Forex FOREX PRO WEEKLY, September 20 - 24, 2021

Sive Morten

Special Consultant to the FPA
Messages
15,329
Fundamentals

This week was logical continuation of the previous one as investors are stepped in in a new week with the same mood and expectations of more data releases. Last week PPI report has set positive tone for the dollar and everybody was wondering whether this signal will be confirmed or not. As data was mostly surprising it has made solid impact on sentiment and markets performance. Indeed, CPI was lower that was not expected after strong PPI, while Retail Sales hit the records overcoming even brave expectations, while Consumer confidence was mostly in a row with expectations. These recent releases start to titillate the fancy of investors around September Fed meeting and again new calls about possible tapering are heard.

Market overview

The dollar climbed to a two-week peak against a basket of currencies on Monday, bolstered by expectations the U.S. Federal Reserve could reduce its asset purchases by the end of the year despite a surge in COVID-19 cases.

Philadelphia Fed President Patrick Harker became the latest official to say he wants the central bank to start tapering this year, saying in a Nikkei interview that he was keen to scale back asset purchases.

"My baseline forecast is still to have inflation around 4% this year, ending this year, and then starting to fall back to 2% over the years 2022 and 2023. However, I do see elevated risk that inflation could run higher," Harker told the Nikkei. I'd like to start the taper process soon, so that we can finish the tapering process, so if we need to increase the policy rate, we have the room to do that. And I think we need to buy ourselves that option."

Tapering talk has boosted the dollar, said Erik Nelson, macro strategist at Wells Fargo Securities in New York. We noticed from the Fed communication that they would like to de-link the taper from the rate hike," Nelson said. "But it will take a lot of convincing and frankly a lot of time for the market to change its reaction function. For now, a taper timeline is closely linked to a rate hike timeline in the market."

Tapering typically lifts the dollar as it means a step toward tighter monetary policy. It also means the Fed will be buying fewer debt assets, which suggests there will be fewer dollars in circulation. The Wall Street Journal reported on Friday that Fed officials will seek an agreement to begin paring bond purchases in November.

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"A couple of dynamics favour the dollar," said Rodrigo Catril, senior currency strategist at National Australia Bank in Sydney, noting growing risk aversion as even highly vaccinated countries such as Singapore and Britain log surges in COVID-19 cases. "Re-opening still faces challenges from the consumer, who is cautious and from bottlenecks which restrict ability for the economy to rebound with some gusto," he said. At the same time rising infections suggest we may still need to reintroduce restrictions of some sort. The other thing is that the Fed continues to signal that tapering is coming."

Underlying U.S. consumer prices increased at their slowest pace in six months in August, suggesting that inflation had probably peaked, though it could remain high for a while amid persistent supply constraints.
The Labor Department said on Tuesday its Consumer Price Index excluding the volatile food and energy components edged up 0.1% last month. That was the smallest gain since February and followed a 0.3% rise in July. The so-called core CPI increased 4.0% on a year-on-year basis after advancing 4.3% in July. Overall CPI rose 0.3% after gaining 0.5% in July. In the 12 months through August, CPI increased 5.3% after soaring 5.4% year-on-year in July.

"The CPI has been running less hot than PPI and that's been true for the last five months. When you look at the month over month number, which is the most important number, there is sequential improvement, which is a very good sign. We're clearly seeing inflation heading in the right direction. These numbers are still elevated for historic norms but the sequential trend is still improving and that's a good sign, said Art Hogan from National Securities, NY.

"It’s a fairly positive report in the sense that the Fed's wish that inflation is transitory is coming true. If you look at a lot of the areas that were leading the surge in inflation, now they are all starting to come back down to earth. If you look at some of the components - used cars and trucks (prices), car and truck rentals, airline fares, lodging were all down. It continues to give the Fed maximum flexibility. Our base case expectation is that they are going to discuss (tapering) at the meeting next week but they won't have an official announcement till the November meeting, - Larry Adam from Raymond James, Baltimore.

The dollar slumped against major currencies on Wednesday after softer-than-expected U.S. inflation data released on Tuesday eased short-term expectations about tapering of asset purchases from the Federal Reserve. But the dollar trimmed losses after positive data showing import prices fell unexpectedly in August and a higher-than-expected reading for the New York Fed's business survey.

