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IvanGlobalPrime

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It's All About The US-China Trade Rhetoric


The risk sentiment is on the mend as the market awaits further clarification on where we stand in the US-China trade negotiations conundrum. The Japanese Yen, which has been by a country mile the currency to flock off to amid the de-risking of financial markets, is on the backfoot


The Daily Edge is authored by Ivan Delgado, Market Insights Commentator at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth look of market dynamics, factoring in fundamentals, technicals, inter-market in order to determine daily biases and assist one’s decisions on a regular basis. Feel free to follow Ivan on Twitter & Youtube.

Quick Take

The risk sentiment is on the mend as the market awaits further clarification on where we stand in the US-China trade negotiations conundrum. The Japanese Yen, which has been by a country mile the currency to flock off to amid the de-risking of financial markets throughout the week, is on the backfoot. Reports of a phone call between US President Trump and President Xi due shortly has further appeased the nerves. While the increase in tariffs on Chinese imports comes to effect in a few hours at 14h Sydney time, it should be interpreted as a 'soft deadline', as exports that have already left Chinese ports before May 10 won’t be subject to the increase. Interestingly, despite the risk on/risk off pendulum has swung in both sides, the end result for the interest of the USD has been identical, a net negative. The Euro is the currency to be in the last few hours, even strengthening against the Yen in times of true 'risk off' as seen in the early stages of the last US session. The commodity-linked currencies are also having a solid bid tone.



Narratives In Financial Markets

* The Information is gathered after scanning top publications including the FT, WSJ/Dow Jones, Reuters, Bloomberg, ForexLive, Institutional Bank Research reports.

  • In the next 24h, it’s all about the turns and twists in the language used by both the US and China as part of the trade talk negotiations. One can find out more about the possible scenarios in yesterday’s report, where various outcomes are outlined.
  • According to Fox media, US President Trump, Mnuchin and Lighthizer have been talking up the talks referring to the first hours of conversations as achieving progress. However, remember that the ‘soft headline’ imposition of higher tariffs on Chinese imports is just hours away.
  • US President Trump has been manipulating the public view by stating that a trade deal with China this week is still possible, helping to lift equities and other risk-sensitive assets off lows. However, the soundbites and confrontational/defiant stance suggest since the weekend suggest this is a very low possibility outcome at this stage.
  • US President Trump ratcheted up the pressure and the confrontational language against China by publicly stating at a rally in Florida that China ‘broke the deal’. There is mounting pressure by the Chinese public and top decision-makers for China to also toughen up its stance, which makes this game of chicken look like it has dire prospects of a near-term resolution.
  • It’s worth noting the deadline postponement potential, as according to the US Federal Register Notice, exports that have already left Chinese ports before May 10 won’t be subject to the increase. Hence, it allows a couple of weeks of the unofficial window. Today is the 'soft' deadline.
  • A headline that if sees follow up details has the potential to deteriorate risk further hit the screen early in the US session, when President Trump said the US is starting paperwork on 25% tariffs on a further $325 billion of Chinese imports today.
  • Overall, investors around the world continue to de-leverage the exposure in financial markets, even if some brief spurs of risk-off rollover can also be observed as there are unconfirmed reports that Trump and Xi are set to have a conversation via phone in a few hours.
  • The RBA Statement on Monetary Policy downgrades the economic and inflation outlook in Australia, while still sounding confident that lower jobless rate within reach due to subdued inflation. The labor market will continue to determine the way the policy is headed.
  • There are some major events later in the US session that should not be discounted, even if the reality is that the US-China trade conundrum will largely overshadow the positioning the market takes based on these events, which include the US CPI and the Canadian jobs report.
Recent Economic Indicators & Events Ahead


Source: Forexfactory

RORO (Risk On, Risk Off Conditions)

If we take the close of markets in NY as a reference to take the pulse of the market mood with regards to an imminent resolution of the trade talks, my verdict is that the chances remain extremely slim. That said, there is a glimpse of optimism that the US and China will not simply walk away, in other words, that the negotiations may continue in the future, even if it remains to be seen whether or not this will result is just a slight delay on an eventual trade deal or on a prolonged year-long one.

The recovery in the US 30Y bond yield alongside the S&P 500, both paring its entire losses on Thursday after Trump tried to massage market expectations, is a reflection that the market still finds the latest headlines constructive enough to hold onto the hope that trade talks will not break down. If one adds into the mix the fact that today’s potential imposition of tariffs on China is a ‘soft deadline’, the downside to risk sentiment might be slightly more muted vs a “hard” deadline.

That said, this is a very fluid environment where one headline can change it all, so stay nimble constantly adapting to the soundbites in the media. With regards to the Yen or the USD, both have turned lower since the US session, in a move that reinforces the market’s hope of a temporary compromise to at least resume the negotiations at a future date conditioned to both sides sounding as if progress was achieved.

The first day of talks concluded this Thursday just a few minutes ago, which means that in the next 24h, wild swings in the markets will continue to be the norm driven by a headline-by-headline basis. Unless there is a sudden change of plans by Trump, US tariffs are set to increase on Chinese imports at midnight NY time, which would be a soft yet symbolic step in the wrong direction.



Latest Key Developments In FX (Technicals, Fundamentals, Intermarket)

EUR/USD: Bullish Bias As Volume Pressure Builds

The spike in the rate comes on the back of broad-based USD weakness, combined with relentless demand in the Euro, even exceeding in demand the Yen while US equities were still in a funk earlier. The upthrust bar, anchored by the strong appreciation in the USD/CNH, reached the 100% proj target to the pip before sell side pressure took control of what’s expected to be a short-lived correction with a potential area of termination at the 50% fib retracement. Not only the OBV in thick orange line indicates the buy side pressure has been dominating the exchange rate since the May lows, but the double distribution up in the volume profile with the POC trapped sub 1.12 is a further suggestion that the path of least resistance is for the rate to keep pushing north. Watching for low vol taps in line with the bullish structures on price and tick activity is what I am keeping an eye on.



GBP/USD: Balance Area With Buy Side Volume Dominance


With the accumulation of negatively-related Brexit news over the past few days as the Labour and the Conservative parties fail to achieve a follow through, alongside the wait-and-see mode in the US-China trade negotiations, not enough impetus exist for the market to develop the next bias. This indecision is reflected via location of the POC in the last 2 days of trading around 1.30, further reinforcing the notion that from a symmetrical standpoint, this has become the midpoint of the existing range. The 3 legs down is a technical event that tends to be followed by a period of distribution, which appears to be what we are seeing, corroborated by the failures of the last tests of the bottom side, which translates into sellers using these liquidity rich areas to take profits off the table. A resolution outside the pre-defined range suggest technical targets of 1.31-3110 to the upside, while 1.29-2910 to the downside, both coinciding with the 100% proj targets. In terms of the OBV, the buying pressure as per the accumulation of volume is skewed to the upside, while the latest price structure has also shifted the focus towards higher levels within the range context.



USD/JPY: Testing 50% Fib Retracement, JPY Sell Side Pressure


The Japanese Yen is under relative sell side pressure in the early stages of Friday, as reflected by the transition from a trend into a range in the exchange rate. The build up of buying tick activity as the OBV in thick orange reflects is a communication that interest to be Yen sellers is on the increase. We have a perfectly symmetrical structure once again, which is helping to properly define the context of range-bound conditions between 109.40-50 and 109.90-110.00 with the midpoint of the range where the POC from Thursday is found around the 109.70-75. Intermarket flows emanating from the currency market have taken a turn for the worse for the USD, sold across the board, and limiting the upside potential. It’s not all lost as the trend in the risk sentiment line in thick black is starting to turn around. Even if it does, the upside on the pair is far more limiting than exploiting JPY weakness vs other currencies the likes of the EUR or the AUD is the US-China revert the negative sentiment. A break to the upside through 110.00 can expose the next proj target at 110.25-30. If the dire sentiment returns, a retest of the bottom of the range at 109.50-55 will be eyed ahead of 109.10-15.



AUD/USD: In Bullish Trending Mode


The higher highs in the price structure comes accompanied by very high buy side pressure as the micro trend (25HMA) applied to the OBV represents. The next projected target to be hit is within a few pips at the 0.7015, where some counter-balancing forces could slow down the momentum. The RBA Statement on Monetary Policy today downgraded the economic and inflation outlook in Australia, while still sounding confident that lower jobless rate within reach due to subdued inflation. The labor market will continue to determine the way the policy is headed, which is what the market cares about. Since no tangible changes outside of expectations came about, the market sees this event as a risk removed so that the focus can stay firmly on the US-China trade talk headlines. Further reinvigoration of the risk sentiment could see the Aussie rise towards its next target of 0.7030-35 (100% proj target). On the contrary, it’s going to take a break and hold sub 0.6970 (Thursday’s POC) to damage the bullish technicals.


Important Footnotes

  • Risk model: The fact that financial markets have become so intertwined and dynamic makes it essential to stay constantly in tune with market conditions and adapt to new environments. This prop model will assist you to gauge the context that you are trading so that you can significantly reduce the downside risks. To understand the principles applied in the assessment of this model, refer to the tutorial How to Unpack Risk Sentiment Profiles
  • Cycles: Markets evolve in cycles followed by a period of distribution and/or accumulation. The weekly cycles are highlighted in red, blue refers to the daily, while the black lines represent the hourly cycles. To understand the principles applied in the assessment of cycles, refer to the tutorial How To Read Market Structures In Forex
  • POC: It refers to the point of control. It represents the areas of most interest by trading volume and should act as walls of bids/offers that may result in price reversals. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals the constant evolution of the market auction process. If you wish to find out more about the importance of the POC, refer to the tutorial How to Read Volume Profile Structures
  • Tick Volume: Price updates activity provides great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement. Studies validate that price updates (tick volume) are highly correlated to actual traded volume, with the correlation being very high, when looking at hourly data. If you wish to find out more about the importance tick volume, refer to the tutorial on Why Is Tick Volume Important To Monitor?
  • Horizontal Support/Resistance: Unlike levels of dynamic support or resistance or more subjective measurements such as fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, the horizontal lines of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed and relevant to monitor. The Ultimate Guide To Identify Areas Of High Interest In Any Market
  • Trendlines: Besides the horizontal lines, trendlines are helpful as a visual representation of the trend. The trendlines are drawn respecting a series of rules that determine the validation of a new cycle being created. Therefore, these trendline drawn in the chart hinge to a certain interpretation of market structures.
  • Correlations: Each forex pair has a series of highly correlated assets to assess valuations. This type of study is called inter-market analysis and it involves scoping out anomalies in the ever-evolving global interconnectivity between equities, bonds, currencies, and commodities. If you would like to understand more about this concept, refer to the tutorial How Divergence In Correlated Assets Can Help You Add An Edge.
  • Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
  • Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection
 

IvanGlobalPrime

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Markets Play 'Glass Half Full', FX Stuck In Ranges

POSTED ON: 13 MAY, 2019

Last Friday's inconclusive US-China trade talks kept the markets guessing, what's next? However, that was not an impediment for a relief rally in risk assets to take effect even if the sustainability of this movement looks a tall order at the current levels of uncertainty.


The Daily Edge is authored by Ivan Delgado, Market Insights Commentator at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth look of market dynamics, factoring in fundamentals, technicals, inter-market in order to determine daily biases and assist one’s decisions on a regular basis. Feel free to follow Ivan on Twitter & Youtube.

Quick Take

Last Friday's inconclusive US-China trade talks kept the markets guessing, what's next? However, that was not an impediment for a relief rally in risk assets to transpire, even if as I elaborate in today's report, the sustainability of this movement looks a tall order at the current levels of uncertainty. The soft deadline that represents the hike in tariffs last Friday, as it essentially still gives the US-China an extra 2 weeks to further negotiate the potential removal, influenced the price action. But the market may play the 'half full' glass for so long, as will the Chinese the patient hand amid constant aggressive rhetoric by Trump. For now, though, the priority by China is to extend the period of negotiations, which has led to the settling of market nerves a tad. We were left with, I must admit, from a directional standpoint, inconsequential broad-based range-bound price action in FX markets last Friday, with the exception of a Canadian Dollar, re-invigorated by a 10:1 beat in last Friday's Canadian job report. Further weakness in the Chinese Yuan at the open of markets this Monday, paired with downside gaps in the S&P 500 futures, is a reminder that the dynamics are far from ideal to support risk.


Narratives In Financial Markets

* The Information is gathered after scanning top publications including the FT, WSJ, Reuters, Bloomberg, ForexLive, Institutional Bank Research reports.

