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FOREX PRO WEEKLY, September 24-28, 2018

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, Sep 22, 2018.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals

    This week our attention mostly will be on short-term factors, as long-term ones stands without significant changes. So, we keep our long-term view on dollar appreciation in relation to EUR and GBP within a year or so.

    Speaking on Brexit negotiations - we've missed just for one day, guys. Factors that I've explained in details in Thu video have been triggered on Friday and GBP collapsed. Daily setup has worked perfect as market has not passed through K-resistance, while intraday Thu setup has been erased by price action...

    As Reuters reports - Sterling plunged on Friday, driving the U.S. dollar up, after fears rose that Britain would
    leave the European Union without a trade deal. British Prime Minister Theresa May said on Friday the European Union must supply an alternative Brexit proposal, saying talks had reached an impasse after the bloc's leaders had rejected her plans without fully explaining why.


    That's what we've talked about. It is useless to expect some steps from EU, because Brexit was initiated by GB, and all troubles concerning border as physical as economical will be GB burden. EU has better and stronger position in this dispute, since they actually don't care where border will be and whether GB will keep place in EU trading space or not. In fact, GB staying with EU trading space is another strong argument in hands of Brussels, and it could use it to force GB accept EU-favored position on Brexit, or to get big reparations.

    "Sterling bears are out in full force. They've pushed the pound quite aggressively down this morning," said Dean Popplewell, chief currency strategist at Oanda in Toronto, "and it looks like they want to push things further."

    "On the back of (the pound's fall), it's interesting the dollar got a bit of a bid as well. The trade woes in the last 48 hours took a bit of a back seat and it did allow some of the risk takers to set their sights on some of the other G7 currencies," said Popplewell.

    With trade war concerns receding and emerging market central banks led by Turkey taking measures to stabilize their currencies, investors pushed the euro just past the $1.18 line for the first time in more than three months during the European session. The dollar's bounce, however, pulled the single currency back into the red, last at $1.174.

    The safe-haven bid into the dollar has been bolstered by strong U.S. economic data, boosting the value of the currency as trade tension between Washington and Beijing escalates. As the tariff talk has faded out of focus, traders have made classic risk-on moves.


    The market will be focused on the Federal Reserve's policymaking committee meeting next week, at which a hike in interest rates is expected by 93.8 percent of traders, according to CME Group's FedWatch tool.

    With the likelihood of a Fed hike almost fully priced in by the market, analysts at TD Securities suggest that might yield an "asymmetric response in the FX markets where the dollar weakens more on a dovish take than rallies on a hawkish one."


    Now, if we will take a look what's going on in US, recent Fathom consulting update on US economy sentiment tells that everything stands rather positive.

    "We expect US GDP growth to remain between 3.5% and 4.0% in Q3 and Q4, after increasing by an annualised 4.2% in Q2. The latest reading of our US Economic Sentiment Indicator (ESI) supports that view after it climbed from 5.5% to 6.0% in August. Trade tensions between the US and China continue to escalate, but there has been some cooling of tensions between the US and other trading partners, such as Mexico. While consumer sentiment remains upbeat by past standards, the rise in the ESI was driven by businesses, with the readings on 10 out of 14 business surveys increasing in August."


    [​IMG]

    Taking it all together, guys, about GBP - it seems that this is good moment to short GBP. Problems are not resolving, but time of divorce closer and closer. It means that domestic political pressure on T. May will rise, and negotiations will be harder. Now I do not want even to talk on border problems and what will happen inside GB, if they will decide, say, to split Ireland again or separate UK economy in two parts. Any of these solutions will be disaster. If we add here UK economy problems that were mentioned many times here and relatively positive perspective of US economy - from fundamental point of view, conclusion is obvious.
    It might happen, that by recent drop GBP turns back to long-term bear trend.

    And the last thing for today. If you remember within two previous reports we've talked about Fathom analysis of possible global crisis in 2020. Also I've put some technical charts of DAX, NASDAQ and DJIA indexes, where all of them stand at all-time targets.

    Today, Fathom also has released analysis on small cap US stocks where it comes to conclusion of possible soon reversal there. I read this reports, since I mostly deal with equity options right now. When I saw H&S on DAX in January - this was first warning sign. Now, with Fathom view on small caps, this could be early bell on stock market era is over.

    But here, we're mostly interested in FX market, and another phrase is attracted my attention. Fathom writes:
    "US dollar might not continue to support smaller companies as it has over the past few months. If the Fed delivers a rate hike per quarter until 2020, per our expectations, the extra financing costs from higher rates will probably offset any short-term relative gain even if the dollar does appreciate."

    So, they expect rate increase by Fed every quarter till 2020. This is important. Speaking on small caps stock, conclusion stands as follows:
    "We think that small-cap stocks may be approaching the end of their strong relative outperformance as this performance has become increasingly extreme."

    COT Report

    As you understand, today we will take a look at GBP, mostly because it could stay at decisive moment and, as we've said above - long term bear trend could continue right from here. Sentiment shows sad picture, it's bearish. Net short position has increased last week, while open interest has dropped for ~45 K contracts. It means that speculators were closing long positions on GBP:

    upload_2018-9-22_13-9-45.