Capacity utilization for the manufacturing sector, a measure of how fully firms are using their resources, edged up 0.1 percentage point to 76.7% in August. Overall capacity use for the industrial sector rose 0.2 percentage point to 76.4%. It is 3.2 percentage points below its 1972-2020 average.

Officials at the Fed tend to look at capacity use measures for signals of how much "slack" remains in the economy — how far growth has room to run before it becomes inflationary.

Inflation appears to have peaked or is close to doing so. A second report from the Labor Department showed import prices dropped 0.3% last month after increasing 0.4% in July. The first decrease since October 2020 lowered the year-on-year increase to 9.0% from 10.3% in July.



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A third report from the New York Fed showed its "Empire State" index on current business conditions surged to a reading of 34.3 this month from 18.3 in August. A reading above zero suggests an expansion in regional business activity.

Firms in the region were very optimistic that business conditions would improve over the next six months, with capital and technology spending plans increasing markedly. But supply side challenges remained, with the delivery times measure hitting a record high. While a measure of prices paid for inputs by firms in the regions slipped it remained at very high levels. Manufacturers reported raising prices for their goods, with the survey's gauge of prices received marking its third straight record high.

"Businesses and consumers are not out of the woods yet," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania. "Still, we remain comfortable with our forecast for inflationary pressures to moderate further, abstracting from the temporary hurricane effect in September."

"The reality is that there is no guidance other than the obvious: poor economic indicators mean the recovery from the pandemic has slowed down more than expected by Delta," said Juan Perez, FX strategist and trader at Tempus Inc in Washington. The buck in the midst of all this will still have room for gains and spikes as doom and gloom play a role in diminished risk-appetite, but idiosyncratic improvements in the UK as we saw with CPI, and other regions could eventually start weakening the dollar more consistently."

Wednesday's data showed Britain's inflation rate hit its highest in almost a decade last month after a record jump that was largely fuelled by a rebound in restaurant prices.

"We think a combination of modest economic revisions (by the Fed) and steady messaging on the interest rate outlook should be supportive for the U.S. dollar, given that many other central banks are likely to lag the Fed's policy normalization process by a substantial margin," Scotiabank FX analysts wrote in a research note.

The figures, alongside this week's inflation report, will help reduce pressure on the Federal Reserve at its meeting next week, said Robert Cobo Garcia, head of FX strategy at BBVA. Even so, he said, commodity prices and the prices subcomponents of the "Empire" survey suggest inflation pressures driven by rising costs are not over.

"The transmission to final consumer prices will have implications for the Fed’s reaction function even though it may still be too early to see any change in the Fed’s stance in the FOMC meeting next week, especially after the downward surprise in core CPI," Garcia wrote in a note to clients. Overall, domestic news flow and data could give some direction to the USD but ranges against FX majors should persist into the FOMC meeting next week."

Elsewhere, Norway's crown was a touch lower at 8.5965 per dollar, off the more than two-month high of 8.5598 reached overnight amid a rally in oil prices.

"EURNOK is one of the preferred exposures to play a rising crude price, and we're seeing a solid bearish trend here," Chris Weston, head of research at broker Pepperstone in Melbourne, wrote in a note to clients. If Brent and WTI crude are headed for their respective double tops then EURNOK is going one way in my view."

The New Zealand dollar was edged up 0.1% to $0.7112, giving up an earlier jump of as much as 0.47% after the economy grew at a much faster pace than expected. The strong gross domestic product data reinforced the view that the central bank will start lifting interest rates despite a recent coronavirus outbreak

The dollar held near three-week highs on Friday after better-than-expected retail sales numbers in the United States boosted bets on the strength of the U.S. economy and earlier monetary policy tightening. U.S. retail sales unexpectedly increased in August, data showed on Thursday, rising 0.7% from the previous month despite expectations of a 0.8% fall. A business sentiment survey also showed a big improvement. The figures revive expectations for an early tapering of its asset purchases by the Federal Reserve, which has its two-day policy meeting next week.

The National Retail Federation said the rise in sales despite the headwinds reflected the continued strength of the American consumer and the resilience of the nation's retailers.

