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Global Prime: Daily Market Digest

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

  1. IvanGlobalPrime

    IvanGlobalPrime Private

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    Risk-Sensitive Currencies Stay Under Pressure


    There were two currencies undepleted of healthy levels of volatility, which include the Pound, boosted by an upbeat UK July GDP as the lingering effects of the no-deal Brexit bill still play out in the background, alongside the Swiss Franc, which we could dub as a "falling knife" at this stage after the 'U-turn in risk dynamics since last week.

    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

    Mondays tend to be a low key affair unless there is a disruption in the news flow over the weekend. The last 24h of trading was no exception, with the aggregate tick volume below the normal standards and the movements contained in familiar ranges. There were two currencies undepleted of healthy levels of volatility though, which include the Pound, boosted by an upbeat UK July GDP as the lingering effects of the no-deal Brexit bill still play out in the background, alongside the Swiss Franc, which we could dub as a "falling knife" at this stage after 3 consecutive days of sharp declines. The Euro found demand on the back of Germany's shadow budget chatter, with the Aussie also following the Euro tail very closely as the quadfecta of positive developments last week has seen steady flows concentrated in the oceanic currency as the fav proxy play on China. The low-volatility Monday, nonetheless, had it tough in those looking to engage in trading the USD or the CAD, both undergoing painfully compressed ranges.

    [​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.

    Pound aided by UK GDP reading: The Pound regained the upside after the UK m/m July GDP came upbeat at +0.3% vs +0.1% expected where services output was the major contributor, which represents the largest one-month rise since November 2018 even if ONS notes the prospects for growth to be sustainable throughout the year look fragile. Additional factory activity data also came solid, including manufacturing production, industrial production as well as construction output.

    The UK Parliament goes into suspension: On the Brexit process, the UK parliament has been officially suspended with the government spokesman keeping the hard-line stance that the government will not seek an extension. Meanwhile, Brexit Minister Raab said he will go to negotiate a deal while noting the government will respect the rule of law after the Queen gave royal assent to the bill that blocks a no-deal Brexit. The next big date for the Brexit saga will be the EC summit on 17-18 October.

    Germany may create 'shadow budget': The Euro found some demand half-way through Europe after louder chatter that Germany may adjust its budget if the outlook worsens, according to a ministry official. Reuters elaborated further by noting that Germany may create a 'shadow budget' to ramp up public expenditure outside the limits set by the national debt rules. The report notes how officials are "flirting with the idea of setting up independent public entities that would take on new debt to increase investment in infrastructure and climate protection."

    Fighting words by Xijin: The Chief Editor at Global Times and China’s sounding board tweeted: “China's economy is slowing down, but it's still on path going forward. Massive infrastructural construction is continuing, people's livelihood is advancing. American economy is idling, with exuberance supported by bubble. It is Washington that is nervous.”

    More RRR cuts coming in China? After China announced a further easing in monetary policy by cutting the Reserve Requirement Ratio (RRR) by ½ percent to 13%, applicable to all bank from Sept 16th, a further 1% reduction for additional commercial banks will follow in mid-Oct and mid-Nov. Additionally, according to the Global Times, China is “likely to launch more reserve requirement ratio (RRR) cuts this year as the economy is under dual pressure from the trade war and domestic economic adjustments."

    The US to consider tax cuts: US Treasury Secretary Mnuchin said that Trump will think about tax cuts next year, even if the reality is that getting the bill through the Democrat-controlled Congress would be highly unlikely. Mnuchin also stated that “there is no reason to believe Fed Powell's job isn't safe”, and that “we're prepared to sign a China deal if it's good for the US”, while assertive of the fact that “we have not seen impact from trade war on the US economy”, which in Mnuchin words, makes the “President perfectly fine with continuing tariffs absent a new deal.”

    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 keeps finding demand off the lows, which coincides with the same area where the currency was given a solid impulsive pop during late July. The upside remains well capped by the baseline, with the next few days of trading until the ECB monetary policy meeting still facing the prospects of downside risks as technicals stand. Today’s correction came amid significantly lower-than-expected buy-side participation as the aggregate tick volume depicts, which is not that encouraging to see follow-through demand emerging as commitment is low.

    The GBP index is retesting a key resistance level, and unlike the EUR, the prospects for the perky Pound to print further gains are definitely a possible outcome as the market remains immersed in a campaign of pricing out the chances of a no-deal Brexit this year. During Monday’s retracement, the index found dip-buying strategies dominating the proceedings, with the demand imbalance most notable at the test of the daily baseline (13d ema). Overall, the Sterling looks constructive even if one must acknowledge the upside is currently limited by a line of resistance, which if based on the volume carried on the retest, is not that encouraging.

    The USD index continues to print the right sequence of low tick volume candles into a relevant structural area (50% retracement previous balance area) to make me think the outlook for the US Dollar is definitely attractive from a risk-reward perspective. That said, I always tend to wait for a retake of the baseline alongside other elements to validate my trades, although I must confess that the technical area where the USD has paused holds significant value for the currency to see renewed buying interest starting this Tuesday.

    The CAD index, akin to what we are seeing with the GBP index, has stopped in its tracks at a key level of resistance, with a doji-like bar (uncertainty) printed on Monday. Since the bar must be assessed in the context of an uptrend, the outlook on the currency looks bright, with recent fundamentals in Canada backing up the bullish narrative in this market. Any setbacks should be seen as buying opportunities as the index is also aided by a bullish structure of rising bottoms.

    The AUD index continues to defy gravity by keeping its momentum intact as another key level of resistance approaches. Given the overextension of the index, I’d consider any extra push higher worth more than 0.20-0.25% from Monday’s close as potential opportunities to face the AUD strength heading into this major level. Also note, the current bullish leg is developing with tapering tick volume, which tends to be a precursor for a reversal back to the mean. These are very dangerous levels to be entering long positions on the AUD if you ask me.

    The NZD index is not as stretched as the AUD, so from a re-distribution of flows perspective, should the risk appetite extend, it makes sense that the NZD may start to outperform its neighboring currency from here. The room that exists until the next key resistance in the chart is also more ample than in the AUD, with over 1% of additional gains still potentially in store. The index trades in bullish territory for the first time in months after the breach of the baseline.

    The JPY index continues in a slump with 0 technical prospects that a bottom has been found. The break through the baseline alongside the close and acceptance below a key level of support has been a very damaging technical event for the Yen. As long as the risk dynamics remain supportive, the room for the Yen long positions to unwind further remains ample, which is why I am still expecting the currency to be one of the main losers this week, up to the ECB outcome.

    The CHF index keeps selling-off sharply with the elongation of the last bar on such a poor aggregate tick volume suggesting the currency may soon find bargain hunters all over. That said, the currency remains in a state of being a “falling knife”, which makes catching it a dangerous proposition indeed. The close at the very low of the day in NY is quite concerning as well, as you’d want to ideally see some type of absorption. Besides, the index does not yet provide a clear technical level of support to lean against until the 100% proj target 0.4% lower.

    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
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    Find my latest market thoughts

    EUR Catches A Bid Ahead Of The ECB



    The EUR index has found enough demand to set out a recovery off a confluent area of support (100% fib proj + horizontal line) and it looks increasingly likely that we may have a retest of the baseline (13d ema) ahead of the ECB meeting on Thursday, with the conviction of an aggressive easing action by the Central Bank being questioned by currency and bond traders.

    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 Euro keeps garnering further upward traction in the Asian session this Wednesday as the conviction over the boldness of the stimulus by the ECB is in recess. We have another 24h of technically-oriented EUR trading before all the bets go off when Draghi takes the stage on Thursday. The USD index, which finds itself in a value location (I elaborate on it in the charts section), may start to get more attention in what's still arguably one of the healthiest macro trends in FX, even if the CAD is looking to challenge that status by making further strides from a technical perspective, as the index just broke out a key resistance level to print fresh yearly highs (not seen since Oct 13 '18). The Yen and the Swissy continue out of love as the risk appetite is retained, mainly courtesy of a surge in global yields this time. The effects of 'risk-on' conditions are failing to have the same positive repercussions in the Oceanic currencies or the Pound as compared to the dynamics from the last week, with the CAD and the EUR taking up the slack.

    [​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.

    Repricing underway in the global bond market: There is currently an aggressive global bond repricing going on after the more constructive sound bites by Chinese officials about the Oct trade talks. Bond traders are seemingly having a change of heart by anticipating a reduced probability of a protracted global slowdown should the US and China be able to make strides when they meet again, even if it remains a tall order. Besides, the stellar bull run in bonds also justifies a run to the exits for now ahead of the major high-impact vol events to come in the next week (ECB on Thursday and FOMC next week).

    Overdone chatter of ECB QE big bazooka? Bond traders may also be noticing the risks that the ECB may underdeliver on the QE front. The preponderance of evidence when accounting for the intervention of all ECBs members’ opinions on policies remains skewed slightly to the downside. While ECB member Rehn endorsed the idea that a bold QE was needed when interviews by the WSJ in mid-August, the members voicing concerns about a large QE program or refraining from it altogether, which included Weidmann, Knot, Nowotny, Lautenschlaeger, Villeroy, Muller, and Holzman do exceed in number.

    China-US trade headlines sending the right sound bites: The overall risk appetite has been underpinned by further positive rhetoric from China, as a report revealed that the US and China are in active discussions to draft an interim deal. “As part of the discussions, China has offered to buy American products in exchange for a delay in a series of US tariffs and easing of a supply ban against Chinese telecommunications giant Huawei Technologies. The source said China could also offer more market access, better protection for intellectual property and to cut excess industrial capacity, but would be more reluctant to compromise on subsidies, industrial policy and reform of state-owned enterprises.” The report notes that since the leadership in China is putting the focus on the longer term, a trade deal should be seen in the context of another trade war truce to gain time.

    Credible MNI carries article ECB may underdeliver: The MNI is speculating that the ECB is considering two potential options, which include a delayed start to QE, or alternatively a resumption of QE conditional on more evidence of a slowdown in Europe. The behavior of the EUR ahead of the event suggests high uncertainty indeed.

    Bolton fired by Trump: The US President announced on twitter that John Bolton, US National Security Advisor, is out: “I informed John Bolton last night that his services are no longer needed at the White House. I disagreed strongly with many of his suggestions, as did others in the Administration, and therefore I asked John for his resignation, which was given to me this morning. I thank John very much for his service. I will be naming a new National Security Advisor next week.”

    Crude Oil reacts negatively to Bolton's news: Oil prices fell sharply after news broke out that Bolton was fired as US National Security Advisor as he is seen as a hawk in the Middle East, hence his departure implies the chances of military actions are reduced. The price of the Norwegian Krone was hit the worst on the Oil drop. Not so surprising should be the stubborn rise by the Canadian Dollar, which continues to show sizzling fundamentals, with Tuesday’s housing data no exception, hence helping to keep the bid.

    Germany sticks with balanced budget: Germany’s 2020 budget came without a fresh fiscal stimulus package after German finance minister Olaf Scholz presented the budget in parliament following some chatter that the country was looking to destine some off-balance-sheet expenditure measures as part of what was dubbed a ‘shadow budget’ should it be necessary to stimulate the economic activity. The budget is aimed to make a substantial contribution in investments but the bottom line is that the news is a negative input for the Euro, as the market had glimmers of hope that Germany may go out of its way with some extra fiscal spending to support its economy. Not the case.