    Still, as you can see on the chart - net short position has not reached the bottom yet and has some potential to decrease even more.
    upload_2018-9-22_13-1-59.
    Source: CFTC.gov
    Charting by Investing.com

    Technicals
    Monthly


    Although we've made no weekly reports on GBP within 2 months, monthly chart has not changed significantly. As you can see price is coiling around Yearly Pivot in August and September. Trend stands bearish here, no overbought. Fluctuations are too small to make impact on monthly chart, and we could say that bearish context here still stands intact.

    Long term charts mostly stand in relation to fundamental processes rather some technical short-term issues. From this point of view GBP action on monthly chart absolutely corresponds to our view on UK economy and its perspectives. Once our previous target of YPP has been completed at 1.30 area, now we could talk about YPS1 at 1.2440.
    At the same time we remind you our long tong all-time AB=CD OP target around 0.95. Recent bottom of 1.22 is, actually, COP target.

    It is difficult to talk definitely guys, but in my opinion most undervalued factor for UK is flaw in its relation with EU as economical as political. Now, when US steps in in this conversation, situation has become even more difficult.
    Speaking on long-term perspective, in July we've mentioned that EU is turning East right now to huge new markets and economical possibilities - Iran, Middle East, Asia and Russia, of course. This is alternative to UK market, especially when UK turns up its nose. At the same time, UK is an island, it strongly depends on its closest neighbor - EU. Not only in terms of mutual trading, but also in terms of goods logistic. If this flaw will start to wide - 0.95 of GBP/USD could become a reality.

    Pivot framework looks very bright here. Cable has failed to break through Yearly Pivot resistance 1. This fact tells, that upside action to 1.40 was just a retracement within long-term bear trend, and this retracement is over. Following this logic, current downward action is another leg of bear trend. Thus, we should not be surprised by unexpected downside accelerations.
    gbp_m_24_09_18.
    Weekly

    Here we do not need many comments, guys. You probably understand everything - yes, here we have very good B&B "Sell" pattern, which still has potential down. As you know, minimal target of B&B is 5/8 Fib support of whole upside retracement action, and this level has not been reached yet.

    At the same time, taking in consideration bearish sentiment around GBP, B&B could become the pattern that will trigger downside continuation. Major 5/8 Fib support here was deeply penetrated by downside thrust. Below this level market has no strong supports any more till 1.20 area.
    gbp_w_24_09_18.

    Daily

    Despite we've missed one day with expectation of impact of fundamental factors on GBP - daily setup has worked perfect. Market has failed to break K-resistance and collapsed. Now we have multiple bearish signs and patterns here. First is our "222" Sell, second - we have bearish "Stretch" pattern, as market overbought at K-resistance. Finally, GBP has failed to pass through MPR1 and WPR1. As we've explained, this is important issue for identification of retracement.

    "222" already has reached minimal target - this is 3/8 Fib support. But, as we also have weekly B&B, we could watch for some continuation, at least to major 5/8 daily support.
    gbp_d_24_09_18.

    Intraday

    Indeed, market has reached K-support area around 1.3050. Here also you can see that B&B minimal target is ~1.29. Market has formed bearish reversal swing, so chances on upside bounce are not bad.
    gbp_4h_24_09_18.

    On 1H we have very good thrust down, that's suitable for DiNapoli B&B or even DRPO "Buy" patterns.
    Here is as usual - watch for upside retracement and bearish continuation patterns, B&B "Sell", "222" etc.
    1.3140 Fib resistance and WPP now seems like attractive level, where downside action could be re-established.
    gbp_1h_24_09_18.

    Conclusion:

    As we've updated long-term inputs on UK and GBP, they bring nothing yet that could force us to change opinion on GBP perspective. It still stands bearish.

    In short-term perspective situation might be interesting. It is good that GBP provides clear setup for short entry, but what is really interesting - whether GBP turns to long-term downside action again...


    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.
     
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  2. Deltoid88

    Deltoid88 Private

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    Thank you Sive, it is very educational and helping to read your views and analyzes, and I watch it every day. Although I agree with you that short term on GBP is bearish and that we could expect abc correction to the downside to 61.8 Fib on 1.29. I expect after that bounce and new wave up in both GBP and EUR as I think bearishness about brexit in GBP is already build in the price, and that long term low on GBP is already established on 1.2660 and that it wont be challenged. What do you think about this scenario? Would appreciate answer.
     
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  3. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Hi Deltoid,
    Usually, when some event is priced in, market shows weak reaction on it, or no reaction at all. Now we see that any new infromation on EU/UK Brexit negotiations, and concerning border in particular, triggers strong movements on the market. It makes me think that there are still a lot of blind space in this topic and not all results were priced-in yet.
    But I don't insist upon it. ;)

    Second moment - our view on GBP is based not only on Brexit, but in relative comparison of ongoing process in US and UK economies, which now definitely stands in favor of US.

    These two factors are created our long-term fundamental view on Cable.
     