"We maintain our confidence in the historic strength of consumers and fully expect a record year for retail sales and a strong holiday season for retailers," NRF President Matthew Shay said.

Americans are sitting on at least $2.5 trillion in excess savings accumulated during the pandemic. Wages are rising as companies scramble to fill a record 10.9 million job openings.

A separate report from the Labor Department on Thursday showed initial claims for state jobless benefits rose 20,000 to a seasonally adjusted 332,000 for the week ended Sept. 11.

A third report from the Philadelphia Federal Reserve showed its business activity index jumped to a reading of 30.7 in September from 19.4 in August. A reading above zero indicates growth in manufacturing in the region, which covers eastern Pennsylvania, southern New Jersey and Delaware.

On Wednesday, economists at JPMorgan again trimmed their third-quarter GDP growth forecast to a 5.0% annualized rate from a 7.0% pace. The Federal Reserve's "Beige Book" report last week showed "economic growth downshifted slightly to a moderate pace in early July through August."

But after the release of the retail sales report on Thursday, economists at Morgan Stanley raised their third-quarter GDP growth estimate to a 5.0% rate from a 3.3% pace. Goldman Sachs raised its forecast to a 4.5% pace from a 3.5% rate, having lowered it to a 5.25% pace early this month.

Currency markets were generally quiet on Friday with traders reluctant to take on new positions ahead of a clutch of important central bank meetings next week including the Fed, the Bank of Japan and the Bank of England.

“Despite the ongoing China Evergrande saga plus views from many that equities are due a correction, risk sentiment remains surprisingly supported. Expect another quiet FX trading session before a busy week of central bank meetings,” ING analysts said.

The offshore yuan traded at 6.4526 to the dollar, pressured by growing worries about China’s real estate sector as investors fear property giant China Evergrande could default on its coupon payment next week. The Evergrande saga follows a series of regulatory clampdowns in China that has knocked investor confidence in the local stock market, as well as signs growth there is slowing.

“The continued uncertainty over news out of China, with anything from tech to property firms taking a hit, has yet to offer much of a blow to ongoing risk sentiment but must be closely watched for signs of contagion,” said Jeremy Thomson-Cook, chief economist at business payments firm Equals Money.

Still, on a trade-weighted basis, the yuan stood near its highest level in five years, both in the onshore and offshore market.

"While we doubt that the FOMC will set out a plan for tapering its asset purchases, the new economic projections may shed some light on its reaction function given building cyclical inflationary pressures," wrote Jonathan Petersen, markets economist at Capital Economics, in its latest research note. Our view remains that inflation in the U.S. will stay elevated for longer than the FOMC and investors currently anticipate, in turn supporting higher U.S. yields and a stronger dollar," he added.

The University of Michigan consumer sentiment for September inched higher to 71 versus the final August reading of 70.3, but overall analysts said the rise was nowhere near the improvements seen in the Empire States and Philadelphia Fed manufacturing surveys

Fed meeting on horizon

More than 60% of economists expect the first change in bond purchases to take place in December, according to the latest Reuters poll, which also showed them cutting their forecasts for 2021 economic growth.

“It is hard to be enthusiastic to begin reducing purchases if the pace of (job) gains has slowed a lot,” said William English, a Yale School of Management professor and former Fed official who helped shape the bond-buying program initiated by the central bank in response to the 2007-2009 financial crisis and recession. They will want more data,” English said. “And if it is disappointing, they conceivably end up waiting ... It is a tricky statement. They want to open the door but not commit. That is the mission.”

That dilemma raises the stakes for the next U.S. employment report, which is due to be released on Oct. 8. That data is likely to show whether the Delta variant of the coronavirus is having a deeper impact than Fed officials anticipated earlier in the summer when they said the economy appeared to be divorcing itself from the pandemic.

The Fed will hold its next policy meeting on Tuesday and Wednesday, a session that will include the release of fresh economic projections and a new read on officials’ interest rate expectations. The projections will incorporate a volatile summer of data that included job gains of nearly 1 million in both June and July before the drop off in August, unexpectedly strong inflation numbers, and a surge of COVID-19 infections and deaths that eclipsed last summer’s viral wave.

