Sive Morten
Special Consultant to the FPA
- Messages
- 18,699
Fundamentals
Reuters reports dollar hit its highest in over five weeks against a basket of major currencies on Friday, a day after Federal Reserve Chair Janet Yellen said she expected the central bank to hike rates in 2015, and after U.S. growth data appeared to support such a move.
In a speech late Thursday, a week after the Fed delayed a long-anticipated rate hike, Yellen said she and other U.S. central bank policymakers do not expect recent global economic and financial market developments to significantly affect policy.
The comments surprised analysts since the Fed kept interest rates unchanged partly in a bow to worries about the global economy.
"The Yellen remarks yesterday were indeed a fairly elaborate attempt to explain why rates will go up before the end of the year," said David Gilmore, partner at Foreign Exchange Analytics in Essex, Connecticut.
Commerce Department data on Friday showed U.S. gross domestic product rose at a 3.9 percent annual pace in the second quarter, up from 3.7 percent reported last month.
The data supported the case that the U.S. economy may be able to withstand a rate hike.
The dollar index, which measures the greenback against a basket of six major currencies, hit 96.700 after the GDP data, its highest since Aug. 19. The index was on track for a weekly gain of about 1.4 percent, its strongest since mid-July.
The dollar hit its highest in over two weeks against the Japanese yen of 121.240 yen.
The greenback hit a more than six-week high against the Swiss franc of 0.98420 franc earlier in the session. While the euro slipped against the dollar after two straight days of gains, it remained within recent ranges and did not break below a more than two-week low of $1.11050 touched on Sept. 23.
Lingering skepticism surrounding the view that the Fed would hike rates this year capped the dollar's gains, analysts said.
"The theme is indecision," said David Rodriguez, senior strategist at FXCM in New York.
Recent CFTC data shows interesting data. Total open interest has dropped, but the core stands not around speculative positions. Yes, we see drop in speculative longs and flat standing of short positions, but take a look at commercials short - they have dropped for 2 times last week, ~ for 100K contracts. Each contract, guys, 125K EUR... Somebody has closed a lot of shorts at the eve of Fed meeting. This could explain solid rally that we've seen at that moment. But this is only the half of the story. The major one stands with trend. As you know hedgers accumulate positions against the trend. As short positions has been closed significantly it means that hedgers expect starting of bearish trend on EUR. This is important.
Open Interest:
Longs:
Shorts:
Commercial shorts:
Technicals
Monthly
Today, guys, we will provide specific type of analysis and make an attempt to clarify what is going on on EUR and what to expect. We will turn to cross-market analysis, since EUR has a bit mixed signs and does not show clear direction. As a result of this cross market analysis we will get better understanding of situation. We have talked about this way of analysis in our Forex Military School, but somehow traders very rare use it and we think that this is mistake. Analysis of monthly time frame will be enough for us...
First, we will start with Dollar Index. Our journey here has started in far 2011, our mature members should remember this discussion, when we've anticipated long-term dollar appreciation. It was based on quarterly stop grabber right at the bottom of huge Gartley "222" Buy" pattern.
Right now we see that this rally comes to an end or at least to logical objective point. After it will be reached, dollar could turn to long-term consolidation or retracement. But what about EUR you may ask?
Take a look that market has completed DRPO "Sell" but right now it stands under the hazard of failure by 2 reasons. First one is monthly stop grabber that suggests upward continuation and DRPO Failure. As we know DRPO "Failure" is directional pattern either that cancels direct signal and calls us to take opposite position.
Second - AB-CD pattern. Market already has moved above 1.0 extension but has not reached yet 1.618. Odds suggest that before any solid action market should hit the target. As you can see Dollar Index points on further dollar appreciation. It means that EUR/USD action should be bearish. Let's go further...
Next chart is monthly chart of Gold but in EUR. By the end of September we could get bullish grabber that suggests solid appreciation of gold against the EUR:
This also tells about possible weakness on EUR. From this standpoint, recent CFTC data looks absolutely logical. Finally, let's go to EUR directly:
Last time we've discussed three moments - DRPO, flag and grabber.
So, DRPO... situation becomes clear It looks curious and 90% this is not DRPO. We have no recognizable second bottom as usually it should to, also we have this untypical spike up that confuses the idea and market mechanics of DRPO.
Overall shape mostly reminds bearish flag and logically it better agrees with all this stuff that now stands in EU.
Finally on monthly chart we have another issue - possible bearish grabber that could be formed in September. Now price is crossing MACDP line but the major question what will be close price. Thus, except suspicious DRPO we have no bullish patterns here.
It means that next possible target @1.22 currently stands under question. It should follow from DRPO, but due to the reasons that we've placed above, we can't rely on it.
Finally despite the depth of current upside retracement, we still will treat it as bounce, if even EUR will reach 1.20-1.22 area. Market too long stands in downward action, especially during recent year and market has solid bearish momentum. Also take a look at butterfly pattern. Here we see definite acceleration right to 1.27 target point. Usually it leads market to next 1.618 target after retracement.