    The BOJ may be mulling further easing: According to Reuters, the BOJ, scheduled to meet on Sept 18-19, may be shifting closer to further easing, with the report citing unnamed sources. “The pickup in global growth is taking longer than expected, which could affect Japan's output gap and hurt domestic demand. If risks to Japan's economy are deemed too high, there's a chance the BOJ may act," one source said. Among the options discussed it’d include further negative rates or a mix of policies.

    What's next in the Brexit saga? With the UK parliament prorogued, the Brexit saga will take a respite in terms of immediate risks to assess by the market. After the Brexit delay bill and Parliament gone for one month, we seem to be now heading into a ‘quieter’ period of GBP vol until the European Council summit of 17-18 October, where an extension of Brexit is the most likely outcome, followed by a potential UK snap election afterward. In the meantime, UK PM Johnson will not be seeking an extension but instead will try to get a Brexit deal. Remember, UK lawmakers will be summoned back to their seats in parliament for the Queen's speech on 14 October. What remains to be seen is whether or not Boris Johnson can pull off a few tricks to convince European leaders to renegotiate May’s withdrawal agreement. If there is no deal by 19 October the legally-binding enforcement of the delay Brexit bill will come into effect, which will leave the UK government no choice but to request an extension until 31 January 2020.

    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 enough demand to set out a recovery off a confluent area of support (100% fib proj + horizontal line) and it looks increasingly likely that as highlighted in yesterday’s note, we may have a retest of the baseline ahead of the ECB meeting on Thursday. Remember, all the best will be off the moment Draghi takes the stage, which will be a time to reassess one’s positioning in line with the outcome of the event, which is expected to inject high vol as the debate of how aggressive the CBs easing measures will be remains up in the air.

    The GBP index is predictably struggling to break through a macro level of resistance, where the index had already found difficulties to re-take, and it was actually the area that precipitated the Pound into its final slump in the 2nd half of August before its current relief rally. The retest of the resistance has been so far in low aggregate tick volume, which is not an encouraging sign that implies much commitment to breaking the area at this stage. It’s been 2 days in a row of back-to-back low volume taps into the level, which may look like a warning signal and reversal strategies may see it as a potential opportunity to play technical shorts. Still, as per my model, we are in long territory but far from getting an entry on the daily.

    The USD index has shown little signs of life, which doesn’t change my technically constructive picture at what I consider one of the best areas to engage in USD long-side action if you are a swing trader. Personally, I’d rather wait for a re-take of the baseline as per my own trading approach, but expecting a bounce off the 50% retracement of the previous balance area is definitely another possibility that offers a decent risk-reward alternative. As I wrote in yesterday’s note, the retest of the area has come amid tapering volume, which communicates that the selling pressure is running out of juice. The three tails printed into the level should also be a hint that buyers have taken the opportunity to fill buy-orders for a potential accumulation.

    The CAD index is one of the indisputable leaders alongside the Oceanic currencies as the index break through a key level of resistance, hence opening up a new horizon of upside ambitions. From a macro standpoint, the breakout is projected to offer up to 1.5% of additional gains based on a 100% proj target from the swing low with most interaction through the breakout point. The resolution into higher levels has also transpired on higher aggregate tick volume even if it remains below the historical average as the chart shows. All in all, the CAD looks the best positioned, technically and fundamentally, to keep printing gains in the short-term.

    The NZD index remains in bullish territory even if the decreasing participation by buyers on the way up (tapering aggregate tick volume) is starting to take its toll on the bullish momentum. A retest of the baseline should lead to renewed interest to bid the Kiwi in light of the ‘risk-on’.

    The AUD index is fast approaching a huge macro resistance that should see a slowdown in the ascend we’ve seen in the last 2 weeks. The sentiment is still in favour of AUD longs but one would think that most of the ‘easy gains’ have already been made as the index also keeps rising with lower than usual buy-side pressure as the aggregate tick volume suggests. The bottom line is that the Aussie remains a hot bullish currency at unattractive prices unless scalp-like entries.

    The JPY index continues to slide further as not only the environment has turned ugly for the likes of funding currencies the likes of the Yen, but speculation that the BOJ may be considering further easing is a factor that I’d expect to weigh on the currency as well. The next key horizontal level of support for the index is still another 0.9% away, which should facilitate the exploitation by the sellers of the void area currently available until the next strong demand area.

    The CHF index shows no signs of abating its downward pressure with Tuesday’s attempt to bounce off the lows met with ‘sell on rally’ strategies as the large upper shadow candle depicts. There is still further leeway to the downside, roughly accounting for a -0.4% move, before the 100% proj target is met, where I’d be expecting profit-taking by CHF buyers combined with greater buy-side activity by market makers for an eventual retest of the baseline.Charts Of The Day

    There were two entry triggers fired off my trading model, one to enter a long position in the S&P 500 index and another aimed to short the NZD/CAD. In the first trade, the index is ticking all the boxes in my checklist, except the fisher transform is not yet turning bullish (one candle short). However, under the context of a bullish outside print as is the case in the last H8 print, I allow myself to also enter the trade if the rest of the conditions also agree. The reason is that an outside candle under the right context (trend up) communicates an order book sweep, which to me is a strong testament of a sea change in sentiment, which ultimately is what the fisher transform helps me to decipher too. With regards to the NZD/CAD, it has absolutely all I need to see to go for a short position (break of the baseline on increased tick volume, no obstacles of SR levels, etc). The one nuance that I am aware of is that I will be trading two bullish indices, which is why I must limit my risk to half what I’d normally put on under the circumstance where I am trading a strong vs weak currency index.

    [​IMG][​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
     
  3. IvanGlobalPrime

    IvanGlobalPrime Private

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

    ECB: Over-Delivery or Déjà Vu All Over Again?


    Will the ECB announce a new QE program? What will be the size of it? Are they going to cut the deposit rate? by 10bp or 20bp? These are some of the most pressing 'question marks' the market needs clarity on, and by which the EUR will determine its next directional bias.

    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 Euro heads into today's crucial ECB meeting, which marks the end of Draghi's tenure as President, with the downside pressure intact as the equally-weighted EUR index retests the very same low that led to the latest resurgence in the single currency's demand the day of the last ECB meeting. Coincidence that we find the Euro in the same levels of sentiment as back when the ECB last met on July 25th? I wouldn't say so as the valuation of the EUR is highly dependable on the ECB policy outlook, and since that last meeting, the preponderance of fundamental evidence for the ECB to act decisively has only strengthened, which is precisely what the market has been discounting ahead of it, therefore traders should accept as a premise to see further EUR weakness an over-delivery of policies by the ECB unless we see a similar rebounding episode akin to what transpired after the last ECB decision. Will the ECB announce a new QE program? What will be the size of it? Are they going to cut the deposit rate? by 10bp or 20bp? These are some of the most pressing 'question marks' the market needs clarity on, and by which the EUR will determine its next directional bias. On the rest of the G8 FX space, we have the Oceanic currencies, especially the Aussie, still flying as Trump delays tariffs to China from Oct 1 to Oct 15 in a goodwill gesture, while the funding-type currencies (JPY, CHF) remain on the backfoot with further downside in the horizon as the 'risk-on' dynamics stand. The USD is starting to find renewed buy-side pressure, which is the opposite of what we've seen in the CAD market in the last 24h even if the outlook remains quite promising. The Sterling has been rather comatose as the Brexit newsflow slows down.

    [​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.

    Core bond yields hold gains ahead of the ECB: Global bond yields in developed markets (DM) have consolidated gains ahead of the crucial ECB policy meeting later today, while equities in the US and Europe head higher as the lingering effects of the quadfecta of positive news continues (HK, Brexit, US-China trade, Italian politics).

    Oil sell-off driven by Iran developments: Oil has found follow through selling interest after the abrupt reversal off its high in a fundamentally-driven move following the news that the reason that Bolton was fired as National Security Advisor earlier this week may have to do with a disagreement with Trump over the President’s considerations to ease sanctions and restart talks with Iran, which would include a meeting with the President of Iran Rouhan, who replied talks may follow under the premise that the US lifts the sanctions. This piece of news is also a contributor to the benign bid in risk.

    China's sounding board revitalizes risk trades: According to a tweet by Global Times editor-in-chief, Hu Xijin, who acts as China’s government sounding board, China will introduce important measures to ease the negative impact of the trade war, stating that “based on what I know, China will introduce important measures to ease the negative impact of the trade war. The measures will benefit some companies from both China and the US." The headline, no doubt, reinforced the positive tone on Wednesday.

    Trump adds to the 'risk-on' by delaying tariffs: In a tweet published just an hour ago in the Asian session on Thursday, Trump has confirmed the delay of a tariff increase to China for 2 weeks to October 15 instead of October 1. The headline has given a decent jolt to risk assets, most notably the Aussie and equities. The tweet read: “At the request of the Vice Premier of China, Liu He, and due to the fact that the People's Republic of China will be celebrating their 70th Anniversary on October 1st, we have agreed, as a gesture of goodwill, to move the increased Tariffs on 250 Billion Dollars worth of goods (25% to 30%), from October 1st to October 15th.”

    Another tweet against Fed policies by Trump: Trump takes it on the Fed once again, tweeting that the Fed should cut rates to zero or less: “The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt. INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term. We have the great currency, power, and balance sheet. The USA should always be paying the lowest rate. No Inflation! It is only the naïveté of Jay Powell and the Federal Reserve that doesn't allow us to do what other countries are already doing. A once in a lifetime opportunity that we are missing because of "Boneheads."

    ECB commands all the attention today: All the attention will shift to the ECB meeting today, with the announcement due at 11:45 GMT and the subsequent presser by Draghi at 12:30 GMT, which will be his last before being officially replaced by the new incoming President and former IMF Director Lagarde.

    What to expect by the ECB? The consensus among economists is for a 10bp cut to the ECB's deposit rate. However, with the market pricing in 14bps of rate cuts, it implies a 50% chance that the ECB could cut by 20bps. A restart of QE of about €30b per month of bond buying as a median estimate is also expected. The size of the program will be a key driver in the Euro valuation today. A "tiering" system for bank reserves to mitigate the implications of negative rates in the banking sector could also be a strategy adopted by the ECB today.

    Risk of disappointment in today's decision Judging by the sharp fall in the Euro over the last few weeks, the price action communicates the ECB must overdeliver to keep the sell-side pressure. It’s worth noting that given the large number of ECB council members opposing a new QE program, the ECB may disappoint by letting the cat out of the bag by pre-announcing a QE program, but it won’t necessarily make it official in today’s meeting, which would be a major boost for the Euro in the short-term.

    Recent Economic Indicators & Events Ahead

    [​IMG] [​IMG]

    Source: Forexfactory

    A Dive Into The Charts

    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 made a marginal new low before finding further buying interest at the confluent 100% proj target + horizontal support. Remember, it is no coincidence that we see the performance of the EUR against G8 FX improve the moment these key areas get tested in this equally-weighted hybrid index which as I reiterated many times, allows us to read the overall sentiment and identify pristine locations to take technically-led action based on historical data. Heading into the ECB, the Euro is clearly in a bearish trend and the next directional bias will be subject to the fundamental interpretation the market makes of the new set of tools the ECB will deploy in order to stimulate the European economy. The larger the size the ECB commits to its anticipated restart of the QE program, alongside how deep it cuts rates, the more the Euro will be pressured, even if the bar has been fairly high to keep the EUR sold on a daily closing basis.