  • The scenario of a no-trade resolution between the US and China as part of last week’s talks, even if negotiations are set to resume in the near future, alongside the increased 25% rate in tariffs to Chinese imports, keeps the market guessing what’s next?
  • To make matters worse, US President Trump announced the process has begun to put together the paperwork necessary for another planned hike in tariffs on over $300bn. Talk has it that the US has given China 3-4 weeks before it enacts the next tranche of tariffs.
  • The front page of the Financial Times reports that there are hopes that a Trump-Xi meeting by the end of June at the next G20 summit may rescue the trade accord. The Director of the US Economics Council Kudlow also suggests to the press of the possible meeting taking place.
  • The market remains expectant on the Chinese retaliatory response to the increase in US tariffs, which is yet to be announced. It could come in the form of non-tariffs trade barriers, a depreciation of the Yuan as a tool to maintain the same levels of competitiveness…
  • Chinese Vice Premier Liu has stated that if progress is to be made, the US must remove all the extra tariffs rather than by stages as the US intends to do in case of an agreement, also set targets for China to buy US products within logical parameter and the text to be ‘balanced’.
  • Reports have emerged that Treasury Secretary Mnuchin and Trade Representative Lighthizer have been invited back to Beijing at an undisclosed date to continue the talks.
  • US President Trump has been tweeting about China over the weekend, sounding confrontational, noting that ‘he loves collecting tariffs’ from China and that a trade deal will be far worse for China in his 2nd term. Sooner or later, one would expect his incendiary comments as part of his premeditated tactics to put pressure on China may backfire.
  • So far, the market continues to treat the lack of progress on trade talks as a glass half full, with the price action manifesting that there is still disbelief in the negotiations breaking loose. The ambiguity in Trump’s comments, saying that tariffs may or may not be removed depending on negotiations. The market interpreted the language as hopes for only a slight delay to a deal.
  • The Canadian Dollar rallies in response to a blockbuster Canadian employment report last Friday, essentially beating expectations by a ratio of 10:1 after 106.5k jobs were created.
  • Once again, US inflation figures underwhelm after the April’s CPI YoY comes at 2% vs 2.1% exp, but even worse, real average weekly earnings saw a major miss YoY to 0.9% vs 1.4% exp. This outcome, alongside the potential unwinding of carry trades, signifies two negatives for the USD.
  • On the Brexit front, the Times reports that a movement is shaping up within UK PM May’s Cabinet Ministers to abandon the cross party talks with Labour to instead begin indicative votes in parliament in light of the lack of any substantial breakthrough in talks.
Recent Economic Indicators & Events Ahead

Source: Forexfactory

RORO (Risk On, Risk Off Conditions)

We ended last Friday with spells of risk on swings feeding through, leading to both US equities and US bond yields closing higher and reverting back to a micro bullish trend as per the slope of the 25-HMA. However, be warned that this tentatively nascent price action must be reconciled with still pronounced bearish trends from a macro perspective as the black moving averages, which look at 1-week worth of data via the 125-HMA, indicate. Even if the market looks at the assurance by the US-China sides that negotiations on trade are set to extend, there is little ground and too much uncertainty to justify a sustainable recovery in the ‘risk on’ profile.

The substantial downside gap open in the S&P 500 futures (ES1!) or the bid tone in the Japanese Yen this Monday supports this case. With regards to crosscurrents in the currency market, despite the 2--day correctional move in the Japanese Yen, the elevated levels it has managed to find equilibrium at is a warning sign. The new lows made by the Chinese Yuan (offshore) at the open of business in Asia (higher USD/CNH) at 6.87, is yet another revelation that price action provides before our eyes about the dicey environment, which as I said, will not help to promote the ‘risk on’ flows for sustainable periods of time I suspect.

The USD, interestingly, has shown a very interesting and so so encouraging pattern for the bulls. Regardless of the rhetoric on the trade negotiations, it has really struggled to make headways, while the magnitude and speed of its depreciation has been much more clearly manifested. I’ve been saying that the increase of volatility in equities via a hefty VIX (now down to 16.00 from 23.00), alongside a much more volatile Yuan, is a well-justified logic to start re-evaluating carry trades in FX. Carry trades involve borrowing in low-yielding currencies the likes of the EUR, JPY, CHF and use these funds in far more attractive vehicles of FX investments with the USD offering the highest yield.

As uncertainties build and fear of the proverbial hitting the fan in the US-China trade negotiations take center stage, it causes the unwinding of these positions, which so far may be outweighing whatever demand has existed towards the US Dollar as a safe haven asset class, even if it may prove short-term in nature. Additionally, the softish US CPI on Friday is yet another reason for the Fed to avoid any grounds to sound hawkish at all in the foreseeable future. As Morgan Stanley notes: “A weaker core CPI has the potential to put the USD under significant selling pressure. This is because it meets a market that is not only trading breakeven rates sharply lower, but also concluding that the US may be less well prepared for trade escalation compared to summer last year.”

So far, by looking at the dynamics in equities and the Yuan, the market keeps telegraphing US-China trade impasse remains a source of unresolved 'uncertainty' as the chart below depicts. A crossover of the ES down thru the USDCNH line is needed as evidence a deal is really being discounted.



Latest Key Developments In FX (Technicals, Fundamentals, Intermarket)
EUR/USD: Rotational Profile Eyed

The exchange rate looks set to experience a non-directional bias this Monday, following the inconclusive 1 single distribution volume profile from last Friday. The absence of news in the economic calendar strengthens this case. The single distribution occurs in the context of a bullish cycle after the strong spike seen on May 9th. The symmetries to define today’s market structure are very clear, with the POC perfectly coinciding with the middle of the established 1.1250-1.1210 range. The edges of the range is where the key decision will be made while engaging in buy/sell-side action the massive pool of liquidity that constitutes the levels nearby the POC offers unclear prospects. While the OBV has flattened out, which indicates a more balanced pressure in terms of volume activity, the paper of volume from the 1.1250 top is not that encouraging for the interest of sellers. Overall, I cannot envision a sudden setback of the bullish bias unless a close sub 1.12 is achieved.


GBP/USD: Extension Of The Range Expected

The symmetrical measures reached and the locations where the concentration of volume is occurring continues to suggest that barring any unexpected Brexit headlines, the market is due for an extension of the range conditions, a scenario that was endorsed last Friday too. Whenever that’s the case, it means the market is expected to trade with a rotational bias as no side is able to take control of the price action beyond key levels of liquidity. These levels continue to be assigned at 1.3040-50 to the downside, while sub 1.2990 and through 1.2970 is where fading selling flows are probable. In the chart below I’ve also drawn, in case of a breakout, the next targets to achieve by the side in control.




USD/JPY: Range-Bound Pattern With Bearish Risk

With the demand towards the Yen abating as the market turns slightly more risk constructive, the market must content itself with the formation of a balance area. The risk still looks skewed towards an eventual downside resolution or at least I envision the next test to be the bottom side of the range, judging not only by the dominant macro trend but by the deterioration of risk at the open of business in the Asian session, where the RORO micro trend has reverted back down (black line), while the bearish trend remains firmly in place in the DXY, as the thick blue line slope (micro trend) shows. A resolution of the range to the downside should expose 108.90 as the next 100% measured target.


AUD/USD: Bottom-Side Of The Range Tested As CNH Weakens

The spike in the USD/CNH in the early hours of the Asian session has led to the sell-side pressure on the Aussie to build further momentum, now testing the bottom of its range. On one hand, judging by the volume profile printed last Friday, the single distribution formation does promote buy side campaigns off these levels, with the elevated levels of the OBV(On Balance Volume) supporting the rationale as it communicates that the latest fall is very much a removal of market liquidity without much committed sell-side activity so far. On the other hand, with the aud/usd value line via the slope of the inverted USDCNH + DXY making new lows, the negative intermarket flows must first pause. At these levels, the risk-reward to fade the sell side move looks interesting, subject to one’s particular strategy. The turnaround in the USDCNH will dictate the chances the AUD has of an intraday bounce.


USD/CAD: Sell-Side Bias Favored, Techs-Funda In Alignment

In a forex market with an absence of directional biases in the last 24h, playing long CAD could be the exception if Friday’s double distribution down in the exchange rate serves as an indication. The upthrust bar in the CAD index across the board led to the USD/CAD to reach its 200% measured target last Friday, before an ongoing rebound has taken the rate back towards levels near a key resistance at 1.3445-50, where sell-side interest should be on the rise. Last week’s accumulation of volume has been trapped just above at the 1.3060 area, making the prospects of a recovery through the level even more challenging, while it incentivizes committed sell-side account to de-risk exposure. Besides, the accumulation of volume activity through the OBV maintains a clear bearish slope, while intermarket flows both in Oil (inverted) and DXY communicate sell side pressure should not abate.


Important Footnotes

  • Risk model: The fact that financial markets have become so intertwined and dynamic makes it essential to stay constantly in tune with market conditions and adapt to new environments. This prop model will assist you to gauge the context that you are trading so that you can significantly reduce the downside risks. To understand the principles applied in the assessment of this model, refer to the tutorial How to Unpack Risk Sentiment Profiles
  • Cycles: Markets evolve in cycles followed by a period of distribution and/or accumulation. The weekly cycles are highlighted in red, blue refers to the daily, while the black lines represent the hourly cycles. To understand the principles applied in the assessment of cycles, refer to the tutorial How To Read Market Structures In Forex
  • POC: It refers to the point of control. It represents the areas of most interest by trading volume and should act as walls of bids/offers that may result in price reversals. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals the constant evolution of the market auction process. If you wish to find out more about the importance of the POC, refer to the tutorial How to Read Volume Profile Structures
  • Tick Volume: Price updates activity provides great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement. Studies validate that price updates (tick volume) are highly correlated to actual traded volume, with the correlation being very high, when looking at hourly data. If you wish to find out more about the importance tick volume, refer to the tutorial on Why Is Tick Volume Important To Monitor?
  • Horizontal Support/Resistance: Unlike levels of dynamic support or resistance or more subjective measurements such as fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, the horizontal lines of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed and relevant to monitor. The Ultimate Guide To Identify Areas Of High Interest In Any Market
  • Trendlines: Besides the horizontal lines, trendlines are helpful as a visual representation of the trend. The trendlines are drawn respecting a series of rules that determine the validation of a new cycle being created. Therefore, these trendline drawn in the chart hinge to a certain interpretation of market structures.
  • Correlations: Each forex pair has a series of highly correlated assets to assess valuations. This type of study is called inter-market analysis and it involves scoping out anomalies in the ever-evolving global interconnectivity between equities, bonds, currencies, and commodities. If you would like to understand more about this concept, refer to the tutorial How Divergence In Correlated Assets Can Help You Add An Edge.
  • Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
  • Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection
 

IvanGlobalPrime

Private
Messages
25
Find my latest market thoughts

Markets Sell Off As China Retaliates


As China bites back by retaliating the US by imposing tariffs on US goods effective by June 1st, the markets are coming to grips that such actions, it means that the market is discounting a prolonged rhetoric war between the two countries...

The Daily Edge is authored by Ivan Delgado, Market Insights Commentator at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth look of market dynamics, factoring in fundamentals, technicals, inter-market in order to determine daily biases and assist one’s decisions on a regular basis. Feel free to follow Ivan on Twitter & Youtube.

Quick Take
As China bites back by retaliating the US by imposing tariffs on US goods effective by June 1st, the markets are coming to grips that such actions, even if not tit-for-tat, it means that the market is discounting a prolonged rhetoric war between the two countries, with fears of escalating even further. As a result of the re-evaluation of the new dominant trade thematic, and judging by the punchy moves in the Yen or equities, the market seems to have still a lot to re-price. As I will elaborate in today's report, the RORO model paints an ailing picture in risk assets, both from a micro and macro standpoint, finally re-invigorating vehicles of diversification such as Gold. Commodity-linked currencies, with the CAD no exception as Oil and risk off weights, are feeling the pain of the current dynamics of a battered Yuan, while the Sterling also take a hit as a function of the appeal to bid back the US Dollar across the board, excluding against the Yen. The Euro continues to find firm pockets of demand against most currencies.



Narratives In Financial Markets

* The Information is gathered after scanning top publications including the FT, WSJ, Reuters, Bloomberg, ForexLive, Institutional Bank Research reports.

