1. This site uses cookies. By continuing to use this site, you are agreeing to our use of cookies. Learn More.

Global Prime: Daily Market Digest

Discussion in 'Market Predictions and Reports' started by IvanGlobalPrime, Aug 8, 2018.

  1. IvanGlobalPrime

    IvanGlobalPrime Private

    Joined:
    Aug 1, 2018
    Messages:
    25
    Likes Received:
    0
    Find my latest market thoughts

    Major Turnaround As Trump Talks Up Trade

    POSTED ON: 27 AUG, 2019

    We are far from being out of the woods as the sense is that Monday's risk recovery has little for one to latch on as trade war discrepancies worsen. However, as manifested via recent price action, the risks of greater two-way street erratic vol are on the rise as Trump gets fixated with keeping equity valuations afloat, even if his claims start being highly questionable.


    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. You can also subscribe to the mailing list to receive Ivan’s Daily wrap.

    Quick Take

    US President Trump, in yet another attempt to manipulate stock valuations, managed to single-handily engineer a major disruption to the 'risk-off' conditions that had engulfed the market since last Friday's ramp-up in the trade war escalation. Whether Trump hallucinated (manipulated) the market when saying China wants to return to the negotiating table after receiving a call or not, what's clear is that he still holds the power and has the ability to move the markets by acting as a circuit breaker. The round trip in the Aussie as the primary G10 FX proxy for China left many scratching their head but that's the dicey environment we live in as the volatility of Trump's tweets also ramps up. The Canadian Dollar was another great performer, while the Kiwi lagged way behind. The pullback in funding currencies was especially notable in the Euro as the currency got hit from both angles ('risk-on recovery' + poor German IFO). The Sterling continues its low vol correction after the strong appreciation following Merkel's optimism around a potential backstop solution before the Brexit deadline by end of Oct. Lastly, the USD has traded much more stable, attracting fresh demand flows, sandwiched between the outperformance of high-beta currencies and the underperformance of the funding currencies. We are far from being out of the woods as the sense is that Monday's risk recovery has little for one to latch on as trade war discrepancies worsen. However, as manifested via price action on Monday, the risks of greater two-way street erratic vol are on the rise as Trump becomes fixated with keeping equity valuations afloat, even if his claims start being highly questionable.

    [​IMG]

    The indices show the performance of a particular currency vs G8 FX. An educational article about how to build your own currency meter can be found in the Global Prime's Research section.

    Narratives In Financial Markets

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

    V-shaped turnaround in sentiment: There has been an abrupt turnaround from 'risk-off' to 'risk-on' sentiment after US President Trump claimed that China trade representatives had reached out to return back to the negotiating table, adding quite explicitly that China has the intention of “wanting to make a deal”. Even if the news were later disputed by Chinese officials and press as false claims, noting that “top negotiators didn’t hold phone conversations in recent talks”, the market never looked back, ending the day with risk assets recouping all early Asian losses and a large portion of Friday’s.

    China questions veracity of Trump's claims: Even though what really matters is price action and not to get into the debate of who’s right and who’s wrong, Hu Xijin, Editor in Chief of the Global Times (China’s government mouthpiece) said: “Based on what I know, Chinese and US top negotiators didn’t hold phone talks in recent days. The two sides have been keeping contact at a technical level, it doesn’t have significance what Trump suggested. China didn’t change its position. China won’t cave to US pressure”.

    China seeking a 'calm' approach: What’s factual and objective information is that a big shot in the trade negotiations as is China vice-premier Liu He said that China is willing to resolve the trade dispute with the US in a calm manner, cited in a Chinese newspaper via Reuters, adding that China opposes an escalation of the current trade war.

    Trump's sensitivity to the stock market keeps growing: Make no mistake, US President Trump continues to accommodate a narrative based on the valuation of stocks. If he sees big down days in the market, he will not hesitate to do or say whatever it takes to re-invigorate the bullish sentiment. That’s a real possibility. Now, by applying common logic, the worsening in the relationships between the US and China, with Trump ramping up his retaliatory actions, certainly provide little breathing room for either side to compromise on key sticking points without losing credibility back home. Both Trump and Xi need their economies to keep growing, which means they need each other, but at the same time, they won’t allow any action to be seen as an admission of weakness that will make them lose face.

    The G7 summit carries a few positive headlines: Helping the risk sentiment is the perception that the G7 summit over the weekend was a rather successful one. Some of the positive highlights included the willingness by Trump said to resume talks with Iran over its nuclear ambitions, which sent the price of Oil down as the market prices in, even if only at a marginal level, that Iranian oil supply may return to the market. We also saw a compromise between France and the US over the French technology tax, with an agreement for the tax to last for two years until the OECD agrees on a global minimum tax. Even more importantly in terms of the relevance it holds, President Trump also said that the US and the EU may eventually reach a fair trade agreement to avoid tariffs on cars. Trump said: “We’re very close to maybe making a deal with the EU because they don’t want tariffs… I think we’re going to make a deal with the EU without having to go that route.”

    Germany's data from bad to worse: In a sign that the German economy is increasingly likely to be headed into a recession later this year as the global economy deteriorates further, the German IFO came in below expectations. The IFO saw another drop to 94.3 from 95.8, which is below market expectations of 95.1. The Manufacturing Index, as a result of the Chinese trade activity slowdown, hit its lowest levels since December 2009, while the Services Index finds itself at the weakest point since June 2010. The bleak outlook in Germany should reinforce the notion about the ECB preparing a rather aggressive easing package as well as calls for fiscal stimulus by the German government.

    ECB's Weidmann re-ignites hope for stimulus package: Amid the horrendous German data, Dr. Jens Weidmann, President of the Deutsche Bundesbank and a key member as part of the European Central Bank, said that there is "no reason to roll out a large-scale programme to stimulate economic activity", in an interview with the German news outlet Frankfurter Allgemeine Sonntagszeitung. The comments follow the ramp-up in rhetoric by ECB’s Rhem in an interview with the WSJ earlier this month, hinting to the markets that the ECB is getting ready to announce a big easing package, including rate cuts and asset purchases.

    US data fails to inspire but acceptable: The US July preliminary durable goods orders saw an upbeat headline of +2.1% vs +1.2% expected, despite the break down of the details offers a poor picture as revisions were negative and key sectors such as capital goods shipments non-defense fell more than expected. It will be key to continue monitoring the appetite of business to invest as the trade war progresses.

    Recent Economic Indicators & Events Ahead

    [​IMG]
    Source: Forexfactory

    A Dive Into The Charts

    [​IMG]

    The indices show the performance of a particular currency vs G8 FX. An educational article about how to build your own currency meter can be found in the Global Prime's Research section.

    The Euro index was badly hit by the combo of downbeat German data (IFO business climate) coupled with the recovery of the risk environment, which led to a rapid unwinding of longs in funding currencies such as the Euro. The index is currently trapped in a range, having found a solid floor of support from where multiple rebounds have occurred. Given how dicey the main thematic of an escalating trade war remains, I wouldn’t be surprised if the Euro finds renewed buying pressure near-by even if the major bearish price action reversal of high tick volume alongside the retake of the baseline to the downside certainly suggest caution.

    The USD index has recovered part of its Friday’s losses, also re-taking the upper side of the baseline on higher-than-usual participation as per the aggregated tick volume. On the downside, I still see Monday’s retracement in the context of a potential bearish developing context after the double top formation followed by the printing of a sizeable bearish outside bar. The fisher transform indicator (in blue), does not suggest a market ripe to storm higher just now, which is why I’d be cautious to gain much long-side exposure on the currency. Looks premature.

    The Pound index continues to slide from the key level of resistance it reached last Thursday, which ever since I’ve warned it was an area where residual pocks of demand would be limited given the elongated nature of the bullish movement we saw. Overall, the index remains in bullish territory as per the daily chart, with demand expected to be found nearby as a broken level of support gets retested underneath as depicted by the chart. It’s worth noting that the horizontal support is confluent with the intersection of the 13-d ema baseline, adding weight.

    The Canadian Dollar index looks the most bullish out of the G8 FX currencies monitored. The breach of the baseline to the upside on high tick volume (aggregated) does imply that the currency is well-positioned to find follow-through demand in the next 24h. Notice, buyers of the CAD initiated its buying spree off a key level of support highlighted in the chart, which is why I keep emphasizing that the technical analysis of these currency indices can be so instrumental for anyone who is looking to anticipate buying and selling campaign in a particular currency.

    The Australian Dollar index has been another currency printing big gains overnight, and as in the case of the Canadian Dollar, the index also found the carving out of a bottom at a critical level of support last tested in early August. That should have been a heads up to be prepared for a potential reprieve in the Aussie, which just so happens to have picked up a huge upside momentum as the overall risk profile had an impressive turnaround. The outlook for the Aussie going forward is still unclear as the index could not break above the 13-d ema baseline, essentially making me quite cautious to support the Aussie in the next 24h, especially after the rubber band (price) got so overstretched. Note, a key resistance also lies ahead.

    The New Zealand index is outright bearish with no technical developments making me change the view at this point. Even the abrupt recovery in risk appetite has led to the Kiwi being the underperformer against the commodity-currencies complex (AUD, CAD), which tells us the sentiment around the currency remains quite poor, which is vindicated by technicals. I’d personally stay bearish the currency looking for short-side business.

    The Japanese Yen index is still under a bullish context as the price finds, once again, support at the 13-d ema baseline, from which traders are initiating buying pressure in early Asia. The market structure, with higher highs printed last Monday, also suggests that the current cycle is constructive to be adding longs on retracements until the baseline is lost. Overall, the Yen is looking like an attractive proposition at cheap levels considering the uncertain risk profile.

    The Swiss Franc index was rejected off a key resistance, and as I wrote yesterday, this was an area that if you had any CHF long exposure, you should have definitely accounted for. The close at the end of NY business has not yet confirmed the currency falling under negative territory as the 13-d ema (baseline) acts as dynamic support once again. The outlook for the currency remains unclear but rest assured that if risk-off picks up, the index is poised to benefit.

    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. 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
     
  2. IvanGlobalPrime

    IvanGlobalPrime Private

    Joined:
    Aug 1, 2018
    Messages:
    25
    Likes Received:
    0
    Find my latest market thoughts

    Risk Environment In Shaky Ground

    POSTED ON: 28 AUG, 2019

    When financial conditions tighten and investors decide to go 'cash' in equities and bonds keep the stubborn bid, high-beta currencies (AUD, NZD, CAD, EM FX) performed poorly on Tuesday, and after going through the technicals in a bunch of risk-sensitive instruments, the risk environment remains on shaky ground.


    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. You can also subscribe to the mailing list to receive Ivan’s Daily wrap.

    Quick Take

    The Sterling, after a couple of days of retracing from its hefty levels, ended as the top performer again in a move that clearly manifests the market is pricing greater chances of the UK may averting a no-deal Brexit, even if betting markets still assign around a 40% chance of a no-deal Brexit this year. Funding currencies, with the exception of the Swiss Franc, did quite well in an environment where risk is dialing back after the trade optimism that Trump wanted the market to buy into has run out of juice. The USD index continues on a steady path of recovery after the aggressive sell-off from last week when the escalation in the trade war broke into new highs. Meanwhile, as one would expect when financial conditions tighten and investors decide to go 'cash' in equities and bonds keep the stubborn bid, high-beta currencies (AUD, NZD, CAD, EM FX) performed poorly on Tuesday, and after going through the technicals in a bunch of risk-sensitive instruments, the risk environment remains on shaky ground.

    [​IMG]
    The indices show the performance of a particular currency vs G8 FX. An educational article about how to build your own currency meter can be found in the Global Prime's Research section.

    Narratives In Financial Markets

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

    A shaky risk environment: The ‘risk-off’ dynamics returned even if the ugliest dynamics are still behind us (seen early Monday). Nonetheless, the constant slide in US bond yields, with the long-dated 30y about to make new all-time lows, the UST curve bull flattening to see again the 2y10y curve inverting by -4bps, coupled with falling stocks in the US, and a rising Yen and USD indices, all sets up a bleak backdrop going forward. The fact that the VIX index still trades above the 20 handle, that gold keeps building upward momentum, or copper keeps falling to reach a fresh 2-year low, is a clear statement of intent that the market is growing in pessimism about global growth.

    China not playing along Trump's questionable optimism: The constructive mood in risk assets dissipated following claims that the US and China are in talks to return to the negotiating table, which as warned, carried a suspicious lack of substance as even China’s officials labeled Trump’s comments as false claims, with a Ministry of Finance spokesperson saying yesterday he had not heard of this taking place. Meanwhile, Hu Xijin, editor in chief of the Global Daily, who has close ties with the Chinese government, tweeted that China is now shifting its focus to boost internal demand as opposed to “putting so much emphasis on trade talks.” In the same tweet, Xijin added that “China’s economy is increasingly driven internally, it’s more and more difficult for the US to press China to make concessions.”