    [​IMG]
    The GBP index is unchanged as the newsflows of Brexit goes in recess and markets go in standby mode ahead of the ECB. The index is currently consolidating at a major macro resistance area keeping a bullish outlook as it maintains its quote above the baseline but be aware that trading the Pound long into this block of offers depicted by the index is risky. As noted in earlier notes this week, the aggregate tick volume heading into this major resistance has been fairly poor, which makes the prospects of a breakout prior to a pullback a rather questionable outcome to expect based on my decade-long observation of this pattern.

    [​IMG]
    The USD index, as followers of my research know, has given us preemptive tips of caving out a potential bottom at an area that I consider to be of great technical value as it retests the previous swing low of a movement that led to a successful rotation. Should this area be violated, it would damage the structure of the index, but as long as bulls keep control, even if the baseline that delimits my official directional bias has not been re-taken yet, it makes me overall very suspicious that a resumption of the USD bull trend could be a matter of days now. The overall tick volume activity has been rather low, and understandably so, as the larger capital is sidelined until the ECB.

    [​IMG]
    The CAD index is definitely at a very interesting juncture, not yet finding the overarching commitment to accept a valuation above its previous trend high. The index did see an early Wed breakout but failed to gather steam, leading to a retracement back to the previous swing high now turned support, which so far is acting as a support for buyers to reinstate positions, which is what one would expect if following this hybrid sentiment index. The overall outlook is bullish as price exchanges hands above the baseline, while the location to participate in longs is also quite attractive as the index is within less than 1x ATR from the baseline.

    [​IMG]
    The NZD index has been capped for over a week by the same level of resistance, disallowing further gains and providing intraday short scalping opportunities in overbought Kiwi conditions. The area is being retested once again in Asian this Thursday as the positive sentiment resurfaces on the back of the delay in US tariffs to China by Trump. The outlook for the currency remains positive with no technical evidence to shift this stance when analyzing the daily.

    [​IMG]
    The AUD index keeps making further strides in what would be the 11th day of gains in a row if the currency ends in the green. The index stopped in its tracks at the area of macro resistance as per July 10th low, but the latest tweet by Trump delaying the tariffs to China has led to algo activity returning during a thin-liquidity period, further propelling the Aussie. As I’ve stated throughout the week, this is a market congruent to be traded by momentum strategies but awfully expensive if you are interested in finding value trades from a swing trading standpoint.

    [​IMG]
    The JPY index is as bearish as it gets, with another 0.75% of losses projected until the currency finds stronger bids at a key level of support as per the double top in June this year. The index is on its way to accumulating 7 days of losses in a row in line with thriving risk appetite dynamics. When last week’s quadfecta of positive news were known, I mentioned the market was facing the risk of a major readjustment in the pricing of risk assets due to the macro implications it had, and so far, the one-way street movements is proving this protracted supply imbalance to prove a fairly good hint for those looking to deploy momentum-based strategies. But again, if you are after a good pricing to sell the Yen in the higher timeframes, those levels are gone.

    [​IMG]
    The CHF index shows no signs of reversing the negative technicals, with an additional 0.5% of losses in store until the 100% proj target is met, where I’d expect a stronger bidding pressure. Following 3 days of plummeting in its valuation, the Swissy has found a bit of a respite in the last two days, but the area is bouncing off is not technically significant yet. My outlook for the Swissy remains to sell strengths even if today’s performance will be much more dependable than usual to the fundamentals surrounding the EUR and the indirect impact of flows into the CHF.

    [​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
     
  4. IvanGlobalPrime

    IvanGlobalPrime Private

    Joined:
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    Find my latest market thoughts

    ECB Underwhelms Calls, EUR Overwhelms Sellers


    The EUR index has surged ferociously off its fresh yearly low after a +1.3% U-turn as the decision by the ECB underwhelmed market participants even if took a while for the market to react, first cleaning out all the weak-handed long-players before the snap back up.

    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

    Draghi underwhelmed in the delivery of the ECB easing package, leading to (eventually) sellers being overwhelmed by the buy-side pressure. In the end, even if this time the cleanout of weak-handed longs went deeper than the last ECB disappointing meeting on July 25th, it was Deja Vu all over again (sell the rumor, buy the fact), as the market could not justify such a depressed EUR valuation after the ECB did the bare minimum to satisfy the overly dovish expectations, judging by the EUR behavior in recent weeks. The Swissy, this time detached from the shackles of its over-dependence in 'risk-on' flows, manage to find buying interest as it piggybacked the EUR from the distance. Surprisingly, and probably a testament of how over-extended these markets are, the AUD, NZD, CAD all pared back gains after the ECB even if bond yields and equities continue to rise in tandem as the US and China keep sweeting the risk appetite with a more constructive tone in the latest headlines. The USD continues to trade steadily when crosschecking its performance against G8 FX (not against the EUR as a standalone view), while the JPY sellers remain in the pain cave with not yet an end in sight. Lastly, the Sterling keeps behaving as one of the most unexciting currencies to get involved in as the flow of Brexit news peters out due to the UK parliament suspension.

    [​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.

    ECB does the bare minimum expected: The ECB decision underwhelmed the market expectations, eventually leading to ‘sell the rumor buy the fact’ type of move in the Euro, which ends as the top performer. The cut in the deposit rate by 10 basis points to -0.50%, a ‘tiered’ negative deposit, the reintroduction of QE by an amount of €20 billion as from 1 Nov and the extension of the TLRO maturity from 2 to 3 years, was the least one could have expected and certainly not the bold action necessary to keep the selling pressure in the Euro. ECB President Draghi expressed a commitment to keep QE open-ended until inflation “robustly converges to a level sufficiently close to, but below 2%.” Given the bleak outlook for the European inflation, where the latest CPI forecasts were downgraded to 1.2% in 2019, 1% in 2020 and 1.4% in 2021, QE seems to be here to stay.

    Notable split in the ECB decision: A EUR bullish headline made its way through the US session after Bloomberg revealed that the ECB decision was a very disputed one as the central banks governors of France, Germany, the Netherlands, Estonia, and Austria alongside two Executive Broad members (Sabine Lautenschlaeger and Benoit Coeure) felt the launch of QE was premature and patience was warranted until a sharper Eurozone economic slowdown.

    Time for fiscal collaboration to the rescue: Besides, the fact that Draghi mentioned “fiscal policy should become the main policy instrument” is an admission that the set of policy tools by the ECB is rapidly exhausting and is time for a much stronger coordination between the fiscal and monetary policy agents to bolster growth, which is a message also emphasized by the incoming new ECB President Lagarde.

    Case for Fed's strong easing decreases: The US core CPI came slightly better-than-expected at 0.3% vs 0.2% expected, which raises further questions about the justification by the Fed to be aggressive in cutting rates. The Fedwatch tool by the CME is now pricing an 89% chance that the Central Bank will slash its benchmark rate by 25bp, with an 11% pricing that the Fed will stand pat. The trend in the future rates curve is clearly in recess ever since the kickback in risk appetite last week.

    Change of heart in Trump's trade approach? A report by Bloomberg that the US is strongly considering a rethink over China tariffs ahead of the next senior-level round of trade talks in early Oct is a factor that keeps risk underpinned. In exchange, China should show a willingness to address the IP issues and greater amounts of agricultural purchases, according to ‘five people familiar with the matter’. Even Trump tweeted “It is expected that China will be buying large amounts of our agricultural products!” Bloomberg notes that Trump is yet to sign off on the deal, which would be seen as a truce rather than an overarching deal that puts all the issues to bed.

    A resurrection of the old trade deal? A helping hand in the risk buoyancy came courtesy of a Politico report, titled ‘Trump team rushes to find escape hatch for China tariffs’, stating that "Trump's top advisers are rushing to find an escape hatch for a series of tariff increases in the coming months, worried about the potential for further economic damage.” Many of the president's top economic officials, according to the report, “are trying to resurrect the terms they previously were negotiating with China, a deal 90% done."

    Gestures of goodwill by both sides? The WSJ also carries an encouraging report about “China looking to narrow the scope of its negotiations to only trade matters” as a return gesture of goodwill after Trump delayed the imposition of another round of tariffs last night from Oct 1 to Oct 15. "Chinese negotiators are making plans to boost purchases of U.S. agricultural products, giving American companies greater access to China's market and bolstering intellectual-property protections, these people said." These continue to be the right sound bites.

    Fitch report a potential red line for Trump: A report by Fitch warns of the impact that Chinese tariffs are having on US agriculture, which should act as a factor that contributes to a possible relaxation in Trump’s hard-line stance against China, as the last thing he wants is to see US farmers suffer further hardships by the tariffs. Fitch notes that “Chinese tariffs on US agricultural imports escalate trade-related risks to US farm sector, which is experiencing falling sales and land values,'' adding that the “ongoing trade wars impact equipment loan, lease ABS collateral performance and place greater pressure on already stressed US agricultural sector.”

    Leaked report hints EU agrees on Brexit delay: While hardly surprising, Business Insider seems to have had access to a leaked resolution in which it was determined that the EU will grant another Brexit extension if no deal reached by Oct 31. The report notes “the resolution is due to be approved by members of European Parliament next week”, adding that “the members will also support a fresh Brexit delay to create time for a general election or a referendum, the resolution says.”

    Hungary to throw a lifeline to UK PM Johnson? According to a Bloomberg report, the EU fears Johnson is plotting to persuade Hungary to veto a Brexit delay. If the noise around the Hungary assisting Johnson's plot to force the UK out of the EU with or without a deal increases, as the article notes, "it would dramatically raise the risk that Britain will fall out of the European Union without a deal", which ironically would make the EU more flexible to find creative ways to solve the sticking point of the Irish border. As Bloomberg notes, "EU officials privately acknowledge they could do little to stop a rebel leader wielding their veto." Remember, all 27 EU nations must approve a Brexit delay.

    OPEC+ reinforces the commitment to output cuts: After Thursday’s meeting by OPEC+ members, the official statement read that “it is important for all countries to reach full conformity with output cuts,'' adding that “non-compliant countries have pledged to achieve 100% compliance.” The problem is that what in theory sounds like a positive headline, is much harder to get implemented as the mechanisms of enforcement are fairly limited given the sovereignty decision of each nation based on their best interests.

    US retail sales, consumer confidence up next: The next key events before the end of the week, expected to inject vol in the USD, come in the form of the US retail sales and the preliminary University of Michigan consumer sentiment. The former is seen much lower than its previous reading while the latter is expected to print healthy levels above its previous month, according to economists’ median forecasts.

    CBRT cuts aggressively, TRY bought: The Turkish Central Bank announced a large cut of its one-week repo rate to 16.50% from 19.75%, which is slightly above expectations between 250-300 bps. The Turkish Lira appreciated in a "buy the rumour, sell the fact" move. The Central Bank rationalized its decision based on the decreasing inflationary pressure in the country.

    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 has surged ferociously off its fresh yearly low after a +1.3% U-turn as the decision by the ECB underwhelmed market participants even if took a while for the market to react, first cleaning out all the weak-handed long-players before the snap back up. The index has now broken the baseline but there are significant risks that the bullish momentum may peter out at the current levels due to two main factors. Firstly, you usually tend to see a pullback of sorts after such an elongated one-day rise. Secondly, the index is now trading straight into a proven area of resistance as per the horizontal line drawn.