  • ‘True risk off’ returns with a vengeance after China retaliates the US by raising tariffs to 25% on $60bn worth of US goods from June 1. The tariffs fall way short of what China will have to bear in the latest round of tariff hikes by the US, seen as China aiming to take a moderate response as the priority remains to leave a door open for an eventual trade deal.
  • The actions taken by the Central Bank of China (PBOC) so far, also suggest that China is playing a soft hand for now, hoping to leave the door open for a deal. The decisions made by the PBOC to fix the CNY stronger in the last fixings, hence widening the spread between the onshore CNY and the offshore CNH, communicates they won’t let the trade crisis blow up.
  • As part of the retaliation, China is also mulling to stop the purchase of some US agricultural products and energy, restrict Boeing orders and US service trade. The retaliation by China means that the situation is heating up and the markets are understandably unsettled.
  • Proof of the sour mood in markets, even if the US Secretary of the Treasury Mnuchin made an attempt to talk up markets by stating that China trade talks are still ongoing with a trip to Beijing being planned, the markets this time didn’t buy into it.
  • Timme Spakman, Economist at ING, notes “the US has threatened to raise additional tariffs if China were to retaliate. With that, the risk of further escalation is far from over. If the US were to expand its tariff measures, China is expected to continue to retaliate in a similar mild fashion. This, because it is difficult for China to retaliate with equal measures since China imports a lot less from the US than the other way around. With its mild response, China also maintains the moral high ground in the conflict.”
  • A market to continuously monitor very closely is the Chinese Yuan, which has depreciated by more than 2% ever since the tariffs threat by Trump the first weekend of May. Further weakness in the Chinese currency is an indication that the market is pricing in, if anything, a prolonged and arduous process before the US-China can ink a trade deal. Capital flights from China are causing the currency to come under increasing sell side pressure.
  • A Trump tweet reinforces the notion that the US and China have reached a serious impasse. Further talks yielding any significant progress perceived as dead in the water near term. A prolonged delay before a deal is potentially inked is the scenario the market is discounting, which is why ‘risk off’ keeps deteriorating. Trump wrote that “China will be hurt very badly if they don’t make a deal because companies will be forced to leave China for other countries. Too expensive to buy in China. You had a great deal, almost completed, and you backed out.”
  • China said that they will never surrender to foreign pressure. If anyone had still doubts, these type of comments pretty much sum up that at this point, no side is backing off from their hard-line stance when it comes to what they perceive as non-negotiable aspects.
  • US Trump says China cannot take advantage of the US any longer, that plans are being made to meet with Chinese representatives at the G20, and that no decision has been made yet on tariffs worth another $300bn of Chinese goods. Trump also played down the capacity of China to retaliate against the US, noting that their actions are limited against the US.
  • Tensions in the Persian Gulf are increasing after two Saudi Oil tankers were attacked on Sunday, which has led to the US beginning air patrols around the peninsule. There is no responsibility claimed on the perpetrators of the attack, with Oil very volatile, initially boosted by the incident, only to sell off as risk off conditions picked up in the US.
  • The escalation in the US-China trade tensions alongside the soft US CPI last Friday has led to fixed income players to strengthen their conviction that the next rate move by the Fed will be a rate cut after the US 1y Treasury bill fell below the Fed funds rate. However, Fed’s Chair Powell has made the case that near-term inflation is transitory, hence raising the bar.
Recent Economic Indicators & Events Ahead


Source: Forexfactory

RORO (Risk On, Risk Off Conditions)

The risk environment keeps deteriorated further as the rampant movement in the JPY clearly indicates. The acceleration in the selling of US equities (S&P 500 as reference) or the buying of long-dated 30y US bonds as news broke out of the Chinese retaliation to the US triggered a sustained cascade of supply imbalances across risk-sensitive assets. The late-day recovery in the DXY, while the JPY holds onto its strong gains, is further evidence of investors truly moving past the diversification into any currencies other than the historically risk off choices such as JPY, USD. The ‘true risk off’ scenario is not only manifested through all the micro trends monitored in our RORO model, but these day-to-day fluctuations are in congruence with the macro tendencies too, as the sentiment and modeling are rapidly turning very bearish amongst bigger hedge fund managers. The Chinese Yuan keeps acting as one of the best barometers to evaluate the levels of fear by a protracted trade war between the US and China, with the speed of the Yuan depreciation not abating; the USD/CNH market is fast approaching the 7.00 handle, a massive psychological level to watch. Meanwhile, with a VIX snapped back above 20.00 and junk bonds in free-fall, it goes full circle in registering one of the most negative RORO model readings this year, in accordance with the level of surprise that signifies the US and China moving further away from what was seen as a deal baked in the cake just 2 weeks ago. The reality is that the market is discounting a scenario of a prolonged delay in the US-China trade negotiations/deal, which carries a severe adjustment in valuations as investors anticipate a major setback for global growth in the 2nd semester of 2019. One can read the scenarios I had considered as part of the US-China trade negotiations in the following link.


Latest Key Developments In FX (Technicals, Fundamentals, Intermarket)
EUR/USD: PoC Keeps Acting As A Magnet

The rotational nature that comes with the printing of a single volume profile formation played out as anticipated as part of Monday’s price action, where an impulsive buy side campaign led to what eventually became a head fake through 1.1250. Notwithstanding the determination of sellers to kick the rate away from its highs all the way to levels near the lowest since May 9th, the conditions are still considered as range-bound with 1.1230-35 the most heavily traded area 2 days in a row. This signifies a very clear clue that the market is only finding value at a neutral level for buyers and sellers, hence why there has been a tendency to fade the edges as part of a single distribution playbook. It’s going to take a break and hold beyond the extremes of the range to shift the focus away from range trading.


GBP/USD: Range Breakout With Acceptance

The ferocious move away from Monday’s highs was in line with the rotational features of trading a single profile market structure as suggested in yesterday’s note. The regular selling that came through the books in this exchange rate has led to the onset of a new bearish cycle, one in which I’d expect any correction to be capped by the POC of the last 3 days just above the 1.30 round number. The shift to a bearish trend in the OBV (On Balance Volume) is a sign that the sell-side volume pressure carries significant committed capital, further reinforcing the case to sell on strength.


USD/JPY: Sell-Side Bias, Volume Builds At Trend Low

Whenever we see such a clean breakout of a prolonged range, with the volume profile that follows a double distribution down with most of the volume at the very lows of the trend, that’s a sign that as long as buyers fail to build a similar amount of acceptance at higher levels today, any correction should be perceived as a selling opportunities. The areas of most interest to engage in sell-side action where the most accentuated supply imbalanced could be found will be the usual levels I tend to promote (50% fib retrac, retest of the former range bottom, midpoint range). Intermarket flows, both the DXY and the risk profile (SP500 + US30Y) remain very restrictive for any sizeable upside correction, hence overextension that leads to a change of bias is not the base scenario.


AUD/USD: Bears In Control As Yuan Weakness Extends

The combination of ‘true risk off’ markets and the overextension in the Yuan downtrend were music to the ears of sell-side accounts, who managed to end the day with a victorious double distribution volume profile. As in the case of the USD/JPY, we’ve seen an awful lot of volume accepted at the bottom side of Monday’s full extension, which tells us more pain ahead. It really is the worst background possible for the Aussie, which has the extra negative of facing no economic indicators out of Australia or the US to potentially act as risk events that disturb the downtrend in place. In terms of intermarket flows, keep following the formula in the 3rd window as the number 1 leading indicator of the exchange rate, with so far no indications that the tide will turn bullish anytime soon.


Gold: Protection Against Pick Up In Risk

The price of gold has exploded straight into the 100% measured target as US-China trade escalations are expected to dampen the outlook for global growth and the appeal towards stocks takes a hit. Amid this environment, gold becomes a substitute and historically viable vehicle of diversification. The double distribution up day , with the price closing at the absolute maximum level with the POC left behind is a very solid indication that engaging in buy side business is the way to go. There is a genuine chance that the market may resume the uptrend on the retest of the POC or thereabouts, as it’s a rare occurrence to see such a n aggressive buy side volume profile pattern, which basically translate in a market where sellers have run to the exits in mass as buyers pile in.


Important Footnotes

  • Risk model: The fact that financial markets have become so intertwined and dynamic makes it essential to stay constantly in tune with market conditions and adapt to new environments. This prop model will assist you to gauge the context that you are trading so that you can significantly reduce the downside risks. To understand the principles applied in the assessment of this model, refer to the tutorial How to Unpack Risk Sentiment Profiles
  • Cycles: Markets evolve in cycles followed by a period of distribution and/or accumulation. The weekly cycles are highlighted in red, blue refers to the daily, while the black lines represent the hourly cycles. To understand the principles applied in the assessment of cycles, refer to the tutorial How To Read Market Structures In Forex
  • POC: It refers to the point of control. It represents the areas of most interest by trading volume and should act as walls of bids/offers that may result in price reversals. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals the constant evolution of the market auction process. If you wish to find out more about the importance of the POC, refer to the tutorial How to Read Volume Profile Structures
  • Tick Volume: Price updates activity provides great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement. Studies validate that price updates (tick volume) are highly correlated to actual traded volume, with the correlation being very high, when looking at hourly data. If you wish to find out more about the importance tick volume, refer to the tutorial on Why Is Tick Volume Important To Monitor?
  • Horizontal Support/Resistance: Unlike levels of dynamic support or resistance or more subjective measurements such as fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, the horizontal lines of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed and relevant to monitor. The Ultimate Guide To Identify Areas Of High Interest In Any Market
  • Trendlines: Besides the horizontal lines, trendlines are helpful as a visual representation of the trend. The trendlines are drawn respecting a series of rules that determine the validation of a new cycle being created. Therefore, these trendline drawn in the chart hinge to a certain interpretation of market structures.
  • Correlations: Each forex pair has a series of highly correlated assets to assess valuations. This type of study is called inter-market analysis and it involves scoping out anomalies in the ever-evolving global interconnectivity between equities, bonds, currencies, and commodities. If you would like to understand more about this concept, refer to the tutorial How Divergence In Correlated Assets Can Help You Add An Edge.
  • Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
  • Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection
 

IvanGlobalPrime

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False Sense Of Risk Recovery In Markets


Tuesday's turnaround in risk dynamics should not send the false signal to think we are anywhere near from being out of the woods. The crosscurrents in equities, fixed income credit and currencies, specifically the performance of the USD, JPY, CNH suggest the dominant thematic of 'risk off' is not going away...

The Daily Edge is authored by Ivan Delgado, Market Insights Commentator at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth look of market dynamics, factoring in fundamentals, technicals, inter-market in order to determine daily biases and assist one’s decisions on a regular basis. Feel free to follow Ivan on Twitter & Youtube.

Quick Take

Tuesday's turnaround in risk dynamics should not send the false signal to think we are anywhere near from being out of the woods. The crosscurrents in equities, fixed income credit and currencies, specifically the performance of the USD, JPY, CNH suggest the dominant thematic of 'risk off' is not going away, or at least, there is no evidence yet. The disparity in performance between the Yen and the rest of G10 FX should be the first reminder every day one opens the charts to the degree in which financial conditions have deteriorated. The USD and CAD did well on Tuesday, the latter regaining its lost appeal after the best Canadian jobs report in recorded history last Friday. The Euro is starting to wane a tad as the German data remains underwhelming to say the least, with today's European preliminary GDPs, including Germany, another major test. The AUD & NZD, amid the dicey US-China trade dispute, remain on the backfoot, while the Sterling keeps suffering pains of its own as the political stalemate on Brexit continues.



Narratives In Financial Markets

* The Information is gathered after scanning top publications including the FT, WSJ, Reuters, Bloomberg, ForexLive, Institutional Bank Research reports.