That's being said monthly analysis mostly tells that even phantom bullish patterns, such as mentioned DRPO gradually disappears as a smoke and bearish context crystals better. Grabber has target at 1.04 lows but our opinion that this will be a road to parity...
Weekly
By letter guys, we have bullish trend here. But recent action, market mechanics tells that something has broken in this bullish mechanism. After market has completed upside AB=CD pattern and hit overbought - we've got logical retracement down.
But take a look what has happened next. EUR was not able to re-establish upside action. Market already was out from overbought burden, and couldn't continue move higher. Last week EUR has dropped below MPP.
That's being said may be overall setup theoretically is bullish. At the same time overall action, especially in recent time looks poor. Final confirmation of bearish breakout will happen when trend will shift to bearish and market will move below 1.08 lows around MPS1.
Daily
Mostly guys, we already have discussed all important issues on daily chart in our updates last week. Right now trend stands bearish, but the moment of truth probably will come around 1.10 area. This is a clue to next action. Bearish breakout will open the road to the sequence of targets - 1.08, 1.04 and parity. While if market will hold above it - it could move higher inside the flag for some time more. But to be honest guys, I do not believe too much in this scenario.
Also, do not expect that market will move through 1.10 as knife through butter. Probably not. This will be oversold, accompanied by Fib support and trend line. Breakout will be difficult and market be EUR will challenge this level not once or even twice.
Since we do not have bullish setup, because trend is bearish - we can't take long-term bullish position right now (and personally I do not want to do it). Taking short also looks a bit early - it will be safer to wait till the end of the month when we will get (or will not get) multiple grabbers, may be 1.10 breakout. And then with confidence we could focus on short entry here.
EUR right now could interesting only of intraday trading probably. On daily it is a time of big expectation.
4-hour
As EUR has not completed this setup in time on Friday, we will continue to watch for 1.10 area breakout. Recall what we've said in last update - market has not quite completed 0.618 AB-CD target, if you use absolute top as "A" point. That's being said, the way how market will touch it could tell us a lot. If this will be some kind of W&R action - market will grab the target and jump up immediately, this could lead to upside continuation. While touching the target and standing below it will increase chance on breakout of 1.10. Because market will be below 0.618 target and next one is 1.0 that stands below 1.10. This will become important moment on coming week.
Conclusion:
Despite multiple tactical scenarios on intraday charts, long-term picture turns to bearish for EUR. If we will get all these grabbers that we've mentioned in research - chances on reaching parity will increase significantly.
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.
Reuters reports dollar hit its highest in over five weeks against a basket of major currencies on Friday, a day after Federal Reserve Chair Janet Yellen said she expected the central bank to hike rates in 2015, and after U.S. growth data appeared to support such a move.
In a speech late Thursday, a week after the Fed delayed a long-anticipated rate hike, Yellen said she and other U.S. central bank policymakers do not expect recent global economic and financial market developments to significantly affect policy.
The comments surprised analysts since the Fed kept interest rates unchanged partly in a bow to worries about the global economy.
"The Yellen remarks yesterday were indeed a fairly elaborate attempt to explain why rates will go up before the end of the year," said David Gilmore, partner at Foreign Exchange Analytics in Essex, Connecticut.
Commerce Department data on Friday showed U.S. gross domestic product rose at a 3.9 percent annual pace in the second quarter, up from 3.7 percent reported last month.
The data supported the case that the U.S. economy may be able to withstand a rate hike.
The dollar index, which measures the greenback against a basket of six major currencies, hit 96.700 after the GDP data, its highest since Aug. 19. The index was on track for a weekly gain of about 1.4 percent, its strongest since mid-July.
The dollar hit its highest in over two weeks against the Japanese yen of 121.240 yen.
The greenback hit a more than six-week high against the Swiss franc of 0.98420 franc earlier in the session. While the euro slipped against the dollar after two straight days of gains, it remained within recent ranges and did not break below a more than two-week low of $1.11050 touched on Sept. 23.
Lingering skepticism surrounding the view that the Fed would hike rates this year capped the dollar's gains, analysts said.
"The theme is indecision," said David Rodriguez, senior strategist at FXCM in New York.
Recent CFTC data shows interesting data. Total open interest has dropped, but the core stands not around speculative positions. Yes, we see drop in speculative longs and flat standing of short positions, but take a look at commercials short - they have dropped for 2 times last week, ~ for 100K contracts. Each contract, guys, 125K EUR... Somebody has closed a lot of shorts at the eve of Fed meeting. This could explain solid rally that we've seen at that moment. But this is only the half of the story. The major one stands with trend. As you know hedgers accumulate positions against the trend. As short positions has been closed significantly it means that hedgers expect starting of bearish trend on EUR. This is important.