    The GBP index has entered a low volatility period as the Brexit newsflows gets thinner since the UK parliament prorogation until Oct 14. Nothing has really changed technically speaking, with the currency deprived of further gains by a macro level of resistance as per the Dec ‘18 lows & July 25-26 peak. The overall outlook for the Pound continues to be rather bullish even if the short-term behavior is not revealing what the market intentions are. The fact that we’ve seen over a week of consolidation along the resistance borderline implies that further buying pressure is being applied to the sitting offers, which suggests growing risks of an upside breakout.

    The USD index has been rejected above the baseline (13d ema) after a first quick look, but it’s far from suggesting sellers are set to return for now. A bit of a jolt in vol should be expected in today’s US retail sales and consumer sentiment data, with the technical risks, judging by the structure of the market, still skewed towards further appreciation even if that’s not yet confirmed by what I’d like to see, which is a solid close above the baseline with a pickup in aggregate tick volume. Touching on the structure, it’s worth emphasizing that any bullish successful rotation as seen in the index through late August followed by a retest of the low tends to attract value-seeking interest. Note, the fisher transform has also turned its slope bullish, while further attempts higher by the USD would also confirm the CCI above 0 for further validation of long positions. Again, this is just a technical projection with no actual price backup.

    The CAD index keeps rolling back some of its recent gains as it tests a very relevant area of support where demand should arise given the confluence found. The valuation of the index has landed at the intersection of the baseline, which marries with a horizontal level of support and the origin of the demand that led to the latest surge in price. All in all, it looks like a great area for the CAD buyers to regroup at a value area. Fundamentally, the index should remain buoyed by both the recent domestic data and the ‘risk-on’ outlook in the market.

    The AUD index has been rejected off a key level of macro resistance, with the printing of a sizeable upper shadow a warning sign that the bullish momentum is starting to wane. Under such a bullish momentum, I’d probably rule out the candle pattern as too relevant, but given that it’s occurred at a key technical level, it definitely holds more weight as it clearly communicates that the selling interest at such a macro-hot level is there. The overall outlook for the Aussie, which has been flying for more than 10 days in a row, remains backed up by the risk appetite mode, which is why playing shorts still remains a very dangerous proposition. If anything, the bearish candle pattern should be a warning to be more nimble in taking further profits off the table on evidence that the bullish inertia might be changing.

    The NZD index has also rejected an area where an origin of strong supply took place, resulting in the printing of a sizeable bearish candle with a large upper shadow. The fact that the formation occurs at a critical supply area is significant as it translates into a clear rejection of higher levels, even if there is still not enough justification to be overly bearish on the index, especially on the positive news emanating out of the US-China about the trade talks. The fisher transform nor the CCI are not confirming the bearishness of this market either, although the aggregate tick volume does send the right message for sellers as the participation level went up.

    The JPY index continues its path lower with the room for further depreciation before making contact with a critical macro support is narrowing, now about 0.5% from being tested approx. The Yen is on track to print its 8th losing day in a row, in what’s an unambiguous testament of the change in heart by the market as renewed hope exists of progress in global fundamentals short term after the barrage of positive news on Brexit, US-China trade, HK, Italy… To close the week, unless the JPY loses that extra -0.5%, I would expect a sell on rallies play today.

    The CHF index has detached itself from a risk-sensitive play to instead piggyback the performance of the EUR, which tends to be a normal occurrence when the ECB meets. Technically, there is no evidence that suggests the currency won’t keep selling off as the main play the higher it goes, with a retest of the baseline ahead of a key line of resistance as the next attractive areas to engage in short-side business. Since the current pullback panned out is still not initiated off the perceived 100% proj target, I personally think the market has not yet hit its deepest pain point before a rethink of the daily directional bias. The risk dynamics are also not supportive of the Swissy in the short-term, which should weigh in the index.

    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:
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    Likes Received:
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    Find my latest market thoughts

    Oil Special: Saudi Attack Disrupts Forex Flows


    Crude Oil has gone ballistic higher after the unprecedented implications of the multiple Houthi rebel-claimed drone attacks to the world’s biggest crude production facility in Abqaiq and Saudi Arabia’s second-biggest production facility in Khurais. The immediate pattern during Intermarket hours has been quite predictable, with the Canadian Dollar, the Norwegian Krone and the Yen bought strongly.

    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

    Traders are waking up this Monday to an 'eye-popping' move in the price of Oil, with Brent Crude up over 20% soon after the open, following the unprecedented accuracy in an attacked perpetrated in multiple Saudi Oil refinery facilities, claimed by Houthi rebel from Yemen. The attack happened in the world’s biggest crude production facility in Abqaiq and Saudi Arabia’s second-biggest production facility in Khurais. The ramifications were felt throughout the marketplace, from currencies to stocks and bonds. The immediate pattern during Intermarket hours has been quite predictable, with the Canadian Dollar, the Norwegian Krone and the Yen bought strongly. The first two on the basis of its strong correlation with Oil as one of the largest exporting nations, while the Yen gets a bid as the geopolitical risks are heightened as the US points its finger to Iran. In terms of the main losers, the Oceanic currencies AUD, NZD were hit due to the increase in risk aversion, with the Turkish lira and Indian rupee especially fragile due to the nations’ profile as heavily dependable on Oil imports. The key topic of discussion that the market is seeking out answers for is the length of the disruption before full capacity is back on track. Will it be just a matter of days, weeks, or months? Obtaining clarity in this front is essential to adjust the outlook for Oil and the wider market 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 (Oil Special)

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

    Oil skyrockets at the open in Asia: Oil has opened more than 10% higher after the unprecedented implications of the multiple Houthi rebel drone attacks to the world’s biggest crude production facility in Abqaiq and Saudi Arabia’s second-biggest production facility in Khurais. Photos released by Trump administration show the extent of the weekend attack on the Saudi oil industry.

    When could the Saudis return to full capacity? While still unclear how much production has been lost, reports indicate Saudi Arabia has temporarily lost out of circulation around 5.7mb/d of oil output, which accounts for about 5% of world output. Even if the press reporting on the matter suggest most of it can be recovered within days, it may take weeks to return to full capacity.
    Insights view by Danske Bank: As Danske Bank’s Senior Analyst Jens Nærvig Pedersen notes: “Even if only a temporary output loss, we see it as a significant blow to the oil market in several ways. Firstly, the oil market is used to output disruptions, but nothing of the magnitude witnessed in Saudi Arabia over the weekend. For example, disruptions in Libya due to rebel attacks are normally 200-300kb/d. Secondly, Saudi Arabia normally holds some spare production capacity, which it can deploy when output is disrupted elsewhere in the oil market. The market knows this, which means it tends not to overreact to supply disruptions. After this weekend, the market may be more hesitant in trusting this self-stabilising mechanism. Thirdly, the market is used to geopolitical tensions in the Middle East. Besides the effect of outside sanctions, it is rare that they affect oil production. The oil market may become more averse to geopolitical news going forward.”

    Iran's involvement investigated: Saudi officials are refusing to be easily persuaded by the immediate claims that Yemen's Houthi rebels are the only ones to blame as the orchestrators of the attacks, suspicious that Iran or Iraq may also be involved. Reports speculate that cruise missiles, which according to US officials, appear to have come from a west-northwest direction, not south from Yemen, were spotted, casting doubt on Houthi claims they launched drone attack from Yemen.

    Geopolitical tensions could quickly rise: The fact that the US is pointing the finger to Iran as the responsible for the attacks invalidates the notion that the US and Iran may return back to the negotiating table anytime soon, which is what the firing of the US National Security Advisor John Bolton was partly caused by. In other words, the downward pressure on Oil based on a relaxation of the geopolitical risk between the US and Iran as one standalone factor that influences Oil supply prospects no longer holds true.

    Lenth of production recovery key: It’s important to note that exports from Saudi should not suffer any disruption this week as inventory is used up. What the market is most concerned about is evidence of a prolonged shutdown in the supply of Oil due to the damage to the production facilities. According to Goldman Sachs Energy Research, the price of Oil will be based on how long it may take for the production to be resumed. Brent oil may trade $3 to $5 higher if the shutdown time is less than a week, up $5 to $14 if the shutdown is longer, 2 to 6 weeks. If the shut down of production is more than 6 weeks, the price may trade over $75 with shale oil production getting a big boost.

    The effect in FX felt via Oil & Risk currencies: The immediate repercussion in the forex market has seen the Canadian Dollar, Norwegian Krone and the Yen bought strongly during the interbank operations ahead of the retail open. The CAD, NOK boost came as a result of the correlation with the energy instrument while the Yen gets a bid as the geopolitical risks of a confrontation between the US/Saudi Arabia and the responsibility for the attacks rises, especially if the eventual findings point at Iran as the mastermind. If the perception of a higher geopolitical risk premium is needed, JPY, CHF should stay bid. In terms of the main losers, the Oceanic currencies AUD, NZD were hit due to the increase in risk aversion, and even to a greater extent, losses were seen in the Turkish lira and Indian rupee due to the nations’ profile as heavily dependable on Oil imports.

    Optimism to recover half the production this Monday: An industry expert at Energy Aspects was quoted by Bloomberg as saying Saudi Arabia will probably restore almost half the oil production lost as early as Monday but the full resumption may take weeks. In the meantime, Saudi will draw on reserves to maintain supply. Note, a large disruption in Saudi Arabia which drains most of the spare capacity from Saudi Arabia will see OPEC members coverage of any supply disruptions as limited.

    Trump ready to release Oil from the USPRS: Trump authorised, “if needed”, and yet “to-be-determined” release of oil from the U.S. Strategic Petroleum Reserve after Saudi attacks, which has helped to stabilize Oil a tad. He tweeted: “Based on the attack on Saudi Arabia, which may have an impact on oil prices, I have authorized the release of oil from the Strategic Petroleum Reserve, if needed, in a to-be-determined amount...”

    Conflicting drivers for bonds: Traders must be on the watch about how global bond yields, with the US 30-year bond dividend as the bellwether, react to the events in Saudi Arabia. There are two opposing forces at play that remains up for debate which one will override the other. On one hand, the supply disruption causes higher Oil prices, which if sustained over time, causes inflationary pressures, which is a bearish event for bonds as the premium to hold fixed-income decreases given that Central Bank’s rationale to be overly dovish is no longer justified. On the other hand, if the attacks lead to a credible rise in geopolitical risks, which contributes to keeping the macro risk-off conditions, in that case, the market will most likely seek out bonds as a protection play.

    GBP rules to rooster: The Pound has been a stellar performer in the last 24h as the market continues to price in that UK PM Boris Johnson may persuade the EU to sneak out a few compromises on the Irish border, hence raising the prospects of a deal. Boris Johnson is set to meet with EC President Juncker (his tenure ends Nov 1) for Brexit talks this Monday.

    US economic data surprises to the upside: The latest US economic data came on the bright side, as both US retail sales and US consumer sentiment exceeded the expectations economists had called for. US August advance retail sales came at +0.4% vs +0.2% expected, while the University of Michigan Sept prelim US consumer sentiment stood at 92.0 vs 90.8 expected. It adds to the case for the Fed to strike a hawkish surprise during this week’s FOMC, which is due on Wednesday. In the retail sales front, the control group retail sales are on track for an annualized rise of over 7.5%, which is very strong.