  • A relief rally in US risk assets materialized, even if we are far from ‘Goldilocks’ risk appetite dynamics pre US-China trade crisis. Our RORO (risk on, risk off model) warrants caution amid a suppressed Yuan and bearish Chinese equities (barometers of capital flights from China).
  • US President Trump threw a few positive headlines that so far have had a positive effect in the price of riskier assets such as equities, taking the VIX down towards 18.00. Trump told reporters “we’ll let you know in 3-4 weeks if trade talks are successful but I have a feeling it’s going to be very successful”, in what’s a clear attempt to talk up depressed equities.
  • Trump made some extra remarks to play down the trade tensions with China by saying that the relationship with China’s Xi is extraordinary or referring to the trade dispute as a little squabble, reassuring the media that the talks have not collapsed. The comments underpinned markets.
  • Further anchoring the correction in equities was the headline that Mnuchin may visit China ‘soon’ in an attempt to resume the trade talks, according to his spokesman. There was no mention of China’s hawk Lighthizer as planning to join the trip this time.
  • Trump took another swipe at the Fed, noting that “China will be pumping money into their system and probably reducing rates, in order to make up for the business they’ll be losing. If the Fed ever did a ‘match’, it’d be game over, we win! In any event, China wants a deal”.
  • China’s Foreign Ministry has come forward to deny the US accusations of China riddling the trade draft agreement by noting that the US made last-minute demands to ramp up the purchase of US goods by China, adding that in no case China violated promises made. A report by the Financial Times supports the claims by China that it was the US that wanted a sudden increase in the amount of purchases of goods by China.
  • Take headlines by US Trump with a bucket of salt, as the US aims to talk up markets. However, from the Chinese camp, while playing a soft hand so far, they’ve reiterated they are not afraid of a trade war, urging the US to not underestimate China’s determination to protect its interest.
  • Italy’s Salvini threatened the EU that if Italy has to break away from previous budget agreements in order to lower the Italian unemployment rate, they will do so without hesitation. If the limits to break is the 3% deficit to GDP or 130-140% debt to GDP, they are ready.
  • US April import price index, excluding Petroleum, saw a major miss of -0.6% vs +0.2%, matching the same negative print as last December, both the lowest since late 2014. It does communicate that the slowdown in the global economy may be influencing the pricing.
  • Geopolitical tensions in the Middle East, where Saudi Aramco pumping stations came under attack by drones, thought to be orchestrated by Yemen’s Houthis, keep underpinning the price of Oil. The Saudi Oil Minister has announced the temporary shutdown of the East-West pipeline as a precautionary measure, hence rising prospects of supply disruptions.
  • The German May ZEW survey saw a tiny recovery in the current situation to 8.2 vs 6.3 exp, while the economic sentiment series dropped substantially to -2.1 vs 5.1 exp. The negative news that keep coming out of Germany is going to continue limiting the appeal towards the Euro as the ECB remains accommodative.
  • China's data dump came on the soft side, punishing the Aussie further. The data for April was underwhelming across the board, with the fixed asset investment y/y at 6.1% vs 6.4% exp, the April industrial production y/y at 5.4% vs 6.5% exp, while retail sales y/y undershot at 7.2% vs 8.6% exp.
  • Today's economic calendar offers key events such as the German and EU preliminary GDP readings, the US retail sales or Canada's inflation numbers. Volatility is expected to stay rather elevated in equities, while the FX market should get its fair share of stimulus via the data + US-China trade headlines.
Recent Economic Indicators & Events Ahead


Source: Forexfactory

RORO (Risk On, Risk Off Conditions)

The risk environment saw a relief intraday rally, which while meritorious on its own right due to the dicey US-China trade dispute, is far from reassuring in terms of thinking we are out of the woods. The S&P 500, as the reference to assess the appeal back into stocks, has seen the micro momentum turn high as the slope of the 25-HMA depicts, even if it should be perceived as a poor quality run on the basis that it is fighting the bearish macro trend (125-HMA slope) and the bearish structure. The US 30-year bond yield, as another leading indicator of risk conditions, trades around 2.85% after very tepid movement near trend lows, which again, is not a positive signal.

The improvement in buy side flows back into the DXY, alongside a broadly bid JPY index, is another reason to be worried that we are lacking sufficient evidence to expect this relief rally to be sustainable. But no other markets provide the degree of evidence to play down Tuesday’s risk recovery as do the Shanghai Composite and the USD/CNH, especially the latter, which keeps pressing higher en route to 7.00. As a rule of thumb, the lower the Yuan goes, the more pessimism exists that the US-China trade stalemate will be resolved anytime soon. Capital flights from China are playing a key role in the depreciation. Besides, with the VIX trading at a level not far from 20.00, I can’t see investors finding much comfort, something already translated in the suppressed valuations of junk bonds (HYG), near-trend lows.

Overall, this marginal gyration in risk is far from acting as an indication that the underlying ‘risk off’ tide is turning.


Latest Key Developments In FX (Technicals, Fundamentals, Intermarket)
EUR/USD: Bearish Cycle Into Strong Demand

The exchange rate offers a mixed-bag outlook. On one hand, we’ve seen a back-to-back day of a supply imbalance, resulting in the formation of a second leg down. However, the bearish momentum has stopped on its track at a crucial decision point at 1.12-1205 (retest demand May 9th), where a cluster of bids is causing absorption of offers as depicted by the compression of the price. The current support is a potential candidate area where the active bearish cycle may terminate. The backdrop is not the most encouraging for buyers though, as they will have to fight a double distribution down, making the prospects of a return to a bullish bias a tall order as the rate will have to first clear the 1.1220 resistance level and the descending trendline with acceptance above.


GBP/USD: Bear Trend Firmly In Place

All the technical indications point to an extension of the bearish trend, with one exception, that is, the drop in the exchange rate has now reached the 100% measured target from the former range, an area where profit-taking activity occurs as market makers step in to attempt rotations back to the mean. So far, the supply imbalance amid no progress in Brexit has been the dominant thematic, as clearly manifested via the double distribution down day. There will be a handful of resistance the Sterling must re-take to improve its outlook, from yesterday’s POC, the 1.12920-25 resistance line, which if above, may see the potential capitalization of further upside into the 1.2940-45 resistance line. The OBV (On Balance Volume) holds an unambiguously bearish slope as sell-side volume dominates.


USD/JPY: Retakes Key Line at 109.50

The P-shaped volume profile constitutes a bullish development, one that now hinges on the ability of buyers to maintain the price above the 109.45-50 to avoid a resumption of the dominant trend. If buyers can start building upon the recent momentum by breaking through 109.75-80 resistance, that’s going to expose not only 111.00 round number, but it will damage the higher timeframe bearish bias, as sellers will lose the advantage of protecting the midpoint of the former range. Alternatively, a move down and acceptance back sub 109.45-50 shifts the focus down to 109.00-10. For now, the OBV indicates buy side pressure dominates, while the intermarket flows (DXY + RORO line) suggest that the recovery we’ve seen is congruent with the pick up in the pair’s valuation.


AUD/USD: Selling Bias PiggyBacking the Yuan

The downtrend, even if not supported by the aggregated volume pressure, is clearly bearish. This is an outlook that is also being promoted via a lower Yuan and higher DXY. The fact that the volume accumulation, as represented by the OBV (thick orange line) is trending higher, it indicates a market very well capped by sell-side limit orders, that’s the only way we can be trending down yet the aggregate volume shows the buyers being the side most actively on the bid. The last resolution below 0.6935 low has opened up the doors towards 0.6920 as the next 100% target measure, while on the upside, any recovery should find it problematic to break the POC of the last 48h circa 0.6940-45.



Important Footnotes

  • Risk model: The fact that financial markets have become so intertwined and dynamic makes it essential to stay constantly in tune with market conditions and adapt to new environments. This prop model will assist you to gauge the context that you are trading so that you can significantly reduce the downside risks. To understand the principles applied in the assessment of this model, refer to the tutorial How to Unpack Risk Sentiment Profiles
  • Cycles: Markets evolve in cycles followed by a period of distribution and/or accumulation. The weekly cycles are highlighted in red, blue refers to the daily, while the black lines represent the hourly cycles. To understand the principles applied in the assessment of cycles, refer to the tutorial How To Read Market Structures In Forex
  • POC: It refers to the point of control. It represents the areas of most interest by trading volume and should act as walls of bids/offers that may result in price reversals. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals the constant evolution of the market auction process. If you wish to find out more about the importance of the POC, refer to the tutorial How to Read Volume Profile Structures
  • Tick Volume: Price updates activity provides great insights into the actual buy or sell-side commitment to be engaged in a specific directional movement. Studiesvalidate that price updates (tick volume) are highly correlated to actual traded volume, with the correlation being very high, when looking at hourly data. If you wish to find out more about the importance tick volume, refer to the tutorial on Why Is Tick Volume Important To Monitor?
  • Horizontal Support/Resistance: Unlike levels of dynamic support or resistance or more subjective measurements such as fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, the horizontal lines of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed and relevant to monitor. The Ultimate Guide To Identify Areas Of High Interest In Any Market
  • Trendlines: Besides the horizontal lines, trendlines are helpful as a visual representation of the trend. The trendlines are drawn respecting a series of rules that determine the validity of a new cycle being created. Therefore, these trendline drawn in the chart hinges to a certain interpretation of market structures.
  • Correlations: Each forex pair has a series of highly correlated assets to assess valuations. This type of study is called inter-market analysis and it involves scoping out anomalies in the ever-evolving global interconnectivity between equities, bonds, currencies, and commodities. If you would like to understand more about this concept, refer to the tutorial How Divergence In Correlated Assets Can Help You Add An Edge.
  • Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
  • Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection
 

IvanGlobalPrime

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Talk Of Auto Tariff Delay Saves The Day

POSTED ON: 16 MAY, 2019

Risk sentiment was buoyed by reports that the US government is likely to delay auto tariffs to the EU and Japan up to 6 months. The Japanese Yen was the currency most punished by the news just as equities in the US turned around and never looked back.


The Daily Edge is authored by Ivan Delgado, Market Insights Commentator at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth look of market dynamics, factoring in fundamentals, technicals, inter-market in order to determine daily biases and assist one’s decisions on a regular basis. Feel free to follow Ivan on Twitter&Youtube.

Make sure you join our discord room if you'd like to interact with Ivan and other like-minded traders. The invitation link can be found here: https://discord.gg/Nc42HjE.Also, find out why Global Prime is the highest rated broker at Forex Peace Army.

Quick Take

Risk sentiment was buoyed by reports that the US government is likely to delay auto tariffs to the EU and Japan up to 6 months. The Japanese Yen was the currency most punished by the news just as equities in the US turned around and never looked back. The fact that US President Trump plans to fight one trade dispute at a time rather than having too many fronts open, with his plate rather full having to deal with China and the revised NAFTA deal, was translated in an immediate spike in the Euro. Regardless of the renewed demand for the Euro, the DXY is not backing off, still trading quite firm across the board. The best performer currency was the CAD, supported by a rise in Oil, recently stellar fundamentals in the form of a huge increase in employment creation and risk appetite on the mend. On the flip side, the Sterling, with no Brexit breakthroughs even remotely close to happening, is lacking the love (demand) of markets. The Aussie is also on the backfoot after the market reacted negatively to an increase of 0.2% in the unemployment rate in Australia, despite the rest of the data was quite encouraging, from the total jobs created to the increase in the participation rate.


Narratives In Financial Markets

* The Information is gathered after scanning top publications including the FT, WSJ, Reuters, Bloomberg, ForexLive, Institutional Bank Research reports.

  • Risk recovery after US President Trump announces that tariffs of up to 25% on European and Japanese cars will likely be delayed by a period of about 6 months. With the US-China trade tensions heating up and the revised NAFTA still to get the go-ahead from Congress, the Trump administration has decided that is best to focalize its resources in the current open fronts.
  • Weak Chinese growth figures, coupled with disappointing US retail sales and industrial production, set to ratchet up fears of a slowdown in the global economy. Granted, a line of thinking is that the poorer the economic data in the US-China, the more pressure by the two sides to return back to the drawing table on trade negotiations. Others think China may just resort to further stimulus of its domestic economic via larger lending to businesses, fiscal incentives or a cut in the reserve requirement ratios, unwilling to back off to the US demands.
  • China’s rhetoric on trade has been ramping up after China’s foreign ministry made a statement saying that if the US refuses to do business with China, others will take up the slack. The comments do not set an encouraging outlook for a quick resolution of the current impasse.
  • Germany’s Q1 preliminary GDP came flat at 0.4%, in line with expectations. With regards to the GDP in Q1 out of the EU, the data also confirmed a sluggish pace of +0.4% growth.
  • According to Canada’s trade negotiator Freeland, the US and Canada are closing in on a deal as part of the revised NAFTA agreement, noting work still to be done for US steel tariffs to be lifted. Overall, the comments were relatively upbeat which hints a deal is nearing.
  • US President Trump is reportedly about to sign an order to ban Huawei products by US companies as part of efforts to address threats to national security. Even if this action falls outside the dispute on trade currently underway, you have to think it won’t help the relationship.
  • A lower-than-expected US inventory data, alongside improved risk appetite, under the price of Oil, en route to finding acceptance above the $62.00 handle and helping the CAD.
  • In a report published by Axios, it speculates that a US delegation may be headed to China for a resumption of trade talks as early as next week. The market didn’t react on the headline as it lacks the substance of being confirmed by official sources. Meanwhile, Secretary of the Treasury told a Senate hearing that he is likely to re-visit China ‘at some point’, hence reinforcing the notion that for now, it’s all rumors without much to chew on.
  • Canada’s April CPI data came at 2%, a tad to the soft side, even if judging by the price action in the CAD, the market treated as a bit of payback after last month’s strong reading.
  • The Australian Dollar sold off in response to a rise in the Australian unemployment rate to 5.2% from 5% exp, which was caused by a higher participation rate, which is a positive for the economy. Besides, the creation of employment stood at +28k, which is well above expectations, reinforces the notion that the RBA will keep its status quo, not yet opting for a rate cut, as the figures don’t yet justify that the Central Bank acts upon its policy statement warning line of “paying close attention to developments in the labor market.”
Recent Economic Indicators & Events Ahead


Source: Forexfactory

RORO (Risk On, Risk Off Conditions)

In such a headline-driven market, where certain Trump tweets have sadly become the cues that news-identifying algos pick on to set the directional bias, one must be aware that RORO dynamics are in a constant state of flux. We are not in an environment where linearity in one’s interpretation keep you often enough on the right side, but rather, you must be in constant adaptation.