    US consumers roar ahead: US August consumer confidence came out strong at 135.1 vs 129.0 expected, which is at the very upper end of economist estimates. Meanwhile, the sub-component present situation stood at 177.1vs 170.9 prior, which is the highest since 2000, while the 1-year inflation expectations were also upbeat at 5.0% vs 4.7% prior. It’s worth noting that the Fed’s lack of pre-commitment to endorse a more aggressive easing path is mainly as a result of the steady economic numbers domestically, especially in sectors such as consumers. On aggregate, it cements the prospects of the Fed staying the course with only a moderate easing bias. Note, it also tends to be a double-edged sword at times as these lofty levels in confidence suggest a late economic cycle.

    Trump sticks to tactics of pressuring the Fed: Trump kept criticizing the Fed by tweeting “The Federal Reserve loves watching our manufacturers struggle with their exports to the benefit of other parts of the world. Has anyone looked at what almost all other countries are doing to take advantage of the good old USA? Our Fed has been calling it wrong for too long!” There is a growing school of thought that President Trump’s latest strategy, ever since the Fed cut rates by less than he expected back in July (has coincided with the ramp-up in criticism), is aimed at leveraging his ability to engineer volatility as an economic policy tool to get the Fed to act more dovish on interest rates in order to weaken the dollar and provide the economy with renewed impetus heading into the 2020 elections.

    ECB members paddle in the same direction: There continues to be mounting evidence that the ECB is laying the ground for a set of bold measures as part of its upcoming QE II package set to be announced in its Sept 12 meeting. On Tuesday, ECB member De Guindos stated that the central bank 'has to act with determination' when asked about negative rates. With this hint, De Guindos joins recent dovish commentaries by other members the likes of Rehn or Weidmann. The price of Gold vs Euro is manifesting like no other instrument the prospects of a major easing program amid global growth concerns.

    Over-optimism on a backstop solution? The GBP was again the outperformer after European commission Pres. Juncker, following a meeting with UK PM Johnson, said he would look at any concrete proposals PM Johnson may have as long as they are compatible with the withdrawal agreement, adding that the EU will do everything it can to avoid a no-deal scenario. Finding a viable alternative to the Irish backstop is the crux of the matter even if it seems elusive to think what couldn't be done in the last 3y (solution to backstop) all of a sudden can be delivered now. On Johnson’s side, the politician stated that he had a positive and substantive conversation, reiterating to Juncker that unless the EU withdrawal agreement was reopened and the backstop abolished there is no prospect of a Brexit deal. Interestingly, the betting markets still assign around a 40% chance of a no-deal Brexit this year.

    China announces further stimulatory measures: China is set to relax and remove car purchase limits while working in new policies to accommodate support for new-energy vehicle purchases, according to state media Xinhua, in an attempt to incentivize consumption activity in an industry that has been badly hit in recent years. The news helped to lift the risk mood during European hours, mainly in auto stocks.

    German Q2 GDP confirms bleak outlook: Germany’s Q2 final GDP came at -0.1% vs -0.1% q/q preliminary and vindicates the fears that the economy is on the verge of falling into a technical recession as the struggles to get out of 1st gear in its economic indicators continue as a result of the global slowdown.

    RBA Debelle sees rate floor near 0%: RBA Deputy Governor Debelle revealed as part of a speech in the balance of payments that the studies conducted by the central bank determine the floor for rates is likely around zero to 0.5%, adding that “it is our hope we never have to get down to those levels.” In the scenario that rates got to around 0.5%, Debelle said “would have to consider other options.”

    Oil boosted by OPEC commentary: The price of Oil shrugged off the ‘risk-off’ dynamics to instead find a fundamental anchor to keep the buy-side pressure dominant. Comments from OPEC implying that oil stockpiles are set to decline sharply after recent actions to widen production cuts in order to prop up prices.

    Recent Economic Indicators & Events Ahead

    [​IMG]
    Source: Forexfactory

    A Dive Into The Charts

    [​IMG]
    The EUR index
    has attacked a key level of support (lower end of its range) on tapering dynamics in the aggregated tick volume, which suggests that buying pressure may arise once again out of an area in the chart that has proven to act as a springboard to jolt sentiment. The currency still remains below the baseline, which warrants caution. The major forces driving the Euro can be divided into 1. Fundamentals (very poor) and 2. Risk Dynamics (the EUR as a funding currency tends to do well in times of risk aversion). The latter tends to override fundamentals unless the currency is excessively expensive which is not the case.

    The USD index
    is starting to rebuild its upward momentum with the close above the baseline a warning sign that the double top may be retested again. The recovery of the baseline comes amid lower tick volume below the historical average and with the fisher transform indicator (helpful to assess market cycles) not yet trigger a long signal. All in all, it’s looking as though buyers have re-grouped to resume the uptrend but the daily still lacks the clarity to overly committing.

    The GBP index
    is in a solid bullish trend well above its baseline. The currency closed by the end of NY business at the highs of the day in a move that looks overextended, meaning that it tends to first see a minor pullback before buyers pile in. The acceptance of higher levels reinforces the idea that the bullish momentum can find further follow-through, predicated on the logic that the structure is clearly building higher highs and higher lows now.

    The CAD index
    has been trapped in a range for the entirety of August, with the latest rise once again capped by the resistance line that set the delimitation of the upper side of the range. Every single time that the currency index is rejected off resistance, the next target sellers have targeted over and over has been the area of support, which implies that the chances of seeing lower levels from here, especially if risk dynamics deteriorate, are quite decent.

    The JPY index
    could be readying to set out a new bullish journey following the bullish day after support was again found off the baseline late last week. As noted in previous notes, the ability of the Yen index to stay above its 13-d ema baseline during the episodes of risk recovery has been quite revealing about the continuous interest of the market to seek protection via JPY longs. It will take now a worsening of financial conditions to give the JPY the final impetus amid the improvement in technicals, which are unambiguously bullish at this point.

    The CHF index
    is trading below its baseline, which would be considered as a bearish event if it wasn’t because the aggregated tick volume causing the breakout is fairly low. Whenever volume is reduced, it tends to lead to an eventual exhaustion of price, hence prudence must be applied to support CHF shorts here, especially after the ‘risk-off’ day we had in stocks/bonds, which is yet to be manifested via an appreciation on the Swissy. Some upside catchup may be in store.

    The AUD index
    looks bearish after the rebound off lows struggled to break above the baseline, resulting eventually in a retreat that has seen the AUD close near the lows. The structure and indicators are all pointing lower as well, which raises the risk of further downside ahead. There is no technical grounds to expect much buying interest at these levels. I am bearish today.

    The NZD index
    is another market where I see follow-through bearish continuation for a retest of the recent lows and even further downside momentum in what’s become the most pristine trend in the forex market ever since mid-July. The index has gone for over 6 weeks without a single retest of the baseline, which communicates how perilous the environment remains for buyers.

    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. 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
     
  3. IvanGlobalPrime

    IvanGlobalPrime Private

    Joined:
    Aug 1, 2018
    Messages:
    25
    Likes Received:
    0
    Find my latest market thoughts

    GBP Hammered Amid UK Constitutional Outrage

    POSTED ON: 29 AUG, 2019

    The GBP plunged after yet another spin in UK politics, which worsens the state of uncertainty around a no-deal Brexit following the decision by UK Prime Minister Boris Johnson to use his powers in order to suspend parliament from Sept 12 for 5 weeks after getting the approval by Her Majesty the Queen.


    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. You can also subscribe to the mailing list to receive Ivan’s Daily wrap.

    Quick Take

    The Sterling was the main mover, this time hammered lower, after a bold move by UK PM Johnson to prorogue (suspend) the British Parliament after it returns from recess for five weeks until Oct 14th, essentially leaving very little room for MPs to block any potential no-deal scenario ahead of the Oct 31 Brexit deadline. The Speaker of the Commons Bercow described the move by Johnson as a “constitutional outrage", quite a symbolic expression to tell you how heated the proceedings are in UK politics ahead of what's expected to be an incredibly turbulent time for volatility to hit the GBP from Sept onwards. Amid the angst around Brexit and China's trade, risk dynamics remain poor, which has undoubtedly contributed to keeping the bid tone in funding currencies, especially on the EUR after Italian Prime Minister Conte will finally be given the mandate to form a new government in Italy, which makes the prospects of a snap election dissipate a tad for now. The selloff in Italian yields relaxed the selling pressure on the Euro. A currency that attracted most of the demand on Wed was the USD index, on the verge of breaking a key resistance. Lastly, the hight-beta currency complex the likes of the AUD, NZD, CAD remain with a bearish outlook overall, with the NZD the worst performer after another terrible business confidence reading out this Thursday morning in NZ.

    [​IMG]

    The indices show the performance of a particular currency vs G8 FX. An educational article about how to build your own currency meter can be found in the Global Prime's Research section.

    Narratives In Financial Markets

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

    GBP plummets on 'constitutional' crisis: The GBP plunged after yet another spin in UK politics, which worsens the state of uncertainty around a no-deal Brexit following the decision by UK Prime Minister Boris Johnson to use his powers to suspend parliament from Sept 12 for 5 weeks after getting the approval by Her Majesty the Queen. This makes the window for parliament to oppose a no-deal Brexit incredibly tight as MPs will return on October 14th, while the Brexit deadline happens to be Oct 31st. The Speaker of the Commons Bercow described the move by Johnson as a “constitutional outrage.”

    Johnson's threat of no-deal keeps getting real: Johnson is aiming for a deal with the EU but needs to up his threatening game of a no-deal as a bargaining chip. What this means is that parliament will come back from recess on Sept 3rd only to go back on recess 6 days later on Sept 9. Looks like he has two choices. Either the EU bends and eventually accepts to negotiate the backstop or if not, Johnson may call a general election, but if that were to occur, the Conservatives would most likely be split over Brexit, Labour not that popular which may lead to the Lib-Dems as having the upper hand.

    Chances of no-deal Brexit on the rise: The betting markets have updated the quotes to now assign a no-deal Brexit at around 45%, while an exit with or without a deal at 52%. However, by reading a vast number of bank research reports, it looks as though a general election still remains the central scenario for the market. One must brace for the increase in volatility due to the risk headlines in the period ahead. We are definitely in for a lively period of erratic gyrations in the GBP, which makes trading the currency a dangerous proposal.

    Risk dynamics remain shaky: The fluid situation in UK politics has been largely contained to a GBP affair, with the moves in risk-sensitive assets confined in relatively small ranges after a day where no major news outside the British island failed to be stimulatory enough to inspire significant price movements. That said, the risk dynamics remain on shaky ground as pointed in yesterday’s note, with the bearish trends in the S&P 500 and the US bond yields still prevalent, the yen and usd indices in bullish territory (negative sign for the global economy), gold holding at multi-year high, while the vol index (VIX) trades just below the 20.00 mark, an elevated level that hints levels of unrest remain high.

    Trump keeps attacking the Federal Reserve day after day: On Wednesday, Trump tweeted: “Our Federal Reserve cannot “mentally” keep up with the competition - other countries. At the G-7 in France, all of the other Leaders were giddy about how low their Interest Costs have gone. Germany is actually “getting paid” to borrow money - ZERO INTEREST PLUS! No Clue Fed!” What I pointed out in yesterday’s note is crucial to understand. “There is a growing school of thought that President Trump’s latest strategy, ever since the Fed cut rates by less than he expected back in July (has coincided with the ramp-up in criticism), is aimed at leveraging his ability to engineer volatility as an economic policy tool to get the Fed to act more dovish on interest rates in order to weaken the dollar and provide the economy with renewed impetus heading into the 2020 elections.”

    Mnuchin not overly optimistic on China talks: US Treasury Secretary Mnuchin, directly involved in leading the negotiations with China on trade, spoke in an interview with Bloomberg, said that the resumption of trade meetings will happen but perhaps not so soon. Mnuchn said he “expects Chinese negotiators to visit Washington, but wouldn't say whether a previously planned September meeting would take place”, adding that “we continue to have conversations. We're planning for them to come.” Mnuchin touched on the USD, noting that the Treasury does not intend to intervene on the USD for now, which means they don’t close the door to that possibility. Watch this space.

    SNB ready to intervene on the CHF when needed: One of the reasons weighing on the ability of the CHF to keep up as a ‘risk-off’ play with the mighty JPY is the fear of continuous intervention by the Swiss National Bank. Its Governing Board Member Andrea Maechler, in comments on Wednesday, said that “right now we still have plenty of room for forex intervention.” Meanwhile, when it comes to the JPY, there is a growing realization that the bar for the BOJ/MOF to intervene in Japan has been raised as any artificial manipulation of the rate may lead to an immediate increase in trade tensions with the US.

    Encouraging news out of Italian politics: Italian Prime Minister Giuseppe Conte will finally be given the mandate to form a new government and avoid a snap election, according to Bloomberg. Conte and the 5-Star Movement managed to pull it off by agreeing to form a coalition with the PD. Uncertainty remains high as what ahead in terms of forming a coalition and cabinet is quite a challenge, but there is no doubt that the prospects have improved judging by the collapse of the Italian 10-year yields.