The Fed in December said it would not change the bond purchases until there was “substantial further progress” in reclaiming the 10 million jobs that were missing at that point because of the pandemic.

Binding policy closely to the level of pandemic job losses made sense at the time, with the country worried about a new slide into recession and COVID-19 vaccines yet to be widely distributed. It now leaves policymakers dependent on a jobs revival that has run in fits and starts, shaped by forces as disparate as childcare availability or opposition to mask-wearing mandates in large states like Florida and Texas and their effect on hiring and people’s ability to work.

As of August the economy had clawed back fewer than half of those 10 million missing jobs. Other relevant statistics, like the employment-to-population ratio, are short of what policymakers like Richmond Fed President Thomas Barkin, also a voting member of the FOMC this year, have said they want to see before concluding that the job market was repaired enough to begin reducing the bond purchases.

With inflation also higher than expected for most of the last several months, other officials have said the bond purchases should end by early next year. However, a recent weakening of inflation, as expected by many other Fed officials, may temper any sense of urgency to act faster.

That kind of division over policy, in an era when economic data have veered from frightening to ebullient, means the Fed will want to keeps its options open in the weeks ahead, said Tim Duy, chief U.S. economist at SGH Macro Advisors and an economics professor at the University of Oregon.

“They will do something like 2013. Clear the way to taper at any future meeting,” Duy said.

In 2013, the Fed introduced language at its September meeting that began a turn towards eventual reduction of its last round of “quantitative easing” after the financial crisis. At that meeting the Fed noted the economy showed “underlying strength” despite a pullback in federal government spending. But because the impact of that “fiscal retrenchment” remained uncertain, “the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.”

It repeated that language at its next meeting, before actually reducing its bond purchases in December 2013. This time it’s the Delta variant that is posing risks.

Many economists contend that attention to the taper discussion is overblown, and that a difference of a month or two in terms of when the Fed begins or ends it makes little difference. But it will send a potent signal that U.S. monetary policy is closing the books on the crisis, and will train focus on the next phase of debate over when inflation will require the Fed to raise its benchmark overnight interest rate - federal funds rate - from the current near-zero level.

It’s a call Fed officials want to get right.

“The macro stakes around the timing are rather low,” said David Wilcox, a former Fed research director who is now a senior fellow at the Peterson Institute for International Economics. “What is important is the inference that can be drawn about how they are reading the inflation tea leaves. How anxious are they to wrap up their bond-purchase program in a timely manner before they might want to raise the (federal funds) rate? That is why this decision is of more than passing interest.”

COT Report

EUR shows the same trend in sentiment. Investors close positions in EU currency. Recent report stands for 14th of September and doesn't show yet the big impact of recent Retail Sales data. But, even without it, we see big drop in open interest. The most interesting thing in this report that no changes are come from speculators. They just barely contracted their positions. But the drop has come from hedgers, long-term investors. It's just big run out. Data shows that investors do not care of the sign of recent statistics and other news - they just close their positions. Speculators, by the way also have closed positions with equal amount of longs and shorts. it means that unfortunately we can't count on any sharp reversal of EUR any time soon.

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Continued in next post...
 

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Sive Morten

Special Consultant to the FPA
Messages
15,329
Next week to watch

#1 Central Banks meetings

Several central banking big-hitters meet in coming days, with the U.S. Federal Reserve's Sept. 21-22 meeting topping the must-watch list.

The timing of the Fed's U.S. tapering plans remains the key question and recent data suggests caution may be warranted: the U.S. economy created the fewest jobs in seven months in August and consumer prices increased at their slowest pace in six months.

Several officials say the Fed's tapering of its pandemic stimulus will start this year, a view Fed chief Jerome Powell may echo, while stressing an interest rate rise is still way off.

The Bank of Japan, which also meets on Tuesday and Wednesday, will keep policy steady but could well warn of growing risks to exports from supply disruptions.

Confirmation that a major central bank is raising interest rates rather than just talking about it, will be significant for markets hooked on cheap cash. On Thursday, Norway's central bank is set to become the first from the developed world to hike rates since the pandemic, likely raising its main 0% rate to 0.25%.

The Bank of England is unlikely to change policy but with consumer price growth at a 9-year high in August, traders are pricing a rate rise next May. The BoE may signal at its Thursday meeting whether or not it still views inflation as transitory.

