FOREX PRO WEEKLY, September 25-30, 2017

[Sive Morten]

Fundamentals

(Reuters) - The dollar weakened against the yen on Friday, with tensions simmering on the Korean peninsula and as the boost from heightened expectations of a U.S. interest rate hike in December faded.

The dollar was down 0.42 percent at 111.99 yen, on pace to snap a five-day winning streak against the Japanese currency.

North Korea said on Friday it might test a hydrogen bomb over the Pacific Ocean after U.S. President Donald Trump threatened to destroy the reclusive country, with leader Kim Jong Un promising to make a “mentally deranged” Trump pay dearly for his comments.

“The dollar is coming under a little bit of pressure into the end of the week here. The post FOMC rally in the dollar certainly appears to be losing some steam,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

“Increasing tensions with North Korea is putting a little bit of selling pressure on the dollar, especially against the Japanese yen.”

The yen tends to benefit during times of crisis due to Japan’s net creditor nation status, and the expectation that Japanese investors would repatriate assets.

“Keep in mind the yen is bouncing off of about a two-month low,” Esiner said.

The dollar scaled a two-month peak of 112.71 yen on Thursday after the Bank of Japan maintained its bond-buying pledge. The move also was spurred by the Federal Reserve’s policy statement on Wednesday in which it signalled it still intended to raise rates in December.

The dollar index, which tracks the greenback against six major currencies, was down 0.13 percent to 92.136.

Meanwhile, sterling skidded against the dollar and the euro after British Prime Minister Theresa May failed to give any concrete details for how Britain might retain preferential access to Europe’s single market.

In a closely watched speech in Italy, May said Britain should stay in the trade bloc during a roughly two-year transition out of the European Union, and offered concessions on a divorce deal as she appealed for a revival of Brexit negotiations.

Sterling was down 0.32 percent against the greenback at $1.3534, after falling as low as 1.349.

“Theresa May’s speech was, as expected, a bit opaque, thin of detail and offered no new fundamental direction,” Neil Wilson, senior market analyst at ETX Capital in London, wrote in a note

The euro inched up 0.07 percent to $1.1947, with traders not seeing Sunday’s German elections as a source of risk. Chancellor Angela Merkel is widely expected to win a fourth term in power.

So, guys, I've got many questions on GBP recently as many forumers are interested with recent rally and whether BoE will rise rate. Increasing rate mostly comes against our long term view on GBP which is stand on strong bearish trend and we suggest that some lower targets should be met first in long-term period, before healthy reversal will start. Here is opinion of Fathom consulting on this subject. As investors across the board strongly expect rate increase - this could give good opportunity to trade opposite opinion and win. This kind of trade we've taken in the summer when rate also has not been increased on a background of hawkish expectations on the market.

Chart of the Week: Far From Certain that the Bank of England Will Hike in November
by Fathom Consulting

Last week, the UK Monetary Policy Committee struck a more hawkish tone, arguing that “some withdrawal of monetary stimulus [was] likely to be appropriate over the coming months”. As a statement of intent, we would not read much into this. Having struggled to rationalise the unexpected weakness in business investment and net trade in the second quarter, the Committee appears to be relying on consumer expenditure being firmer than forecast in order to justify the maintenance of its 0.3% GDP growth estimate for Q3. But data released last week confirmed our suspicion that the consumer squeeze intensified going into the third quarter. And with the key driver of the UK economy under assault, economic growth is likely to soften through the second half of this year, making it far from certain that the Bank will hike in November.

This is not the first time that the MPC has cried wolf, repeatedly trying to persuade investors that they have failed to price in a sufficiently aggressive interest rate path, only to have a change of heart come the next meeting. Most memorably the guidance issued in August 2013 stated that “the MPC intends not to raise Bank Rate from its current level of 0.5% at least until the Labour Force Survey headline measure of the unemployment rate has fallen to a threshold of 7%.” Several quarters after that, the unemployment rate slipped decisively below that threshold. And yet, four years later, Bank Rate is lower than it was then.