    PBOC readies launch of cryptocurrency: The People’s Bank of China is close to release its own cryptocurrency, according to various reports. "The PBOC plans to distribute its cryptocurrency through at least seven institutions in the initial stage, including Chinese tech giants Alibaba and Tencent, China's largest payments card issuer China UnionPay, and four Chinese state-owned banks." Despite the news, the crypto space has suffered a major slump overnight, with Bitcoin breaking below 10k usd.

    Recent Economic Indicators & Events Ahead

    [​IMG]
    Source: Forexfactory

    A Dive Into The Charts

    [​IMG]

    The indices show the performance of a particular currency vs G8 FX. An educational article about how to build your own currency meter can be found in the Global Prime's Research section.

    The EUR index
    is looking fundamentally (on Italy’s political news) as well as from a risk dynamic standpoint (see ‘risk line’ in orange) as an interesting long play even if the chart still does not vindicate shifting the stance to bullish from a daily perspective. The currency is trapped in range-bound action for the last 2 weeks, which makes playing the edges where turnarounds are most likely to occur the most sensible strategy until a resolution of the non-directional period.

    The GBP index
    is the only currency detached from risk dynamics as it trades extremely susceptible to the risk headlines around the no-deal Brexit prospects. On the chart, we can clearly see how the sharp pullback from Wed found buyers at the retest of the baseline. The index still remains in positive territory and is still way too premature to gain short exposure. The GBP is about to become a very tough currency to navigate and trade in coming weeks.

    The USD index
    is on the verge of breaking into new trend highs, currently testing a level of resistance even if the close at the highs of the day by NY does suggest that pressure is building up to see a breakout into higher auction levels across the G8 FX space. The risk line (in orange), which indicates the level of ‘risk off’ in the market trades at elevated levels, indicating that the market will keep seeking out protection by amassing US Dollars. The correlation between the risk line and the USD index remains very high since early August.

    The CAD index
    trades in no man’s land, away from the areas drawing the most interest to gain long/short exposure. The last test of resistance was rejected given the wholesale value that existed to add shorts as the ‘risk-on line’ (in orange) stood very depressed. I personally would continue to hold an overall neutral to bearish stance in the index given the discrepancies that still exist between the pricing of the CAD and the gloomy risk dynamics ahead.

    The JPY index
    continues to face the prospects of further buying pressure as the rationale here is that the Japanese currency is yet to catch up to the elevated levels of risk aversion in the market, mainly driven by lower bond yields, as clearly depicted by the ‘risk-off’ line, which accounts for the S&P 500 and the US 30Y bond yields in equal weight. Notice how strong the correlation is between the risk line and the Yen index? It suggests that the current valuation of the Yen remains at cheap levels judging by where we stand on the risk front.

    The CHF index
    has faked its downward break of the baseline, and as noted in yesterday’s note, since the price was heading straight into an area of reference (support) at a time when the ‘risk-off’ line was very elevated, it’s led to buyers regrouping to push the currency back up above the baseline with a marginal increase in aggregate tick volume. As in the case of the JPY, the risk remains skewed towards the upside on the CHF as more catch up seems to be in store.

    The AUD index
    is unlikely to attract much buying interest based on the current risk profile in the market (see ‘risk on’ orange line at very low levels). Technically, the index is also displaying bearish tendencies as it trades below the daily baseline (13ema). The higher the Aussie goes from here, the more the interest it will attract by sellers to engage at better prices. Note, today’s AUD outlook will also depend on the Capex release, which may influence the sentiment.

    The NZD index
    continues to trade on the back foot, with no respite being found from its constant bleeding lower, regardless of the fact that RBNZ Governor Orr has implied that the bar to cut further rates after the 50bp cut shocker earlier this month has now been raised. The market is unquestionably jumping on the bearish bandwagon in what’s become the best trend to trade in currencies within the G8 FX space that I monitor during the month of August.

    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. 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
     
  4. IvanGlobalPrime

    IvanGlobalPrime Private

    Joined:
    Aug 1, 2018
    Messages:
    25
    Likes Received:
    0
    Find my latest market thoughts

    Back and Forth In Trade Talk Rhetoric



    China left the door open to a US visit next month, which led to an immediate reversal of the risk profile even if we are far from out of the woods. The US Dollar and the Canadian Dollar were the main beneficiaries, even if the performance of the rest of G8 FX leaves the impression that the push up in risk is a half-baked type with participants applying caution.

    The article is authored by Ivan Delgado, Market Insights Commentator at Global Prime. This content aims to provide an insightful look into topics of interest for traders. 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. You can also subscribe to the mailing list to receive Ivan’s Daily wrap. Also, find out why Global Prime is the highest-rated broker at Forex Peace Army.

    Quick Take

    The back and forth in the trade war keeps the market guessing, which is causing, as highlighted in yesterday's webinar, an erratic two-way vol in the market. It took only one headline via the Chinese Commerce Ministry stating that discussions are still underway to keep the pretense of further trade talks going for risk appetite to be back in vogue. China also implied that a walk back in its retaliatory actions cannot be ruled out if the US creates the environment to do so. The US Dollar and the Canadian Dollar were the main beneficiaries, even if the performance of the rest of G8 FX leaves the impression that the push up in risk, which was quite aggressive in the S&P 500, is a half-baked type with participants applying caution, with the likes of the Aussie and Kiwi, which you would expect to do well under this environment, lagging behind. Even the Japanese Yen, in particular its equally-weighted index that I monitor every day, is not yet communicating any trend reversal. Same applies to fixed-income, little reaction with the US30y hovering around an all-time low. The Sterling remains in a wait-and-see mode, while the Euro is in no man's land as I elaborate in the currencies' section.

    [​IMG]

    The indices show the performance of a particular currency vs G8 FX. An educational article about how to build your own currency meter can be found in the Global Prime's Research section.

    Narratives In Financial Markets

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

    One single headline is all it took: China left the door open to a US visit next month, which led t an immediate reversal of the risk profile even if we are far from out of the woods. Further comments by China's commerce ministry indicated that the important thing is that both sides continue negotiations and are creating the necessary conditions for that, noting that “the question that should be discussed now is about removing the new tariffs to prevent escalation of the trade war.” On the flip side, even if dismissed by the market, China reminded journalists that they have ample retaliatory measures to counteract the US tariffs. The headlines confirm that the Sept talks have not been ruled out at a time when one could have assumed they were on the brink of collapse. The market will be on the watch to find out if the talks eventually happen and whether or not these are conducted at the highest level. Meanwhile, Trump said that lower-level US-China trade talks took place on Thursday.

    UK's Corbyn aims to revert parliament suspension: UK’s Labour leader Corbyn is looking to gather enough support by MPs to block UK PM Johnson’s decision of shutting down parliament. According to the Labour Party leader, parliament should fast track and draw new legislation rapidly to prevent a no-deal Brexit, adding that he will put a vote of confidence "at the appropriate moment.” So far, the Sterling is not reacting too lively to the headlines and it has traded in a rather uneventful manner in the last 24h.

    IMF throws a curveball to the US: The IMF, via Alfred Schipke, IMF's senior resident representative to China, finds no fault in China letting the Yuan weakens if the trade war escalates, according to the South China Morning Post. Alfred notes that “if there is a shock, the exchange rate ought to be part of the adjustment and should be allowed to depreciate. That is what exchange rates are for”, further adding that the market should be the ultimate mechanism where the currency value is determined. This is a thorny topic as China was labeled a ‘currency manipulator’ by Donald Trump in annual review following the decision by the Chinese government to let the Yuan depreciate below 7.00.

    ECB's Knot argues against QE: In an interesting turn of events, even if the preponderance of evidence is still largely skewed towards a bold QE package to be announced by Sept 12th, ECB's member Knot said there is no need to resume the QE program in what he thinks are overdone expectations in the Sept meeting. The ECB member sees no 'value-added' in ECB launching a new package of measures. The Euro was given a jolt on the headline, which appears to be aimed at taming a tad the expectations ahead of the Sept meeting, perhaps in an effort to re-calibrate the balance for a stronger bearish effect later on.

    ECB's Nowotny joins Knot on hawkish hint: ECB member and Australian Central Bank Governor Nowotny, spoke in an interview to the Wiener Zeitung newspaper, implying that Central banks should be ready to disappoint markets at times. Nowotny said that “in past years we perhaps followed markets' expectations too intensively and avoided disappointing them. I am of the opinion that central banks should be the decisive institution and must therefore sometimes disappoint markets."

    But Lagarde throws cold water: Besides, we know the market is a forward-looking discounting mechanism, which is why the positive EUR impact from Knot’s or Nowotny’s hints was more than counterbalanced by the remarks made by the soon-to-be ECB President Christine Lagarde, who wrote in response to a parliamentary question that the economy faces downside risks, inflation is subdued and it’s “therefore clear that monetary policy needs to remain highly accommodative for the foreseeable future”, adding that “the precise mix of instruments deployed will have to depend on the nature of the shocks affecting the outlook for inflation as well as on financial market conditions.”

    German CPI softer-than-expected: Another reason why the statements by ECB’s Knot or Nowotny may ultimately fall on deaf ears is due to the mounting arguments that the ECB will act with determination amid the continuous deterioration of the German data, with the latest set of numbers, via the August preliminary CPI, coming softer than expected at -0.2% vs -0.1% m/m expected.

    US Q2 growth holds up on stubborn consumers: The story on the other side of the pond (US) is rather contrasting after the Q2 GDP second reading met earlier estimates at +2.0%, which follows a 3.1% in Q1. One of the key drivers to sustain the pace of growth just above the 2% mark was personal consumption, consumer spending on durables as well as corporate profits. Meanwhile, the sluggish performance in business investment, housing and exports continue.

    Australia's Capex a bad omen for the Aussie economy: Australia’s private capital expenditure survey for Q2 (Capex) fell much more than expected at -0.5%, which is a major disappointing result considering that the RBA is also fixated in getting momentum in the economy going via an increase in business investment intentions. The lesser the expectations for capital expenditure, the bleaker the outlook for the jobs market. There was a silver lining though as the "3rd estimate" came in at AUD 113.4bn as expected even if this may not represent an input good enough for the RBA to gain much optimism.

    NZ business confidence at 11-year low: NZ Aug business confidence printed -52.3 vs -44.3 last, an 11-year low, with the business outlook index also deteriorating to -0.5 from 5.0. Even the survey on the inflation expectations index came on the soft side at 1.70% from 1.81% prior, lowest since late 2016. In the official statement, the ANZ economics team stated that “the outlook for the economy appears to be deteriorating further, with firms extremely downbeat despite easier monetary conditions, fairly robust commodity prices, and positive population growth. Employment and investment intentions fell, and the outlook for profitability is lowest since mid-2009.

    China data on Saturday and tariff hikes on Monday: Over the weekend, we will get China’s official PMI, which may cause some gap risks, especially in the AUD as the favorite proxy to trade the Chinese fundamentals. The data is expected to come around the same levels as the prior month just below the 50.00 level. It’s also worth reminding traders, as a symbolic date, that next Monday marks the start of the new hikes in tariffs from the US to China from a 25% tariff rate on ~$250bn worth of Chinese imports to 30% and 15% tariffs will also come into effect on roughly $110bn worth of additional imports, including agricultural products, antiques, and clothing among others.

    Recent Economic Indicators & Events Ahead

    [​IMG][​IMG]

    Source: Forexfactory

    A Dive Into The Charts

    [​IMG]

    The EUR index
    is located in what I’d consider no man’s land, trapped right in the middle of a 2-week range, with the risk of further buying at wholesale levels of support still a clear outcome I can envision judging by the elevated level of the RWI (risk-weighted index) in orange, which accounts for the S&P 500 and the US 30y bond yields in equal weight distribution. Based on the index alone, there are no clues to be found as per the next direction this Friday.

    The GBP index, even if the uncertainty around Brexit continues to reign, the index remains in a stubborn bullish trend, with the latest sell-side episode from Wed when UK PM got the approval by the Queen to suspend parliament for 5 weeks found buyers at the baseline, which as a reminder is the delimitation that acts as a roadmap to determine the bias. Remember, GBP is going to get quite messy to trade with as the Brexit-induced vol ratchets up from Sept.

    The USD index has broken into new highs and out of the G8 FX complex, it looks poised to be in pole-position to find further strength as the bullish sentiment has been taken to the next level. As a manifestation of this growing demand for the USD, and technically speaking, the breakout of a key resistance level with a close at the highs of the day bodes well going forward. The elevated levels of risk aversion still present in the market, as the RWI depicts, should still be an overall positive influence for the USD as investors seek protection in the allure of the world’s reserve currency at a time when the chatter of a global shortage of USDs keeps on growing.

    The CAD index, in a move akin to the bullish resolution in the USD index, has also broken into new highs not seen since early August as the risk improves, mainly in equities. The reason the RWI remains depressed as bond traders are not buying into the frenzy of trade war headlines, which sooner or later, see price catching down. The outlook for the Canadian Dollar in the next 24h looks quite bright and risks are clearly skewed to the upside.