    Recent Economic Indicators & Events Ahead

    [​IMG]
    Source: Forexfactory A Dive Into The Charts
    [​IMG]

    The EUR index
    , as argued in Friday’s analysis, remains at risk of encountering setbacks on the way up due to its overextended nature but also for technical reasons. The hybrid index, which is equally weighted against a G8 FX basket, is aiming to penetrate and find acceptance above not only a critical resistance but also the third test of a descending trendline. What we saw on Friday is a head fake pattern, which may lead to the downward pressure returning even if it’s still premature as the index remains above the 13d ema baseline. Besides, the huge rejection off lower levels post the ECB is a major testament that we may have reached a meaningful bottom, which makes playing EUR shorts not the best currency to try and capitalize on.

    The GBP index is by far the most bullish currency out there, but again, the move from last Friday is way out of whack, which suggests a short-term correction is needed to attract sufficient bids to keep the trend going. What’s become clear is that the market is intensifying its conviction and hence the pricing out of a hard Brexit as the GBP price action reflects. Should the GBP return back within the region between the baseline and 1x ATR, that will definitely make it a more interesting play at fairer valuations rather than having to pay up to get exposure. Today’s meeting between UK PM and EC President Juncker is a risk event to factor in.

    The USD index is retesting a key level of support and in my opinion, which is backed by the technicals, this is a market that trades at an incredibly attractive level from a risk-reward perspective, which would essentially translate in finding the best possible USD vs G8 FX deals out there to exploit what could be a decent run-up in the currency if bids continue to be found through this level of support currently tested. The retest is also occurring in low volume, which doesn’t tend to be a great sign for an eventual breakout. As a trader, if your system can trigger a long position in the USD, I am inclined to think the current position where the currency is traded can pay good dividends. What’s more, the risk of a hawkish surprise by the Fed genuinely exists as the economic data in the US and the US-China trade war relaxes a bit.

    The CAD index sold off quite harshly out of nowhere last Friday even if the currency has now recouped over 50% of its losses driven by the staggering rise in Oil prices. Note, the rebound in the CAD comes after a rejection off a key level of support identified in the index (again). The index remains with an overall bearish outlook as the baseline was lost last Friday, but I must say that its penetration does not carry much substance as the breakout came on low tick volume, not to mention that the correlation with Oil implies upward pressure may continue short term.

    The NZD index has transitioned into bearish territory after a move that while it lacks the participation of sellers as depicted by the low tick volume (aggregate), it follows what’s still a clear downtrend structure in the price configuration. With the fisher transform turning its slope to bearish and the CCI back below 0, there are enough indications that the market may continue to struggle. Note, the onset of this renewed downward pressure came after a key level of resistance was rejected on a sizeable upper shadow candle last Thursday.

    The AUD index is rolling back from a macro level of resistance, where I warned that if the trend is going to find its first major struggle, that is the location where sitting offers will concentrate in AUD pairs vs G8 FX. The opening of Asia this Monday has seen a downgap as risk aversion picks up marginally, even if the pullback is still within the context of a strong uptrend. In the coming days until the FOMC shows us the way by being the driver to ramp up volatility, the range between the resistance line above and the baseline should cover the eventualities.

    The JPY index has found buyers during the interbank session, but let’s not forget that the index remains in a clear bearish path with no technicals backing up the current bounce on the daily. The geopolitical landscape should dominate to determine the risk mood, which will have the most impact in the pricing of bonds and the JPY as a result. I’d be very cautious to overcome in any Yen longs as the evidence to turn bullish is nowhere to be found yet.

    The CHF index,like the JPY, remains in bearish terrain but the performance of the currency has definitely been more meritorious, especially as the ECB triggered an eye-popping reaction in the EUR that dragged with it the Swiss Franc. The index is now testing a critical area of resistance as is the 13d ema baseline, where selling pressure may pick up again. Positioning to sell the currency certainly carries its fair share of appeal at these levels within the context of what I still see potentially as an unfinished bearish cycle ongoing since the 100% proj target was never reached before what I see still as an interim bounce as part of an incomplete bearish leg.

    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:
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    Find my latest market thoughts

    USD Immune To Jump In Oil As FOMC Nears


    The USD index has rebounded strongly from a key support area. The printing of a bullish outside day candle in the index breaking through the baseline on the daily with a pick up in aggregate tick volume is a sign that the uptrend may look technically ready to resume as traders prepare for the FOMC on Wed, which will act as the major driver to reassess the directional bias of the USD.

    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

    It was a very busy Monday for Oil traders as the market digested the news emanating from Saudi Arabia after suffering the sudden loss of 5.7m b/d of oil production, which marks the largest outage the market has ever seen in volume terms, surpassing the level from the Iraqi and Kuwaiti 1990 Gulf War. The CAD, NOK, but also a firm USD, were the outperformers while currencies the likes of the Euro of the Kiwi were punished the most. The market continues to be glued to any relevant update from Saudi Aramco that may clear up the key question mark to set Oil fair valuation, now heavily dependable on how fast can the Saudi restore its Oil output back to full capacity. Note, in line with the rather benign risk environment prior to the events in Saudi Arabia, do not mistake the attack as an admission that the forex environment should turn more risk-averse as the preponderance of technical evidence is not yet there, neither in equities, fixed income or in the performance of the JPY or CHF, with most of the safe-haven bids at the open of Asian markets in the latter two rapidly evaporating as the day rolled along. Currency traders will have to soon be expanding its focus as a line-up of Central Banks comes up, with most of the attention placed in the FOMC. It is precisely this high-impact event that may have helped to keep the USD bid off a critical support in the index, as the market is at risk of a less dovish forward guidance tone by the Fed amid firmer US fundamentals and the US-China trade war justifying extra patience, even if that view may now be challenged if we see an increase in geopolitical risks in the Middle East. An underpinning factor for the re-emergence of the USD buying interest is the development in the funding market, where we saw a massive jump in 3-month FRA/OIS spread (3m LIBOR vs overnight index swaps), which implies a spike in USD demand in the system.

    [​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.

    Action in Oil price not seen in a decade: Oil managed to maintain a high premium price on the aftermath of the attacks to the world’s biggest crude production facility in Abqaiq and Saudi Arabia’s second-biggest production facility in Khurais. It was the largest one day gain in a decade, that’s how relevant the news were. At one point during the Asian session, Brent Crude had jumped over 20 percent, which was a move not seen since the invasion of Kuwait in 1990.

    Largest outage the market ever suffered: As Javier Blas, Chief Energy Correspondent at Bloomberg News, illustrates in a chart via Twitter: “The sudden loss of 5.7m b/d of oil production is the single largest outage the market has ever suffered (larger in volume than the loss of Iraqi and Kuwaiti output in the 1990 Gulf War, and the loss of Iranian oil in the 1979 Islamic Revolution)”

    [​IMG]

    All fingers point at Iran: US has gathered further intelligence to validate its assumption that the oil attacks were launched by Iran, according to the WSJ, which notes “American officials say intelligence indicates that Iran was the staging ground for a debilitating attack on Saudi Arabia’s oil industry, and have shared the information with Saudi Arabia as both countries weigh retaliatory strikes”.

    Almost half the oil production back online: According to a report doing the rounds by Energy Intelligence, Saudi Arabia has resumed over 40% of its total production capacity by now and rest could be back by month-end. If this gets confirmed by official sources, which it hasn’t, it would be a negative input for Oil. "Industry sources told Energy Intelligence that 40% of the lost production had already been restored by Monday, while one source said national oil company Saudi Aramco expects most of the rest -- more than 3 million b/d -- to be brought back online by the end of September." The report adds that “Aramco would seek to keep up oil deliveries by drawing down oil it holds in storage, while also offering crude grade swaps and maximizing output from its offshore fields."

    The full extent of the damage unclear: Outside the inner circles of Saudi Aramco, nobody really knows how long it will take to restore Abqaiq’s oil output and how impactful it can be for the global oil supply. To prove this point, while the above report from Energy Intelligence speculates at a partial outage of one month, there are conflicting reports out there that note Saudi Aramco's full return to normal oil production volumes 'may take months', according to Reuters, citing two sources familiar with the situation.

    Pessimism around Oil output recovery:Bloomberg carried an update titled “Aramco Less Optimistic on Pace of Oil Output Recovery”, in which it cited a person with knowledge of the matter as saying that “Saudi Aramco officials are growing less optimistic that there will be a rapid recovery in oil production after the attack on the giant Abqaiq processing plant.” The key is now to find out how fast Saudi Arabia can recover from this devastating strike, either through repairs, bypasses or increasing output via its offshore fields in the Persian Gulf. As Bloomberg adds “initially, it was said that significant volumes of crude could be flowing again within days, but it may now take longer than previously thought to resume operations at the plant, the person said, asking not to be named before an official announcement."

    Brent forwards curve pricing in protracted supply disruption: Interestingly, in a comment I grabbed from Strategists at NAB, “the Brent forwards curve is suggesting prices are only likely to head back towards levels seen last Friday around August next year.” It means that so far the market is pricing in a protracted disruption in Oil supply.

    Trump shares concerns towards Iran in Twitter: Trump said “it is looking like Iran was responsible for attacks on Saudi Arabia”, adding that “he doesn't want war with anyone but the US is prepared”, which appears to be an admission that the US is likely not going to get involved in any more external war conflicts, even if during the weekend, Trump threatened a military response (“locked and loaded”) depending on who is to blame for the attacks on Saudi Arabia’s oil supply. “US has a lot of options but he's not looking at options yet” Trump added in his tweet. The increase in oil prices also accounts for a geopolitical risk premium in case Saudi Arabia retaliates militarily.

    So does the US secretary of energy... The US secretary of energy, Rick Perry, spoke in Vienna, pointing the finger at Iran as the culprits behind the attacked Saudi Oil refinery. Perry said “Iran must be held responsible” as “the attack on Saudi Arabia was an attack on the world energy system.” The headlines reinforce the notion that any recess in the Middle East tensions won’t be resolved anytime soon. The statement is congruent with a report by ABC, citing a senior Trump administration as saying that “Iran launched nearly a dozen cruise missiles” and “over 20 drones from its territory.”

    Iran plays with fire: Iran's President Rouhani is playing a dangerous game by reportedly not condemning the attack but rather state “it was a reciprocal response to aggression against Yemen.” It is up for debate if the comment was taken out of context. Nonetheless, algo activity can get easily triggered on these type of ambiguous headlines.

    NOK, CAD outperform in FX: In terms of currency performance, the equity market both in Europe and the US held up fairly well with energy and defensive sectors outperforming amid the rise in Oil and geopolitical risks. The Oil-sensitive currencies the likes of the NOK and CAD were the G10 top performers while the JPY failed to attract enough buy-side pressure in a sign safe-haven flows were rather absent.

    The USD deserves its own paragraph: The currency held very firm despite the correlation against a rising Oil tends to be negative as the chart below shows. However, there are quite a few moving pieces this week, most notably the building of expectations that the FOMC may strike a less dovish forward guidance tone as US fundamentals and the trade war justify extra patience, even if that view may now be challenged if we see an increase in geopolitical risks in the Middle East. The implied probability of a cut continues to be 100%. There are 2 cuts left priced for this year. Another positive USD development was the jump in 3-month FRA/OIS spread (3m libor vs overnight index swaps), which implies a spike in USD demand in the system.