Even if I claimed, rightfully so for the first half of Tuesday, that we were at a stage of a false sense of risk recovery, reports that the US is likely to delay the auto tariffs on the EU and Japan, has created a sudden change of behavior in equities that have persevered till the late stages of the NY session.

Unlike Tuesday, this time the S&P 500 has penetrated its previous high, which sets up a more encouraging outlook heading into Wednesday as the momentum and structure turns bullish intraday, leading the VIX to come down towards the 16.00 handle. However, that’s where the good augurs end.

The junk bonds performance is not tracking the positive price action in equities to the same degree. A further reason to take the potential nascent prospects in equities and the overall recovery of risk with a pinch of salt is the follow through demand seen in the fixed income market, as the US 30Y yield performance can attest, last at 2.82% even on the delay of auto-tariffs.

Surprisingly weak US/China data has strengthened the appeal to hold tight into US Treasuries too. Another note of caution emerges when analyzing the trend in the DXY and JPY index, both keeping a constructive outlook if using as a guide the structure and micro trend via the 25HMA.

What about the activity in Chinese assets? The acceptance by the USD/CNH above 6.90 continues to be a red flag for risk, even if China pledges to keep the Yuan at stable levels. The increase in HIBOR rates has made the borrowing to short the Yuan more expensive, which is a sign that the depreciation of the Yuan may experience a potential slow down from here on out. We shall see. When it comes to the Shanghai Composite, a tentative even if mild in nature recovery is underway, but remember, the Chinese government has been reportedly active buying stocks through state-owned entities to support valuations in order to relax the tightening of financial conditions.


Latest Key Developments In FX (Technicals, Fundamentals, Intermarket)

EUR/USD: Bullish Structure Emerges, Not Backed By Volume

There has been a sudden withdrawal of liquidity in the Euro as reports emerge that the US auto-tariffs to the EU is not a trade war fighting for short-term for the Trump administration. As a result, the upthrust bar has damaged the bearish bias by creating a disruption in the price structure. The break of the prior swing high, alongside the support found at the right-hand side of the chart through the 1.12 round number, keeps the nascent bullish outlook rather constructive. As a caveat for bulls, notice that this recovery in the exchange rate is not backed by a positive bias in buy-side volume pressure via the OBV (thick orange line). The amount of USD buy side volume has been clearly dominant so it will take a significant change in volume activity to keep the rate supported past 1.1220. For now, this is not a market that lacks sufficient evidence of which side is in control. Patience for the price and the volume structure to align as was the case in the bearish run of the last 2 days is warranted.


GBP/USD: Meets Its Next Measured Move Target

The exchange rate saw a one-way street move up until the completion of its next 100% measured move target at the 1.2830 where market makers/dealers/profit-taking, coupled with improved risk appetite on the back of a potential delay in the auto-tariffs to the EU by the US re-ignited buyers. There is a lot of work that needs to be done for buyers to regain the upper hand given the badly suppressed demand towards the Sterling as Brexit breakthroughs are still an elusive outcome. If the resumption of the bearish trend transpires, the next projection is found at 1.2760, which judging by the sell side volume pressure, it’s an outcome that could eventuate, especially if risk off returns.


USD/JPY: En-Route To Retest 109.15 If Risk Worsens

The spike in JPY supply as risk appetite picked up through the US session was well defended by a cluster of offers around the POC of last Tuesday circa 109.65-70. As I type during the Tokyo morning, risk has been deteriorating again, encouraging demand towards the Japanese Yen. The RORO line in the 3rd window indicates valuation in the exchange rate looks rather expensive, partly supported by the rise in equities but the absence of traction by US 30y bond yields and the rolling over of the DXY is a reason to stay cautiously optimistic that the downside is not over yet. The OBV line in thick orange is starting to display a bearish slope again, reinforcing the risk of more losses. Remember, Tuesday’s P-shaped volume profile with a close below the POC is not the ideal structure to be a buyer. This scenario will be canceled only if buyers can muster strength above 109.75, but even if, 110.00 looms.


AUD/USD: Sell-Side Bias Set To Extend Post Aus jobs

The Australian Dollar sold off in response to a rise in the Australian unemployment rate to 5.2%, which appears to be the headline algos were programmed to act most aggressively on, even if the rest of labor data seems to suggest that the aggressive sell-off looks like a stretch. The initial movement made it all the way to the 100% measured move target, where the cluster of bids caused a sudden change of behavior once again, back towards the retest of 0.6915 breakout point. The absorption candle in the first 30m suggests the downside looks limited unless more value can be created, while the correction will see its greatest obstacle at 0.6930 POC is 0.6915 is cleared. Overall, the bias is clearly down, but the fundamentals argue against an overextension. Remember, the Australian Dollar will continue to be greatly influenced by the dynamics in the Yuan market.


Important Footnotes

  • Risk model: The fact that financial markets have become so intertwined and dynamic makes it essential to stay constantly in tune with market conditions and adapt to new environments. This prop model will assist you to gauge the context that you are trading so that you can significantly reduce the downside risks. To understand the principles applied in the assessment of this model, refer to the tutorial How to Unpack Risk Sentiment Profiles
  • Cycles: Markets evolve in cycles followed by a period of distribution and/or accumulation. The weekly cycles are highlighted in red, blue refers to the daily, while the black lines represent the hourly cycles. To understand the principles applied in the assessment of cycles, refer to the tutorial How To Read Market Structures In Forex
  • POC: It refers to the point of control. It represents the areas of most interest by trading volume and should act as walls of bids/offers that may result in price reversals. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals the constant evolution of the market auction process. If you wish to find out more about the importance of the POC, refer to the tutorial How to Read Volume Profile Structures
  • Tick Volume: Price updates activity provides great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement. Studies validate that price updates (tick volume) are highly correlated to actual traded volume, with the correlation being very high, when looking at hourly data. If you wish to find out more about the importance tick volume, refer to the tutorial on Why Is Tick Volume Important To Monitor?
  • Horizontal Support/Resistance: Unlike levels of dynamic support or resistance or more subjective measurements such as fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, the horizontal lines of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed and relevant to monitor. The Ultimate Guide To Identify Areas Of High Interest In Any Market
  • Trendlines: Besides the horizontal lines, trendlines are helpful as a visual representation of the trend. The trendlines are drawn respecting a series of rules that determine the validation of a new cycle being created. Therefore, these trendline drawn in the chart hinge to a certain interpretation of market structures.
  • Correlations: Each forex pair has a series of highly correlated assets to assess valuations. This type of study is called inter-market analysis and it involves scoping out anomalies in the ever-evolving global interconnectivity between equities, bonds, currencies, and commodities. If you would like to understand more about this concept, refer to the tutorial How Divergence In Correlated Assets Can Help You Add An Edge.
  • Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
  • Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection
 

IvanGlobalPrime

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USD Demand Back Even As Risk Improves


It cannot be argued that risk continues on the mend. Equities found fresh buyers, bonds sold, the VIX came down to 15.00, but a key question must be asked at this stage. Is the market growing excessively complacent judging by the new highs in USD/CNY?

The Daily Edge is authored by Ivan Delgado, Market Insights Commentator at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth look of market dynamics, factoring in fundamentals, technicals, inter-market in order to determine daily biases and assist one’s decisions on a regular basis. Feel free to follow Ivan on Twitter&Youtube.

Make sure you join our discord room if you'd like to interact with Ivan and other like-minded traders. The invitation link can be found here: https://discord.gg/Nc42HjE.Also, find out why Global Prime is the highest rated broker at Forex Peace Army.

Quick Take

It cannot be argued that risk continues on the mend. Equities found fresh buyers, bonds sold, the VIX came down to 15.00, but still, a key question must be asked. Is the market growing excessively complacent to the risks stemming from the new highs in USD/CNH? The ongoing depreciation in the Yuan tells us the market is not buying into the thesis that China and the US will reconcile its hard-line stance on trade, which leads me to think, the disconnect between risk up and Yuan down cannot go on much longer. In the meantime, the Yen has been sold in response to more benign conditions as the market goes through a round of re-leveraging into riskier assets. The USD, at times a candidate to depreciate when the market goes 'risk on', seems to find a greater endorsement by buy-side accounts on positive US data and improved 'carry trade' dynamics. The Canadian Dollar, even if fears of Oil supply disruption in the Middle East keeps the price of Oil underpinned, failed to sustain its strong buy side momentum from early Europe. The three currencies that are finding relentless follow-through sell side flows include the AUD, NZD and the GBP. The former Oceanic block in response to lower Yuan valuations and a mixed Australian employment report, while the GBP remains in incessant selling pressure, driven by technicals, which has deteriorated due to the uncertainty in the Brexit front as Theresa May starts to consider her own (Br) exit strategy as Prime Minister amid the protracted impasse on her withdrawal agreement.


Narratives In Financial Markets

* The Information is gathered bt scanning top publications including the FT, WSJ, Reuters, Bloomberg, ForexLive, Institutional Bank Research reports.

  • A slew of 2nd tier US data contributed to the bid tone in the US Dollar. Interestingly, ever since the US-China trade fractures, the currency appears to be trading in strong correlation with the lowering of the VIX (equities’ implied volatility). From the basis of a revival of the USD carry trade as a function to a pick up in risk flows, has its logic.
  • US President Trump’s executive order to restrict Huawei and other Chinese telecom companies’ products from being used as part of the US telecom infrastructure has so far not caused any effect in risk flows, with positive US earnings outweighing the negatives.
  • Even if the reversal in risk flows is undeniable by looking at the price action in equities or fixed income, the incessant rise in the USD/CNH is a major red flag. The lower the Yuan goes while equities move in the opposite direction, the greater the disconnect that exists, as the Yuan continues to be the ‘leading’ indicator of the extent in which the market believes a US-China trade deal will occur. The Yuan level tells us ‘slim chances’, which essentially translates in complacency biding up risk under such a premise.
  • Australia's jobs growth in April came strong at +28k but a jump in the participation rate saw the unemployment rate increase to 5.2%. According to Morgan Stanley, “we saw enough positives that the RBA can point to in this release that they won't cut rates until August, later than market pricing. The mix was poor with -6k full-time jobs lost but this reflected payback from previous month's strength - YTD more full-time than part-time jobs have been added.”
  • Judging by the bank research reports I got my hands on this morning (Danske Bank, Credit Agricole, Morgan Stanley, HSBC, to name a few), the general consensus is that the US and China are moving towards a full-blown trade war. While it’s still early days to speculate in such a scenario and more attempts will be made to reconcile positions, it’s a tough road ahead as China has started to recognize no US demands while coming before its national interests.
  • Talk has it that Theresa May is mulling a timetable to step down from her role as UK Prime Minister. Her plans to resign will be outlined once a parliamentary vote on the withdrawal agreement in early June takes place, according to the latest reports by the British press. The reports making headlines on Thursday indicate if the vote is lost, May will resign with immediate effect. On the contrary, if she can strike a deal with Labour that allows the Brexit vote to pass parliament, her intention is to remain in office to pass the bill into law before the end of July, after which she still plans to step down as Prime Minister.
  • Falling US gasoline inventories, near the lowest levels since November, coupled with fears of potential disruption in oil supply due to an escalation of tensions in the Middle East (Strait of Hormuz) have kept the bid tone in Oil prices, underpinning the CAD, except vs USD.
  • BoC’s Poloz held a press conference about the Financial System Review, where he sounded rather optimistic that growth is en-route to pick up later this year. Judging by the latest growth data in Canada, it looks like fundamentals could indeed overshoot the Central Bank’s modest targets for the remainder of 2019, subject to the global growth outlook (China-US trade).
  • Wilbur Ross, US Commerce Secretary, said that Trump has many options on the table when it comes to the handling of auto tariffs, which is a decision due by Saturday, May 18. So far, the market assumes that tariffs are set to be delayed by up to 6 months, which led to a relief rally in risk via equities late on Wednesday, only to extend the momentum on Thursday.
  • While historically not greatly affected by political events, the Australia Dollar faces a risk event this weekend, due to the national election. According to the most recent polls, cited via Reuters, the opposition Labour party is marginally ahead of the current coalition government by just 1bp 51-49.
Recent Economic Indicators & Events Ahead



Source: Forexfactory

RORO (Risk On, Risk Off Conditions)

For the first time since the US-China knocked heads in the trade negotiation process almost 2 weeks ago, the S&P 500 has finally found enough buying interest to shift the focus back to the upside. Not only the hourly structure, based on the Dow Theory, is building higher highs and higher lows, but the micro and macro slopes, represented via the 25 and 125-HMAs, have reverted back to bullish. The drop in the VIX towards the 15.00, paired with higher pricing in junk bonds, aided the bull run.