    The AUD index has fallen way short of the demand one would expect on the back of the positive comments by China’s Commerce Ministry, which tells me the underlying buy-side interest remains limited. Technicals also validate this prognosis by price finding a cap in the form of the daily 13-ema (baseline), which makes the risk of further falls from here a real possibility. Remember to pay attention to the weekend Chinese PMI which may create gaps in the AUD.

    The NZD index is on a one-way street journey with no signs of abating. If you are a trend-following trader in lower timeframes, the NZD has been an oasis of opportunities. They say the trend is your friend and I see no evidence whatsoever, neither fundamentally nor technically to engage in an activity other than sell-side action in this market. Thursdays ANZ business confidence at a 1-year low was quite a shocker as reflected by the depreciation in the NZD even at a time when the risk dynamics would suggest buyers should have emerged.

    The JPY index has forged the strongest uptrend in the forex market during August and if you think the outlook is finally starting to roll over in favor of the bears, think twice. The index is retesting the baseline, which has proven to be a technical bedrock that buyers have leaned against to regroup and jump on the Yen bullish bandwagon. At the state of this Friday, looks like it’s happening again, with buyers re-emerging off the moving average (baseline). The risk-weighted index (in orange) is far from hinting at protracted sell-side pressures.

    The CHF index has found an area of support even if the way it is being attacked by sellers via the creation of a bearish outside day does carry the danger of a potential breakout. However, with the RWI (in orange) this high, one would expect the buying interest to be ample. Therefore, I do perceive the potential for value trading as a buyer but technicals are not congruent. What’s clear to me is that until the Swissy breaks support, I find it hard to commit on the CHF.

    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. 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
     
  5. IvanGlobalPrime

    IvanGlobalPrime Private

    Joined:
    Aug 1, 2018
    Messages:
    25
    Likes Received:
    0
    Find my latest market thoughts

    All Hail The Mighty USD


    The market remains unphased by the structural issues in the US but instead, the currency keeps drawing major demand flows from the lack of pre-commitment by the Fed to ease to the extent the market is pricing, also assisted by the generalized risk-averse sentiment, but even a more compelling case is the ongoing shrinkage in US dollar liquidity...

    The article is authored by Ivan Delgado, Market Insights Commentator at Global Prime. This content aims to provide an insightful look into topics of interest for traders. 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. You can also subscribe to the mailing list to receive Ivan’s Daily wrap. Also, find out why Global Prime is the highest-rated broker at Forex Peace Army.

    Quick Take

    The US Dollar has been the undisputable leader of the Forex board, especially during the last week of trading, in what became a rather eventful month of August, characterized by the escalation of the US-China trade war, with the latest announcements to hike tariffs coming into effect this last Sunday. The market remains unphased by the structural issues in the US but instead, the currency keeps drawing major demand flows from the lack of pre-commitment by the Fed to ease to the extent the market is pricing, also assisted by the generalized risk-averse sentiment, but even a more compelling case is the ongoing shrinkage in US dollar liquidity as I will explain in today's report. The Japanese Yen and the Pound are the only two currencies that have been able to keep up from distance with the bullish pace from the world's reserve currency. On the opposite side, the Euro opens a new month of trading below the psychological 1.10 at its lowest level since May 2017, with the high-beta AUD, CAD, NZD finding tepid demand.

    [​IMG]

    The indices show the performance of a particular currency vs G8 FX. An educational article about how to build your own currency meter can be found in the Global Prime's Research section.

    Narratives In Financial Markets

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

    USD supply keeps shrinking: The US Treasury will remove liquidity from the commercial banking system this quarter by borrowing around $430 billion, which implies a form of quantitative tightening. The more scarcity of USD, the worse it is for risk conditions. Also, the cost of short-term borrowing goes up, also known as repo rate. Besides, if foreign financial institutions fail to meet the minimum regulatory requirements to hold USD-denominated assets, it can lead to banks forced to deleverage to obtain the extra USD. What's more, the reverse repo program between the Federal Reserve and foreign central banks has grown to over $300 billion, reducing the supply of USD further.

    China's PMI in contraction for 4 months in a row: China’s official PMI for August came out on Saturday at 49.5 49.6 expected, which marks the fourth straight month of contraction, while the services read came at 53.8 vs 53.7 expected, which means the first marginal improvement for five months. Up next is the Caixin/Market privately surveyed PMIs this Monday, followed by services and composite on Wednesday.

    China throws a lifeline to trade optimists: One of the reasons underpinning the recovery in risk has been the message China has intended to convey about the continuation of trade talks between the two sides despite the volatile behavior of US President Trump on tariffs. China foreign ministry stated last Friday that the US-China trade teams are maintaining effective communication. Markets held tight to the hopes that the big guns will return to the negotiating table in coming weeks even if the risk profile is starting to roll over as a new week starts after the combo of weak China PMI and no last-minute walk backs in the imposition of tariffs by either the US or China over the weekend.

    The US and China go ahead with the tariffs: Over the weekend, Pres. Trump said that tariffs set to be enacted on Sunday against China will still go on as planned, which is obviously a negative for risk sentiment as there was some chatter that he may delay or back off at the last minute as part of his strategy to keep the markets well bid. A 15% duty will now apply to $110bn Chinese imports from footwear to technology gadgets, while the remaining $160bn of Chinese imports will see tariffs of 15% applicable from December 15, including tech devices such as laptops and mobile phones. The Chinese side has also retaliated by imposing an extra 10% in tariffs on $75bn of US goods, including American pork, beef, and chicken, which hits especially hard where Trump’s political base support is the strongest. Trump said on Friday that “we are going to win the fight" with China, adding that “the trade meeting in September is still on, it has not been canceled.”

    The risk dynamics remain fragile as Sept gets underway: The RORO (risk-on, risk-off model) analysis does imply that the market profile is still faced with a troublesome outlook. None of the instruments most sensitive to risk sentiment, from the JPY index, the USD index, the long-dated fixed income, gold, USD/CNH, VIX and even equites (S&P 500) being rejected off a key resistance bodes well heading into Monday. The risk-weighted index, which combines the S&P 500 + US30Y also remains below its daily baseline (13-ema), which in practical terms it sends the message of risk aversion still the overarching theme.

    [​IMG]

    The EUR fall draws Trump's attention:
    Trump tweeted about the sharp fall in the Euro from last Friday. “It is dropping against the Dollar "like crazy," giving them a big export and manufacturing advantage...and the Fed does NOTHING! Our Dollar is now the strongest in history. Sounds good, doesn't it? Except to those (manufacturers) that make a product for sale outside the U.S. We don't have a Tariff problem (we are reigning in bad and/or unfair players), we have a Fed problem. They don't have a clue! If the Fed would cut, we would have one of the biggest Stock Market increases in a long time. Badly run and weak companies are smartly blaming these small Tariffs instead of themselves for bad management...and who can really blame them for doing that? Excuses!”
    The Italian political landscape remains uncertain: EUR fall to its lowest level since May 2017 below 1.10 comes as Italy’s new prospective coalition between Five-Star and the Democrats showed signs of public disagreement on the policy course agenda, even leading to Di Maio, leader of Five-Star, to imply new elections may be needed.

    A misleading Canadian Q2 GDP: The Canadian Q2 GDP printed +3.7% vs +3.0% expected, which on the surface looks like a stellar report as it marked the best quarter since Q2 2017, with subcomponents such as exports growing at the fastest pace since 2014. However, the most notable forward-looking indicators disappointed, including business non-residential investment at -16.2%, which is the largest decline since 2016, while household consumption also fell to +0.5%, weakest since 2012. It was the type of report that should make the BoC concerned going forward and the market appears to agree by the refusal to accept the high levels the CAD printed post the GDP report.

    The Univ Mich US consumer confidence plummets: The August final University of Michigan consumer sentiment came much lower than expected at 89.8 vs the calls for 92.3, which represents the lowest print since Oct 2016 and the largest 1-month decline since Dec 2012, which is a reason to get spooked as a macro investor. This follows a preliminary reading of 92.1 against a prior reading of 98.4. The rest of the subcomponents came on the weak side as well, including current conditions at 105.3 vs 107.4 prelim or expectations at 79.9 vs 82.3 prelim. The 1-year inflation stood at 2.7% vs 2.7% prelim. Paradoxically the consumer confidence data from the Conference Board recently released came at a solid level, which makes drawing conclusions a tough exercise. What’s clear is that Trump’s policies on trade keep increasing uncertainty and impact consumer spending negatively.

    The EU inflation is nowhere to be found: The Eurozone August preliminary CPI came in line with expectations at +1.0%, while the yearly core CPI subcomponent stood at +0.9% vs +1.0% expected. The printing continues to argue for the ECB to flex its muscle with a rather bold easing policy to incentivize price pressures, even if the preponderance of evidence over the last decade suggests the effects have been rather futile.

    China won't hesitate to intervene military in HK: The government-controlled China Daily Newspaper wrote that “while the SAR government has so far not felt the need to call on the garrison in HK, that does not mean it will not do so should the situation demand it. If the already ugly situation worsens, with the violence and unrest threatening to spiral out of control under the orchestration of secessionist-minded troublemakers, the armed forces stationed in the SAR will have no reason to sit on their hands."

    Australia's housing permit data looks horrible: The latest data out Australia came very poorly, showing that the collapse in building permits for July continues to accelerate after a -9.7% m/m fall vs 0% change expected. On a yearly basis, permits are down -28.5%, which does not bode well for the revamp of the housing market.
    ECB's Holzmann states an anti-dovish declaration: ECB's new member and Austrian National Bank Governor Robert Holzmann is starting to define his stance on monetary policy, noting that he is skeptical about further lowering interest rates. The policymaker said that “I will probably voice a somewhat more critical stance concerning suggestions about a future deepening of the monetary footprint.”

    Recent Economic Indicators & Events Ahead

    [​IMG]

    Source: Forexfactory

    A Dive Into The Charts

    [​IMG]

    The indices show the performance of a particular currency vs G8 FX. An educational article about how to build your own currency meter can be found in the Global Prime's Research section.

    The EUR index has found a downside resolution away from its accumulation period, in what represents one of the largest one-day declines this year. The close outside the 1x ATR from the baseline (13-d ema) is a warning sign that further follow-through is largely unattractive at this levels, so I wouldn’t be surprised to see a retest of the previous support-turned-resistance first. However, the push lower on Friday has certainly opened the doors to a more bearish context heading into this week. As a caveat to any over-exposure to play short EUR, be reminded that the RWI line (risk-weighted index) in orange remains highly elevated, which could easily lead to EUR bids arising from playing the divergence between RWI and EUR.

    The GBP index continues to trade bullish above its baseline even if it lacks much impetus to move in either direction for the last few days. On the upside, the latest appreciation in the Cable was rejected at a critical level of resistance, while the downside finds two critical areas of support in the form of a dynamic one (baseline) currently tested, ahead of key horizontal support level clearly visible in the chart (in red line). Remember, we are about to enter a highly volatile period when trading the GBP as the UK parliament returns from recess and policy-makers keep fighting tooth and nail to avoid the suspension of parliament by next week.

    The USD index is undeniably bullish, trading well above its baseline at a level that unless you fall under the category of the fast money type to get in and out of the market for short scalps, the location where it trades does not offer much appeal for the nimble traders out there. That said, the trend can last much longer than I can anticipate and long USD has definitely proven to pay handsome returns, especially when bought on retracement back to the baseline rather than after 5 days of straight rises as is the case at the moment (that’s the point to take home today). The outlook is bullish but it trades at a rather expensive price level. Still, the chatter of ongoing shrinkage in USD liquidity is likely to keep the bid in place as the lay of the land stands.

    The CAD index has found support on the way down at a level that had accurately acted as resistance during most of August. Judging by the outlook in the risk profile (orange line), a follow-through continuation to the upside faces real challenges but technicals remain bullish, which makes me overall supportive of longs but major caution must be exercised. The main reason is that when the RWI and the CAD show this extreme divergence, high-beta currencies tend to perform quite poorly, which sooner or later leads to sell the CAD at great cheap prices.

    The AUD index has re-taken the baseline on the daily but notice the buy-side participation is dropping as per the aggregate tick volume, alongside the fact that the risk-weighted index is so low it makes it inherently very dangerous to be long AUDs at these levels. Technically, there is some room for the index to appreciate until the marked red line (resistance), which should represent a fantastic location to capitalize on anticipated AUD weakness based on the premise that the high-beta currency remains too expensive vs the risk profile.

    The NZD index undeniably put on the greatest trend to trade during the month of August and judging by the technical outlook, the dynamics are not yet changing. The trend is your friend, which is why playing longs in NZD for any duration above a few hours for strategic calps has proven to be a nearly suicidal consideration. The market psyche has morphed into selling any possible chance it’s had a mild rebound and I see no reason why it can’t last another week.

    The JPY index has opened the new week with an upside gap as risk deteriorates and with such a lofty risk-off-weighted index (the higher the more risk aversion), it looks rather logical to expect a market that will remain highly interested to bid the Yen. The market structure is definitely very constructive, with the index not having lost its baseline for more than a month. Note, the baseline has been an excellent technical bedrock for buyers to re-group during the trend.