    [​IMG]

    The risk appetite has not gone away:
    The RORO (risk on, risk off) profile, after scanning multitude of risk-sensitive charts, remains constructive in the grand scheme of things, with the ramifications of the Saudi attack not causing much damage to sentiment. Remember, one of the overarching drivers of financial markets outside the movements in Oil remains the reduction of risk premia in safe-haven currencies due to the temporary positive narrative around US-China trade talks, the standby phase we find ourselves in Brexit, alongside a recess in HK protests and Italian political risks.

    [​IMG]

    RBA minutes skewed towards the dovish side:
    A rather dovish outcome in today's RBA minutes. There was no real surprise but rather the confirmation that the RBA is going to be lower for longer. In the last paragraph, the reference to "accumulation of additional evidence" was dropped as the Central Bank focused on international as well as domestic conditions, most of all the labor market. Its forecasts seem to imply further easing will be necessary to support growth.

    [​IMG]

    No new updates to the EU-UK Brexit deadlock:
    EC President Juncker said the Brexit talks with Johnson “were good” with familiar demands by Europe once again brought to the surface. Juncker said that “any solution must be compatible with the withdrawal agreement”, adding that there is “underlined EU willingness to examine proposals to meet objectives of backstop.” Meanwhile, it’s been reported that so far Johnson has not offered a solution or a proposal to the backstop that may help kickstart negotiations. The Johnson’s office issued a full statement about the meeting, found below:

    [​IMG]

    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, as warned in my daily notes since the aftermath of the ECB, would find it very challenging to extend its gains given the overextended nature of the move from the ECB-induced bottom to the extreme top found. The rejection occurred at a critical intersection as depicted by the 3 touches of a descending trendline, which is the region causing the EUR index to now confirming a transition into negative territory as the price breaks the baseline with a marginal increase in aggregate tick volume. Just note, the index is now sitting at an area that may attract decent bids as it coincides with a sequence of daily closes from last week.

    The GBP index has been unable to find sufficient demand after the staggering rise from last Friday, which is more often than not going to lead to an unwinding of longs before these regroup at better price levels to potentially resume the strong upside momentum. There is still significant room for the Sterling to correct lower before the currency enters what I’d consider attractive levels to re-engage in long-side exposure. Anything is possible when trading the Sterling these days as it’s become a highly sensitive currency to Brexit-related algo trading, with most of the opportunities being found intraday based on the newsflows. The fact that the GBP playbook can change in a heartbeat makes it incredibly risky to play it in long time horizons with the same level of conviction you’d have if trading other currencies where one can more easily pinpoint when the high-impact news may come about.

    The USD index has rebounded strongly from a level of support I promoted in yesterday’s note as a clear candidate to act as a technical springboard. The printing of a bullish outside day candle breaking through the baseline on the daily with a pick up in aggregate tick volume is a sign that the uptrend may look ready to resume, although an important consideration to bear in mind is the high-impact FOMC decision on Wednesday, which can easily shake out weak-handed players as it will act as a major driver to reassess the directional bias of the USD. At this point, my interpretation of the USD behavior is that the market may be starting to prepare for a hawkish rate cut by the Fed, which would be quite congruent with the recent fundamental developments.

    The CAD index is definitely holding a reinvigorated outlook courtesy of the ‘eye-popping’ rise in the price of Crude Oil. The technical picture in the chart, as a reflection of the overall sentiment in the currency, is looking more positive as the price recovered the baseline on higher tick volume despite the fact that based on the cycle maturity of the index, which is interpreted through the fisher transform indicator, it suggests a follow-through continuation right off the gates is a tall order before a possible retracement. Price doesn’t tend to go up in a straight line, but again, the Oil vol can cause this market to keep showing outlier movements near term.

    The NZD index has resumed its bearish tendencies and is looking increasingly likely that the currency will remain under pressure for the time being as there is no technical levels in the proximity to lean against for the disheartened bulls before a retest of the recent lows. Note, the circled area in the chart, which was a clear resistance level, that’s where the trend has re-initiated from after the print of a sizeable upper shadow candle. The market has certainly punished the Kiwi more than any other currency in the last quarter and is not looking good for the interest of buyers with a notable absence of technical backing.

    The AUD index keeps testing what in theory, technically speaking, should be a very tough area to crack as the resistance line reaches is very significant as per the swing low back in early July. As I’ve reiterated on several occasions, the AUD trend looks overcooked after more than 2 weeks of climbs in a row, suggesting that the maturity of its upcycle may have reached exhaustion, which one could interpret the premise as true by analyzing the tapering pattern of the aggregate tick volume with participation below the average. I wouldn’t discard a retest of the baseline before continuing into higher levels.

    The JPY index continues to trade under a bearish context with no technical evidence to get much encouragement if one is to consider longs in the safe haven currency of choice. The fact that the Saudi attack has failed to promote a higher JPY on a daily close basis, with most of the early gains in Asia evaporating by the end of the day, should be a communication of the absence of interest. Remember, this week we have the outcome of the BOJ, which is going to have an impact on the volatility of the currency, even if no fireworks are expected from the central bank. Overall, the outlook for the JPY looks quite bearish in the short term.

    The CHF index found an excess of supply off the reliable daily baseline level, with the index rejecting the level quite sharply. I’ve been projecting lower levels in the CHF predicated on the fact that the ongoing down leg has not yet reaches its full 100% expected extension. This assumption will continue to hold true until there is a violation of the bearish structure, which so far is not the case, hence why I continue to endorse the short bias as the base case here. A retake of the baseline to the upside will be a warning sign that will undermine the technicals, although it will have to be assessed from a holistic standpoint, looking at volume, indicators and fundamentals. Note, the SNB also meets this week, which will influence the CHF trading.

    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:
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    Likes Received:
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    Find my latest market thoughts

    FOMC Up Next As Oil Takes A Hit


    Oil has retraced sharply by more than 7% after Saudi Arabia’s full oil production capacity is expected to be restored within 2-3 weeks. The FOMC will now command the market’s attention, with the possibility of a 25bp rate cut around 85%. Interestingly, both high-beta and the risk-sensitive currencies lost value in absolute terms in the indices, with the European currencies taking up the slack.

    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 price of Oil adjusts lower on the appeasing words by the Saudi Arabia energy minister that the Kingdom is set to return to full oil production capacity within 2-3 weeks, the market is in the transition period to accommodate and expand its focal point to the FOMC. The market sees the possibility of a 25bp rate cut as almost baked in the cake, even if Chair Powell has definitely earned time to take it easy as the US economic data has firmed up and the expectations for another US-China trade truce build up. Ironically, with a squeeze in the short-term USD funding market as the spike in the repo rate reflects (shortage of USD supply), which has caused the Fed to step up by injecting liquidity into the system, there is even talk that given how tight the liquidity pool is to have sufficient USD liquidity in the system, considerations may be given to a light return of QE. Interestingly, it was a day when both the high-beta and the risk-sensitive currencies lost value in absolute terms in the indices, with the European currencies taking up the slack of gains. The CAD felt the damage of a falling Oil, as did the AUD to a dovish RBA minutes outcome. The NZD appears to be playing more catch up with the AUD here. The JPY and CHF were not in high demand as the risk appetite remains supportive, especially in equities even if no backing from global bond yields in the last couple of day.The GBP and the EUR can be found on the other side of the spectrum as said, both rising with conviction, while the USD loses its shine a bit ahead of the Fed verdict on policy.

    [​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.

    Oil prices out protracted Saudi disruption: Oil has retraced sharply by more than 7% after Saudi Arabia’s full oil production capacity is expected to be restored within 2-3 weeks. Reuters front-run a story about oil production in Saudi Arabia back online at full capacity by the turn of the month, which was later confirmed by Saudi Energy Minister Salman, noting that production will reach 11m barrels per day by the end of September and full capacity of 12m barrels will be restored by the end of October.

    Geopolitical tensions remain high: The US appears to have identified the exact locations in Iran from where the aggression via a joint attack of drones and missiles took place. VP Pence said the US military is ready after Saudi oil attacks and that the US is ready to defend their interests and that of the US allies. The VP said the best course of action is being assessed in the days ahead. Due to the escalation in geopolitical tensions, it justifies that Oil still carries a higher risk premium.

    Spike in the repo market: An important event occurred in the repo market where rates spiked as high as 10% from just under 4% at the open, which forced the Fed to take action by providing around $53bn in additional liquidity via the overnight system repo. It’s the first time in a decade the Fed intervenes in the repo market, with another operation scheduled for Wednesday capped at $75b. There is a myriad of reasons that may have caused the spike in the short-term dollar funding market, from corporate debt issuance, quarterly tax payments, low reserve levels in the banking system, or even the Saudis pulling cash out of US markets to support their economy.

    The FOMC to command the market’s attention: The market sees the possibility of a 25bp rate cut around 85%, with even some talk of a light return of QE given the issues with liquidity given the tightness in the Fed funds rate market. Another key focus will be the dot plot and obviously the type of rhetoric by Chair Powell in the press conference to get an update on whether the Fed still sees the cuts as part of a mid-cycle adjustment or a more long-lasting easing cycle.

    US data prints solid numbers: Despite the US economic data published was of a second-tier nature, it reinforced the notion that the US economy remains in a firm footing outside the manufacturing sector. The US Industrial Production came stronger than expected in August at +0.6% m/m vs 0.2% expected. The NAHB housing market index also came on the bright side with a print of 68 vs 66, including an upward revision to 67 in the prior release.

    German ZEW not getting worse for now: In Germany, the ZEW survey came better than expected with the expectations component at -22.5 vs -38.0 expected, even if it must be read from a negative context. As Morgan Stanley’s Economist Markus Guetschow notes: “Current conditions continued to drop to a new post-crisis low. Industrial weakness is increasingly felt in the labor market, as the economy prepares to enter a technical recession in 3Q. The Ifo business climate is expected to fall further.”

    RBA minutes imply the risk of near-term cut: The Australian Dollar was sold after the RBA minutes came more dovish than expected. While there was no real surprise but rather the confirmation that the RBA is going to be lower for longer. In the last paragraph, the reference to "accumulation of additional evidence" was dropped as the Central Bank focused on international as well as domestic conditions, most of all the labor market. Its forecasts seem to imply further easing will be necessary to support growth.

    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 managed to lean against a relevant level of daily support from which a fresh buy-side campaign was initiated to fully rotate the price and find acceptance through a critical level of resistance while cutting through the baseline with increased aggregate tick volume. The prospects to see follow through demand are on the rise with potentially as much as 0.8% of compounded gains in the index available to be exploited in the coming days.

    The GBP index keeps pressing higher way above the upper end of the dynamic 1-time ATR as measured from the baseline (13d ema), which essentially means that this is a market still fully dominated by momentum strategies but far from providing any value for swing traders. Entering blindfoldedly into longs at these levels can, more often than not, be a rather suicidal strategy unless one clearly aims to exploit gains in the very short term or else, a trader is better off to have the patience necessary to wait for a meaningful retracement first. What’s more, the index has now reached its 100% proj target, which makes playing longs, unless charged by fresh positive Brexit headlines, a very dangerous proposition to embark on.

    The USD index looks rather bullish in its technical outlook as the initiation of a buy campaign off a key level of support outlined through the week continues to play its course. Note, the FOMC will cause a major injection of vol later today, which will make the near-by technical levels fairly irrelevant as liquidity is pulled out of the USD pairs around the even, which is what causes the oversized movements during the time that the FOMC updates the market on its rate decision and at the time of Chair Powell speaking to the press right afterward. Traders will have to reassess the stance in the USD after the dust settles post FOMC to gain more clarity.

