barely is bullish. And if we see EUR net position on negative side next week - this should not become a surprise to us.
1631346402216.png

Source: cftc.gov, Charting by Investing.com


Next week to watch

#1 US inflation data


Tuesday's U.S. consumer prices data will provide more fodder for the debate on whether the current inflation burst is likely to fade as a handful of drivers causing prices to rise in recent months eventually ease.

In July, price increases slowed but remained at a 13-year high on a yearly basis amid tentative signs inflation has peaked as pandemic-induced supply-chain disruptions work their way through. Meanwhile Friday's University of Michigan's consumer sentiment index will provide a glimpse on the health of the economic recovery.

While Fed Chair Jerome Powell assured markets policymakers would take a measured approach to tapering monthly bond purchases, worries linger that persistent rising inflation could hasten a roll back of loose money policies.

1631346631574.png



#2 UK (and EU) Data

Bank of England governor Andrew Bailey warns Britain's economic bounce back is slowing; upcoming data on jobs, inflation and retail sales will show if he is right - and may provide crucial inputs before the Sept 23 policy meeting.

July inflation, dismissed as a blip, slowed to 2%. Retail sales fell 2.5% month-on-month, blamed on bad weather and soccer. Will Wednesday's August data show a pick-up? Inflation pressures remain high -- July factory output costs rose 4.9% year-on-year, the most in nearly 10 years. Input costs jumped by almost 10%.

Tuesday's jobs data is also in focus, given labour shortages, a record 8.8% rise in June average wages, and below-average unemployment. The end of furlough schemes may push people into the jobs market, but skills shortages risk fueling price pressures driven by supply bottlenecks and commodity prices.

1631346707117.png


So, it seems that investors are totally disappointed in ECB as it can't provide even minimum information to make markets feel comfortable. In fact it provides no information at all. And hardly it plays some important role in nearest future. Mostly situation will depend on US data and Fed policy only and US Dollar strength or weakness should set the direction. The only thing that we could say about ECB - something really outstanding should happen that could make them move. Supposedly, if Germany inflation peaks to 5% in November as many investors expect - they could be more specific on December meeting. Hardly we could get something important from them until the end of the year.
It is quite different situation in the US. Although they try to carry on as if nothing has happened, but inflation doesn't give up. After temporal relief and despite poor NFP - hourly earnings and PPI hit the records. The next one is CPI on coming week. Sentiment analysis shows that despite ceiling of inflationary data and occasional drop in employment market is not fascinating to expand its EUR possession. Shorts have been closed, but no longs were open. With recent ECB statement hardly this happens this week either. It means that recent rally on EUR has fragile background and could reverse at any moment. Don't forget what we've said on Friday about DXY picture - 3-Drive is not cancelled yet totally and still keeps ratios very well. If WSJ is right and Fed indeed will announce November tapering on coming September meeting - this will be relatively hawkish decision as everybody (including us) are watching on December. Taking it everything together - it seems we do not have enough context to call current upward action as "new upward tendency" and should treat it as retracement by far, that can't provide strong background for taking long positions for considerable period of time.


Technicals
Monthly


From technical point of view, we're stepping in most interesting stage. Formally trend is bearish as MACD looks down, but price was able to stay above YPP and formed fake triangle breakout. Monthly technical patterns always reflect fundamental picture because this is long-term chart and coming few months might be decisive. We were hoping that with Fed tapering postponing and deteriorating US statistics and rising EU inflation PEPP contraction is possible. But now it seems that decisive moment should come later.

Now, technically a least, EUR gets that chance to move inside the triangle. It means way is open at least to 1.2150-1.22 area of upper border of the pattern. In short-term YPP and 1.1660 lows are vital level for the EUR. Downside breakout of this area indicates sentiment shift to bearish and open road to YPS1 area.

eur_m_13_09_21.png


Weekly

Although EUR was able to avoid grabbers on weekly chart - we could miss the core if wouldn't take a look at DXY. As ECB position was flat again, EUR is lack of support right now that is reflected in recent COT Report. We could say that everything is great if we wouldn't have uncompleted downside OP target. Here, on weekly - price action is absolutely reasonable - it tests K-area and now shows upward bounce with the "222" shape. Could OP be ignored? Sometimes yes, if fundamental background takes drastic shift. But we haven't got it this week. It means that we still should worry about daily OP around 1.1620 area. Weekly bearish grabber on DXY makes this worry solid:
1631353822754.png