It was these mixed signals that led to Governor Mark Carney being dubbed the “unreliable boyfriend”, an association that he has yet to escape. In July 2015, Mr Carney declared that the decision to hike interest rates from record low levels would come into “sharper relief” around the turn of the year. Several months later, he went a step further, declaring that the Committee’s focus was on raising interest rates. Come the new year, however, a rate hike was ruled out. Soon after, the UK voted to leave the EU and Bank Rate was cut.

Despite this unpredictability, investors have now brought forward expectations on the timing of the first rate hike and sterling has rallied. Indeed, as our chart highlights, cable has climbed to its highest level since the immediate aftermath of the Brexit vote. But in our view, even if the Bank did hike in November, it would not be a step on the road to policy normalisation. Instead, it would mark little more than a reversal of the unnecessary, and quite probably ineffective, post-Brexit rate cut.

COT Report

Recent CFTC data shows that investors are seriously targeted on possible rate change by BoE. Indeed, 3 weeks ago there was good bearish sentiment when net short position was rising together with open interest. Then, net short position has decreased slightly while open interest mostly stand the same. This is the first sign that downside continuation stands under question.
Most epic moment has happened 2 weeks ago - when open interest jumped significantly and net position has become less short. It means that new longs were opened. Finally last week we see big positive jump in position this time, but open interest mostly stands the same. It means that big part of shorts were closed. So, sentimental analysis mostly confirms positive mood that now stands on the market, despite downgrading by Moody's rating agency.

Technicals
Monthly

So, it was approximately 1.5 month when we've talked on cable last time. Although market has moved higher during this period, this action has minor impact on long-term picture and this action we still treat as retracement. Overall long-term fundamental view is also negative for GBP. As major countries of EU, such as France, Italy and Germany are preparing for new era in World's order and start to make steps to join China-Russia-Iran-Turkey financial and political space, UK stands separate as all-time US ally. But those who will not be hurry enough to join it will appear abroad of new geopolitical order and their markets potential will be limited. Still, this is too long-term picture. We see 1.12 area as long-term target for GBP.

In shorter term view we're mostly interested with upside potential of current retracement on monthly chart. Trend is bullish here and there are some moments that we should take care on. First is uncompleted AB-CD target around 1.1650 area. Market has turned up just 350 pips above it, which is small distance for monthly scale.
If we will take a look at reasons for this action, from technical point of view we will find nothing but 0.618 target of all time AB-CD pattern. No Fib supports, Pivots, OB/OS levels, nothing more. Taking it all together, it seems that upside action should not be too extended. Usually market shows either small reaction on minor target or sometimes no reaction at all. This leads us to second issue.

As market is not at OB right now, it seems that nearest upside target stands around 1.3860-1.3975 K-resistance here. Obviously, this is rather strong resistance cluster as we have YPR1 and OB levels slightly higher, around 1.42 area.

Thus, monthly chart suggests that first attempt to turn south again should appear around 1.40...

Weekly

This chart we probably could place with "No comments" marking. Despite that we have strong upside action within two recent weeks, market has reached weekly OB and Fib resistance around 1.35 area.
Second important moment here - bullish reversal swing has been formed as price has moved above the top of previous downside swing. This leads us to following conclusion:
Before market will proceed to monthly resistance around 1.40+ area, deep retracement could happen.
In fact, here we have DiNapoli bearish "Stretch" pattern - combination of OB + Fib resistance. This duet is strongly negative for taking long position and better decision will be to wait a pullback:

Daily

Now we're getting more... Price has completed large AB=CD pattern and also creates an Agreement resistance with weekly Fib level. Market is OB here as well and within whole recent week we see that GBP had problems with upside continuation.

Here are some important moments. First is - recent thrust up. Now we have no patterns yet here, but it could become background for DiNapoli B&B or DRPO. Latter looks more logical in current circumstances.

Downward action probably will not be straight as daily OS stands around 1.3250 Fib support. This is first destination for retracement. But, as price is OB at weekly as well, retracement here, on daily has big chances to take compound shape, some kind of AB-CD. Most logical destination point within 2-3 weeks is 1.30 K-support area:

Hourly

Here we have just hints on possible downward action yet. First, is strong collapse on Wed includes big reversal action and W&R right after GBP has touched daily AB=CD target.

