Forex FOREX PRO WEEKLY, September 28 - 02, 2020

Sive Morten

Special Consultant to the FPA
Messages
13,930
Fundamentals

This week, guys, we do not have some shaking news or crucial statistics, but nevertheless market are shown sharp action to the downside across the board, as dollar strengthen. A lot of factors are accumulated right to this moment, but previously they were ignored on a background of euphoria of recovery and bargain hunting on stock market. With getting resonance Fed statement last week and a lot of comments from Fed representatives, weaker statistics and rising of CV19 cases and political uncertainty bring cold shower and force investors to re-assess current situation. Even technical factors, such as COT reports pointed on retracement long time ago. We also were surprised as you remember, that bearish factors somehow do not work properly. It seems now the time has come to some relief. But whether this will be just relief or something greater - we will see. I have some concern on this subject as the friend of mine, he is a broker in Chicago, mailed me "Be prepared for bumpy ride" hinting on elections turmoil.

Current market sentiment

This has started right from Monday, as investors sought safety and global stock markets tumbled on fears about rising COVID-19 cases and uncertainty surrounding November’s U.S. elections. As investors fretted about the ability of the U.S. Congress to reach an agreement for more fiscal stimulus uncertainty was exacerbated by the death of Friday of U.S. Supreme Court justice Ruth Bader Ginsburg, a liberal icon.

“This is a classic risk off environment and flight to safety,” said Axel Merk, president of Merk Investments and portfolio manager of the Merk Hard Currency Fund in Palo Alto, California.“The context is increased election uncertainty. With the supreme court nomination forthcoming this can go in many different ways.”

Erik Bregar, head of FX strategy at Exchange Bank of Canada in Toronto said the key trigger for the increased appetite for safety and the dollar’s gain was intensifying fears of another UK COVID lockdown. “It’s scary stuff that reminds you of March,” Bregar said.

Sterling wavered between losses and gains, at one point slipping to two-month lows against the dollar, as British Prime Minister Boris Johnson unveiled new restrictions to tackle a second wave of the virus and told people to work from home whenever possible and ordered bars and restaurants to close early, with the new restrictions possibly lasting six months.

"Those types of moves give the market pause. As we all know the virus doesn't live in a vacuum and what you see in one country or region will affect other places. Economically it could have an effect," said Minh Trang, senior FX trader at Silicon Valley Bank. "Typically when there's some fear in the market and some unknowns, investors would flow toward the dollar as a temporary safe haven."

Trang also noted that the dollar, which has been weak since July, seemed to be hitting a floor with its slide, taking a pause in reaction to news from central banks as well as the virus.

A research report from Action Economics on Tuesday also cited issues such as deteriorating relations with China as well as deadlock in Washington over an aid package aimed at bolstering the economy. U.S. President Donald Trump was set to tell the United Nations General Assembly it "must hold China accountable for
their actions" related to the coronavirus pandemic, according to excerpts from a speech he was to deliver on Tuesday.

In Spain, the army has been asked to help fight a coronavirus surge in Madrid, while restrictions in other European countries were announced last week, with Germany
describing the situation as "worrying."

Dollar rises more as top Federal Reserve official struck a hawkish tone by mentioning the prospect of raising interest rates, further entrenching investors who were already in a risk-off mood. Speaking at a virtual meeting of the London-based Official Monetary and Financial Institutions Forum, Chicago Fed President Charles Evans said the U.S. economy risked a longer, slower recovery, if not an outright recession, without another fiscal support package.

Evans, who is due to become a voter on the policy-setting Federal Open Market Committee in 2021, said the Fed still needed to discuss its new average inflation target but that it “could start raising rates before we start averaging 2%.” And he said more quantitative easing may not provide another lift to the U.S. economy.

All we’ve been hearing from the Fed for the last few months is we’re not going to hike rates at any point in the foreseeable future. Then Evans came in and challenged that narrative, so the market got caught off-guard,” said Erik Nelson, macro strategist at Wells Fargo Securities in New York, also noting that Evans is usually seen as one of the more dovish Fed officials.

Edward Moya, senior market analyst at OANDA in New York, described Evans’ comments as “extremely hawkish.”
The sooner we get to the other side of this virus, you’re going to see rate hike expectations jump up, and that should further drive this dollar rebound,” Moya said.


This highlighted concerns among market participants that the chances of an aid agreement are dimming as Washington lawmakers turn their attention to a battle over the nomination of a Supreme Court justice to replace the late Justice Ruth Bader Ginsburg.

“There’s a perfect storm of negative headlines out there for the economy, which is starting to stream through to financial markets,” said Wells Fargo’s Nelson. “The shift in focus for U.S. senators reduces the hope for a fiscal stimulus package.”



On Wednesday data showed Germany’s private sector has recovered less than expected in September amid weakness in domestically driven services. German consumer morale also improved less than expected, a survey showed. An earlier report showed French business activity slowed to a four-month low in September, with services weaker than expected, as France struggled to contain a surge in new COVID-19 cases. In Britain, the economy also lost momentum, a business survey showed, as consumer-facing sectors suffered, notably from the end of a government subsidy to support restaurants.

The market continues to re-evaluate its previously very optimistic stance on the status of global risks out there,” said Ben Randol, senior FX strategist at BofA Securities in New York. “The news flow has been negative on the virus and negative on growth. We’ve had some crummy data and also we’ve had the Fed speakers that have been on balance considerably less dovish than the market seemed to expect, which puts positions at risk,” Randol said.

Randol also cited comments from the Federal Reserve after Chicago Federal Reserve President Charles Evans sent investors to the safety of the dollar on Tuesday by floating the idea of rate hikes. To Randol, this suggests the Fed is reserving its right “to pre-emptively lift rates” if it sees inflation as problem.”

Others said a lack of clarity in the Fed’s comments has boosted dollar demand. People were hoping the Fed would be more specific about its medium- and long-term goals last week, according to Thierry Wizman, global interest rates and currencies strategist at Macquarie Ltd in New York.

“The various Fed speeches since then have not really fixed the matter. They continue to be very ambiguous. People who have been short the dollar for the last few months are taking it as an opportunity to unwind their positions,” said Wizman.

“I personally think the dollar’s rise and risk-off trade could continue. The U.S. news coverage is getting dominated by the election. Political uncertainties are likely to weigh on the markets,” said Kazushige Kaida, head of FX Sales at State Street Bank’s Tokyo Branch. “That also relates to whether there will be another economic package. No one expects a deal before the election but the economy does need some kind of help by the end of year as Fed officials have said lately.”




The latest data showed the number of Americans filing new claims for unemployment benefits unexpectedly increased last week in a sign the economic recovery was running out of steam as coronavirus infections and deaths continue to climb.

Rises in U.S. real yields have also underpinned the dollar. The yield on 10-year U.S. inflation-protected Treasuries rose to minus 0.911%, the highest since late July.

President's run

Along with weaker U.S. and overseas economic data and expectations, Perez said dollar demand was also boosted by Washington’s failure to create a stimulus package and concerns ahead of the U.S. election.

Top Republicans on Thursday repudiated President Donald Trump’s refusal to commit to a peaceful transfer of power after Trump, also a Republican, said Wednesday that he expects the election result to end up being settled by the Supreme Court.

“In times like that when the chaos and havoc and blurriness of the future is so intense and so dense, that’s when the dollar is going to rise once again,” said Perez. “Markets are always going to be afraid when a strong government does not give clarity about continuance, about stability.”

The online state polls, conducted earlier in September and released this week, found Biden and Trump tied among likely voters in Florida and North Carolina. Biden led by 1 percentage point in Arizona, 3 points in Pennsylvania and 5 points in Wisconsin and Michigan. Nationally, the latest Reuters/Ipsos conducted on Monday and Tuesday put Biden’s lead over Trump at 8 percentage points among all likely voters.

Taken together, the state and national surveys show the 2020 election may wind up with the same mixed result as 2016, with the Democrats receiving a majority of the votes but the Republicans winning the Electoral College and the White House.

U.S. President Donald Trump said on Friday that Americans might not know the winner of the November presidential election for months due to disputes over mail ballots, building on his criticism of a method that could be used by half of U.S. voters this year. Election experts have said it might take several days after the Nov. 3 election until a winner is known as officials will need time to count mail ballots that arrive after election day.

“I like watching television and have, ‘The winner is’, right? You might not hear it for months, because this is a mess,” he said. “It’s very unlikely that you’re going to hear a winner that night,” he said. “I could be leading and then they’ll just keep getting ballots, and ballots, and ballots and ballots. Because now they’re saying the ballots can come in late.”

COT report

Despite all this stuff, CFTC data shows relatively positive mood on EUR as speculators have increased long positions, while open interest also shows positive dynamic. This performance lets us hope that downside reaction will not be too long-term as investors attitude is moderate and we do not see real panic with massive sell-off. Still, markets currently are extremely sensitive to external factors, rumors and news and situation could change fast.

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At the same time, despite "temporal difficulties" overall view on global recovery stands positive. Thus, the Fathom consulting tells that "the increase in the number of cases in recent weeks in some European countries has prompted fears about a corresponding pickup in deaths, leading to renewed tightening in restrictions on movement. That tightening will inevitably put a dent in economic activity, though how big a dent remains to be seen — and some such dent might have occurred anyway as a result of a behavioural response to increasing cases. A "V" is still our central case (with a 60% likelihood), with global economic activity returning to its pre-crisis level by the second half of 2021. But the risk of a "W" has increased slightly, from 20% to 30%.

The V is consistent with the data so far in the third quarter, including estimates derived from smartphone usage relating to the time spent on public transport relative to normal, across 130 economies. The shape of this chart proxies the path of global economic activity neatly. The trend in that line would bring it back to normal by the middle of 2021. However, our view is that it is unlikely ever to return to its pre-crisis norm. The crisis has taught at least some businesses and individuals that they do not need to travel so much by public transport (or, indeed, at all) in order to work and be productive. That learning will not disappear even when the virus is forgotten. As a global economy, we have learnt how to be more efficient in our use of public transport, and part of that efficiency gain will remain in place permanently. GDP may recover to its pre-crisis level even though public transport usage never does."

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The V remains our central case, and the W has increased in likelihood. But a super-V also remains on the cards (a 10% shot). One of the factors supporting a super-V is the build-up in household savings during the crisis. To the extent increased savings reflected ‘fear’ about the spread of the disease or its impact on employment opportunities or future income, we should only look for savings to decrease again once that fear is removed. But to the extent higher savings were ‘forced’ rather than precautionary, in the sense that because of restrictions on movement people simply did not have the opportunities for discretionary spending that they normally enjoy, a more bullish conclusion can be drawn. As soon as those opportunities present themselves again, the spending will increase. Recent research from the ECB suggests that, in Europe anyway, the bulk of additional savings were ‘forced’ rather than ‘precautionary’, pointing to the potential for a rapid bounceback in consumer spending in Q3 and beyond: a super-V. We retain a 10% weight on this scenario for that reason.

The number of excess deaths from any cause (which is the single most comprehensive measure) fell to zero in France and Spain during June and July, and then picked up again during August, following the pickup in new cases in both countries. But the good news is that excess deaths have already turned down again towards the end of August in both countries, despite the continued increase in new cases. The peak was nowhere near what we saw in April — at least so far.


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We now have GDP data for 68 economies covering the first two quarters of 2020: it makes grim reading. With a very few exceptions, the first half of 2020 saw the steepest decline in GDP in recorded economic history. Round one in this battle went comprehensively to the disease; round two is commencing now. If we go to widespread new and aggressive restrictions on movement (the measures announced in the UK yesterday do not constitute ‘aggressive’ measures yet, in our judgement) then the chances of a W will increase sharply. If, on the other hand, we can adopt the more medically successful and less economically damaging contact-tracing regimes seen in South Korea and elsewhere in the first wave, then a W can be averted. Since we have a clear, recent example of what successful mitigation looks like, it would be a disastrous failure of government to avoid learning that lesson and applying it this time around. To put it crudely, the disease would then win round two as well. The early signs are not good.

Next week to watch

Payrolls

September U.S. jobs data, out on Friday, will be watched even more closely than usual over growing concern on lawmakers’ failure to agree on fresh fiscal stimulus to protect the economy. This will also be the final monthly gauge of the U.S. jobs market before Election Day on Nov. 3. Analysts polled by Reuters expect payrolls rose 875,000, after growing by 1.371 million in August. Recent data, including weekly jobless claims, suggest a nascent economic recovery may be fading as the effects of the last fiscal stimulus wane.

Fed chief Chair Jerome Powell on Thursday told lawmakers that fresh fiscal stimulus could make the difference between a continued recovery and a much slower economic slog. But a new deal before the presidential election looks unlikely, dimming the prospects for stock markets already hurt by election uncertainty and concern about the economy. A weak payrolls number could add to the angst.
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New stimulus packs

By now we were meant to have resumed shopping, dining, travelling and commuting. Instead, regional lockdowns are returning, the global COVID-19 deathcount is marching toward a million and stocks are swooning.

All that has trained market focus on stimulus and vaccines. Governments from Canada and Britain to Thailand are stepping up on the former. The U.S. Congress is dithering over further relief but the possibility of mass evictions and defaults in an election year may persuade lawmakers to break the deadlock.

As for vaccines, several companies are conducting final-stage clinical trials; any signs of their efficacy would likely boost sentiment. The COVID resurgence has ended talk of V- or U-shaped bouncebacks. Without more stimulus or vaccines, the trajectory could end up looking like a W or even an L.


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EU inflation data

Preliminary September euro zone inflation data is out Wednesday and, rest assured, the ECB will be watching closely.

August inflation turned negative for the first time since May 2016. With the economy showing signs of weakening amid the coronavirus resurgence, concern is growing. ECB board member Fabio Panetta warned that inflation remains “uncomfortably” below its near-2% target.

Market-based inflation expectations, closely tracked by rate-setters, are also flashing warnings, having fallen to two-month lows. No wonder that speculation about another round of ECB stimulus before year-end is building, as are expectations for a rate cut in 2021.

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That's being said guys, overall situation becomes tricky. Indeed, we were talking that retracement has to come, and honestly we were waiting it earlier to happen. Here it comes but absolutely on different fundamental environment and its shape also could be different. Election time traditionally, is a period of rising of stock market. This year everything could be different. By now, we still could get minimal retracement to near standing strong support levels on all markets, but monthly charts of NASDAQ, EUR, Gold market and others tells that double size retracement is highly likely. A lot of things depend right now from activity on politicians and central banks.
The common sense tells that this time political forces should use to get the loyalty of electorate but in reality it turns opposite and central opinion right now that "new deal on supportive measures is hardly possible until elections". It seems that we will have tough 2-3 months ahead and breaking near standing strong support areas will tell us that downside action probably doubles.


Technicals
Monthly


In a light of a new fundamental situation appearing of reversal month on EUR is important thing. We do not deny other things that we talked previously about overall positive picture here. Indeed, we have good acceleration to COP and overall context still remains bullish in long-term, keeping chances on action to 1.25-1.26 area. But appearing of reversal month tells that return on bullish road will happen probably later than it was suggested initially, as bearish reversal month suggests compound downside retracement. This is the reason why we've said that retracement could double.

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Weekly

Here we have the same level that we've discussed last week. This is K-support of 1.1485 area that is accompanied by weekly oversold level. Roger also has mentioned it in his update. This is an area where the first downside leg might be over. Next week we also need to watch for September close. Fast and sharp upside pullback could cancel reversal feature of the monthly September candle and this could bring more optimism to technical picture. Conversely, as we've said - upside bounce from 1.1485 might be temporal with 2nd downside leg on horizon.

This configuration is possible to treat as B&B "Buy" setup as well...
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Daily

Here we see that our weekly K-area is also an Agreement as we have daily XOP there as well. On a way down market has dropped to OP and minor 5/8 Fib support but only weak reaction has followed. At the same time, we should be ready for slow and gradual action as market already stands at daily oversold. Strong acceleration is possible only under impact of some unexpected factors. Say, if NFP will be significantly better, or something of that sort. Without strong impact, the reaching of XOP could be postponed on another week.

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Intraday

With big weekly levels on the table it is not many things that you could plan on intraday charts. Probably we could consider the levels where we could get new shorts and the shape of upside pullback if it happens at all.
On 1H chart we have minor XOP target. Once price hits it, some pullback is possible. I draw the shape of H&S pattern, as example. Anyway, there are two levels that could be attractive for short entry, depending on the shape of upside action. They are K-area around 1.1710 and 5/8 level at 1.1770. As overall context stands bearish here, we do not consider taking long positions.
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Sive Morten

Special Consultant to the FPA
Messages
13,930
Morning everybody,

EUR shows shy reaction on support area that discussed on weekly report and mostly we wait for proper levels that we've specified. Meantime, GBP shows much better action and provides few trading scenarios - let's take a look over it.
First, the pullback that we've suggested, as technical reaction on K-support area has happened. Maybe it is not finished yet. But, still we've got bearish grabber yesterday, and together with near standing daily OB level it creates interesting background for short entry:
gbp_d_29_09_20.png


On 4H chart we also have K-resistance area around 1.2970 that makes barrier even stronger. Yesterday, upside reaction was the same as previous one - cable has completed upside harmonic swing. Besides, the sequence of downside extensions makes possible appearing of 3-Drive "Buy" at least, or just downside continuation.
But not everything stands as cloudless as we would like to. Risks exist as well. First is divergence, that suggests action above the butterfly's top. As a result, market could go directly to 1.30 area, forming larger reverse H&S pattern and aiming on stronger upside pullback in a shape of AB=CD pattern. We will know it if daily grabber will be erased. These are two major scenarios that we could get here. So, think, decide, what you like more ;)
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Potentially you could combine them, if you have ability to place far stops. For instance, you could sell now with stop above 1.30 area. If still it will be reverse H&S - you could try to out on the bottom of the right arm and turn position into bullish if you wish. But this is a bit advanced way...
 

Sive Morten

Special Consultant to the FPA
Messages
13,930
Greetings everybody,

Today we return back to EUR finally. So, the upside action that we've supposed in weekly report has hit predefined level and now we should be careful and see whether longer-term bearish context steps in again. On daily chart price is flirting with MACD line. Today we do not have the grabber yet, but tomorrow it could appear. As we said in weekend - our major destination point is strong 1.15 weekly resistance area:
eur_d_30_09_20.png


On 4H chart market hits K-resistance level and natural support/resistance zone. This is the same level that we've discussed in weekly report. Currently we do not have clear reversal patterns yet:
eur_4h_30_09_20.png


On 1H chart market also has completed XOP of our H&S pattern, which makes Agreement level. Theoretically level is strong enough to trigger technical response. Besides we already have grabber on GBP that we've discussed yesterday. It makes possible position taking even now on EUR. But, safer way (for some case), just wait and see for price reaction on resistance and daily grabber that we've mentioned above.
eur_1h_30_09_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,930
Morning everybody, guys

While EUR is still coiling around resistance that we've specified yesterday, we could take a look at GBP as it is trying to move higher and turn situation to alternative scenario. On EUR meantime, as you can see our warning was not in vain. Despite the technical pullback has happen out from resistance - price now is coming back and it would be better to wait for clear bearish patterns before taking any short positions.

On GBP situation a bit different. Once grabber has been formed price has shown minor reaction out from resistance as well, but yesterday it comes back. Now it tries to break the level up. It means that we were out at breakeven (at least those who have taken short position).
gbp_d_01_10_20.png

Currently, at the eve of NFP release and increasing chances on upside continuation at some degree (either straightforward to XOP or via H&S pattern) we do not consider any new short positions. For long entry, if our 3-Drive pattern and grabber totally will be erased and market will reach 1.30 today - better to consider 1.28 area, the bottom of potential reverse H&S pattern.
gbp_4h_01_10_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
13,930
Morning guys,

EUR is still turning around intraday resistance. Yesterday and two days ago we've recommended to wait a bit and look for response of the market on resistance area, if you plan to go short. Today we've got more clarity. Still, this is only for those who intends to trade through NFP release. Others should sit on the hands and prepare for the next week.

So, on daily chart we unfortunately has not got the bearish grabber as trend just has turned bullish:
eur_d_02_10_20.png


On 4H chart market still stands around the same K-resistance area, which is also natural resistance zone. Trend has turned bearish.
eur_4h_02_10_20.png


But currently it is better situation with the patterns as on 1H chart we have the shape of H&S pattern and bearish divergence. Thus, if you are watching chances for short entry - here is the pattern that you could consider. Price stands around the level where you need to make a decision as EUR is already around the top of right arm. Stop should be placed above the head and 4H K-resistance area. In fact, technically market has made all preparations for bearish context, but vital trigger anyway will come from NFP numbers...
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