Next vital point for EUR here is 1.20 area. Here we get either H&S pattern or, in a case of upward breakout and H&S failure, we clearly could talk about upward continuation and set new upward targets on monthly chart. But currently it is unclear possible fundamental background for this action:
eur_w_13_09_21.png



Daily

So, instead of upward continuation market mostly has formed bearish session. MACD trend here has turned bearish. As on weekly as on daily chart price is flirting with MACD line but trend now stands bearish in all time frames. Once again on DXY we have bullish grabbers this time, although EUR shows nothing of this kind. Based on intraday reaction on Friday, current sentiment I'm gravitating to idea of downside continuation rather than upward continuation. Maybe if we get poor statistics from the US, EUR could move slightly higher but this reaction supposedly will be short-term anyway, as it has ignored NFP weakness last week.
So daily chart our conclusion is the same - let's wait at least for H&S shape in place (to not speak even about OP again). The price action that we see on intraday chart looks not very fascinating for taking new long positions...
eur_d_13_09_21.png


Intraday

On 1H chart despite all attempts EUR was not able to hit 5/8 B&B target and stopped at 50% resistance, forming "222" Sell pattern:

eur_1h_13_09_21.png


It seems that things are coming to breakout of K-support area on 4H chart. And now it is "highly likely" to get price around 5/8 support area of 1.1760, where the next big step should be determined, based on the daily H&S performance. My bet is on downside continuation as we have OP, DXY weekly grabbers and weak fundamental background for the EUR...

eur_4h_13_09_21.png
 
Last edited:

Jyotiprakash Pal

Sergeant
Messages
236
Sir want small request from my side , if you have time please cover one NZD pair as well. There economy can print serious numbers this week.
 
Last edited:

Sive Morten

Special Consultant to the FPA
Messages
15,067
Morning everybody,

Today, guys is very interesting situation on EUR from technical point of view. As you remember, in weekly report we've shown bullish DXY grabber that is bearish for EUR and suggests drop below the recent lows.

But yesterday on EUR we've got bullish grabber. You can't see it on FX retail brokers chart, but if you take a look at EUR CME Futures - you'll see it:
1631602535730.png


As we've suggested EUR indeed has dropped on Monday and recent lows stand at acceptable level of right arm's bottom of our reverse H&S chart. Of course, we prefer to see more time EUR spent around it forming some bullish patterns on intraday charts, but now we have the spike down and the grabber.

On 4H chart market has reached only 50% support and minor OP, while it would be better to get major OP Agreement with 5/8 1.1760 support level, that we've discussed before:
eur_4h_14_09_21.png


As a result of all this stuff - EUR is moving higher and now is struggling with K-area and natural resistance of previous consolidation. With this price shape, the only bullish pattern that we could consider is "222" Buy, if price drops somewhere to 1.1790 Fib support area in a way of AB-CD retracement.

Alternatively it is the option to wait for larger pattern - reverse H&S with neckline at 1.1850.
eur_1h_14_09_21.png


A lot of things that you have to think about today, if you want to take long position on EUR. Also - do not forget about CPI today, later in the session.

So, as a bottom line - two options exist. You could try to stick with daily grabber with stops below 1.1770 area either by market or wait for some retracement as we've said. Second option is more conservative - ignore the grabber, wait for CPI and watch for larger pattern, such as reverse H&S here, on 1H chart.

Personally, guys, I feel uncomfortable a bit to buy EUR with bullish weekly grabber on DXY, week sentiment and coming CPI... All these moments suggest not small chances on daily H&S failure, at least on daily/weekly time frames. On Intraday charts, in a case of "222" Buy around 1.1788, risk is rather small, so, maybe it makes sense to consider.
 

Sive Morten

Special Consultant to the FPA
Messages
15,067
Morning everybody,

So, EUR keeps giving fun to the traders as today again we've got opposite patterns. Recently we already have mentioned that we have grabber on DXY that is bearish for EUR, and today we've got the daily one as well. So we have the opposite patterns now on EUR and DXY.

Second is - overall reaction on CPI. It is difficult to call it positive, although numbers are EUR supportive. Take a look at gold reaction, for instance. Here - initially it was nice jump but later it was totally erased. This is not good.