    The CHF index has been detaching itself from its strong correlation against the risk profile. The follow-through selling keeps its course on the back of the bearish outside day last Thursday, with the increase in sell-side tick volume suggesting more depreciation might be in store. The more it declines, however, the more value it exists to engage in value trades as sooner or later, it’s to be expected that the CHF may catch up with the risk-weighted line. Note, trading the CHF and understanding its correlation dynamics can be quite tricky at times due to the fact that the SNB continues to be intervening in the market by selling its domestic currency in an ad-hoc basis.

    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. 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
     
  6. IvanGlobalPrime

    IvanGlobalPrime Private

    Joined:
    Aug 1, 2018
    Messages:
    25
    Likes Received:
    0
    Find my latest market thoughts

    GBP Hit By Risk Of Snap Election

    There is a growing risk that the UK is headed towards a snap election, which has led to the Pound losing further value against its main rivals. The rebel/opposition bill goes for a vote in the UK this Tuesday, aimed to gather enough MPs support to legitimate the Parliament to demand a 3 month Brexit extension to 31 January 2020 from the October 31 deadline.

    The article is authored by Ivan Delgado, Market Insights Commentator at Global Prime. This content aims to provide an insightful look into topics of interest for traders. 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. You can also subscribe to the mailing list to receive Ivan’s Daily wrap. Also, find out why Global Prime is the highest-rated broker at Forex Peace Army.

    Quick Take

    It was a quiet Monday for most of the currencies as the US and Canadian markets were closed due to Labor day, essentially clearing the landscape to make the GBP the absolute focal point as volatility, once again to the downside, hit the currency as the risk of a snap election in the UK is on the rise. GBP traders must be aware that trading the currency in the coming weeks and months is going to be a minefield of headline-charged price fluctuations, which increases the risks considerably. Meanwhile, the close of markets in the Western hemisphere didn't make any difference to alter the steady uptrend in the USD, with the JPY and the CAD following from distance. The markets that appear most at vulnerable to further downside pressure remain the AUD, NZD, EUR, and to a lesser extent the CHF, which trades at fairly cheap levels based on the risk profile.

    [​IMG]

    The indices show the performance of a particular currency vs G8 FX. An educational article about how to build your own currency meter can be found in the Global Prime's Research section.

    Narratives In Financial Markets

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

    Risk of a general election in the UK: There is a growing risk that the UK is headed towards a snap election, which has led to the Pound losing further value against its main rivals. Sky News/ITV broke out the news by noting that if the UK Parliament passes a bill to kick the can down the road by forcing the UK PM to extend the Brexit deadline today (Article 50) by October 19, in that case, then PM Johnson will carry out a motion for a General Election to be held on October 14. If the emergency motion does not get enough support, UK’s Labour Corbyn said: “then all there's left is to call a no-confidence motion before the end of the week.”

    Bill to block no-deal Brexit takes center stage: The rebel/opposition bill goes for a vote in the UK this Tuesday, aimed to gather enough MP support to legitimate the Parliament to demand a 3 month Brexit extension to 31 January 2020 from the October 31 deadline subject to MPs having not yet approved a deal or if Parliament has agreed to no-deal by October 19. PM Johnson has retaliated by saying that “there are no circumstances under which I will ask Brussels to delay” while worried that these tactics debilitate the UK’s leverage to negotiate with the EU.

    China-US struggle to schedule trade talks: A number of reports are doing the rounds about the difficulties faced by China and the US to agree on a September meeting for trade talks. The 70th anniversary of the founding of the People's Republic of China on October 1 and the Party’s Fourth Plenum due afterward, makes scheduling meetings quite a challenge.

    China’s Caixin/Markit PMI surprises to the upside: The indicator came upbeat at 50.4 vs 49.8 exp, which creates a conflict with the official PMI published over the weekend at 49.5 vs 49.6 exp. As the statement by Caixin/Markit notes: "China's manufacturing sector showed a recovery in August, mainly due to improved production activity. However, overall demand didn't improve, and foreign demand declined notably, leading product inventories to grow. There was no sign of an improvement in companies' willingness to replenish inventories of inputs or in their confidence. Industrial prices trended down. China's economy showed signs of a short-term recovery, but downward pressure remains a long-term problem. Amid unstable Sino-American relations, China needs to step up countercyclical policies."

    The RBA in focus: The policy meeting will command the market’s attention, with the reaction in the Aussie a function of how dovish they sound. The chances of a rate cut in the September meeting, amid improvements in the labor data are slim. RBA forecasts still assume 2 further cuts, which might come later this year and then in Q1 or Q2 2020. The risk, all else equal, is skewed towards the RBA pulling the trigger earlier as the global slowdown and the lingering Chinese trade war with the US takes its toll globally. Besides, if there is additional evidence of poor Q2 GDP or retail sales this week, which would follow the disappointing Q2 construction and building approvals data, it may trigger an October cut. A key signal to monitor in today’s Governor's Statement will be whether there is a reiteration of the wording "ease monetary policy further if needed".

    The US ISM manufacturing up next: The PMI is due at 10.00am local time, with consensus looking for an unchanged reading of 51.2, which would be below the long-run average of 52.9. The recent escalation in tariffs may have a negative influence in this month’s survey as the majority of responses tend to be submitted late in the month.

    Recent Economic Indicators & Events Ahead


    [​IMG]
    [​IMG]

    Source: Forexfactory

    A Dive Into The Charts


    [​IMG]

    The indices show the performance of a particular currency vs G8 FX. An educational article about how to build your own currency meter can be found in the Global Prime's Research section.

    The EUR index
    exhibits bearish dynamics, well below its baseline in a move that still appears to be rather overextended, with little to no rebounds ever since the breakout of its range. Unless playing momentum strategies or scalping for small profits here and there, the index does not offer attractive levels to be jumping on the bearish bandwagon just yet. Also notice, the aggregate tick volume has been running below the average and forming a taper formation, which is not a great signal if one is expecting the trend to continue its course unabated.

    The GBP index
    shows a bearish outlook as the price returns below the daily baseline (13ema), even if the lack of aggregate tick volume warrants caution. The GBP will be subject to the barrage of political headlines coming out of Westminster this Tuesday, as the opposition parties and rebel MPs look to make the very last ditch effort to pass a bill in order to stop a no-deal Brexit from happening. It’s a very risky business to get involved in trading the GBP unless you are a scalper or a momentum trader in the lower time frames. Not for the faint-hearted.

    The USD index
    keeps making further leeway, with the separation between the current price and the daily baseline (13ema) increasing the risk to join the uptrend blindly. It’s best to exercise patience until there is a pullback that can offer a better pricing if you are looking to ride the trend for anything longer than a few hours. For the shorter timeframe traders, the momentum is definitely very strong, which supports the notion of looking to engage in longs at any potential opportunity that your trading system may provide. Remember, the shrinkage of USD liquidity (supply side) this quarter appears to be a key factor keeping the currency in high demand.

    As a reference, this is what I wrote in yesterday’s note: “The US Treasury will remove liquidity from the commercial banking system this quarter by borrowing around $430 billion, which implies a form of quantitative tightening. The more scarcity of USD, the worse it is for risk conditions. Also, the cost of short-term borrowing goes up, also known as repo rate. Besides, if foreign financial institutions fail to meet the minimum regulatory requirements to hold USD-denominated assets, it can lead to banks forced to deleverage to obtain the extra USD. What's more, the reverse repo program between the Federal Reserve and foreign central banks has grown to over $300 billion, reducing the supply of USD further.”

    The CAD index
    appreciation keeps ongoing, which is a scenario that had the technical backing after the price broke out of its August range late last week. The follow-through demand in the CAD follows a retest of the prior resistance-turned-support as the index now threatens a retest of its most recent trend high, allowing significant room (~0.4%) to appreciate. Note, I find it unlikely that the CAD can continue breaking higher above the recent peak based on the massive divergence that exist with the risk-on weighted index (orange line), which suggests the higher it goes, the more value exists to short the currency at wholesale levels.

    The AUD index
    is no man’s land within the context of a range found, which is part of a broader bearish trend that has been well established since the aggressive July sell-off. Today’s directional bias in the AUD will be dependable on the outcome of the RBA. On the topside, there is a critical level of resistance nearby, while the room to fall appears more ample until support is found. Remember, the risk-on weighted index remains very depressed, which is a clear foreboding signal that any spike in price towards key levels may see sellers gratefully stepping up.

    The NZD index
    outlook remains very bearish with no evidence that the tide is turning anytime soon for the interest of buyers. Even Monday’s recovery in price carries very little conviction judging by the poor participation in buy-side pressure (via aggregate tick volume). The risk-on line (orange) is also very depressed, which is not helping the outlook for the Kiwi. Overall, there is no reason to abandon the bearish bias in this market. Steady as she goes.

    The JPY index
    remains at risk of higher levels as it trades comfortably above the baseline with the risk-off weighted index (orange line) at very elevated levels. Just as in the case of the NZD there are no technical grounds to be bullish, the opposite applies to the JPY, there is absolutely no reason not to think that the JPY is not going to continue trending higher from here.

    The CHF index
    is one of the markets where the discrepancy between the risk-off weighted index and the current pricing of the index has to sooner or later close. What this means is that the risk of the CHF attracting buying flows remains considerable, even if technically there are still no clues, as the index heads into its 4th day of trading below the daily baseline, not seen since early April this year. Just as the CAD is trading dangerously high when crosscheck against risk, the opposite view can be applied when looking at the CHF, looks rather cheap.

    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. 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
     
  7. IvanGlobalPrime

    IvanGlobalPrime Private

    Joined:
    Aug 1, 2018
    Messages:
    25
    Likes Received:
    0
    Find My Latest Market thoughts

    Setback In US ISM & UK PM's Brexit Plans

    POSTED ON: 04 SEP, 2019

    The US ISM Manufacturing PMI suffered its first contraction since February 2016 after coming at 49.1 vs 51.2 expected, while UK PM Johnson suffered a humiliating defeat (the House of Commons voted 328 to 301 against him) to hand over control of the Brexit Agenda to the UK Parliament with a vote on a bill to block any chances of a hard Brexit due on Wednesday.


    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. You can also subscribe to the mailing list to receive Ivan’s Daily wrap.

    Quick Take

    After 2 years and a half above the boom-boost line of 50.00, the first contraction in one of the benchmark bellwether indicators of the US economic health (ISM PMI) has been confirmed, sending the USD lower, even if still under the context of a strong uptrend, as the odds of a 50bp rate cut by the Fed in 2 weeks go up to around 20%. The bullish steepening of the yield curve also sends a troublesome signal as any under-delivery of policies by the Fed will only exacerbate the disconnect between the Fed stance and the market verdict of where interest rate ought to be. A currency that continues to trade at the rhythm of its own drums is the GBP, with the juggernaut of two-way vol dominant as the UK appears headed towards a general election by mid-October as the Parliament is about to take away the Brexit negotiating powers from PM Johnson. The risk environment, when looking at the whole spectrum of sensitive assets (JPY, VIX, US 30y yields, SP500, USDCNH...) continues to communicate the market is acting rather complacent by keeping the AUD so well bid. The opposite is true when analyzing the low levels of the CHF. We know when trading the EUR, expectations over the beefed-up easing package by the ECB has been on the driving seat, but the divergence with the risk profile makes the soon-to-be-tested key support in the EUR index a highly anticipated area where a response to revert the momentum may ensue. Meanwhile, the CAD was taken to the woodshed ahead of what looks like a Wed's BoC meeting with dovish risks.

    [​IMG]

    The indices show the performance of a particular currency vs G8 FX. An educational article about how to build your own currency meter can be found in the Global Prime's Research section.

    Narratives In Financial Markets

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

    US ISM enters contraction period: The US ISM Manufacturing PMI suffered its first contraction since February 2016 after coming at 49.1 vs 51.2 expected. The odds for a 50 basis point cut by the Fed in its Sept meeting has increased to around 20%. By scanning the sub-components, one of the most concerning departments is new orders, which printed its lowest level since June 2012 as the trade war takes its toll. In yesterday’s note, I noted that “the recent escalation in tariffs may have a negative influence in this month’s survey as the majority of responses tend to be submitted late in the month.” Turned out to be a solid hint to pre-position.

    The risk-weighted index signals danger ahead: The RWI or risk-weighted index, which accounts for the relative percentage changes in the S&P 500 and the US 30-year bond yields as the truest barometers of equities and fixed-income, exhibits an ugly technical picture, which makes the outlook for high-beta currencies problematic. The rest of risk-sensitive assets, the likes of the JPY index, Gold, USD/CNH, VIX, without exception, radiate out an analogous concerning context for the risk profile.

    Fed falling behind the curve as yield curve bull steepens: The bullish steepening of the US yield curve clearly communicates that the US ISM creates a scenario where the market now discounts the shorter-term rates to fall at a faster pace, which essentially implies the Fed will be seen as further behind the curve if not acting by cutting rates more aggressively. The President of the Federal Reserve Bank of St. Louis Bullard is starting to recalibrate once again his view by noting that a 50bp cut would align the Federal Reserve with market expectations, adding the rate is "too high, would be better to get to the right point now rather than in smaller steps”. Bullard, therefore, defends the point of "aggressive" action, which is a more dovish spin from his stance back in August.