Now we have just a bit ugly looking H&S pattern. Still, it's classical target stands precisely around 1.3250 area and coincides with daily Fib level that we've chosen for target of coming week.

Those of you who would like to go short on GBP, in fact, have just two potions. Wait for DPRO "Sell" on daily chart, or, try to catch some bearish pattern here. For example, if market will show upside action here on Mon, it could form "222" Sell pattern. Or, most simple way - just stick with this H&S pattern. Right now we have nothing more. As soon as we will get something new - we will discuss this in daily videos:

Conclusion:

Within couple of months we suggest two leg action. First is will take 2-3 weeks probably and it should be pullback to 1.30 area. Second - market could try to reach 1.41+ monthly resistance. Still current upside action is treated as retracement and with perspective of 6-8 month we suggest that GBP re-establish downside action , as we have uncompleted 1.1650 monthly target.

On coming week we expect first part of retracement to 1.3250 area.

The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.

 

[Sive Morten]

Good morning,

(Reuters) - The yen stood tall on Tuesday after tensions on the Korean peninsula flared-up anew amid an escalating war of words between North Korea and the United States, while the euro struggled near a four-week low versus the dollar.

The dollar was 0.15 percent lower at 111.550 yen after coming off a high of 112.530 the previous day.

The euro was steady at 132.340 yen after dropping more than 1 percent overnight.

The Japanese currency made sharp gains after North Korea’s foreign minister Ri Yong Ho said on Monday that President Donald Trump had declared war on the country and that Pyongyang reserved the right to take countermeasures, including shooting down U.S. bombers even if they are not in its air space.

Japan is the world’s largest creditor nation and traders tend to assume Japanese investors would repatriate funds at times of crisis, thus pushing up the yen. Many wonder, however, if Japanese assets would really remain in favour if an actual war broke out in Asia.

The Swiss franc, also sought in times of geopolitical tensions, stood at 0.9662 franc per dollar after gaining about 0.3 percent overnight.


“The dollar tends to fall on flare ups in North Korean-related matters, but whether the Federal Reserve can hike interest rates in December as they projected still remains the ultimate decider,” said Shin Kadota, senior strategist at Barclays in Tokyo.

Immediate focus was on what views could be expressed by Fed Chair Janet Yellen, who is due to speak in Cleveland at 1645 GMT on “inflation, uncertainty, and monetary policy.”

The euro was 0.1 percent higher at $1.1857 but in close reach of $1.1832, its lowest level since Aug. 31 plumbed the previous day when it sank nearly 1 percent.

The common currency took a knock after German Chancellor Angela Merkel won her country’s elections over the weekend but saw a chunk of support shift to the far right.

The euro faced additional pressure after European Central Bank President Mario Draghi singled out currency volatility as a source of uncertainty that required monitoring and argued that “ample” ECB accommodation was still needed, because a premature and hasty move could unravel its work.

The euro had risen to a 2-1/2-year high of $1.2092 soon after the ECB’s Sept. 7 policy meeting. Euro bulls were buoyed by the central bank’s signal of an eventual end to its large bond-buying scheme, while the dollar’s weakness has also helped.

At the same time the 10-year German bund yield hit a two-month low as the debt markets interpreted the ECB’s message differently, seeing the central bank taking a cautious and patient approach to tapering its stimulus.

But the divergence between the euro and German yields that occurred has narrowed since.

“It was hard to see the euro and yields continuing to move in different directions, which was only possible as some speculators appeared to have gone to great lengths to push the euro higher,” said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

“But these euro long positions are beginning to become untenable as the dollar is stronger and U.S. yields are higher after the Fed’s policy meeting this month.”

The New Zealand dollar extended the previous day's slide and was last down 0.2 percent at $0.7249.

The kiwi sank 1 percent overnight after New Zealand Prime Minister Bill English’s National Party won the largest number of votes in Saturday’s election but not enough seats to rule outright, leaving investors likely facing weeks of political horse-trading before a government is formed.