    The CAD index has been knocked down as this week’s main proxy of the mayhem experienced in Oil, with the latest sharp correction in the energy instrument dragging with it the index. The behaviour of the currency index in the last 24h holds sufficient technical relevance to make me think that further downside is available, even if part of today’s directional bias in the CAD will be determined by the release of this month’s inflation data in Canada. For the technical type traders, continue to follow Oil + Canada’s CPI today to stay in tune with the main drivers.

    The NZD index continues to show clear bearish tendencies as the chart is about to rest its previous trend low in what would then confirm a successful rotation. It will be critical to understanding if sellers have sufficient gas in the tank to find acceptance into fresh yearly lows. There is 0 technical evidence to be a buyer of the NZD until the index tests the next support level, which is just a stone’s throw from the current level. Once/if the price lands at this support, traders may start to consider longs NZD should one’s system trigger an entry, but beware the trade would certainly be a rather risky proposition judging by the bearish context.

    The AUD index keeps rolling over from what’s been emphasized since last week as a critical level of horizontal macro resistance in the chart. The inertia of price action after a double failure to break the mentioned resistance appears to be a price en route to test the baseline, which allows for 0.30-0.4% worth of losses in the next 24h before more impetus from the buy-side. The fundamental landscape for the Aussie has also worsened after the dovish RBA minutes.

    The JPY index keeps its bearish dynamics intact even if some bullish price action may not be far once the macro support as highlighted in red in the index chart is tested. It essentially still allows for about a negative performance of about 0.2% before a potential reversal. Note, we get the BOJ monetary policy decision on Thursday Asian morning, which is going to influence the price action with chatter on the rise that the Bank must step up its efforts to stimulate inflation.

    The CHF indexis another chart that, like the JPY, shows bearish price action well below the baseline, which was precisely the critical point where CHF longs eventually pivoted away from the currency right on the aftermath of the ECB only to see the underlying bear trend resume. There is still some more room before the index makes it into a confluent structural area of support represented by the 100% proj target and the midpoint of the last successful rotation.

    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

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    Find my latest market thoughts

    USD In Demand After Fed Hawkish Cut


    The Fed cut rates by 25bp to provide “insurance against the external risks” in the words of Chairman Powell, but didn’t sound committed to extend its rate-cutting campaign any further at this stage. It therefore was characterized by most analysts as a hawkish cut, since it did effectively lower the benchmark rate range but the statement contained hawkish connotations.

    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 USD is trading higher as the FOMC validates my assumption of improving US economic data coupled with a tentative US-China trade truce in Oct acting as sufficiently convincing arguments to take the foot off the pedal, in other words, no longer committing/hinting to further rate cuts this year. This makes the disconnect between the median dots plot and the market expectations rather pronounced, with one more rate cut fully priced by the end of 2019 with the disparity only widening into 2020 and beyond. The JPY joins the USD as one of the main beneficiaries of the post FOMC contained volatility we've seen, with all eyes on the BOJ presser by Kuroda after an unchanged policy decision today. The GBP also continues its ascend, really defying gravity here as the market keeps pricing out the risks of a disorderly Brexit. The EUR and CHF had a mixed-bag day. The main losers include the AUD, knocked down after a poor reading in the Australian employment report (RBA rate cut calls on the rise), the NZD has also been trading on the back foot with the market not buying into a modest recovery in the NZ GDP release a few hours ago, while the CAD is also a tad lower, mainly dragged by lower Oil prices.

    [​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.

    Fed goes for a hawkish-type cut: The Fed cut rates by 25bp to provide “insurance against the external risks” in the words of Chairman Powell, but didn’t sound committed to extend its rate-cutting campaign any further at this stage. It therefore was characterized by most analysts as a hawkish cut, since it did effectively lower the benchmark rate range but the statement contained hawkish connotations.

    Disconnect between dots plot & market expectations: The 2019 dots plot chart suggests the Fed is comfortable being sidelined without the need for further rate cuts this year, which is still in disconnect with the 100% odds the market is discounting for another rate cut before the turn of the year. The median consensus by the Fed, as depicted by the dots plot, sees the Fed Funds rate at the current level until the end of 2020, followed by a modest tightening in 2021. However, under the market perspective, 2020 still carries the risk of 62bp worth of cuts to the fed funds rate, with this mismatch only expanding to as much as 90bp or almost 4 rate cuts vs the Fed median forecast in 2021. It’s also worth noting the significant disparity in the dots plot, which implies growing opposing views by Fed members.

    [​IMG]

    Powell ready to adapt as needed along the way:
    But as usual, during the press conference, Chairman Powell didn’t close the door to make further adjustments on the go if the conditions do require to do so, even if the base case is anchored around a constructive view towards the economic outlook, predicated on the fact that the economic projections were barely revised, coupled with recently solid US data. Chair Powell’s stressed that if “the economy weakens, more extensive cuts may be needed.”

    All options on the table going forward: The ambiguity of the message the Fed intends to portray in order to keep a fair share of leverage and don’t rule out any options down the road was clearly manifested in one of the paragraphs of the statement -> “ The Committee views a sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2% objective as the most likely outcomes”, while highlighting that this view does risk being altered as “uncertainties” remain due to trade wars and low inflation.

    IOER cut to stabilize effective Fed Funds: After the drama in the USD funding market, the Fed also lowered the excess reserve rate (IOER) by 30bps to 1.80% in order to stabilize the effective Fed Funds rate in its predetermined range. This move will help to subdue volatility in the USD money markets near term one would think.

    Data dependency critical from now on: During the press conference, what was most revealing about the Fed’s stance and more specifically, Powell’s position at this point in time, was that this easing period is still considered to be as part of a mid-cycle policy adjustment but conditional to the economy staying on course, or else more rate cuts will be warranted. When asked the specific question of whether or not the FOMC still had an easing bias, Powell said, “We don't”, noting it will be data dependent.

    Trump keeps attacking Powell over and over... After the press conference, Trump referred to Powell as someone with no guts, no sense, no vision, adding that he is a terrible communicator! Do not forget, as the Presidential race in 2020 looms near, Trump will do whatever he can within his power to keep the economy afloat, which means the more accommodation monetary policy is, the better…

    Oil keeps retracing over sized gains as Geo-risks decrease: On the geopolitical front, a contentious topic to monitor is whether or not military action will be needed to counter-attack the aggression that Saudi Arabia suffered in its oil facilities. On Trump's camp, he will stay away from engaging in any conflict for now, noting instead he has instructed the Treasury to substantially increase Iran sanctions. The announcement is an Oil negative as it reduced the risk premium on less likelihood of a war. It remains to be seen whether or not Saudi Arabia will strike back as a retaliation.

    Canadian CPI bang on expectations: Canada’s August CPI came in line with expectations at +1.9% y/y. By analyzing the sub-components of the report, with gasoline a key drag even if all signs point to a rebound in inflation in the months to come after the spike in Crude Oil we’ve seen recently.

    The Australian jobs disappoint, RBA rate cut looms: The employment change came at a decent +34.7K vs 15K expected, but that was about it. From there, it went downhill with the unemployment rate missing expectations at 5.3% vs 5.2% exp, but even worse, the full time employment change was -15.5K, with part-time taking up the slack with a gain of+50.2K. The participation rate stood at a record high of 66.2%, which was a strong number to offset a bit the negative results.
    The NZ GDP cements RBNZ rate cut calls: Analysts are looking for further rate cuts by the RBNZ after the modest recovery in NZ GDP for Q2. According to ASB, "growth in New Zealand remained uneven, with the services sector and agriculture keeping the economy afloat. This period of sluggish performance is set to continue, and we expect growing spare capacity will see the RBNZ cut the OCR again in November."FOMC Comparison Statement

    [​IMG]

    Recent Economic Indicators & Events Ahead

    [​IMG]

    Source: Forexfactory

    A Dive Into The Charts

    [​IMG]

    The EUR index
    keeps pressing into higher territory in the early hours of Thursday in Asia, with the overall technical stance certainly more constructive. The index trades comfortably above its 13d ema (baseline) with both the fisher transform and the CCI as the key indicator to guide us as a backing in assessing the structure of the market having turned bullish. However, the index is facing a key supply level overhead (already rejected twice) in the form of the origin of a major supply imbalance back in August 30th. Note, the more tests of the level, the more buyers will be absorbing the sitting offers in EUR pairs, with this upcoming 3rd test potentially being the one that may see an eventual breakout, in which case, there is over 0.6% of average gains EUR buyers may capitalize on as we move into the last week of September.

    The GBP index has overshot the 100% proj target but the failure to sustain gains above the critical reversal area does still validate the technical rationale for a market that is looking awfully expensive in the very short term. As I’ve warned, it does take some guts to take the plunge and keep buying the Sterling at these hefty prices unless you are deploying some type of momentum strategy that gets you in and out of the market for quick scalps or intraday swings. The tapering of aggregate tick volume into the 100% proj target reinforces this notion of the risky nature of buying the Pounds at these levels as the appeal to load longs diminishes. Gravity continues to be defied but make no mistake, these are not healthy levels to gain mid-term long exposure.

    The USD index has confirmed a technical bullish breakout with the suite of indicators (fisher and CCI) confirming the conducive structure of the market as viable to engage in longs. The aggregate tick volume is not high enough for my likes to be fully committed but let’s face it, the market had marked time ahead of the end of day FOMC, which is why there will always be lighter tick volume. That said, the close near the highs of the day is a testament that the market is finding acceptance above a critical level of resistance, setting up the stage for the index to be, sooner or later, en route to retests its trend highs. This views marries well with the rather bullish outcome from the FOMC as no hints were given for further rate cuts this year.

    The CAD index continues to look rather bearish for the next 24h as buyers failed to break and hold above the 13d ema (baseline) as Oil keeps giving back gains as there seems to be no signs of an immediate strike against Iran by Saudi Arabia in retaliation for the attacks. The index shows the suite of indicators (fisher and CCI) in bearish territory, confirming the rather gloomy technical picture. The index now faces over 0.3% of potential room before the next support.

    The NZD index is unambiguously bearish but note that a level of support has now been reached where buyers showed up with impetus the last time. As I stressed in yesterday’s note, it will be critical to now judge the strength of sellers to find acceptance into fresh yearly lows. There is 0 technical evidence to be a buyer of the NZD until the index tests the next support level. If you are a reversal to the mean type of trader, there is always some merit in buying off support as would be the case here in the NZD should one’s system trigger an entry, just beware the trade would certainly be a rather risky proposition judging by the bearish context.

    The AUD index keeps rolling over from its level of macro resistance, not only retesting the baseline, but now convincingly broken after a miss in the Australian jobs number. What this means is that the RBA may have to flex its muscle with another near-term rate cut, which would be very much in line with the more dovish RBA minutes outcome from Tuesday. It’d give the Aussie another 0.3% worth of declines before it encounters major buying interest at the next macro support level as per the multiple rejections it experienced through Aug highs.

    The JPY index has found buying interest after the FOMC but so far continues to experience difficulties to chew through a key confluent level of resistance which aligns with a previous swing low in the index alongside a retest of the daily baseline. What this means is that the outlook remains bearish in the daily, with the CCI still well below the 0 level, which essentially communicates that the average price in the last 20 candles is still negative, indirectly revealing that the structure of this market remains firmly anchored towards bearish tendencies. Note, this would potentially be a meaningful reversal point to bid up the JPY as it occurs at a critical location (retests of the previous swing high from mid June). The BoJ is out today.