    Fed dissenter Rosengren sticks to July script: Not so clarifying for the dovish case was the speech by Federal Reserve Bank of Boston President Eric Rosengren, who was one of the two dissenters in the last July FOMC. Fed's Rosengren prefers to keep the powder dry noting that if risks to the US economy materialize the Fed should cut aggressively, although he considers the economy is not there yet. The way he puts it is that “does not want to use up valuable policy space at this time.” Rosengren believes the US economic conditions remain 'relatively benign', hence he is inclined to think there is no need for taking additional policy action just yet.

    Cable hit by two-way volatility: The GBP has traded erratically as UK PM Johnson suffered a humiliating defeat (the House of Commons voted 328 to 301 against him) to hand over control of the Brexit Agenda to the UK Parliament with a vote on a bill to block any chances of a hard Brexit due on Wednesday. The new law will require Johnson to request a further extension to the Brexit date to the end of January in case the Oct 31 deadline gets approached with a no-deal as the base case. PM Johnson is ready to call a snap election if Wed’s bill passes. For a general election to be held, two-thirds of MPs would have to approve it, which does not look like the central scenario given the opposition Labor and the leaders of the Liberal Democrats & of Scottish National Party, against it unless the no-deal exit is removed as an option.

    US-China further away in trade by the sound beats: President Trump remains undeterred to make any significant changes to the trade policy position against China, implying that the bar to reach a trade deal with China if he wins the next Presidential election will be higher while reminding the EU that tariffs to recalibrate the unfair trade position of the US may need to be considered as well. Trump tweeted “EU & all treat us VERY unfairly on Trade also. Will change!” To make the whole narrative around the US and China relationship more troublesome, Huawei accused the US government of launching cyber-attacks to its network.

    China's investment in Iran hints no trade deal eyed: Furthermore, China is set to invest $280bn developing Iran's oil, gas and petrochemicals sectors, which is yet another huge sign that the Chinese are not counting on a comprehensive trade deal with the US and are looking elsewhere as the gradual decoupling from the US continues.

    Trump's number 1 strategy remains attacking the Fed: It’s important to project, as a forward-thinking exercise, what’s the most likely course of action by President Trump amid the poor US ISM print. Will he soften up his negotiating position with China, or will he continue to be fixated on the Fed doing the heavy lifting by applying further pressure? Unless the overall economy or equity valuations deteriorate to test Aug lows, evidence suggests the latter is more likely. On Tuesday, Trump tweeted “Germany, and so many other countries, have negative interest rates, they get paid for loaning money, and our Fed fails to act!” Furthermore, as preparations to celebrate China’s 70th anniversary of the founding of the People’s Republic of China on October 1st roll in, the list of priorities for the Asian giant is likely to temporarily shift.

    The RBA keeps its dovish status quo: The RBA left its cash rate unchanged at 1.00% as widely expected, repeating the script that they are ready “to ease policy if needed to support sustainable growth” and that “it is reasonable to expect an extended period of low rates.” In terms of the rationale that keeps them accommodative, the combination of subdued inflation and the outlook for consumption remains the main domestic uncertainties they must tackle with the most urgency. Overall, there weren’t any significant changes to the statement. The fact that they kept the passage of easing further "if needed" gives them the leverage to flex their muscle if required, which is why a number of banks keep calling for another cut before year-end as a real possibility.

    Australian Q2 growth not as bad as feared: In other news relevant for AUD traders, the Australian Q2 GDP for Q2 came in line with expectations at 0.5%, which has been taken as a 'good enough' print to further propel the AUD in Asian trading. The details suggest the private sector remains very weak, including construction, retail and wholesale trade all weighing. Meanwhile, an improving trend comprises population growth, public spending, and net exports. Yesterday, the Australian balance of payments for Q2, in other words, the trade balance, came with a surplus of AUD 5.9bn, driven by an increase in exports. The headline surplus is the first in almost half a decade. Offsetting the positivism of the data was the retreat in imports as part of the trade balance, but even worse, Australian retail sales for July printed an uninspiring -0.1% m/m vs 0.2% exp.

    CAD goes down the elevator: The Canadian Dollar was hammered on Tuesday as the Markit Canada PMI manufacturing dipped below the dreaded boom-bust line of 50.00 by printing 49.1 vs 50.2 last month, the lowest reading since May 2019, while new orders were the lowest since December 2015. Besides, Pelosi, who is the Speaker of the House of Representatives in the US, expressed NAFTA concerns to Canadian PM Trudeau about the enforcement of USMCA and Mexico's implementation of labor standards.

    BoC policy decision faces dovish risks: A key focal point for today is the BoC monetary policy decision, which is expected to come with an unchanged rate as data in Canada has proven to be surprisingly robust. However, there is growing concern that the global growth outlook, the loss of business with China after the Huawei CFO apprehension and the softening of domestic demand, which was quite evident in the Q2 GDP reading subcomponents, will soon catch up. This will make the Bank more open-minded to transition from a neutral bias towards a more dovish stand. Therefore, the risk is that the BoC uses the platform this meeting provides to prepare the market for an easing of its policy in the coming months, potentially as soon as October if data worsens.

    HK situation poses huge uncertainty: According to Reuters, citing an audio recording of remarks by Hong Kong leader Lam, the unrest has become a national security and sovereignty issue for China, adding that she now has "very limited" room to resolve the crisis and the ball is now more than ever in China’s courtyard for them to decide when is time to up their game.

    ECB sources reveal current CB stance: As many as 5 unidentified ECB sources suggest that the ECB is leaning toward a combo of a rate cut, tiering, and reinforced guidance as part of its Sept 12 stimulus. The reports making the rounds also note that a large number do endorse QE but the opposition from some northern states makes it a more thorny issue to agree on. Lastly, sources noted that discussion about ECB stimulus package is still very much open and ongoing.

    Recent Economic Indicators & Events Ahead
    [​IMG]
    [​IMG]
    Source: Forexfactory

    A Dive Into The Charts
    [​IMG]

    The indices show the performance of a particular currency vs G8 FX. An educational article about how to build your own currency meter can be found in the Global Prime's Research section.

    The EUR index
    is about to reach a confluent area of support by combining a horizontal level of support (drawn in red) alongside the whereabouts of a 100% projection target. Coupled with the major disjointed movements in the currency against the risk-off weighted line, it is fair to claim that the area should act as a major wall of resistance for sellers to make further leeway. That said, this approach is simply anticipatory and not backed up by technicals whatsoever at this stage. The discrepancy with the risk-off line definitely suggests that the market has been selling Euros in anticipation of higher chance of a big ECB QE package on Sept 12.

    The GBP index
    is going to continue being engulfed by a juggernaut of Brexit-driven erratic volatility, which implies the technicals are secondary as traders adapt and play the headlines. The printing of a major absorption candle below the baseline is a testament of the unclear status on the index. On one hand, it trades below its baseline (13-daily ema) but the technical equation gets complicated to define a bias when you throw into the mix a huge rejection candle as the one seen on Tuesday, which communicates buyers are loading up at perceived cheap prices.

    The USD index
    has failed to sustain the steady buying participation and looks as though its headed towards an area of strong support (former double top), where buying should re-emerge with decisiveness judging by the overall constructive bullish structure of the market. This time, the test of support, if it eventuates, would coincide with the intersection of the baseline, adding to the technical case to be a buyer around that vicinity. What’s more, the risk-off weighted line trades at very rich levels, which should cause demand for safety (USD tends to do well).

    The CAD index
    has been hammered below its baseline with aggregate tick volume picking up to levels matching its last 2-week average. As I wrote in yesterday’s note, “the massive divergence that exists with the risk-on weighted index (orange line) suggests the higher the CAD goes, the more value exists to short the currency at wholesale levels.” Well, the market didn’t wait long. Today’s bias will see technicals on the backburner and flows determined by the BOC meeting, which I expect to tilt the balance of risks towards a more dovish outcome (CAD downside risks).

    The AUD index
    has been reinvigorated by a ‘status quo’ RBA, coupled with an in-line 0.5% Australian Q2 GDP, enough to keep the buy-side momentum going. There is still room for the Aussie to appreciate until it revisits a key line of resistance about 0.5% from Tuesday’s close. The test of this resistance, if it occurs at all, should present a valuable area to reconsider adding shorts as the divergence with the risk-off line in an epic one not often seen (value to sell). Note, technicals for now are telling us a different story, with buyers in clear short-term control.

    The NZD index
    is not yet making enough technical merits to justify a buy-side bias, even if we are starting to see a change in price action dynamics as the rise from Tuesday saw a pick up in buying participation through aggregate tick volume, alongside the first close within a 1 ATR limit from its still bearish baseline. However, until more upside progress is confirmed, this remains a mere correction in the context of a downtrend with the risk-on weighted line (orange) set to sooner or later draw interest in shifting the flows to sell-side campaigns again.

    The JPY index
    remains in the bullish camp as has been the case for the entire month of August and the few days of Sept. The risk-off weighted line is retesting the trend highs which is a pretty bad omen to be supportive of Yen shorts, only for the short-term brave players. The technicals are not providing any clues that the buy-side action will peter off for now, so I’d personally be very cautious to anticipate weakness in the Yen. If it does debilitate, the baseline about 0.5% below Tuesday’s close has so far represented an excellent buying zone.

    The CHF index,
    as I stated in yesterday’s note, is a market that shows a strong discrepancy between the risk-off weighted index and the current pricing of the index. That’s why I believe there is a significant risk of the CHF attracting buying flows despite technicals not yet offering any signals. Tuesday’s rebound in price saw the index rejected by its baseline, which makes the 5th day of trading below the daily baseline, not seen since mid-July this year.

    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. 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
     
  8. IvanGlobalPrime

    IvanGlobalPrime Private

    Joined:
    Aug 1, 2018
    Messages:
    25
    Likes Received:
    0
    Find my latest market thoughts

    Quadfecta Of Positive News Drive Risk Higher


    Amid the rampant risk appetite in equities, risk-sensitive currencies (USD, JPY, CHF) were taken to the woodshed, while GBP, AUD, and CAD buyers blare the trumpets by riding the bullish momentum as key tail risk events (Brexit, HK, Italy, US-China trade) are all in recess.

    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. You can also subscribe to the mailing list to receive Ivan’s Daily wrap.

    Quick Take

    A quadfecta, which in horse racing refers to picking the first four winners, could be extrapolated to the order of positive news hitting financial markets as risk-seeking strategies thrive after four consecutive risk-friendly developments occurred on Wednesday. The withdrawal of the extradition bill by HK set the ball rolling, which considering is what sparked the beginning of demonstrations, it definitely was a good omen to start the day in Europe. We then must throw into the mix the delay of a no-deal Brexit as the UK Parliament took control of the process, only to see a new Italian government formed with Conte back as PM and former EU economic and monetary affairs chair Gualtieri as Finance Minister. The icing on the cake came after the Chinese Ministry of Commerce issued a statement that China and the US agreed to meet in October for trade talks. Needless to day, amid the rampant risk appetite in equities (not in bond yields though), risk-sensitive currencies (USD, JPY, CHF) were taken to the woodshed, while GBP, AUD, and CAD buyers blare the trumpets by riding the bullish momentum as key tail risk events (Brexit, HK, Italy, US-China trade) are all in recess.

    [​IMG]

    The indices show the performance of a particular currency vs G8 FX. An educational article about how to build your own currency meter can be found in the Global Prime's Research section.

    Narratives In Financial Markets

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

    Trifecta of positive news emboldens risk-seeking strategies: The risk appetite is back in full swing after a trifecta of positive-charged news, including the withdrawal of the extradition bill by HK, which was the trigger point that led to the disruptive protests in the first place, coupled with the UK votes to delay Brexit, and to top it off, a New Italian government has been formed with Conte back as PM and former EU economic and monetary affairs chair Gualtieri as Finance Minister. The US Dollar and the Japanese Yen were the clear victims of the ebullient mood in risk-seeking strategies.

    Hong Kong a key element in the risk equation: One key aspect of maintaining the risk profile on high grounds remains the thorny issue of Hong Kong. On the surface, the headline is unambiguously a positive development but whether or not it dissuades protesters from ending the demonstrations it remains to be seen. The discontent is not gone, as protesters still want other issues to be addressed. The Chinese government mouthpiece the Global Times wrote: “Radical forces should not have any illusion of winning ground on matters related to the one country, two system principle that governs Hong Kong”.

    China-US agree to meet in October (breaking news): The other major influencer is the China-US trade talks, which saw some encouraging news out of Asian trade on Thursday after the Chinese Ministry of Commerce issued a statement that China and the US agreed to meet in October for trade negotiations. This piece of news adds to the trifecta of positive news described above to make it a "quadfecta".