The dollar index against a basket of six major currencies was a shade lower at 92.573 .DXY after rising 0.5 percent the previous day to a three-week high of 92.724

Today we could draw some preliminary bottom line of weekend events and talk on EUR. Mostly market support our suggestion that current situation is suitable for retracement. On political stage AfD indeed has brought surprise by taking more seats in Parlament, while Murkel got less % that it was expected. This will press on EUR until coalition will be formed.
CFTC data tells that long positions are overextended and technically, market stands just under strong monthly 1.2170 resistance. This makes good conditions for retracement on EUR.

Now, we have two important issues on chart. First is - yesterday's action. After gap down market has not made any attempt to close it, but just followed it. It means that this bearish reaction will be durable and will last for some time more.
Second - today price has reached Fib support and OS. It means that downward action should slow down and will be gradual and choppy. Today we even could get some upside bounce:

On 4-hour chart we could see our short-term target. It stands around 1.1750-1.1775 area. This is AB=CD target of our H&S pattern and butterfly "Buy":

As price stands right now at support and, in fact, we have DiNapoli bullish "Stretch" pattern - we should be ready for upside bounce. On hourly chart this could be, for example DRPO "Buy" with target around 1.19 area:

That's being said, if you're looking for short position, it would be better to wait for a minor bounce. For scalp trader, situation on hourly chart could be interesting as it could provide fast bullish trade.

 

[Sive Morten]

Good morning,

(Reuters) - The U.S. dollar was underpinned on Wednesday by remarks from the Federal Reserve chief on the need to continue with rate hikes, while the euro licked the wounds from political uncertainty following the German election at weekend.

The dollar’s index against a basket of six major currencies stood at 93.07, its highest level in almost a month, having risen from 93.286 the previous day.

Fed Chair Janet Yellen said on Tuesday that the Federal Reserve needs to continue gradual rate hikes despite broad uncertainty about the path of inflation.

It would be “would be imprudent to keep monetary policy on hold until inflation is back to 2 percent,” she said.

“Her comments suggest that latest (soft) inflation readings do not have a big bearing on the Fed’s monetary policy. The Fed’s focus is not to delay rate hikes too much to avoid a situation where it needs to raise rates hastily in the future,” said Yukio Ishizuki, senior strategist at Daiwa Securities.


U.S. interest rate futures dipped further to price in about 70 percent chance of a rate hike by December compared to near 60 percent on Monday.

Against the yen the dollar edged up to 112.33 yen , bouncing back from Tuesday’s low of 111.50. Last week’s two-month high of 112.725 yen is seen as a resistance level.

The euro stood at $1.1784, having struck a five-week low of $1.17575 on Tuesday. The euro weakened against other currencies, hitting a 10-week low of 0.87545 British pound and two-week low of 1.14075 Swiss franc.

The common currency had rallied more than 10 percent against the dollar so far this year as worries about the rise of anti-establishment political forces in Europe faded while expectations rose for tapering the European Central Bank’s stimulus.

Investor sentiment toward the euro was dented by the rise of a far-right party and the decline of traditional parties in Sunday’s German election, which has left Chancellor Angela Merkel struggling to form a coalition government.

Tensions are rising also in Catalonia, as Spain’s government said on Tuesday that police would take control of voting booths in Catalonia to help thwart the region’s planned independence referendum that Madrid has declared illegal.

Still, most market players think the euro could rebound soon as investors will likely focus on how the ECB will wind back its stimulus at its policy meeting next month.

“No one really expects the European politics to become a dominant issue for the market. The euro’s slide is driven by position adjustments and now may be a good time to buy,” said Kazushige Kaida, head of foreign exchange at State Street in Tokyo.

Elsewhere, the Australian dollar slipped 0.3 percent to $0.7862 after having dropped to six-week low of $0.7860 on Tuesday.


The Aussie was undermined by a fall this month in the price of iron ore, its main export product.

The biggest focus for the market for Wednesday is the announcement of a tax plan by the U.S. administration and Republicans in Congress.