As a result - formally, we have bullish setup, based on daily grabber and intraday patterns but this trading setup stands in unfriendly environment:
eur_d_15_09_21.png


On 4H chart market has tried to break the flag consolidation and now is forming the H&S pattern that we've discussed:
eur_4h_15_09_21.png


But it also not everything is good with H&S. The sell-off on right arm is not bullish sign and makes the pattern weaker, although now price finds support right at 5/8 level, where the bottom of right arm should be:
eur_1h_15_09_21.png


If you decide to take this trade - try to get some bullish patterns on lower time frames - butterflies, grabbers, W&R at least. In general we have bullish setup, risk is relatively small (just about 30 pips), but setup stands in unfriendly environment, which makes overall situation a bit lack of confidence. Thus, it makes sense to move stops to breakeven once some upward bounce from 1.18 support happens.
 

Jyotiprakash Pal

Sergeant
Messages
236
This Usdcad on 1.2647 looks great buy , wish sive sir can guide. i bought some on 1.2647
 

Attachments

  • USDCAD_2021-09-15_19-20-45.png
    USDCAD_2021-09-15_19-20-45.png
    47.4 KB · Views: 5

Sive Morten

Special Consultant to the FPA
Messages
15,067
Morning everybody,

So, situation on EUR remains tricky as performance looks heavy like we've said previously. At first glance nothing has changed, at least on daily chart... We still have opposite grabbers on DXY and EUR.
eur_d_16_09_21.png


On 4H chart EUR has confirmed the grabber that we've discussed yesterday (when it was yet to be formed), and formed another one. Both of them suggest upward action above the 1.1850 top. These grabbers are vital for minor H&S pattern that is forming here, which one, in turn is vital for EUR in short-term.
eur_4h_16_09_21.png


Market right now stands at crucial area - bottom of right arm, where it should be pain or gain situation. In a case of downside action - H&S fails, which means the drop below the head, and, correspondingly - the failure of daily grabber pattern. Conversely upward action should lead EUR somewhere to 1.1875, at least in a way of AB-CD pattern, and - maybe higher if daily H&S starts to work...
Now, why I think that setup is weak... First is mentioned above opposite patterns. Second - weak and heavy reaction on recent statistics that are weak for USD - CPI and NFP. Today we get Retail Sales and see, but it seems that effect will be the same...

Finally, technically I do not like market performance of right shoulder. Here bulls should control situation - but we do not see it. Market is forming triangle consolidation and can't return back to the neckline.
eur_1h_16_09_21.png


As a bottom line - it is definitely better to wait with taking long position on daily chart. On intraday charts - it is possible carefully, with near standing stops (below right arm's bottom) with moving them to b/e with any upside performance. But this thing is all about current 1.18 lows. Setup fails once EUR breaks them down.
 

Sive Morten

Special Consultant to the FPA
Messages
15,067
Morning everybody,

So, guys, it seems that our suspicions were not in vain and now everything stands at proper places. At first glance we get what we want - H&S pattern on daily chart. But, it seems once again - we should wait a bit with position taking. The major reason is a market performance on a way to the right arm's bottom. It is too bearish for bullish reversal pattern.

In the light of recent drop - the DXY weekly grabber, and EUR long-term 1.1620 OP target get new sense. Besides, intraday performance stands so that chances on daily H&S failure are not small:
eur_d_17_09_21.png


We know stand in a "all or nothing" situation. Market hits Agreement support and formed butterfly pattern which is potentially reversal one. But we have acceleration to COP and 1.27 butterfly target. It means that there are big chances to follow to OP, but it stands below crucial H&S support area. Any sell-off on last stage of H&S looks bearish. If market follows to OP it means that H&S probably fails and we're going to 1.1620 major OP target on daily chart. This is simple logic chain.
eur_4h_17_09_21.png


On 1H chart we could get minor bounce today, just as technical respect to solid support, as DRPO "Buy" is already in place, but we do not expect reversal here:
eur_1h_17_09_21.png


Now we need to see what will happen around major support. To step-in we need more confidence and more bullish context. For example - appearing of extended reversal pattern on 1H chart could be a good one. As it stands now - I wouldn't consider long entry on daily chart by far.
 
Top