    The Pound bought as UK PM loses control of Brexit: The Sterling has surged on the back of a relaxation in fears of an imminent no-deal Brexit outcome as the UK parliament approved to block no-deal Brexit by 327 votes to 299, with debate moving to the House of Lords. The official text read that “the Bill would require that unless the House of Commons approves a deal with the EU or the House of Commons agrees on a no-deal Brexit, the Government must by 19 October 2019 seek an extension to the Article 50 period until 31 January 2020.”

    UK PM defeated in call for snap election: UK PM Boris Johnson completed today’s double whammy of bad news for his planned Brexit process aspirations by being defeated in a tabled motion to hold a general election. Johnson needed a two-thirds majority (434) out of 650 votes and only got 298. Meanwhile, the prospects of a near-term general election still loom despite UK Labour leader Corbyn is still not endorsing it until the threat of a no-deal Brexit has been removed, noting that "we will not fall for Boris Johnson's tricks". Either in October before the scheduled Brexit, or in late 4Q, after an extension, a snap election in the UK looks highly likely to resolve the gridlock.

    NY Fed Williams doesn't sound overly dovish: New York Fed President Williams failed to provide any pre-emptive sign of supporting a 50bp rate cut, unlike the stance of perma-dove Bullard, even if Williams didn’t close the doors fully either as he pointed out that the economic momentum is less robust. Williams was especially concerned about the low inflation, noting he is ready to act as appropriate to support the economy and return to 2% inflation. Williams emphasized a familiar story about consumers data being robust but manufacturing data weakening. Lastly, a comment that unveils the uncertain outlook and how data-dependent this Fed is, Williams said “there are more economic data and geopolitical uncertainties before deciding on the next move.”

    The Fed’s Beige book not painting picture of an economy in easing mode: The Fed's Beige Book left one with the impression that domestically speaking, the report does not highlight enough stresses to justify a rate cut, but again, the Fed’s decision to embark on a rate-cutting adjustment phase has always been rationalized as a pre-emptive insurance move to the external risks that exists (trade war, Brexit, global slowdown, etc). In an area where the Fed is most concerned about such as business capital investment, the report outlined that “most businesses remained optimistic about near-term outlook even though concerns about tariffs and trade policy uncertainty continued,'' while highlighting old news that manufacturing data is slowing down due to the trade dispute with China.

    BoC fails to send dovish signal: The Bank of Canada left the interest rate unchanged at 1.75% as expected by all economists in a Bloomberg survey, sending no signals to prepare the market for a rate cut. The Bank reiterated that "the current degree of monetary policy stimulus remains appropriate", adding that the "Governing Council will pay particular attention to global developments and their impact on the outlook for Canadian growth and inflation". What was interesting were the comments on the housing activity, noting that it had regained strength more quickly than expected, and this “could add to high household debt”, which implies the Bank might not want to re-inflate the housing bubble by cutting rates further in the short-run.

    Recent Economic Indicators & Events Ahead

    [​IMG][​IMG]

    Source: Forexfactory

    A Dive Into The Charts

    [​IMG]

    The EUR index
    trades in bearish territory, completely decoupled as a proxy of the risk profile to instead fluctuate with the anticipation of an aggressive dovish ECB outcome as the main driver. The index has found support around a key horizontal level, which was the onset of a major rebound back in late July, so one would expect this location to attract demand interest.

    The GBP index, following the sizeable lower shadow candlestick formation on Tuesday, has garnered plenty of buying interest, allowing the index to retake its baseline to the upside. The breakout has been on low aggregate tick volume, which means a retracement to test lower levels before a trend resumption might be in store. The outlook for the Pound is positive heading into Thursday, even if the environment remains very dicey with the UK sooner or later headed towards a new general election. What matters for now, and the reason the Sterling has appreciated is because the market is pricing out the immediate risk of a no-deal Brexit.

    The USD index has sold hard as the risk appetite sees capital flocking off the safety bets. The breakout below the baseline has occurred on low tick volume (removal of liquidity), which is a clear sign that the participation by sellers in this move lower is not highly committal, with the fall more a function of buyers taking profit off the table driving the price lower for the most part. The candle would not classify as a sell trigger to expect further selling follow through, especially since the market structure of the index is still clearly bullish (higher highs, higher lows).

    The CAD index has re-taken the upper side of the baseline and the overall outlook looks now more constructive for an extension into its next key resistance level. The failure by the BOC to signal a dovish stance in rates has caused the upward adjustment in the currency, which sees the CAD stand out as one of the very few Central Banks not actively easing. There is a notable divergence with the risk-on weighted index but the BOC decision did override the proceedings.

    The AUD index continues to charge higher after closing above a major line of resistance, which paves the way for the currency to extend its gains until the next resistance line located about 0.4% higher from Wednesday’s close. The outlook for the Aussie to keep its steady move up is dubious to say the least as the risk-on weighted line has clearly decoupled in a sign of divergence, which means key reference levels may act as reversal points.

    The NZD index shows no indications that the bearish tide is turning. Even when risk appetite has been thriving, the index could not manage to make gains in an equally-distributed weight basis. The currency index faces a key level of resistance above in the form of the baseline, with the market structure still giving us no clues whatsoever that buyers are in control of the daily chart.

    The JPY index has been smashed by the reinvigoration of the risk flows, leading to the very first breakout of the baseline since July. The index has now landed at a key level of support, with the sell-side candle from Wednesday lacking the sufficient participation by sellers judging by the tick volume, which is a precursor to potentially see a bounce back. However, the close at the very low of the day is also a major warning that there is no appetite to buy the currency for now. The risk-off weighted index remains at lofty levels, which is why the downside may be limited.

    The CHF index is sandwiched between a key support level where buyers have been consistently found while the upside is so far capped by the baseline. The outlook is unclear with not enough clues to help define what side has the most control. If anything, the poor aggregate tick volume of the support level argues that the upside momentum may exhaust near-term.Chart Of The Day
    A trade that stands out today is long the CAD/CHF off the H8 chart. There is a clear bullish structure in place, the candlestick printed on the back off the BOC is an outside pattern with high tick volume off a key support level on the daily (red line). To top it off, the candle that provides the bullish signal closed above the baseline on both the H8 and daily timeframes.

    [​IMG]

    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. 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
     
  9. IvanGlobalPrime

    IvanGlobalPrime Private

    Joined:
    Aug 1, 2018
    Messages:
    25
    Likes Received:
    0
    Find my latest market thoughts

    A Rejuvenated 'Risk-On' Pulse In The Forex Market


    POSTED ON: 06 SEP, 2019


    The market is currently undergoing an aggressive repricing in risk-sensitive instruments as the perception is that through the course of Sept, the most critical underlying risks having worried markets the most in recent memory, without exception, get systematically reduced in seamless synchronicity.

    The article is authored by Ivan Delgado, Market Insights Commentator at Global Prime. This content aims to provide an insightful look into topics of interest for traders. 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. You can also subscribe to the mailing list to receive Ivan’s Daily wrap. Also, find out why Global Prime is the highest-rated broker at Forex Peace Army.

    Quick Take

    There is no doubt that the revitalization of the carry trade is back in vogue as high-beta currencies thrive at the expense of plummeting funding currencies, especially the JPY and the CHF, while the EUR is also under pressure even if trading dynamics in the latter will be determined by adjustments ahead of next week's ECB meeting on Sept 12. Even the jaw-dropping pool of negative-yielding global bonds has come down significantly as we see the flourishing environment lift both stocks and fixed-income, which is a clear testament that the quadfecta of positive developments all compressed within the last 24h has shaken the grounds of the market in what has the risk of turning into a major reckoning moment in the re-adjustment of positions this Sept. You don't often see that the underlying risks having worried markets the most in recent memory, without exception, get systematically reduced in seamless synchronicity. The market is currently undergoing an aggressive repricing as the perception is that through the course of Sept, there will be a relaxation of the chaos seen in HK, the political instability in Italy, the prospects of a hard Brexit, or a full-blown trade war with no intention to talk. It should be, therefore, not surprising that the market is coming to grips that as valuations stand, reversals back to the mean in risk instruments must eventuate to adjust to the new reality.

    [​IMG]

    The indices show the performance of a particular currency vs G8 FX. An educational article about how to build your own currency meter can be found in the Global Prime's Research section.

    Narratives In Financial Markets

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

    Rampant risk appetite: The dynamics are characterized by true ‘risk-on’ as the quadfecta of positive news in the last 24h of trading (withdrawal of HK extradition bill, Italian government formed, delay in no-deal Brexit, US-China high-level trade talks confirmed in early Oct) sees a run to the exits off safety assets. The combination of rampant rises in both equities and stocks bodes well for follow-through ‘risk-on’ demand, with the high-beta currencies poised to see further interest, while the likes of the JPY and the CHF may struggle the most as seen during Thursday.

    US NFP up next: There was a solid run of US data on Thursday, which brightens up the fundamentals landscape even further ahead of this Friday’s US Non-Farm payrolls, which in August tends to be a miss. If we look at the past 22 years as a sample of data large enough, the August jobs report has been missing its expectations nearly 80% of the time, with an average miss of -48K. The consensus for today’s report stands at +160K with some last-minute adjustment after the huge ADP report from this Thursday, where 195K new jobs were added, even if the ISM employment component does not paint the same rosy picture. As usual, average earnings will too influence the USD.

    Fed's Powell speech eyed: It will also be important to keep an eye on the appearance of Fed Chair Powell in Zurich where he will deliver a speech titled "Economic Outlook and Monetary Policy" by 16.30 GMT at an event hosted by the Swiss Institute of International Studies. Audience questions will be expected. The market now prices only one rate cut for the Sept FOMC meeting, with odds for a 50bp vanished after the resurgence of risk appetite. The market will be on the lookout for clues that may cement the notion that the current Fed funds rate pricing by the market is at fair value. The speech comes just ahead of the phase where no further official commentary is permitted.

    US manufacturing contraction not spreading: The ISM non-manufacturing (Aug) overwhelmed expectations at 56.4 vs the 54 exp, which is the strongest reading since April and it appeases concerns that contagion from a contracting manufacturing sector will trickle down into the broader economy. When analyzing the components, orders came very strong at 60.3 up from 54.1, while the business activity reading was also at a hefty 61.5, up from 53.1. On the flip side, the employment index came at its weakest level in more than two years, which coupled with the ISM manufacturing employment index, it suggests the outlook for further steady job creation in line with the average is at risk.

    Default optimistic scenario unless Trump messes things up: Lower-level officials from both the US and China are scheduled to continue discussions over the coming weeks on the lead up to the resumption of talks by the big guns in early October. I wouldn’t be surprised if the positivism of the latest developments on trade drag on as it’s unlikely China will revisit the topic during Sept since China is now fully immersed in the preparation of its 70th anniversary of the founding of the People's Republic of China. The lack of further news from here on out, should be, barring another round of harassment by Trump towards China that prompts them to change their minds, the default optimistic scenario that markets will most likely latch on to keep risk bid.

    Even the Global Times sounds more upbeat in its tone: Global Times editor Hu Xijin, who’s become a sounding board for the Chinese government, and whose tweets tend to radiate an aura of pessimism, said there's a greater possibility of US-China trade breakthrough. The tweet read: “China and the US announced a new round of trade talks and will work to make substantial progress. Personally I think the US, worn out by the trade war, may no longer hope for crushing China's will. There's more possibility of a breakthrough between the two sides.” The fact that “substantial progress” has been highlighted by the Ministry of Commerce in China makes this meeting especially relevant. There has been chatter that the US may rethink the mid-December tariffs in exchange for more agricultural buys.

    No breather in Germany's poor fundamentals: Germany’s July factory orders continue to be in a slump, coming at -2.7% vs -1.4% m/m expected, as manufacturing and factory activity stays weak. The data reinforces that the ECB may have to resort to a bold easing package when they announce its next set of policy settings on September 12th in order to keep the engine of growth in Europe afloat. Remember, the ECB meeting will be followed by the FOMC on the 17th-18th and the BoJ on the 18th and 19th.

    The market keeps pricing out no-deal Brexit risk: The Pound continues to be the top performer, emboldened by ‘risk-on’ market and the fading prospects of a no-deal Brexit. Media reports that the necessary legislation that will allow to halt a no-deal Brexit will be completed by this Friday, a round of votes aimed at calling for an early election scheduled for next week, right before Parliament is suspended until October 14th.

    Recent Economic Indicators & Events Ahead

    [​IMG][​IMG]

    Source: Forexfactory

    A Dive Into The Charts

    [​IMG]

    The EUR index
    continues to respect its technical levels near perfection. If you remember from the prior daily notes, I mentioned that the index could face some buy-side pressure as a key horizontal line where an impulsive reaction had been seen in late July. That’s precisely what we saw, with the rebounding effect taking the index up to retest yet another critical technically-rich area to consider sell-side action on the confluence of the baseline and horizontal resistance. The outlook for the next 24h will be dependable in large part to the market’s reaction to the US NFP, although the technicals analysis is not encouraging for the bulls here.

    The GBP index has completed a successful rotation to the upside, which essentially enhances the bullish case technically speaking going forward. Any pullback in the index are seen as a potential buying opportunity, with the immediate area of daily support at the breakout point. There is no indication of exhaustion in the pricing of the GBP either, as Thursday’s rise was achieved in the context of high aggregate tick volume and a close at the highs of NY (acceptance).