The plan has been developed over several months by six White House and congressional Republicans working behind closed doors. President Donald Trump told U.S. lawmakers on Tuesday he wants bipartisan cooperation on tax reform.

Today we again will take a look at EUR. It seems that EU currency feels really bad and stands under strong bearish pressure. Although this is not surprise for us, as we've talked about within recent 2 weeks and there are a lot of factors for bearish behavior, but still, price action shows that bearish pressure is rather strong.

Take a look at daily chart - price has broken Fib support and dropped deeper in OS area. This is not typical for financial markets at all and just tells how EUR weak is. This type of behavior suggests that we could get larger H&S pattern with neckline around 1.1650. This is major destination point on daily chart:

But action to 1.1650 should not be straight despite the strength of bearish pressure. On 4-hour chart market has completed our AB-CD target and 1.27 butterfly point, but take a look how shy reaction was, just minor bounce up. On whole way down we have tail closing candles and overall pace of dropping is rather fast. It means that we could count on reaching 1.618 extension around 1.1720 area:

Approximately the same picture we have on hourly chart. Market stands few pips above 1.618 AB-CD target and has formed "222" buy, but it has solid chances to shift into butterfly, because 1.618 extension has not been met yet. This minor leg down, in turn, will let to complete whole butterfly on 4-hour chart. If any meaningful retracement will happen - it probably will happen after this target will be completed:

So, short entry is not comfortable right now as market stands deep in OS area, thus we need some bounce up. Most probably it could start as soon as 1.1720 area will be touched.
Those who search chance to go long - keep an eye on hourly "222"/butterfly pattern

 

[Sive Morten]

Good morning,

(Reuters) - The dollar hit a one-month high against a basket of currencies on Thursday, underpinned by hopes that U.S. President Donald Trump’s administration may be making progress on tax reforms.

The dollar index, which measures the greenback against a basket of six major currencies, rose 0.2 percent to 93.575.

It touched a high of 93.613 at one point, its strongest level since Aug. 23. Trump on Wednesday proposed the biggest U.S. tax overhaul in three decades, offering to cut taxes for most Americans but prompting criticism that the plan favours the rich and companies and could add trillions of dollars to the deficit.

The proposal faces an uphill battle in the U.S. Congress, with Trump’s own Republican Party divided over it and Democrats hostile.

But the unveiling of the plan, coupled with upbeat U.S. durable goods orders, helped give an added lift to the greenback, which has benefited from rekindled expectations that the Federal Reserve will raise interest rates again by year-end.


“I think the market’s views toward the U.S. had become too pessimistic,” said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

“That view is being re-assessed and bond yields are rising so dollar-buying could continue for a while,” Murata said.

The greenback’s rise gained renewed momentum in Thursday’s Asian trade as U.S. bond yields pushed higher.

The U.S. 10-year Treasury yield rose to 2.344 percent at one point on Thursday, its highest level since mid-July.

Including Wednesday’s move, the U.S. 10-year yield has risen more than 11 basis points -- putting it on track for its biggest two-day rise in nearly seven months.

The movement in U.S. Treasuries probably gained steam due to stop-loss selling, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

The resulting rise in U.S. bond yields was giving a broad lift to the dollar, he added.

The dollar rose 0.2 percent to 113.05 yen, nearing Wednesday's high of 113.26 yen, the greenback's strongest level in more than two months.


Emerging Asian currencies came under pressure as U.S. bond yields rose.

The euro also faltered, easing 0.1 percent to $1.1733, languishing near a one-month low of $1.1717 set on Wednesday.

So, yesterday USD has got additional support from announcement of tax reform in Congress. As EUR stubbornly moves lower despite OS condition, this let's us to make conclusion that bearish pressure on EUR is really strong. This is not natural behavior for financial markets in relation to OS.
It means that here we could turn our attention to larger H&S pattern on daily chart. Now market is moving to neckline around 1.1615-1.1630 area. It is a question whether price will reach it on this week, but hardly it will take too long time to achieve it:

4-hour chart shows our major AB-CD pattern, based on small H&S, from which we've started our trading week. Price has passed all extensions except last one - 1.618 @ 1.1615. Now price has completed 1.618 butterfly target:

On hourly chart our scenario has completed well, as EUR indeed has formed minor butterfly and completed AB-CD target. As we have multiple target cluster, today are not bad chances for upside retracement. Market already has formed "222" Buy pattern here.