When it comes to the US fixed-income, the picture is not as rosy, even if the run higher holds its fair share of merit considering the US-China stalemate in trade. Unlike the S&P 500, the US 30y bond yield is yet to break its bearish structure and revert its macro slope from its current bearish bias.

The bullish run in the DXY, at this stage, is not a function of risk conditions, but rather it appears to be mainly driven by improving US fundamentals, as per Thursday’s positive economic data, alongside the lowering of implied volatility in equities, which alongside the globally synchronized dovish bias by Central Banks, still promotes the idea of buying USDs as a vehicle to get yield via ‘carry trade’.

Interestingly, the recent ‘risk on’ flows in equities is yet to debunk the prognosis of a market in full ‘true risk on’. Based on the price action of the Japanese Yen index, it’s far too early to speculate on a sustained recovery in risk as the market has simply permuted into a period of consolidation. The bullish macro slope and the absence of a clean bearish price structure prove this point.

The ability of the RORO model to act as an accurate analytical tool in order to assess risk conditions, without a doubt, hinges on the performance of Chinese assets, intertwined like never before to the manifestation, via price action, of where the market sees the US-China trade talks heading.

The new highs in USD/CNY, getting into closer contact with 7.00, reveals a story of ‘disbelief’ about the ability of neither China nor the US to back off from their respective trade demands (no side interested in losing face here), with the depreciation of the Yuan a byproduct of the dire outlook in upcoming talks. The performance of Chinese equities, while improving, remains too modest in nature to read too much into it, especially when China’s sponsored funds have contributed to the rebound.


Latest Key Developments In FX (Technicals, Fundamentals, Intermarket)

EUR/USD: Completes Next 100% Measured Move Target



GBP/USD: En-Route To Next Bearish Target




USD/JPY: Buyers Take Back Control




AUD/USD: More Pain For The Aussie Eyed




USD/CAD: Huge Area Of Resistance, Key Battlegrounds Defined




Important Footnotes

  • Risk model: The fact that financial markets have become so intertwined and dynamic makes it essential to stay constantly in tune with market conditions and adapt to new environments. This prop model will assist you to gauge the context that you are trading so that you can significantly reduce the downside risks. To understand the principles applied in the assessment of this model, refer to the tutorial How to Unpack Risk Sentiment Profiles
  • Cycles: Markets evolve in cycles followed by a period of distribution and/or accumulation. The weekly cycles are highlighted in red, blue refers to the daily, while the black lines represent the hourly cycles. To understand the principles applied in the assessment of cycles, refer to the tutorial How To Read Market Structures In Forex
  • POC: It refers to the point of control. It represents the areas of most interest by trading volume and should act as walls of bids/offers that may result in price reversals. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals the constant evolution of the market auction process. If you wish to find out more about the importance of the POC, refer to the tutorial How to Read Volume Profile Structures
  • Tick Volume: Price updates activity provides great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement. Studies validate that price updates (tick volume) are highly correlated to actual traded volume, with the correlation being very high, when looking at hourly data. If you wish to find out more about the importance tick volume, refer to the tutorial on Why Is Tick Volume Important To Monitor?
  • Horizontal Support/Resistance: Unlike levels of dynamic support or resistance or more subjective measurements such as fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, the horizontal lines of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed and relevant to monitor. The Ultimate Guide To Identify Areas Of High Interest In Any Market
  • Trendlines: Besides the horizontal lines, trendlines are helpful as a visual representation of the trend. The trendlines are drawn respecting a series of rules that determine the validation of a new cycle being created. Therefore, these trendline drawn in the chart hinge to a certain interpretation of market structures.
  • Correlations: Each forex pair has a series of highly correlated assets to assess valuations. This type of study is called inter-market analysis and it involves scoping out anomalies in the ever-evolving global interconnectivity between equities, bonds, currencies, and commodities. If you would like to understand more about this concept, refer to the tutorial How Divergence In Correlated Assets Can Help You Add An Edge.
  • Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
  • Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection
 

IvanGlobalPrime

Private
Messages
25
Find my latest market thoughts

AUD Boosted By Australian Election Result

The Aussie is the clear winner, boosted by the friendly outcome of the Australian national election, where the coalition government won with what appears to be a parliamentary majority.

The Daily Edge is authored by Ivan Delgado, Market Insights Commentator at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth look of market dynamics, factoring in fundamentals, technicals, inter-market in order to determine daily biases and assist one’s decisions on a regular basis. Feel free to follow Ivan on Twitter & Youtube.

Quick Take

There is a clear winner as the week gets underway, and that's the Aussie, boosted by the friendly outcome of the Australian national election, where the incumbent coalition government won with what appears to be a parliamentary majority. On the other side of the spectrum, we find the Yen, losing value even as the US-China trade rhetoric worsens, which is why the current hefty levels in JPY crosses look quite rich if one accounts for such an unsettling backdrop. Another commodity-linked currency, as the AUD, recently enjoying a lift is the Loonie (CAD), as the US agreed to lift the steel and aluminum tariffs as part of the US-Mexico-Canada trade agreement. The USD performance, partly driven by the consistent selling on the heavily traded European currencies, especially the Euro, continues to show no signs of abating. The overall risk profile in financial markets has relaxed quite a bit even if judging by the levels the Chinese Yuan trades at, the fundamental backing to justify such a recovery in risk is dubious at best.



Narratives In Financial Markets

* The Information is gathered after scanning top publications including the FT, WSJ, Reuters, Bloomberg, ForexLive, Institutional Bank Research reports.
  • The Australian Dollar has found strong bids in pre-market Intermarket trading after the incumbent coalition government was proclaimed as the winner of the Australian national election by a sufficient margin not only to defy the odds of the polls (recurrent pattern these days) but to likely enjoy an outright majority (76 seats needed).
  • AUD traders await a crucial public intervention by RBA Governor Lowe, due to speak at lunchtime Australian local time on Tuesday, on the prospects of the economy and policy. The RBA minutes from the latest policy decision will also be released tomorrow Australian morning time to shed further light on the RBA thinking process.
  • China has reinforced its stance on the current trade talks impasse, by noting via its state-sponsored economic daily blog on Wechat, that “we can’t see the US has any substantial sincerity in pushing forward trade talks. Rather, it is expanding extreme pressure.” China has laid out three conditions to make progress in the trade front, including the removal of the existing trade tariffs, a realistic purchase plan, and a balanced text as part of the agreement.
  • Despite US President Trump announced a 180-day delay in the auto tariff hikes to EU, Japan last Friday, the US Commerce Department has determined that auto imports represent a threat to national security. Counter-balancing the news, the Trump administration has decided to dial down the tensions with its neighboring countries by lifting the steel and aluminum tariffs on Mexico and Canada, which should allow Congress to ratify the trilateral trade agreement.
  • US prelim UoM consumer confidence, published last Friday, posted its highest level in over 15 years, which is yet another testament that the prospects by consumers to spend in the real economy are extraordinarily strong, as the labor market remains overly tight.
  • Plans are in the making for the UK parliament to vote, once again, on a Withdrawal Amendment Bill during the week of June 3rd, Meanwhile, UK PM May has stated that she hopes her new improved set of measures as part of the divorce agreement wins new support. The Sterling price action, very bearish the last 2 weeks, has been manifesting the continuous uncertainty that surrounds the Brexit process, with no clarity gained in the last month.
  • US President Trump has ramped up his rhetoric against Iran, noting that “if Iran wants to fight, that will be the official end of Iran. Never threaten the US again.” The market does not perceive this geopolitical risk to escalate further from here, which is why markets are not responding.
  • Keep close attention to USD/CNH, as it remains the center of the financial universe. If the 7.00 handle gives in, it will send a very dire signal for the risk profile. It's worth noting though, there have been indications that the PBOC (China's Central Bank) has started to manipulate the exchange rate via its fixing and intervention to ease the Yuan pressure a tad. As Nordea notes, a move through 7.00 "would make Chinese assets suffer massively as would the growth momentum in Asia."
Recent Economic Indicators & Events Ahead



Source: Forexfactory

RORO (Risk On, Risk Off Conditions)



The strong depreciation in the Yen index looks set to be limited in nature if one judges the soggy price action seen in equities and bonds in the last 24h. For the Yen to sustain its current losses and risk to substantially improve, a lot more work needs to be done in reverting back to bullish micro slopes in both the S&P 500 and the US 30y bond yields.

It’s quite rare to witness the JPY index move into bearish territory from a micro perspective, yet both equities and bonds trade in a rather suppressed manner by failing to extend last Thursday’s gains. Something's got to give, and judging by the market disparities, it’s the Yen that looks out of whack here.

Meanwhile, the DXY ascent continues at a slow but steady pace, printing 5 days of gains in a row. The poor performance in Chinese equities, using the Shanghai Composite as a reference, alongside the hefty levels in the USD/CNH, will do little to soothe the nerves of investors.

Overall, the RORO model is far from offering reassuring metrics that the ‘risk on’ profile is set to expand much further. This view is also anchored by the notion that the latest rhetoric in the US-China trade front has, if anything, has taken a turn for the worse, with China re-considering what’s the point of having more talks near term.



Latest Key Developments In FX (Technicals, Fundamentals, Intermarket)

EUR/USD: Bears Dominant Force, Watch Compression At The Lows



GBP/USD: Consistent Selling Respecting the 25HMA



USD/JPY: Set To Reach An Interim Top Intraday



AUD/USD: Emboldened by Aus election outcome, clear target overhead



Important Footnotes
  • Risk model: The fact that financial markets have become so intertwined and dynamic makes it essential to stay constantly in tune with market conditions and adapt to new environments. This prop model will assist you to gauge the context that you are trading so that you can significantly reduce the downside risks. To understand the principles applied in the assessment of this model, refer to the tutorial How to Unpack Risk Sentiment Profiles
  • Cycles: Markets evolve in cycles followed by a period of distribution and/or accumulation. The weekly cycles are highlighted in red, blue refers to the daily, while the black lines represent the hourly cycles. To understand the principles applied in the assessment of cycles, refer to the tutorial How To Read Market Structures In Forex
  • POC: It refers to the point of control. It represents the areas of most interest by trading volume and should act as walls of bids/offers that may result in price reversals. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals the constant evolution of the market auction process. If you wish to find out more about the importance of the POC, refer to the tutorial How to Read Volume Profile Structures
  • Tick Volume: Price updates activity provides great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement. Studies validate that price updates (tick volume) are highly correlated to actual traded volume, with the correlation being very high, when looking at hourly data. If you wish to find out more about the importance tick volume, refer to the tutorial on Why Is Tick Volume Important To Monitor?
  • Horizontal Support/Resistance: Unlike levels of dynamic support or resistance or more subjective measurements such as fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, the horizontal lines of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed and relevant to monitor. The Ultimate Guide To Identify Areas Of High Interest In Any Market
  • Trendlines: Besides the horizontal lines, trendlines are helpful as a visual representation of the trend. The trendlines are drawn respecting a series of rules that determine the validation of a new cycle being created. Therefore, these trendline drawn in the chart hinge to a certain interpretation of market structures.
  • Correlations: Each forex pair has a series of highly correlated assets to assess valuations. This type of study is called inter-market analysis and it involves scoping out anomalies in the ever-evolving global interconnectivity between equities, bonds, currencies, and commodities. If you would like to understand more about this concept, refer to the tutorial How Divergence In Correlated Assets Can Help You Add An Edge.
  • Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
  • Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection
 

IvanGlobalPrime

Private
Messages
25
Find my latest market thoughts

AUD Sold As RBA Lowe Hints Rate Cut


We had an uninspiring day of price action in the forex arena on Monday, with most of the US-China trade-led vol concentrated in the equity market. It is precisely in stocks where we are seeing the first technical cracks again, as IT shares implode the high stakes gamble decision by the US to ban Chinese-based Huawei and ZTE Corp from any dealings with US telecoms.


The Daily Edge is authored by Ivan Delgado, Market Insights Commentator at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth look of market dynamics, factoring in fundamentals, technicals, inter-market. Feel free to follow Ivan on Twitter& Youtube. Make sure you join our discord room if you'd like to interact with Ivan and other like-minded traders. Also, find out why Global Prime is the highest rated broker at Forex Peace Army.

Quick Take

We had an uninspiring day of price action in the forex arena on Monday, with most of the US-China trade-led vol concentrated in the equity market. It is precisely in stocks where we are seeing the first technical cracks again as the risk profile worsens, with IT shares suffering the consequences from the high stakes gamble decision by the US to ban Chinese-based Huawei and ZTE Corp from any dealings with US telecoms. Surprisingly, the Japanese Yen has failed to attract sufficient demand, in a 'puzzling' move that I explore in today's report. The Aussie got off to a great week after the positive Australian election news, as the sitting coalition government retained power. However, the RBA Governor Lowe speech today, highlighting the possibility of a rate cut at the June meeting, has thrown cold water on the positive AUD outlook as it gives back most of this week's gains. With regards to the USD, there was a significant absence of flows coming through the books, with a speech by Fed's Powell failing to spice things up. Same applies to the CAD, as the USD/CAD comatose trading manifested. Last but not least, the appeal towards the European currencies, especially the Sterling, remains subdued, as the Brexit process stays 'stuck' following the failure of the cross-party talks between the Conservatives and Labour. The next Brexit divorce agreement vote is due in early June.



Narratives In Financial Markets

* The Information is gathered after scanning top publications including the FT, WSJ, Reuters, Bloomberg, ForexLive, Institutional Bank Research reports.

  • Equities in the US and Europe start the week on the backfoot, mainly led by IT shares, as investors’ unrest grows following the high stakes gamble decision by the US to ban dealings with China-based Huawei and ZTE Corporation by US telecoms.
  • There continues to be further mounting evidence that the tit for tat trade rhetoric is quickly transitioning into a full-blown trade war. Comments by a Chinese envoy to the EU, saying that “Chinese companies’ legitimate rights and interests are being undermined” and that “necessary response” will have to occur, is yet the latest hint that a protracted delay before, a trade agreement ensues, which sounds quite elusive at this stage.
  • Most of the volatility was concentrated in the equity market, with the Forex arena going through a low key affair as the suppressed vol regime expands amid the lack of incentives to diversify as the overall risk profile stays ‘on hold’ and Central Banks keep sync dovishness.
  • We had a major test for the AUD this morning. First off, the RBA minutes provided initial insights on the controversial decision to keep the RBA policy ‘status quo’ even as their inflation mandate slips off. The verdict by the market was that the RBA is ready to cut rates if the labor market doesn't show further improvements. Most importantly, and what represented the nail on the coffin for the AUD today, was the RBA Governor Lowe speech in Sydney about the Economic Outlook and Monetary Policy. Lowe clearly stated that the case for lower rates is 'on' and that June is a lively meeting where a cut will be considered, strengthening the easing bias commitment.
  • Fed’s Powell speech, just a few minutes ago, has come and gone without any major market response, as the focus is currently fixated in hints to potential rate cuts. An easing by the Fed later this year is an outcome priced in by bond vigilantes, and the case further boosted by the eruption of the tit for tat US-China trade dispute, which should undermine growth prospects.
  • Saudi Energy Minister Khalid Al-Falih has vowed for the OPEC + coalition to “stay the course” when it comes to its production cut plans. Expected limits in supply were the key driver for Oil on Monday, which showed volatile yet overall bullish price action.
  • Geopolitical tensions between the US and Iran seem to be escalating, judging by the rhetoric. On Monday, South Carolina Senator Lindsey Graham said that National Security Advisor Bolton has warned him of worsening tensions with Iran, claiming that Iran-sponsored actors have gone through a campaign of boycotting and attacking pipelines and ships to create threat streams against American interest in Iraq and other neighboring nations.
  • According to Goldman Sachs Economics Research, the victory in the general election by Australia’s sitting PM Morrison is a significant surprise, as manifested by the AUD bullish price action, if one considers that the Coalition Government had been consistently behind in the polls. The bank’s Economics Team notes that “while we assess the result to have minimal near-term implications for the current slightly positive stance of fiscal policy, it does present a moderate boost to corporate sentiment and a more meaningful one to sentiment in the housing sector.”
  • The Research Team at Morgan Stanley holds the view that “without a cross-party agreement, we do not expect the Brexit deal to pass”, due for a vote again in early June. The bank adds that “with parliament gridlocked, we expect a political process to resolve Brexit, pointing to a more binary outcome.” GBP remains under pressure.
Recent Economic Indicators & Events Ahead



Source: Forexfactory

RORO (Risk On, Risk Off Conditions)



The disconnect between the pricing of the JPY, using our prop index as a reference, and that of equities and to a certain extent fixed income, continues. It shows a rare disparity unlikely to last. Personally, with the tit for tat US-China punitive tariffs, Huawei’s restriction/ban from dealings with the US, and the war of words sounding increasingly provocative and retaliatory in nature, it continues to enhance the prospects of a protracted trade war at a rapid pace. On the back of such uneasiness, it looks as though the S&P 500 has started to frontrun the bearish sentiment by breaking into a new cycle low, which has been confirmed after the break and hold sub May 17 low at 2,850.00, a move that has also been vindicated by the bullish price action in the VIX. The micro slope has also turned negative, which only reinforces the bearish bias. In the meantime, fixed-income, with the US 30y our best gauge to evaluate the overall risk profile as it relates to global yields, remains on a ‘holding pattern’ by extending its 2.80%-2.85% range for a 4th day in a row. Personally, I find it really hard to see much impetus to the upside eventuating with the US-China trade issue escalating.

As per the currency flows, the DXY has maintained its hefty levels, which is far from being the ideal scenario if one expects the risk profile to be on the mend. The most puzzling move so far, one that keeps defying logic, which suggests it has its hours numbered unless ‘risk on’ is re-ignited, is the depreciation in the Japanese Yen. Believe it or not, hence my ‘puzzling’ expression, with a more than dubious risk dynamics, the Yen index displays its most bearish profile ever since the onset of the month-long Yen risk rally on April 15th. This reveals two key takeaways. Firstly, short-term traders should be on the watch to exploit long opportunities in the Yen on the basis of a poor risk environment. Secondly, it tells us that the supply interest on the Yen has been very strong from a more macro perspective, which does make sense as our equally-weighted Yen index reached its 100% target projection move from a weekly perspective, as shown below.



When it comes to Chinese assets, we want to pay attention to the Shanghai Composite, which remains pressure on the back of the Huawei ban, but most importantly, we still want to understand what’s happening in the Yuan valuation front. The bullish trend in the USD/CNH remains firmly in place, even if some of the short-term momentum has been lost as authorities in China pledge to defend the 7.00 handle, which is definitely the level the market is watching for. According to the Economics Team at Nordea, the move towards 6.91% may represent a concrete attempt by China to allow the countering of 10% tariffs on Chinese export goods. However, more worrisome should be if China aims to weaponize the Yuan as a tool to counter-attack the US for its 25% tariff hike. If that’s the case, 7.91 would be the next target, which is a scenario the team at Nordea assigns low probabilities given that, as stated yesterday by the Economics Team at Nordea, “a move through 7.00 would make Chinese assets suffer massively as would the growth momentum in Asia."



Latest Key Developments In FX (Technicals, Fundamentals, Intermarket)
EUR/USD: Flows Consolidate Limited by Friday's POC



GBP/USD: Friday's POC Location To Reinstate Shorts




USD/JPY: Bullish Structure As Yen Defies Risk Profile




AUD/USD: Finds Higher Value, RBA Lowe To Determine Next Bias




USD/CAD: Directionless Flows, CAD Benefited By Trade News




Important Footnotes

  • Risk model: The fact that financial markets have become so intertwined and dynamic makes it essential to stay constantly in tune with market conditions and adapt to new environments. This prop model will assist you to gauge the context that you are trading so that you can significantly reduce the downside risks. To understand the principles applied in the assessment of this model, refer to the tutorial How to Unpack Risk Sentiment Profiles
  • Cycles: Markets evolve in cycles followed by a period of distribution and/or accumulation. The weekly cycles are highlighted in red, blue refers to the daily, while the black lines represent the hourly cycles. To understand the principles applied in the assessment of cycles, refer to the tutorial How To Read Market Structures In Forex
  • POC: It refers to the point of control. It represents the areas of most interest by trading volume and should act as walls of bids/offers that may result in price reversals. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals the constant evolution of the market auction process. If you wish to find out more about the importance of the POC, refer to the tutorial How to Read Volume Profile Structures
  • Tick Volume: Price updates activity provides great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement. Studies validate that price updates (tick volume) are highly correlated to actual traded volume, with the correlation being very high, when looking at hourly data. If you wish to find out more about the importance tick volume, refer to the tutorial on Why Is Tick Volume Important To Monitor?
  • Horizontal Support/Resistance: Unlike levels of dynamic support or resistance or more subjective measurements such as fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, the horizontal lines of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed and relevant to monitor. The Ultimate Guide To Identify Areas Of High Interest In Any Market
  • Trendlines: Besides the horizontal lines, trendlines are helpful as a visual representation of the trend. The trendlines are drawn respecting a series of rules that determine the validation of a new cycle being created. Therefore, these trendline drawn in the chart hinge to a certain interpretation of market structures.
  • Correlations: Each forex pair has a series of highly correlated assets to assess valuations. This type of study is called inter-market analysis and it involves scoping out anomalies in the ever-evolving global interconnectivity between equities, bonds, currencies, and commodities. If you would like to understand more about this concept, refer to the tutorial How Divergence In Correlated Assets Can Help You Add An Edge.
  • Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
  • Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection
 

IvanGlobalPrime

Private
Messages
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Find my latest market thoughts

The USD Keeps Attracting Steady Flows


As the market goes through a moderate round of deleveraging, the Japanese Yen, recently disjointed from RORO dynamics amid an overstretched cheap valuation, finally put on a decent recovery, one that I had personally been endorsing judging by the depressing risk mood.

The Daily Edge is authored by Ivan Delgado, Market Insights Commentator at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth look of market dynamics, factoring in fundamentals, technicals, inter-market in order to determine daily biases and assist one’s decisions on a regular basis. Feel free to follow Ivan on Twitter & Youtube.

Quick Take

As the market goes through a moderate round of deleveraging, the Japanese Yen, recently disjointed from RORO dynamics amid an overstretched cheap valuation, finally put on a decent recovery, one that I had personally been endorsing judging by the rather depressing risk mood present. The USD continues to attract steady flows as trade uncertainties have forced a re-allocation of capital away from emerging market exporters, making its way back into the United States. The Sterling, once again, has been the least favored currency, as the market prices in an imminent resignation of UK PM May and almost null chances of her Brexit Withdrawal Agreement passing its 4th vote through Parliament in early June. Another currency overwhelmed by a late day supply imbalance is the Canadian Dollar, initially boosted on the back of upbeat Canadian retail sales, only to revert all its gains and then some as the Oil price collapsed amid the shocking build-up of Crude and Gasoline inventories. Sandwiched in between we find the Euro, the Aussie, and the Kiwi, even if the Oceanic currencies are the most vulnerable, both suffering from renewed macro tendencies as the market anticipates further easing in Aus/NZ.



Narratives In Financial Markets

* The Information is gathered after scanning top publications including the FT, WSJ, Reuters, Bloomberg, ForexLive, Institutional Bank Research reports.

  • The FOMC minutes reassure market participants that the Federal Reserve is not yet considering to lower its interest rates in the near term. In the statement, the word ‘patience’ was again emphasized and warranted as they suspect the decline in inflationary pressure is likely a transitory event.
  • It’s important to note that the FOMC minutes pre-date the partial collapse in trade talks between the US and China, which is why the minutes may misrepresent the current new thinking from the Fed, as the global outlook could rapidly deteriorate if frictions remain where they are or rise further, which is a clear risk.
  • US President Trump states that there will be no infrastructure deal as the political drama with the Democrats takes a turn for the worse. House Speaker Pelosi said that “Trump is not above the law, and that we believe Trump is involved in a cover-up”, while Democrats discuss the very low probability scenario of an impeachment.
  • The Oil price was hammered following a surprising build up in the EIA inventory stats, showing a 4.74mln barrels increase in crude inventories, which is over 3 times the expectations. To make it worse, gasoline inventories also jumped to 3.72mln barrels vs 850k expected.
  • The Sterling was the biggest mover, losing further value as rumors mount that Theresa May has her days numbered as British Prime Minister amid the near-zero chance of her Brexit Withdrawal Agreement (WA) being approved by parliament, due for a vote in early June.
  • The 1922 committee of Conservative backbenchers will convey on Friday in what’s thought to be a meeting partially intended to alter rules that will allow for an early leadership contest, given that under the standing rules, May cannot be challenged until December.
  • China’s Foreign Minister Wang Yi kept the confrontational rhetoric against the US as a way of showing China’s determination not to be bullied by Trump, noting some in the US are trying to hinder China’s development process, adding that pressure on Huawei is pure economic bullying and that no unequal agreement on trade will pass.
  • Bloomberg reports that the US is reportedly weighing the prospects of blacklisting up to five Chinese surveillance firms on the basis that the technology could be employed for espionage. As long as the US keeps targeting Chinese techs, any US-China deal is an illusion.
  • Canadian retail sales came much better-than-expected at 1.1% and 1.7% (core retail sales) vs 0.8% estimates in both, leading to a sudden mark-up in the price of the CAD.
Recent Economic Indicators & Events Ahead




Source: Forexfactory

RORO (Risk On, Risk Off Conditions)



The overall risk sentiment took a turn for the worse on Wednesday, with the suppression in global yields the main culprit behind the strengthening of the Japanese Yen. The US 30y bond yield, as usual, is our global barometers to assess the allure towards fixed-income, and there we see that both the micro and macro slopes (25 & 125HMA) are pointing lower, which is not a good omen for risk dynamics.

In the equity market, with the US-China trade frictions on the increase, I find it fully justified that stocks, especially the IT sector, are finding it hard to build upon Tuesday's recent gains. The hourly structure in the S&P 500 remains bearish as per lower lows and lower highs, which is a bad omen technically speaking. On a slightly positive note, the VIX has been muted sub 15.00 at the range lows, while junk bonds are still finding some residual demand even if the price action is far from conclusive.

Interestingly, the DXY continues to show stubbornly high demand flows as it becomes evident, as Morgan Stanley’s Research Team notes, that “trade uncertainties have shifted capital flows away from EM exporters and into the US.” Remember, either in ‘risk on’ or ‘risk off’ scenarios, the USD has been performing in a very steady manner, suggesting that all else being equal, it remains the place investors are resorting to as safe-haven.

With regards to the USD/CNH, the equilibrium found above 6.93, where a balance area worth over 300 pips has formed, is a clear sign that the market is betting, for now, on a protracted trade standoff between the US and China, something that if following the social media and news rhetoric, appears to be in congruence.

Overall, the environment in risk is such that I am inclined to think that we are on the cusp of another round of 'risk off' this Thursday, one that should keep the USD and the JPY well supported, while keeping commodity-linked currencies under pressure. Notice, AUD, and NZD are also suffering from the pricing of further easing, which makes the prospects of exploiting Oceanic currency weakness via USD or JPY an interesting proposition if further 'risk off' swings eventuate.



Latest Key Developments In FX (Technicals, Fundamentals, Intermarket)

EUR/USD: Range Expansion W/ Sell Side Vol Pressure



GBP/USD: Early Signs Of Potential Buy Side Accumulation?




USD/JPY: Buy Side Structure Still Valid




AUD/USD: Risk To The Downside W/ Well Defined Targets




USD/CAD: Symmetrical Areas Of Interest Respected



Important Footnotes

  • Risk model: The fact that financial markets have become so intertwined and dynamic makes it essential to stay constantly in tune with market conditions and adapt to new environments. This prop model will assist you to gauge the context that you are trading so that you can significantly reduce the downside risks. To understand the principles applied in the assessment of this model, refer to the tutorial How to Unpack Risk Sentiment Profiles
  • Cycles: Markets evolve in cycles followed by a period of distribution and/or accumulation. The weekly cycles are highlighted in red, blue refers to the daily, while the black lines represent the hourly cycles. To understand the principles applied in the assessment of cycles, refer to the tutorial How To Read Market Structures In Forex
  • POC: It refers to the point of control. It represents the areas of most interest by trading volume and should act as walls of bids/offers that may result in price reversals. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals the constant evolution of the market auction process. If you wish to find out more about the importance of the POC, refer to the tutorial How to Read Volume Profile Structures
  • Tick Volume: Price updates activity provides great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement. Studies validate that price updates (tick volume) are highly correlated to actual traded volume, with the correlation being very high, when looking at hourly data. If you wish to find out more about the importance tick volume, refer to the tutorial on Why Is Tick Volume Important To Monitor?
  • Horizontal Support/Resistance: Unlike levels of dynamic support or resistance or more subjective measurements such as fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, the horizontal lines of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed and relevant to monitor. The Ultimate Guide To Identify Areas Of High Interest In Any Market
  • Trendlines: Besides the horizontal lines, trendlines are helpful as a visual representation of the trend. The trendlines are drawn respecting a series of rules that determine the validation of a new cycle being created. Therefore, these trendline drawn in the chart hinge to a certain interpretation of market structures.
  • Correlations: Each forex pair has a series of highly correlated assets to assess valuations. This type of study is called inter-market analysis and it involves scoping out anomalies in the ever-evolving global interconnectivity between equities, bonds, currencies, and commodities. If you would like to understand more about this concept, refer to the tutorial How Divergence In Correlated Assets Can Help You Add An Edge.
  • Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
  • Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection
 

IvanGlobalPrime

Private
Messages
25
Find my latest market thoughts

USD Hit By Major Supply Imbalance


The USD suffered a V-shaped turnaround, in other words, in a matter of hours its outlook went from steady bullish to now head into Friday with clear fragility to further losses.

The Daily Edge is authored by Ivan Delgado, Market Insights Commentator at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth look of market dynamics, factoring in fundamentals, technicals, inter-market. Feel free to follow Ivan on Twitter& Youtube. Make sure you join our discord room if you'd like to interact with Ivan and other like-minded traders. Also, find out why Global Prime is the highest rated broker at Forex Peace Army.

Quick Take

The USD suffered a V-shaped turnaround, in other words, in a matter of hours its outlook went from steady bullish to now head into Friday with clear fragility to further losses. The culprit, after correlating price action to fundamental news, has been attributed to a surprisingly low US PMI read, paired with soft new home sales in the US. In stark contrast, the resumption of a risk aversion with both equities and global yields experiencing sharp slides led to the strong appreciation of the Yen (and Swissy). The Canadian Dollar, amid the continuous collapse in the price of Oil in a risk-off environment, succumbed for the second day in a row, while the Sterling also traded primarily lower, even if the overall weak performance was much more contained as the market appears to have fully priced in the resignation of Theresa May as British PM. The three currencies that managed to keep up with the Yen (and Swissy), albeit at a significant distance, were the Euro, the Aussie, and the Kiwi, in what's seen as a rise on the demerits of the USD only.



Narratives In Financial Markets

* The Information is gathered after scanning top publications including the FT, WSJ, Reuters, Bloomberg, ForexLive, Institutional Bank Research reports.
  • Fragile risk dynamics leads to US equities and yields across the maturity spectrum selling off quite sharply as the narrative on the US-China trade conundrum worsens by the day.
  • The lead taken by US equities from European stocks performance was a pretty gloomy one, as both the German and European PMI series fell further into the red, re-igniting the idea that the global growth slowdown keeps spreading across the wider European continent.
  • The USD joins the offered tone in risk as the flash Markit US PMI underwhelms by barely staying above the 50.00 mark (50.9 vs 53.6 exp), interpreted as a significant shocker. The services component also fell to 50. Vs 52.6 exp. Another culprit was seen on the decline in US new home sales, which despite being a volatile indicator, added to the negative mood.
  • The setback in the US Dollar goes against the recent pattern of a steady appreciation no matter the risk profile as EM capital headed back into the US. Receding flows into USD-denominated assets (repatriation or into money markets) may explain the turnaround.
  • Moody's Analytics warns that if the 10-year Treasury yield’s month-long average drops to 2.25% or lower, the FOMC may cut fed funds at its next quarterly meeting. As inferred from the CME Group’s FedWatch Tool, the futures market recently assigned an implied probability of 79% to a Fed rate cut by the end of 2019. In view of the underutilization of the world’s productive resources, low inflation should help to rein in Treasury bond yields.
  • UK Theresa May is expected to announce on Friday her timetable to step down as Prime Minister, with some reports suggesting that a leadership contest will begin from June 10th.
  • US President Trump kept attacking China via tweets by noting their unfair decade-long practices in trade activities while announcing an economic aid package to farmers/ranchers who may be hit the hardest by what’s believed to be a protracted cold war in trade and tech. Trump also confirmed that he will meet China’s President Xi at the Osaka G20 summit in June. Lastly, Trump said, “if the deal happens, that would be great, if not, that’s fine.”
  • On the Huawei rife, US Secretary of State Pompeo said that there is a real risk from China towards US national security, adding that US companies are going to cut ties with Huawei. Pompeo also said that Huawei is deeply tied to China’s communist party. The more embroiled the issue with Huawei restriction/ban becomes, the harder to get a trade deal.
  • In the next 24h, the focus will be on the US durable goods orders, which takes an even higher degree of importance after the USD selloff was attributed to poorer US fundamentals.
  • Over the weekend, the European parliamentary elections will take place. Votes from 28 EU countries will elect 751 members to the European Union.
Recent Economic Indicators & Events Ahead



Source: Forexfactory

RORO (Risk On, Risk Off Conditions)



Yesterday, I concluded that the overall risk environment was such that I felt inclined to think we were on the cusp of another round of 'risk off' on Thursday. Long and behold, the pendulum has effectively moved quite aggressively back into risk aversion mode as both US equities and US yields revert back to bearish tendencies from a micro and macro standpoint. The S&P 500, as our bellwether, resumed its downtrend with the technical backing of a bearish structure playing out. In the fixed-income space, the hammering of US yields follows a week-long of consolidation, with the extension of the selloff quite impressive as the US 30y yield makes a fresh low at 2.73%.

In the currency space, the Yen, alongside the Swissy (not covered in the report), were the absolute stars, in what’s a clear reflection of ‘true risk off’ flows. Granted, the bearish turnaround in the USD was not quite the scenario one would have expected as part of the ‘risk off’ script playing out, with the fall being almost fully attributed to a raft of negative US fundamentals. When turning the attention to China’s assets, both the stock index performance in Shanghai and the USD/CNH, continue to imply that a protracted trade dispute between the US and China on trade is here to stay, which should remain at the core of one’s macro assessment to fade spells of overextended ‘risk appetite’.Latest Key Developments In FX (Technicals, Fundamentals, Intermarket)

EUR/USD: V-shaped Structure Negates Bearish Bias



GBP/USD: Range Formation, Risk Of Head Fakes



USD/JPY: Sharp Selloff On Perfect Intermarket Bearish Storm



AUD/USD: Buyers Return To Break Topside Of The Range



Important Footnotes
  • Risk model: The fact that financial markets have become so intertwined and dynamic makes it essential to stay constantly in tune with market conditions and adapt to new environments. This prop model will assist you to gauge the context that you are trading so that you can significantly reduce the downside risks. To understand the principles applied in the assessment of this model, refer to the tutorial How to Unpack Risk Sentiment Profiles
  • Cycles: Markets evolve in cycles followed by a period of distribution and/or accumulation. The weekly cycles are highlighted in red, blue refers to the daily, while the black lines represent the hourly cycles. To understand the principles applied in the assessment of cycles, refer to the tutorial How To Read Market Structures In Forex
  • POC: It refers to the point of control. It represents the areas of most interest by trading volume and should act as walls of bids/offers that may result in price reversals. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals the constant evolution of the market auction process. If you wish to find out more about the importance of the POC, refer to the tutorial How to Read Volume Profile Structures
  • Tick Volume: Price updates activity provides great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement. Studies validate that price updates (tick volume) are highly correlated to actual traded volume, with the correlation being very high, when looking at hourly data. If you wish to find out more about the importance tick volume, refer to the tutorial on Why Is Tick Volume Important To Monitor?
  • Horizontal Support/Resistance: Unlike levels of dynamic support or resistance or more subjective measurements such as fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, the horizontal lines of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed and relevant to monitor. The Ultimate Guide To Identify Areas Of High Interest In Any Market
  • Trendlines: Besides the horizontal lines, trendlines are helpful as a visual representation of the trend. The trendlines are drawn respecting a series of rules that determine the validation of a new cycle being created. Therefore, these trendline drawn in the chart hinge to a certain interpretation of market structures.
  • Correlations: Each forex pair has a series of highly correlated assets to assess valuations. This type of study is called inter-market analysis and it involves scoping out anomalies in the ever-evolving global interconnectivity between equities, bonds, currencies, and commodities. If you would like to understand more about this concept, refer to the tutorial How Divergence In Correlated Assets Can Help You Add An Edge.
  • Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
  • Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection
 
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