    The USD index has revisited and so far rejected what’s referred to in the real of volume profile analysis as the POC (Point of Control), which is the area on the chart where the highest concentration of volume existed before the breakout of a balance area. The lower shadow rejection candle carries elevated tick volume activity, which is congruent with a location where buyers may have a stronger interest to regroup in order to resume the uptrend, which for now remains with a bullish structure of higher highs and higher lows. Also notice, the breakout of the baseline (13d ema) came on lower volume, which indicates not enough conviction.

    The CAD index remains in an overall bullish context after the admission by the BOC of not yet ready to lay the ground to restart an easing campaign, which makes Canada stand out amongst the majority of Central Banks actively immersed in the application of stimulatory policies. The base case for the CAD to strengthen further from here is also underpinned by the ‘risk-on’ environment, which tends to be supportive of high-beta currencies as investors look to increase leveraged positions in higher-yielding currencies (carry trade). Today’s fluctuations in the CAD, however, will be determined for the most part on the outcome of the Canadian jobs number.

    The AUD index ascendency has stopped in its tracks where it was expected to, that is, at the macro breakout point of a swing low, now turned key resistance. The technical merit of the level alone argues for some potential pullback, but I doubt it can sustain as the positive mood is likely to see trend-following/momentum strategies to look to pile into longs the AUD. Overall, the technicals for the Aussie are challenging but the context remains conducive of higher levels.

    The NZD index is retesting its baseline, which one would argue is a pristine location to consider reinstating shorts in the currency vs G8 FX of one’s choice. The problem here is that the context is just wrong to hope that the NZD will act as sluggish as it did in recent times judging by the firm establishment of risk appetite dynamics, which tend to be a ‘booster’ for AUD, NZD. The index has room to appreciate further, should the baseline be cleared, until the next line of resistance, which can be found around 0.4% above its closing price on Thursday.

    The JPY index has been the most punished, alongside the CHF as risk trades perpetuate. The higher tick volume activity on the way down below the baseline is a reminder that this is a market with still enough gas in its tank to find lower ground. The two days of deleveraging away from the JPY into riskier currencies has violated the bullish structure, which suggests there should be rising interest to keep the JPY offered on any rally as the lay of the land stands.

    The CHF index, akin to the move down seen in the JPY markets, has been hammered lower as investors find less need to stick with the protective nature of the CHF in their portfolios. Note, the CHF market has limited room to keep declining before faced with a huge level of daily support, which refers to the breakout point (swing high) from late June. I’d be expecting profit-taking in CHF to ensue, but unless the optimism dissipates, I still find any rebound in the CHF to face the prospects of being quite shallow in nature before sellers re-group.Chart Of The Day

    [​IMG]

    The GBP/AUD checks all the boxes of my model to expect follow-through demand, barring, of course, Brexit news that may distort the technical proceedings. The AUD index should find some sell-side pressure based on the area it reached, while there is further room to appreciate by the GBP if the index is our primary indication. In terms of market structure, we’ve been forming higher highs after a triple bottom though July-Aug, with the separation to play a long position before facing a wall of resistance ample enough. The indicators (fisher transform and CCI agree), with the buy-side participation (seen through tick volume) on the rise. The close of the candle also found equilibrium near the highs by the close of NY, which is another positive element to account for. The price is not overextended in the daily as we are still comfortably within the region between the baseline and the upper 1x ATR and the candle itself is within the ATR limits too. In terms of risk events, we don’t have any major high-impact news, although when trading the Pound, that assertion must be taken has to be taken with a huge bucket of salt at times.

    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. 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
     
  10. IvanGlobalPrime

    IvanGlobalPrime Private

    Joined:
    Aug 1, 2018
    Messages:
    25
    Likes Received:
    0
    Find my latest market thoughts

    The 'Risk-On' Train Continues In Full Motion



    While the 'easy gains' in risk-sensitive currencies seem to have already been made, the overall outlook for risk to stay supported is the most constructive seen since late July as the analysis of the currency strength model conducted in today's note aims to demonstrate.

    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. You can also subscribe to the mailing list to receive Ivan’s Daily wrap.

    Quick Take

    As the short-term angst that used to radiate out of the US-China trade war, Brexit, Italian politics or HK protests continues to dissipate, the likes of the AUD, NZD, CAD keep finding mounting buying interest, with the contrast clearly visible in the underperformance of the JPY and CHF markets. In a week where the ECB will take center stage, the effects on the back of the synchronized quadfecta of positive news for risks are still reverberating around financial markets as key stock indices also confirm key breakouts. While the 'easy gains' in risk-sensitive currencies seem to have already been made, the overall outlook for risk to stay supported is the most constructive seen since late July as the analysis of the currency strength model conducted in today's note aims to demonstrate. The 'risk-on' train is in full motion.

    [​IMG]

    The indices show the performance of a particular currency vs G8 FX. An educational article about how to build your own currency meter can be found in the Global Prime's Research section.

    Narratives In Financial Markets

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

    US NFP not as bad as the headline implies: The US NFP headline number disappointed with a print of 130k vs 160k expected, including a 20k downward revision to June and July. As part of my note to clients on Friday, I mentioned that August tends to be a miss in the NFP if history in this century is any indication. I mentioned that “if we look at the past 22 years as a sample of data large enough, the August jobs report has been missing its expectations nearly 80% of the time, with an average miss of -48K.” That said, the fall in the USD was limited as there were some bright spots such as the steadily low unemployment rate of 3.7%, which combined with a tick up in the participation rate to 63.2% vs 63.0% prior, and average hourly earnings up at +0.4% vs +0.3% exp, offset the miss in the headline number.

    Fed's Powell in no rush to go for a 50bp rate cut: Fed’s Chairman Powell, in a speech in Switzerland, showed a lack of pre-commitment to telegraph the prospects of a bold 50bp rate cut during Sept, with the market dialing back even the chances of a -25bps from an outcome fully priced to now stand at 91%. Note, the market now officially enters the blackout period with no further intervention by Fed members allowed. Powell said that “the most likely outlook for our economy remains a favourable one with moderate growth, a strong labour market and inflation moving back up close to our 2% goal” but the caveat of “significant risks” was introduced, “we’ve been monitoring those, including slowing global growth, uncertainty around trade policy, and also persistently low inflation.”

    'Risk on' firmly in place: We are headed into a new week of trading, in which the ECB monetary policy meeting will command the most interest by the market, with risk appetite still firmly in place. The eagle view one can obtain by scanning risk-sensitive assets reveals ‘risk on’ dynamics remain in place as reflected by the breakout in major stock indices, including the S&P 500, the decisive sell-off in the Japanese Yen, the Swiss Franc of Gold. The renewed strength in the Yuan in line with the strong appreciation in EM FX is also assisting the sense of relaxed risk sentiment. The fixed-income market (US30Y bond yield) is the only market not quite taking off just yet. Overall, the risk environment remains supportive of high-beta currencies but be aware the overextended run we’ve seen in pairs the likes of AUD/JPY, NZD/CHF to name a few.

    Outsized jobs report in Canada: The Canadian jobs report for August was another blockbuster one of 81.1K vs 20.0K expected, with the unemployment rate consistent at 5.7%, even if the big downer was the hourly wage rate, much lower than expected at 3.8% versus 4.5% economists called for. The split of full-time employment versus part-time was fairly poor, with full-time jobs at 23.8 K versus 17.5 K estimate, while part-time employment stood at 57.2 K versus 7.0 K estimate. The participation rate grew to 65.8% versus 65.6% estimate. The data, nonetheless, reaffirms the prospects of a Bank of Canada that would rather sit on the sidelines without an immediate urge to ease.

    China announces RRR cut as trad weakness: China’s trade balance, published on Sunday, continues to struggle as exports growth came weaker than expected at -1% yr/yr vs +3.3% in July. There were no signs of ‘front loading’ exports or imports ahead of the tariff hikes from Sept 1st. Besides, in order to keep underpinning economic activity via greater money supply to encourage lending to the corporate sector, China announced a further easing in monetary policy by cutting the Reserve Requirement Ratio (RRR) by ½ percent to 13%. It will be applicable to all bank from Sept 16th. There will also be a further 1% reduction for additional commercial banks in mid-Oct and mid-Nov.

    RBA Lowe reflects on what's left in the toolkit: RBA Governor Lowe was interviewed by the Sydney Morning Herald, somehow admitting that the Central Bank is slowly headed towards an interest rate setting near zero, which makes the prospects of QE a possibility down the road. The SMH, not quoting Lowe directly, notes: “Lowe fears that our time is up. He’s using his power over interest rates to pull Australia back from the brink. But official rates are nearing zero percent. Lowe is preparing the way for the eventuality that they hit zero and need to go further, into the weird world of “unconventional” measures.”

    Brexit playout a tough one: On the Brexit front, UK PM Boris Johnson won the English court ruling on parliament prorogation, while the Brexit delay bill also passed without any setback the House of Lords, now set for royal assent. Once the new law is fully legitimized by the UK lawmaking system, Labour has vowed to be ready for an election. The Pound remains well supported as the risk of a hard-Brexit by Oct 31st has been largely reduced even if a few EU officials are making the wrong noises for the Pound by stating their reluctant to concede another Brexit extension, among them France's foreign minister, Jean-Yves Le Drain or Belgian politician Guy Verhoftstadt. Remember, the playbook to trade the GBP keeps changing every day, so if you dare to trade the market, you must be the brave type keeping up with all the relevant Brexit-related news.

    Recent Economic Indicators & Events Ahead

    [​IMG]

    Source: Forexfactory

    A Dive Into The Charts

    [​IMG]

    The EUR index
    continues to be in a slump, with a familiar pattern of selling-off aggressively ahead of the ECB policy meeting this week once again seen. What this means is that the market is setting itself up for a potential disappointment should the ECB not overdeliver the dovish policy expectations currently being priced. This is precisely what happened back in July. Technically, the close at the lows of NY below a highlighted support level is a very poor omen for the currency heading into the ECB. We could be facing another few days of EUR selling easily.

    The GBP index exhibits a rather bright outlook to start the week, with the structure of higher highs and higher lows confirmed after the close above the previous high on Aug 26th. The recent rise has also allowed the first rising bottom in the index since early March this year, which strengthens the notion of bulls being in control of price action. Note, the Serling is facing a key technical obstacle at the recent trend highs that aligns with a previous macro support broken.

    The USD index is in bearish territory but so far well underpinned by a key technical confluent juncture in the form of a weekly support level coupled with a retest of the 50% retrac of the prior balance area. The aggregate tick volume on the way down shows a devoid of participation, which combined with the ongoing bullish structure in the index, makes the USD a clear contender to see technically-driven demand returning at what’s arguably one of the best positions to engage in a trade, that is, at the retest of the 50% balance area in a trend. I wouldn’t be surprised if we see the index retesting the baseline (13d ema) next.

    The CAD index has made it all the way to retest an important resistance level, which is where the price has paused as an equilibrium between bids and offers is found. The close at the high of the day is a red flag not to get in the way of the CAD bull train, which continues to be backed up by hot fundamentals (BOC not ready to cut rates short term + Canadian jobs data last Friday argues against easing as well). The index is far from trading at an optimal or discounted price level but it doesn’t mean it won’t continue to seduce momentum strategies from playing longs.

    The AUD index has broken the weekly resistance level I had pointed out the prior week, paving the way for further gains in the week ahead. The overextension of the price outside it 1-time ATR from the baseline, alongside the tapering of aggregate tick volume, however, does suggest that the context is set up for a potential retracement towards either retesting the weekly resistance now turned support or experience a sharper pullback to its baseline. The bullish prospects are undeniable but the pricing to be paid for the AUD is just too expensive unless you are going to be in and out of the market in the lower time frames.

    The NZD index is finally starting to catch a very solid bid, emboldened by calls that the RBNZ will refrain from being as aggressive in its easing policies as previously thought. The risk appetite is undoubtedly also leading to some macro shorts to unwind their positions in what’s been arguably one of the best trends to trade, now officially reversed as the baseline got taken out. There is further room for the NZD to bank the rather void space in the chart until a weekly resistance level about 1% higher than where it closed last Friday.

    The JPY index continues to be punished as the market dumps the currency in light of the rampant risk appetite present since mid-last week. The close below a key daily support line is another technical testament that the outlook for the JPY looks rather dire. Technical levels tend to get overridden by the relevance of sentiment/fundamentals, which is precisely why we saw the limited resistance by buyers to step into the bearish momentum. No reason to think the JPY sellers will give up at this stage as they have in favor technicals and sentiment.

    The CHF index, in a very similar fashion as the JPY index, keeps plummeting as the risk appetite conditions settle in. The close last Friday came right at a key weekly support line, but the rate of acceleration in the index’s decline, alongside the increase in aggregate tick volume, does not bode well for the interest of the Swissy. Analogous to the JPY, the currency CHF finds itself without contextual support in sentiment nor favorable technicals in place.

    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. 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
     

Share This Page