Open Interest:
Longs:
Shorts:
Monthly
Today, guys, we will provide specific type of analysis and make an attempt to clarify what is going on on EUR and what to expect. We will turn to cross-market analysis, since EUR has a bit mixed signs and does not show clear direction. As a result of this cross market analysis we will get better understanding of situation. We have talked about this way of analysis in our Forex Military School, but somehow traders very rare use it and we think that this is mistake. Analysis of monthly time frame will be enough for us...
First, we will start with Dollar Index. Our journey here has started in far 2011, our mature members should remember this discussion, when we've anticipated long-term dollar appreciation. It was based on quarterly stop grabber right at the bottom of huge Gartley "222" Buy" pattern.
Right now we see that this rally comes to an end or at least to logical objective point. After it will be reached, dollar could turn to long-term consolidation or retracement. But what about EUR you may ask?
Take a look that market has completed DRPO "Sell" but right now it stands under the hazard of failure by 2 reasons. First one is monthly stop grabber that suggests upward continuation and DRPO Failure. As we know DRPO "Failure" is directional pattern either that cancels direct signal and calls us to take opposite position.
Second - AB-CD pattern. Market already has moved above 1.0 extension but has not reached yet 1.618. Odds suggest that before any solid action market should hit the target. As you can see Dollar Index points on further dollar appreciation. It means that EUR/USD action should be bearish. Let's go further...
Next chart is monthly chart of Gold but in EUR. By the end of September we could get bullish grabber that suggests solid appreciation of gold against the EUR:
This also tells about possible weakness on EUR. From this standpoint, recent CFTC data looks absolutely logical. Finally, let's go to EUR directly:
Last time we've discussed three moments - DRPO, flag and grabber.
So, DRPO... situation becomes clear It looks curious and 90% this is not DRPO. We have no recognizable second bottom as usually it should to, also we have this untypical spike up that confuses the idea and market mechanics of DRPO.
Overall shape mostly reminds bearish flag and logically it better agrees with all this stuff that now stands in EU.
Finally on monthly chart we have another issue - possible bearish grabber that could be formed in September. Now price is crossing MACDP line but the major question what will be close price. Thus, except suspicious DRPO we have no bullish patterns here.
It means that next possible target @1.22 currently stands under question. It should follow from DRPO, but due to the reasons that we've placed above, we can't rely on it.
Finally despite the depth of current upside retracement, we still will treat it as bounce, if even EUR will reach 1.20-1.22 area. Market too long stands in downward action, especially during recent year and market has solid bearish momentum. Also take a look at butterfly pattern. Here we see definite acceleration right to 1.27 target point. Usually it leads market to next 1.618 target after retracement.
That's being said monthly analysis mostly tells that even phantom bullish patterns, such as mentioned DRPO gradually disappears as a smoke and bearish context crystals better. Grabber has target at 1.04 lows but our opinion that this will be a road to parity...
Weekly
By letter guys, we have bullish trend here. But recent action, market mechanics tells that something has broken in this bullish mechanism. After market has completed upside AB=CD pattern and hit overbought - we've got logical retracement down.
But take a look what has happened next. EUR was not able to re-establish upside action. Market already was out from overbought burden, and couldn't continue move higher. Last week EUR has dropped below MPP.
That's being said may be overall setup theoretically is bullish. At the same time overall action, especially in recent time looks poor. Final confirmation of bearish breakout will happen when trend will shift to bearish and market will move below 1.08 lows around MPS1.
Daily
Mostly guys, we already have discussed all important issues on daily chart in our updates last week. Right now trend stands bearish, but the moment of truth probably will come around 1.10 area. This is a clue to next action. Bearish breakout will open the road to the sequence of targets - 1.08, 1.04 and parity. While if market will hold above it - it could move higher inside the flag for some time more. But to be honest guys, I do not believe too much in this scenario.
Also, do not expect that market will move through 1.10 as knife through butter. Probably not. This will be oversold, accompanied by Fib support and trend line. Breakout will be difficult and market be EUR will challenge this level not once or even twice.
Since we do not have bullish setup, because trend is bearish - we can't take long-term bullish position right now (and personally I do not want to do it). Taking short also looks a bit early - it will be safer to wait till the end of the month when we will get (or will not get) multiple grabbers, may be 1.10 breakout. And then with confidence we could focus on short entry here.
EUR right now could interesting only of intraday trading probably. On daily it is a time of big expectation.
4-hour
As EUR has not completed this setup in time on Friday, we will continue to watch for 1.10 area breakout. Recall what we've said in last update - market has not quite completed 0.618 AB-CD target, if you use absolute top as "A" point. That's being said, the way how market will touch it could tell us a lot. If this will be some kind of W&R action - market will grab the target and jump up immediately, this could lead to upside continuation. While touching the target and standing below it will increase chance on breakout of 1.10. Because market will be below 0.618 target and next one is 1.0 that stands below 1.10. This will become important moment on coming week.
Conclusion:
Despite multiple tactical scenarios on intraday charts, long-term picture turns to bearish for EUR. If we will get all these grabbers that we've mentioned in research - chances on reaching parity will increase significantly.
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.