Today "222" Buy has more chances to succeed compares to yesterday situation. Yesterday it indeed has shifted to butterfly, because we had uncompleted major 1.168 AB-CD target. But right now all targets around are met, so, no needs to move lower. Hence, "222" should get a chance to trigger upside bounce.

At the same time we should not choose too extended targets - 3/8 resistance at the best, or some minor upside AB-CD etc. Because major tendency is bullish and here we will get just retracement (if we will get it at all). Don't forget also move stop to b/e when it will be possible.

 

[Sive Morten]

Good morning,

(Reuters) - The dollar inched higher against a basket of major currencies on Friday and was on track for its biggest weekly gain so far this year as investors pondered the Trump administration’s tax plan and the outlook for Federal Reserve policy.

The dollar index edged up 0.1 percent to 93.211.

While that was down from Thursday’s near six-week high of 93.666, the index has still risen 1.1 percent this week, putting it on track for its biggest weekly gain since December.

The dollar has risen on renewed hopes for U.S. tax reform, as well as comments from Federal Reserve Chair Janet Yellen that stressed the need for gradual interest rate hikes.

Profit-taking and caution about political hurdles facing the U.S. tax plan seem to be tempering the dollar’s momentum, said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore.


“We’ve been down this tax reform road before, and I don’t think it’s going to be easy... There’s going to be a lot of back and forth, a lot of squabbling,” Innes said.

The White House struggled on Thursday to defend its new tax plan against criticism that it would help the rich at the expense of lower classes, as Republicans in Congress prepared to move ahead with actual legislation.

President Donald Trump had unveiled a plan on Wednesday that calls for lower tax rates for businesses and individuals as part of a comprehensive overhaul of the U.S. tax code.

Against the yen, the dollar edged up 0.3 percent to 112.66 yen. On Wednesday, the dollar had reached a 2-1/2 month high of 113.26 yen, buoyed by a rise in U.S. bond yields.

Later on Friday, investors will turn their focus to U.S. economic data, including the personal consumption expenditures (PCE) price index for August.

One focus for next week is U.S. job data due on Oct. 6.

“The immediate focus would be whether the market can look through the data volatility in the U.S.,” said Sim Moh Siong, FX strategist for Bank of Singapore, adding that the nonfarm payroll data is likely to reflect the effects from Hurricanes Harvey and Irma.

The euro eased 0.1 percent to $1.1777, but remained above Wednesday's trough of $1.1717, the common currency's lowest level in more than a month.

The common currency has rallied nearly 12 percent against the dollar so far this year as worries about the rise of anti-establishment political forces in Europe faded while expectations rose for tapering the European Central Bank’s stimulus.

The euro, however, has been weighed down this week after the results of elections in Germany on Sunday. Chancellor Angela Merkel won a fourth term in office but will have to build an uneasy coalition to form a government.

Sterling eased 0.2 percent to $1.3418.

On Thursday, it had gained 0.4 percent, after Britain’s Brexit secretary said “considerable progress” had been made in talks and the EU’s chief negotiator praised a “new dynamic” from the prime minister.

Today we will take a look at AUD. In fact aussie has the same setup as EUR but it's a bit more clear than on EUR. Here we also are watching for H&S pattern and right now price stands around neckline. AUD is also at MPS1 and daily OS. Now we expect upside action to the top of right shoulder:

Another reason for this purpose is completion of intraday 1.618 AB-CD target. Thus, downside extension is completed, WPS1 and daily OS have reached. This is good combination for upside reversal:

Finally on hourly chart price starts to form reverse H&S pattern, that could trigger upside action:

If you will take a look at EUR - you'll see absolutely the same patterns, even H&S on hourly chart. As price has completed butterfly yesterday, our suggestion of upside action was correct and EUR indeed bounce up with our "222" Buy pattern on hourly chart: