FOREX PRO WEEKLY September 29-03, 2014

[Sive Morten]

Monthly
Weekly FX Tading Report prepared by Sive Morten exclusively for ForexPeaceArmy.com
As Reuters reports The dollar posted an 11th straight week of gains against a basket of major currencies on Friday, extending the longest winning streak since its 1971 free float under President Richard Nixon.
The dollar index got extra lift from upwardly revised U.S. gross domestic product data, adding 0.5 percent and hitting a fresh four-year peak of 85.655 even as strategists and traders predicted a pullback in the dollar rally.
Currency rallies rarely run uninterrupted, with just a handful having lasted beyond eight weeks since the 1970s, according to currencies strategist Martin Schwerdtfeger at TD Securities in Toronto.
"Given the impressive rally in the dollar we have seen over the last 2-1/2 months, we wouldn't be surprised if we see a little bit of a pause," Schwerdtfeger said. "That doesn't mean we will have any significant retracement."
A growing divergence of market interest rates on either side of the Atlantic also favors the dollar. Its gains on Friday widened after the U.S. Commerce Department reported the U.S. economy grew at its strongest rate in 2-1/2 years during April, May and June. Department economists raised GDP estimates to show the economy expanded at a 4.6 percent annual rate during the second quarter, the strongest performance since the fourth quarter of 2011.
The data reflected a faster pace of business spending and sturdier export growth than previously estimated, providing a firmer base for third-quarter growth. "This should help soothe some investor worries that U.S. growth momentum would have trouble being sustained, as other major economies remain stuck in the mud," Gennadiy Goldberg, U.S. strategist for TD Securities in New York, told clients.
As add-on to these comments let’s take a look at following chart – forecast of US wages, based on survey by NFIB. Relation between real wages and survey results are solid and this brings confidence with this perspective:

It seems important for us, because, if you remember, major Fed concern on US growth was anemic inflation and no wage dynamic. All other signs of improving already were announced – NFP data, Industry growth, real estate market, consumption etc. Right now it seems that we will see inflation growth soon. Hence, rate hiking is just a question of time and dollar probably will stay on march.

Technical
Today we will take a look at GBP because Scotland referendum has made an impact and adjusted normal market’s behavior. As political turmoil has gone to history market will try to correct the skew that was made by political impact. This in turn, could give us promising setups on different time scales. At the same time we agree that setups that we will discuss today mostly tactical, although they could last for considerable period of time.
First of all take a look at long-term GBP chart. Here is long time 1.70-1.71 natural support/resistance area. Recall that before shadow of referendum has risen upon Great Britain – pound sterling was on nice upward march. BoE was at the eve of rate hiking and this has led to tremendous upside rally. In general market moves north longer than a whole year and has reached 1.70-1.71:

Rumors around Scotland voting have not appeared suddenly but previously they weren’t treated seariously as they should to. On autumn of 2014 public opinion surveys start to show that percent of “Yes” voters are not really small and approaches to 50%. And this has started to worry investors and logically has led to negative impact on GB currency.
As political force was eliminated after voting – we see that market logically should return to previous action and at least return some previous looses. Besides, pure technical view suggests existing of previous upside momentum that has not dissapeared but was temporally muted by political mess. This leads to appearing of monthly DiNapoli B&B “Buy” setup, as it is shown no second chart:

Setup looks perfect. Nice thrust up, close below 3x3 DMA, price has reached significant Fib support (treat it as 3/8 or may be better 50%) within 2 closes below 3x3. Since this is Directional pattern – we do not need trend here, because due DiNapoli framework “Direction overules Trend”. The target of this pattern is 5/8 Fib resistance of total move down after thrust up. As you will see later - right now this is 1.6725 area.
Although B&B is very reliable pattern because it is based not on some trader’s view or opinion or some men-invented patterns, but on real market mechanics, sometimes it still could fail. That’s why reaching of strong support and completion of other conditions are not enough to take position. Since this is monthly pattern – upward action should be visible on lower time frames and probably should start from some clear upside reversal pattern on daily chart. Advantage of this one B&B stands also with its political background – there was a “problem” that now is mostly gone, although some consecquences probably will remain. Anyway this should let market to return previous positions, at least partially and 5/8 upside retracement looks really as a mite and rather realistic target.
Weekly
On weekly chart trend is bearish (not shown). We do not have many clues here. Major one is weekly oversold right at Fib support(s) that creates another DiNapoli pattern that calls as bullish “Stretch”. Theoretically it suggests upward retracement to an area of the middle between the bands of Oscillator Predictor. This aproximately coincides with 5/8 Fib resistance @1.6725. Also it seems interesting appearing of high wave candle. It indicates reasonable investors’ sentiment “We’ve traded on referendum, no it’s gone and what’s next?” Usually extreme points (i.e. top and bottom) of high wave have significant meaning. Depending on what extreme will be broken – further action will develop in this direction. So, let’s keep an eye on it.

Daily
Daily picture needs a lot of comments. In the beginning we would like to mention our B&B “Sell” pattern that we’ve traded on previous week. It has reached the target at 1.6240. We will not repeat here context of this trade mostly because it is done already, as well as to keep chart clear.
But what is really important – although market has hit B&B target, it absolutely does not mean that it can’t go lower. This is our major concern here. 5/8 Fib support is a “most probable” target, the one that usually hit at B&B’s. It means that upside action to next, bigger target could be different. Even more, if somehow market will create new low – the target also could be adjusted to the downside. Still second scenario right now does not seem as very probable.
That’s being said, upward action probably will take shape of some AB-CD pattern or wedge. Right now AB=CD seems enough, but any motion lower will demand probably greater ratio – 1.27 AB-CD or even 1.618 one. So, what do we want? First – to get some pattern or price behavior on intraday charts that will give us clear signal that monthly B&B has started. This probably should be something reversal. Second – understand how upside action will happen, what shape it will take. That’s why I’ve placed query marking. Finally monthly target stands beyond overbought and it means that upside action probably will be compounded, not by single leg.

4-hour
Trend is bearish here. In fact, market stands down with AB=CD pattern. As we see acceleration down below 0.618 extension target, GBP probably will reach 1.0 AB=CD target at 1.6180. This also will be WPS1. At the same time CD leg is slower and flatter than AB and it means that chances on reversal is greater than downward continuation after AB-CD will be completed. We do not see any other patterns or clues here by far.

Conclusion:
So, we are tempted by appetite setup on monthly chart of GBP that looks promising, at least right now. Since this pattern is forming on big picture – it could lasts for weeks and particularly by this reason it looks attractive. Currently we’ve estimated the target of this pattern at 1.6725
In shorter-term perspective we need to catch the moment of upside reversal and it seems that 1.6180 area will be first candidate.

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]

USD/CAD Daily Update, Tue, September 30, 2014

Good morning,

As Reuters reports dollar took a breather on Tuesday from its recent rally but was still not far from four-year peak against a basket of major currencies, and could be on track to post its biggest monthly gain in over a year.

Some analysts cautioned that its three-month long rally was at risk of running out of steam for now, particularly against the yen.

"It's really hard to pick a bottom, but it does look to us like it's gone a little too far, and has overshot," said Sue Trinh, senior currency strategist at RBC Capital Markets in Hong Kong.

"It's like trying to catch a falling knife, in terms of the other currencies at the moment, and bear in mind it's month-end, quarter-end, and, for the Japanese, half-year end, too, so flows tend to be a little more noisy than usual around that period," she said.

Investors continued to warily watch developments in Hong Kong, where tens of thousands of protesters extended a blockade of Hong Kong streets on Tuesday, stockpiling supplies and erecting makeshift barricades ahead of what some fear may be a push by police to clear the roads before China's National Day.

Data on Monday showing U.S. consumer spending accelerated in August supported the upbeat outlook for the U.S. economy.

U.S. Treasury yields have risen in line with the gradually improving U.S. economy, with the two-year yield nearing 0.6 percent, a high not seen since May 2011. That in turn has bolstered the appeal of the dollar against its lower-yielding peers.

Some analysts said the dollar's rally still had room to run, as the key U.S. nonfarm payrolls report on Friday will likely underscore that the U.S. economic recovery has enough momentum for the Fed to hike interest rates sooner rather than later.

Bank of America Merrill Lynch revised its end-2015 dollar forecast to 115 yen from 112 yen, citing the likelihood of the Fed raising U.S. rates sooner than expected, strong outflows as Japanese investors rebalance portfolios and the disappointing pace of Japanese export recovery.

"Divergence in monetary policy between the Fed and BOJ should result – as it has resulted – in more foreign security investments as part of Japan's portfolio rebalancing," Shusuke Yamada, chief Japan FX strategist at BAML in Tokyo, said in a report.

Euro zone inflation data due later on Tuesday will be closely watched by euro bears, but a bigger-than-expected rise in Germany's annual inflation could potentially help keep the euro zone rate stable.

Data on Monday confirming the Reserve Bank of New Zealand had intervened to weaken the currency proved the central bank could talk the talk and walk the walk.



Today, we will take a look at CAD, since in short-term perspective it offers most interesting setup. O GBP we still continue to watch for possible signs of upside reversal.

On daily CAD market is forming rather solid AB=CD pattern. In long term perspective we expect that CAD will drive higher and take out current highs on daily chart, but in short term perspective overbought and AB=CD target could lead to some retracement down. At the same time we see that market has not quite reached final target due overbought, so it could creep a bit higher to 1.1190 level:

On 4-hour chart we have another one - smaller AB=CD. This is in fact "CD" leg of daily larger AB=CD. This smaller AB-CD has been completed. It is interesting that here market has formed already DRPO "Sell" pattern. And here is major concern - from the one point of view we have uncompleted daily AB=CD and it is not time yet for solid retracement down. From the other side - we have DRPO and completed smaller AB-CD:

What we should to do in this circumstances?
Hourly chart shows that here we also could get butterfly "Sell" that precisely matches Daily AB-CD:

Well we suggest that here could be 2 possible ways. First is - scale-in, means open part of total position based on DRPO. If it will fail - add second part right around 1.1190.
Second way - wait for completion of butterfly and taking position only on 1.1190.

 

[Sive Morten]

FX Daily Update, Wed 01, October 2014

Good morning,

Reuters reports that dollar struck a six-year high against the yen and was poised near a two-year peak against the euro, while gathering more bullish impetus on Wednesday as weaker than expected Australian retail sales data sparked selling on Australian dollar.

The dollar's strength overnight was partially down to a slowdown in euro zone inflation, which fed expectations of a divergence between monetary policies in Europe and the United States, with the Federal Reserve expected to tighten at some point.

Market participants expected the dollar to firm further against the yen if upcoming U.S. data fan prospects of an early rate hike by the Fed.

"Friday's non-farm payrolls will be key, as it could raise rate hike expectations another notch," said Shinichiro Kadota, chief Japan FX strategist at Barclays Bank in Tokyo.

"Euro zone equities closed up 1.2 percent, presumably assisted by the prospect of continued stimulative policy from the ECB," David de Garis, senior economist at National Australia Bank, said.



Today, guys, it's difficult to find something interesting in short-term. Thus we could make some brief look at number of pairs.
First one is AUD possible scalp trade of Butterfly "buy' on hourly chart. Market should reach 1.618 point since downward action was fast. Then it will be possible to trade it as we usually do.

Second - Our yesterday Setup on CAD. Butterfly has worked, but only as butterfly and has not triggered yet downward retracement due completion of daily AB=CD. Here we should keep eye on wether this butterfly will transorfm into H&S pattern. In this case it will be possible to make another attempt to bet on CAD retracement.

Finally GBP - market has completed 4-hour AB=CD as we'v suggested right at WPS1, but has not formed yet any patterns. It seems that hardly we will get any clarification here till NFP. That's why pay attention to ADP report - this is the key and has strong correlation with NFP. if it will be super positive - we could get double bottom on GBP as reversal pattern. If, conversely, it will be weak - then upward action could start right from this area...

 

[Sive Morten]

USD/JPY Daily Update, Thu 02, October 2014

Good morning,

Reuters reports that safe-haven yen held its gains against the dollar on Thursday after weak manufacturing surveys from around the globe triggered a run on risk.

Some investors, including some hedge funds are using this as an opportunity to take profits," after the dollar's rally against the yen, said Kaneo Ogino, director at Global-info Co in Tokyo, a foreign exchange research firm.

But investors including Japanese importers were buying on dips, supporting the dollar around 108.50 yen, he said.

Investors warmed to the Japanese currency after surveys showed German factory activity shrank for the first time in 15 months, China's manufacturing sector barely grew, and the United States slowed more than expected.

The reports cast a pall on investor confidence, knocking global stocks lower and boosting demand for safe-havens such as the yen and government bonds.

U.S. Treasury yields fell sharply as a result, with the 10-year yield sliding below 2.40 percent to its lowest in nearly a month. That in turn undermined the allure of the greenback against a host of currencies, apart from the euro.

While the ECB is not expected to cut interest rates, it will present details of a new asset-buying plan that it hopes will help revive the flagging euro zone economy and see off the spectre of deflation.

"Bottom line for the euro is that (ECB President Mario) Draghi needs to convince investors that ECB action will be large enough to boost inflation expectations, and that policy responses will continue to escalate if inflation expectations were to fall further," analysts at BNP Paribas wrote in a note to clients.



Today we will take at JPY, as we haven't talked about it for long time, but mostly because it is forming interesting setup on daily chart.
But first, we need weekly picture. Beyond of our butterfly that we thought to use for short entry and may be we will still use it, we have completed AB=CD pattern. Also market has hit weekly overbought. This is our major foundation for the trade:

As a result, on daily chart we've got confirmed DRPO "Sell" pattern, perfect shape of:

By taking a look at hourly chart we see, that the top of DRPO is also a butterfly "Sell". Right now market stands with solid plunge down on hourly chart. If some retracement will happen, it probably makes sence to watch for following Fib resistances for taking short position. May be we even will get here DRPO or B&B as well, although thurst down is not perfect here:

 

[Sive Morten]

FX Daily Update, Fri 03, October 2014

Good morning

According to Reuters news dollar rebounded against the yen on Friday from steep losses overnight while investors awaited U.S. non-farm payrolls data later in the day for further relief.

An initial bounce in Tokyo stocks also helped the dollar early in the session by easing demand for the safe-haven Japanese currency.

"The fact that dollar/yen managed to hold just above 108 encouraged dollar bulls. Whether the dollar is really on an uptrend is still unclear, so buying on dips is a sound strategy for now," said Bart Wakabayashi, head of forex at State Street in Tokyo.

Profit-taking on the dollar is likely to keep dollar capped at 109 yen ahead of the nonfarm payrolls, he said.

The euro gained on Thursday after European Central Bank President Mario Draghi sounded less dovish than some anticipated, giving no indication of imminent stimulus after the central bank's policy meeting.

"What we saw is adjustment of long positions in the dollar. If the non-farm payrolls tonight is a little stronger than forecast, it will prompt buy-backs for the dollar," said Junichi Ishikawa, a market strategist at IG Securities in Tokyo.

"The euro's rebound did not look convincing even as Draghi did not sound as dovish as expected. The fundamentals remain unchanged - the ECB is seen being forced to adopt QE
(quantitative easing) down the road, while the Fed appears poised to hike rates if conditions allow."

According to a Reuters poll of economists, nonfarm payrolls are seen coming in at 215,000, a big jump from August.


Today we will take a look at GBP. Our yesterday analysis on JPY still valid - DRPO has taken nice start but right now Yen is showing deep upward return, let's see what the final will be...
On GBP, if you remember, our major subject is the pattern that could let us take long position on monthly B&B "Buy". We can't guarantee that this will definitely happen, but right now chances are still exist.

On 4-hour chart you can see how it is important to wait for pattern. Market already has passed through AB=CD target @ WPS1, although CD leg looks flatter. As we've suggested - NFP could become a clue. Any NFP @ 215K+ will probably lead to appearing of Double Bottom, or even downward breakout. Smaller NFP could lead to just upside action as to big buttefly appearing (or other pattern), but upward action probably will start.

On hourly chart we see downward channel and chance for small Butterfly. Probably before any talks on long entry we need to see breaking of current tendency of lower highs and lower lows. Since this is monthly setup - do not hurry to jump in, there will be a lot of time for this:

Finally, I would like to show you this nice chart of daily AUD. As market stands not at support and just oversold on weekly chart - this thrust could become nice context for, say, B&B "Sell"...

 

[Synchronicity]

Sive

Thanks as ever for your analysis. I normally just hit the Like button but maybe a personal message now and then will help you appreciate how important your analysis is to me and many others here.

All the best

Michael

 

[stelore]

DRPO eurusd

Hello Sive,
thanks for your accurate (as usual) analysis on GBP.

I would like to ask you about EURUSD: in the 4H timeframe I see a DRPO look-like pattern, do you think it'll be possible? Market is so unclear to me on eur..............

What are your hints on eurusd?

Thanks a lot, for all!

Kind Regards
Stefano

 

[Sive Morten]

Hello Sive,
thanks for your accurate (as usual) analysis on GBP.

I would like to ask you about EURUSD: in the 4H timeframe I see a DRPO look-like pattern, do you think it'll be possible? Market is so unclear to me on eur..............
View attachment 16997
What are your hints on eurusd?

Thanks a lot, for all!

Kind Regards
Stefano

Hi Stefano,
At my taste this is not DRPO - poor thrust, too deep retracement up @ first crossing of 3x3 and too much difference between bottoms...

 

[Kleinerbroker]

Sive

Thanks as ever for your analysis. I normally just hit the Like button but maybe a personal message now and then will help you appreciate how important your analysis is to me and many others here.

All the best

Michael

Completly agreed, @ Synchronicity . The more, as the "Like"-button disappear unfortuntatetly .

Sive , thank you very much !

Best regards
KB

 

[stelore]

I got it Sive,
it's more a hope-like than a look-like................

Thanks a lot.

Wishing you a nice week and many pips to all!
Stefano

Hi Stefano,
At my taste this is not DRPO - poor thrust, too deep retracement up @ first crossing of 3x3 and too much difference between bottoms...