We will hear from the laggards too -- Switzerland is not expected to begin shrinking its balance sheet or lifting rates, the world's lowest, until long after the others. Sweden is forecast to keep rates at 0% until 2024 but its monetary policy announcement on Tuesday may well reflect a rethink after strong inflation readings.

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#2 Evergrande End game

Cash-strapped Chinese property developer Evergrande needs to come up with $120 million worth of bond coupon payments. That such a tiny amount could be the tipping point for a $355 billion behemoth with more than 1,300 developments across China and over $300 billion of liabilities shows how bad things are.

China's no. 2 developer has been scrambling to raise cash, with fire sales on apartments and stake sales in its sprawling business network, but with little success.

As it teeters between a messy meltdown, a managed collapse, or - least likely - a government bailout, the risk of contagion is in focus. Evergrande's Hong Kong-listed shares have plunged more than 80% this year.


#3 PMI

Purchasing managers indexes, an oft-used gauge of economic growth and corporate sentiment, are running well above historical averages but advance readings for September -- due Thursday in many countries -- will likely show PMIs edging further off the highs hit earlier this year.

The Delta COVID-19 variant, supply chain bottlenecks and soaring input costs have been showing up in PMIs in recent months. IHS Markit's euro zone manufacturing PMIs for instance slipped in August to 61.4 from 63 in July, and are expected to ease further this month to 60.5.

A JPMorgan composite global PMI index was at 52.6 in August, six points off record highs hit in May. These are still healthy readings, above the 50 mark that separates growth from contraction, so central bankers meeting in coming days probably have no cause to fret just yet.

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So, overall picture is relatively certain, and we have discussed previously all components in Fed decision. Mostly there are two of them - inflation and employment. First one hits the necessary level, while another one is still tumbling. This week a lot of talks were about UK CPI inflation jump but somehow just few mentions of solid drop in Retail Sales in UK and China, where data was three times lower than expected (about 2% vs 7% expected). I'm maintain the approach of wider (a kind of global) view on the subject of Fed decision. This is not just the US economy - this is big part of global economy and the process that are going in China (the 2nd largest by the way) and EU are making mutual impact as well. I was mentioned this earlier as well. The global slowdown has indirect impact on Fed decision, because within 1-2 months the China echo comes to US as well. And this lets Fed to foresee some changes that are not visible right now. If they know in advance about slowdown and inflation ceiling - this gives them room and time to postpone tightening and tapering. And by our opinion - this is what we see now.
So, despite the noise about superb retail sales and GDP upside revision we suggest still that December is most probable month to get first tapering. Announcement probably should be in November.

Another side of the moon is impact of the same data on EUR/USD currency balance. The darkness around EUR is straining. We see no improvement and no resolving the sentiment problem, which actually has become even worse. As we've expressed our opinion - it seems nothing external could provide sufficient positive stimulus to EUR. Despite all USD negative data, which were rather strong - it hasn't helped. EUR could start moving higher only when ECB turns to more aggressive policy. This week again - CPI was released on Tuesday, but COT data shows negative changes in EUR sentiment. Next week it should be even worse because of Retail Sales reaction including. This investors' behavior supports our view that market currently discards details and treat the situation in general - Fed is closer the shift in policy than EUR, overall statistics in US is better as well. With such a background we do not see any perspective for any more or less significant upward action on daily/weekly time frames.


Technicals
Monthly


So, our analysis above tells that sentiment and fundamental background is bearish for EUR now. Technical picture is also stands tough. September is coming to an end and it is decisive 1-2 weeks for technical picture as well. Take a look that just a month ago we were talking about possible fake downside breakout that potentially should be bullish for EUR. Now situation could change drastically, if September close appears to be below August lows. Monthly trend stands bearish and EUR has all chances to challenge the YPP around 1.1620 area, especially if Fed exceeds our expectations and still tell something about the tapering on coming meeting.

Now by the hindsight - it seems that fake breakout was the reflection of hopes that ECB starts to taper PEPP programme. But this has not happened. The vital area for the monthly chart now is YPP. Downside breakout lets EUR to move in direction of YPS1 and 1.10 area. It is not sense to discuss bullish perspectives right now, as we do not see any background for it.

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Weekly

As we've mentioned last week - now the daily EUR OP at 1.1620 gets the new meaning. This time we've got the 2nd weekly grabber in a row on Dollar Index, and this is definitely not an occasion. It means that no longs positions should be considered on EUR at least until it hits 1.1620 major target and weekly K-support area. For the bears - this is the factor that brings more confidence.

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So, it totally clarifies situation around the EUR and means that this "222" is the major pattern that we're waiting for. It is different question, whether EUR will be able to stay above 1.16, but, since we're coming to very strong weekly support area and YPP - first touch is promised to give us the bounce, which might be rather solid on lower time frames...
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Daily

Here is everything stand clear. Trend is bearish. If on Thursday it was some chance that H&S might work, at least theoretically - now with the price on half way to the bottom it is clear that H&S is failing. Hence, we consider no longs and watch for shorts on intraday charts. Price is not at oversold and EUR has free way to drop more:

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Intraday

On 4H chart market perfectly completes Friday's setup - minor 50% pullback with DRPO pattern and downside reversal again. So, response to COP is done. As we see solid acceleration and breakout of major 5/8 Fib level - obviously OP reaching is just a question of time. Interesting that XOP agrees with major 1.1620 level, which means that it also should be hit with perspective of 1-2 weeks:
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Taking in consideration the shape of the tendency, hardly we could count on strong reaction as COP is done already and it was not too strong. Until OP, any pullback should be small, not larger than harmonic swing. From the OP it might be two. Hence, if any pullback happens before OP - we could consider 1.1750 and 1.1765 levels for short entry:
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Last edited:

Jyotiprakash Pal

Sergeant
Messages
236
Thanks for guidence sir , bought some NZDuSD on 0.7019 , believe NZD will be a great currency for investment this week , my humble request is if you have time please spread some light on nzd
 

Sive Morten

Special Consultant to the FPA
Messages
15,329
Thanks for guidence sir , bought some NZDuSD on 0.7019 , believe NZD will be a great currency for investment this week , my humble request is if you have time please spread some light on nzd
Yes, Jyotiprakash, I remember your request its just was a crazy week for me, so not time to breath...

PMI down in NZD, scarecrow covid, is not better SELL?

Guys, with DXY weekly grabber on the table - it is not good time for long entry on NZD. In general we have the same long term pattern in progress as on AUD - reverse H&S pattern. But right arm is yet to be formed, so, NZD should keep drifting lower.

Also you could use "Search" option for NZD/USD videos. I've prepared few updates recently, with the shorter term picture, (somewhere about the month ago).
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Sive Morten

Special Consultant to the FPA
Messages
15,329
Morning everybody,

So, lets keep up with the EUR. On daily chart price stands on a way to H&S failure and downside breakout should happen sooner rather than later. Now it is big combination of factors make pressure on dollar rivals. Not only recent positive statistics and coming Fed meeting but also scandal around Evergrande, China real estate giant, that stands at the edge of bonds default.

At the same time I have to warn you that downside breakout might be not direct. On DXY we're dealing with 3-Drive pattern, and very often it takes the shape of side-by-side butterflies. Actually the 1st drive is butterfly already. Thus, if we get deeper pullback on intraday charts (than we suggest now) - it doesn't mean that EUR is turning up. It just means that the breakout takes different shape of butterfly. Here is how it could look like on DXY. It doesn't mean that it is definitely happen, but just be ready for this scenario as well:
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Meantime intraday charts stand more in favor of direct breakout. EUR hits OP, while XOP agrees with our major 1.1620 target. As we see acceleration on CD leg, the pullback should not be too extended and market has high chances to proceed to XOP:
eur_4h_21_09_21.png


At current moment it makes sense to watch for harmonic swings and not worry about possible butterfly, as upward action stands very weak. Since we're bouncing after OP, it makes sense to suggest 2-swings retracement, somewhere to 1.1755 Fib resistance.
The sign that we're turning to butterfly happens, when price forms upside reversal swing, i.e. price jumps above 1.1790 previous top. But currently we do not see any hints on it:
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Thus, at current moment we do not consider any long entry. For short entry 1.1755 level seems suitable. But be aware of different news as markets now are highly depended from external factors. For example, if Evergrande problem somehow will be resolved, it could trigger stronger upward reaction.
 

Sive Morten

Special Consultant to the FPA
Messages
15,329
Morning everybody,

It is difficult to expect something reasonable right now, just ahead of Fed meeting. So, price probably keep wobbling until the press conference, later in the session. Big moves could happen only in a case of something unexpected. Direct bearish breakout follows if Fed really announces tapering (that we do not expect yet). Alternatively - any very dovish moments could trigger upward action, but currently I can't suppose what a kind they should be. Maybe cancel tapering or postponing it on indefinite term. All other results if Fed say nothing new could trigger volatility but not direct breakout.

Thus, on daily chart we still keep in mind two scenarios - first is direct downside breakout with H&S pattern that already stands underway. But, in case, if higher pullback starts - we could get bearish butterfly here, as we've discussed yesterday o dollar index.

We do not consider long positions right now on daily time frame. Here is approximately how it could look like. Technical picture stands more in favor of direct breakout as market is not at support or oversold. It is free space through the lows.
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On 4H chart reaction on OP target stands week and doesn't show any reversal signs, that also supports an idea of downside continuation:
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So, 50% retracement of 2 harmonic swings that we've discussed yesterday is done. Maybe EUR will try form "222" Sell here...
Concerning short entry, we have two options. In fact, if direct drop happens - now on retracement market should stay inside the recent downside swing. So, if you plan to take short position now - it is not necessary to place too far stops. It seems that the one above 1.1790 should be enough. Or even above the 1.1765, if "222" Sell will be formed.

In a case of unexpected dovish notes, butterfly could start to form and EUR could move higher. This will be different entry scenario and probably not of this week. So, current setup is only for those who suggests direct downside continuation today on daily chart.
eur_1h_22_09_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,329
Morning everybody,

So, Fed has released the statement and in two words speaking it was a bit more hawkish than suggested initially, mostly because of two points. First is, Fed sets the inflation forecast in 2021 at 4.2% that is 2 times greater its initial beacon and second - they've said that interest rate change will be faster than it was initially suggested, but nevertheless starts not earlier than in 2023. As in 2022 Fed intends to close QE programme.

Thus, Fed is provided the clarity and assurance that markets should get 2 more years on low interest rates environment which is very positive to stock market, for instance.

In short-term it seems supportive to US Dollar. On daily chart we've got bearish reversal session yesterday and now should take butterfly scenario off the table. It still has chances to be formed but only if we get some driver that could push EUR in higher upward bounce. As we have no support on daily chart - it is free space through the lows, it is more chances now to see direct downside breakout. We could use reversal bar as indicator. If our short-term context is valid - EUR has to stay inside its range. Upward breakout suggests no shorts and stronger upward bounce:
eur_d_23_09_21.png


Following to AB-CD logic on 4H chart - as drop below OP is done already, it should be continuation to XOP. Any other type of action breaks the normal price behavior and destroy short-term bearish context.
eur_4h_23_09_21.png


Thus, if you consider short entry with this short-term context - pay attention to 1.1725-1.1730 K-resistance area as potentially suitable for this. As we use reversal bar, stops could be placed just above it. Risk seems small around 30 pips.

eur_1h_23_09_21.png
 

Sive Morten

Special Consultant to the FPA
Messages
15,329
Good morning,

So, EUR was able to move a bit higher because of some relief around Evergrande problems that have decreased demand for USD and Gold. As a result we've got engulfing pattern on daily, but the top of the reversal bar has not been taken out, so our stops are still valid and today we have to decide how to manage the short position that many of us have.

eur_d_24_09_21.png


On 4H chart market has formed MACD divergence and now potential reverse H&S pattern is easy recognizable here:
eur_4h_24_09_21.png


1H chart shows that the neckline is also K-resistance. Overall downside action has not bad momentum, so some downside pullback should happen probably. Besides, this agrees with H&S shape. Thus, we could consider one of the fib levels to out of the shorts at the breakeven or maybe with some positive result.

Theoretically you even could keep this position but since potentially bullish pattern is forming and we're coming the end of the week - it would be better to out and see what will happen on Monday:
eur_1h_24_09_21.png
 
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