    #3 Sive Morten, Sep 24, 2018
    Last edited: Sep 25, 2018
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  4. Deltoid88

    Deltoid88 Private

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    Thank you very much for taking time to answer my question. Very much appreciate it, Sive. I am relatively new here, is there anyway to contact you more directly? Do you offer pay service for trading?
     
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  5. Sive Morten

    Sive Morten Special Consultant to the FPA

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    This is most direct way to contact me right here :)
    Nope. I do not provide any pay services.
     
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  6. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    So, this week should be very interesting. Tomorrow we will get Fed view on perspectives of US economy.
    Now we need to switch between EUR and GBP to keep both scenarios regularly updated. Our short-term setup for GBP has been completed - market has formed 1H DRPO "Buy" and completed setup for short entry. Since we've prepared weekly report on GBP - it doesn't need yet any updates and we switch to EUR today.

    EUR follows in direction of our Friday's thoughts. On Friday it has completed COP target right at daily K-resistance area. So we have K-area and Agreement on daily. It means that current area definitely is not good for taking long position. Usually, areas of such strength trigger at least 3/8 pullback. But also we have to keep in mind our reverse H&S pattern, and potentially pullback could be deeper, somewhere to 50% area to keep harmony of potential pattern. But now, let's focus on nearest target:
    eur_d_25_09_18.

    On 4H chart we see that 1.16 area, which is potential first destination of pullback is K-support as well and agrees with WPS1. Trendline that we have here could be used as indicator, if price will break it down:
    eur_4h_25_09_18.

    Since all short-term targets have been hit and market stands at strong resistance, I would watch for some bearish continuation/reversal pattern here. Most probable candidate is "222" Sell, as it appears on tops very often:
    eur_1h_25_09_18.

    If you want to get more confidence with bearish action - you could wait for real downside breakout of the trend line and then try to take position on pullback. Very often, re-testing of broken lines also becomes a "222" pattern.
    The major risk factor now is uncertainty about Fed statement, but taking in consideration statistics that we have, hardly we will hear something dovish.
     
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  7. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    let's proceed with our EUR analysis. On daily chart market is coiling right under major resistance without common pullback. It could mean two things - either traders just wait for Fed or EUR is preparing for upside breakout.
    eur_d_26_09_18.

    On intraday charts we have bearish patterns but todays Fed statement makes situation more complex. Thus, on 4H chart we have two bearish grabbers, that suggest downside action. Also, if you put MACD here, you'll get classic bearish divergence as well:
    eur_4h_26_09_18.

    On 1H chart our bet on "222" Sell was good. Now, if you've followed this setup - its time to move stops to breakeven and be prepared to Fed.
    EUR shows some harmony here, which lets us recognize H&S-shape price behavior. At the same time, we haven't got our second confirmation - trendline breakout. Abscence of this moment keeps valid possible H&S failure and appearing of butterfly "Sell", with 1.1865 target.
    eur_1h_26_09_18.

    So, if you already have short position based on our "'222" Sell - keep it, and move stops to b/e. If you just want to go short, it is better to wait trendline breakout, because current entry level is less attractive than yesterday.
    Action above 1.18 first and 1.1820 second will destroy short-term bearish setup and could lead either to 1.1865 target or even to re-establishing of upside action and moving to daily OP. Whatever action will happen, the reason will be Fed probably.
     
  8. anthony egbiwe

    anthony egbiwe Private

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    please Mr sive help me to know the candles you identify in many trade that you call grabbers i have been following all your analysis for years but i can not identify them on my own except you point them out so please give me little coach on how to identify candles that are grabbers . Thanks for your free lessons, God bless you.
     
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  9. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Hi Anthony, to identify it, you need MACD Predictor indicator. This is red line on my chart. This is DiNapoli invention. In fact, this is the same MACD, but it shows on the chart precise price, where lines of common MACD indicator will cross. MACDP is derived from simple MACD.

    Grabber is a fake trend shift by MACD. It happens, when MACD shows crossing during time period, but do not confirm this by close price.
    By DiNapoli idea, fake trend shift locks hurry traders on the wrong side. When market follows real direction with the trend - their stops are hit.
    That's why it called as stop grabber. It suggests action above/below most recent top or bottom, depending on what trend was before grabber has been formed.
     
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  10. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Morning guys,

    So, it seems that our suggestion of USD performance and Fed sentiment was correct. At the same time, currently we do not see yet equal reaction to the Fed statements. In fact, J. Powell said very important things - "rates are too low" right now and EUR has not shown yet adequate reaction.
    It means that although currently price is flirting with MACDP and we think about bullish grabber, but I would suggest that hardly we will get it. With such a fundamental background - downside action seems more probable:
    eur_d_27_09_18.

    On 4H chart now we have AB-CD pattern and OP has been hit just by single candle. Now market stands at Agreement support. Next XOP target coincides with our minimal retracement target - 1.1630 area, which is daily 3/8 major support:
    eur_4h_27_09_18.

    Our idea with H&S pattern was not bad. IT's classical target also points at the same area as 4H XOP:
    eur_1h_27_09_18.

    So, guys, if you have shorts - keep them. If you just want to go short - drop your time frame and watch for rally to sell into or for bearish continuation patterns. Now market stands at support, upside pullback is possible.
     
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