    The CHF index remains vulnerable to further downside pressure judging by the location in the chart, which unlike the pricing of the JPY index, is yet to reach an area that I’d consider significant enough for buyers to return. We are not far though, by my calculations, an additional loss of value to the tune of 0.3% on aggregate vs G8 FX (represented by the index) is what’s left in terms of technical room before the 100% proj target is met, which will be a time to re-evaluate the prospects in the CHF. We have the SNB policy meeting today, don’t forget.

    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:
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    Find my latest market thoughts

    GBP Winner In A Central Banks-Charged Week


    The Sterling, the Yen, and the Swiss Franc were the big winners as volatility picked up across the board in response to the latest Central Bank decisions by the BoE (overruled by Brexit), the BOJ and the SNB respectively. The NZD and the AUD looks under the cosh as the market prices in further rate cuts by the RBA and the RBNZ. The USD still looks rather attractive...

    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 is hands down the currency running away from the FX pack in an upside direction, while the opposite is true about the New Zealand Dollar. The rest of currencies indices, when crosschecking its performance against a basket of G8 FX, are still sandwiched in rather compressed ranges, with the exception of the Aussie, as sellers start to make further strides after the conviction of another rate cut by the RBA in October gets priced into the Oceanic currency. The USD continues to show a benign technical picture in the index, which should bode well for the currency next week as the market readjusts the neutral policy stance by the Fed as the current base case. The EUR is also showing its most combatant side with further demand found in the European session but unable to be sustained through the North American trade. The CAD has been treading water for the past few days with very limited volatility in its index, while both the CHF and JPY exhibit strength after the market perceives the latest policy calls by the SNB and the BOJ as falling short of the easing expectation built ahead of the events. As a result, both currencies were boosted even if the technicals are still rather dubious at this stage.

    [​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.

    RBA rate cut in the horizon: The market is pricing in a fresh rate cut by the RBA in October with a probability of around 80%. This change of heart comes after the Aus employment change came at a decent +34.7K vs 15K expected, but that was about it. From there, it went downhill with the unemployment rate missing expectations at 5.3% vs 5.2% exp, but even worse, the full time employment change was -15.5K, with part-time taking up the slack with a gain of+50.2K. The participation rate stood at a record high of 66.2%, which was a strong number to offset a bit the negative results.

    GBP on a tear fueled by Juncker: The Sterling keeps defying gravity by rising further as EC President Juncker said “we can have a deal. Brexit will happen”, Sky News reported. The headline was immediately picked up by algorithm activity, resulting in a sharp appreciation in the British currency. Juncker stressed that a no-deal Brexit would have catastrophic consequences, and that he “is prepared to get rid of the so-called backstop from a withdrawal agreement, so long as all the objectives are met.” He has sent documents to Prime Minister Johnson outlining draft ideas for a new Brexit deal, while the UK government also confirmed written documents sent to the EU on Brexit, which according to the UK government spokesperson, “are a series of confidential technical non-papers which reflect the ideas the UK has on the Brexit agreement and the backstop.”

    BoE a familiar non-event: There wasn’t much to latch on as part of the Bank of England policy decision, which remains a sideshow. Carney continues to imply that a smooth Brexit will probably lead to rate hikes, while a hard Brexit would not be automatic rate cuts but rather it will require the extend in which the economy is disrupted by this event.

    Norges Bank goes for a dovish hike: decided to raise rates 25bp to 1.5% from 1.25%, in a move that should be considered not entirely unexpected even if there was no consensus. The NOK, after the initial spike higher, was unable to accept higher price levels as the Central Bank signaled a prolonged pause from here on out. As James Smith, an Economist at ING notes: “Amid lingering global trade, Brexit and geopolitical/energy uncertainty, the central bank's tightening cycle looks like it has run its course for now.”

    BoJ preparing the market for more easing? The Bank of Japan left its policy unchanged as widely expected by the market even if it looks as though Governor Kuroda is starting to prepare the market for further easing tools to be deployed down the line, potentially as soon as October. The admission by BoJ Governor Kuroda, in the presser, that the Bank is giving a stronger consideration toward easing now compared to its last meeting is a dovish turn, even if that was not manifested by the performance of the Yen, which ends as one of the top performers. The statement read: "Given the slowdowns in overseas economies and their downside risks seem to be increasing, the Bank judges that it is becoming necessary to pay closer attention to the possibility that the momentum toward achieving the price stability target will be lost. Taking this situation into account, the Bank will reexamine economic and price developments at the next MPM, when it updates the outlook for economic activity and prices."

    SNB disappoints dovish expectations: The SNB left its policy rate unchanged at -75bps with an adjustment of the basis for calculating negative interest on sight deposits held with the central bank. There is a certain exemption threshold before the negative charges are effective, even if the SNB will apply flexibility in this approach by updating this threshold on a monthly basis. They also downgraded the inflation and growth forecasts but despite that, the CHF strengthened as the market felt it was a disappointment not to see a cut today. Moreover, there wasn’t any clear sign that the SNB is ready to step up its intervention rhetoric just yet (CHF positive).

    Trump's adviser on China spooks the market: According to the South China Morning Post, Donald Trump is ready to escalate trade war if deal not agreed soon, citing the president’s adviser on China, Michael Pillsbury. “Tariffs on Chinese goods could go to 50 per cent or 100 per cent”, leading White House adviser said. The headline led to a retracement in the price of equities in the US while exerting further pressure in the likes of the Australian Dollar or the New Zealand Dollar. Note, unless these headlines come from the horse's mouth or another major decision-maker, the markets tends to overreact before a reversal is seen as was the case in stocks rebounding later on.

    Iran's defiant stance not a good sign for Oil: Iran's foreign minister Zarif has been stirring up the tensions on a potential bellic conflict after implying via Twitter that allies of the US in the region are trying to deceive President Trump into war. “For their own sake, they should pray that they won't get what they seek." The price of Oil has deflated after Saudi Arabia vowed to have its Oil production capacity at full steam in 1 month, but a second major driver which continues to be priced in as an added risk premium in Oil is the risk of a war between the Saudis and Iran, even if Trump has been hinting that the US does not intend to have an involvement for now. Also interestingly, Saudi Arabia is said to have asked Iraq for 20 mil barrels of crude for domestic use, which implies they are struggling with the supply side.

    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 keeps finding sell-side pressure at the origin of a supply imbalance zone in the daily chart, leading to a retracement of the currency every time is tested. Until the demand is strong enough to consolidate above the resistance line marked in red on a closing basis, the EUR outlook remains rather uncertain even if one must accept that the most recent inertia ever seen the ECB outcome last week has been to apply upward pressure into the resistance area. There is no doubt we are at a critical supply juncture in the index, but one that looks at risk of breaking the more times that it gets tested, with Asian accounts having as I type another go at it. To sum up, one should approach EUR long exposure with extra caution until the resistance clears up.

    The GBP index has blown through the 100% proj target as EU Juncker presses the right buttons on what to say regarding Brexit to stimulate algorithm activity. The continuous momentum in the Sterling not respecting as a potential reversal area the anticipated target reveals two things. Firstly, fundamentals overrule anything else to determine a sustained price direction, including these highly accurate targets. Secondly, you are much more likely to get shaken out due to unexpected headlines in the Sterling than any other market due to the nature of Brexit newsflows. Momentum traders keep thriving in this market and it looks like further appreciation ahead after the increase in aggregate tick volume and the high close on Thursday’s bull candle.

    The USD index has gone through a technical corrective pullback in the context of a
    bullish environment, with the bounce occurring at a rather predictable level (13d ema - baseline). The index has found acceptance above the baseline for 4 days in a row with the suite of technical indicators in the second window (fisher transform slope + CCI) both positive. Besides, the market structure stays bullish with the latest penetration to regain the upside of the baseline happening on the back of a double bottom in the pricing of the USD. All in all, the USD looks like one of the most attractive long plays in the coming weeks, with technicals and fundamentals (FOMC saw a hawkish rate cut) agreeing with this bullish view.

    The CAD index is trading in a very compressed manner with no clarity on the next directional bias as the index is literally sandwiched between support and resistance. If we were to draw a Fibonacci retracement between these two levels, we are at the exact 50%, which implies a market with a high degree of unpredictability and certainly driven by Oil movements near term. It is no coincidence either that the baseline is also stuck at the 50% mid range. Today’s direction bias in the currency will also be determined by the Canadian retail sales outcome.

    The NZD index has broken into new lows, opening up the doors for an additional 1.5% of losses in the coming weeks based on the calculation of a 100% projection target. What’s also important is that the currency has broken the prior low with a spike in sell-side participation as reflected by the spike in aggregate tick volume. The move appears to be mainly driven by the rationale that if the RBA is set to cut rates next month after the poor Aus jobs data, the RBNZ may need to follow the same steps sooner or later, which is why the NZD also trades heavy.

    The AUD index is about to hit a wall of bids judging by the macro level of support being tested. The overextended nature of the movement from the prior macro resistance (over -1.3%) has been fast and furious with little demand to counteract the one-way street move, but the index is telling us this may be about to change, with a relaxation of the sell-side pressure eyed. Whenever a currency starts to price in the chances of rate cuts, as in the case of the AUD due to the action expected to take by the RBA, this is hands down the number 1 driver, so do bear that in mind as this critical support is tested under the wrong set of conditions to find major buying support one would think. That said, the technicals alone should provide some temporary respite.

    The JPY index, as anticipated by the daily technicals, found sellers at the intersection of the baseline, which was a pristine location to expect a refusal of higher prices given the confluent nature of the area being tested. The index is now encapsulated between the upper resistance area and the macro support area found last Friday. The overall outlook is still bearish as the price remains below the baseline even if the recent price action is not indicative of a major decision made by market participants, unlike what we’ve seen in the GBP or NZD indices.

    The CHF index shows a very similar picture to the Yen, with the valuation of the Swiss currency testing the baseline but unable to break higher by the end of trading in NY. If a resolution were to come above this week’s high, then there is room for a 0.3% run to the upside approx. There is also a potential double bottom being carved out if equilibrium is found above the current range, which remember, gets formed when there is a combination of a drop in volatility as the third window (bollinger band) suggests + a double rejection of a level.

    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

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    Find my latest market thoughts

    US-China Trade Back Ruling Markets


    The news flows surrounding the US-China trade narrative since Friday can only be characterized as in a state of Yo-Yo type dynamics. Trump threw cold water to the prospects of an interim trade deal in Oct while the Chinese Commerce Ministry keeps the hopes alive describing talks as 'constructive'. The risk environment is more constructive again even if what's unfolded since Friday is a clear warning...

    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

    There has been a change of dynamics at the open of markets in Asia, with risk being bid again as signs of progress in trade discussions between the US and China were highlighted by the Chinese Commerce Ministry over the weekend. The usual suspects when optimism arises, that is, the AUD, NZD were bought back, with sell-side pressure applied to, most notably, the JPY and CHF. The CAD remains with a relatively stable outlook with the Oil up-gap this Monday to potentially act as a bullish contributor today. The USD is holding its ground quite firm with technicals in favor for further gains. The EUR keeps struggling at a supply area in its index, as I elaborate in today's chart analysis, while the GBP saw a setback in the last 24h as reports emerge that the UK and EU are as far from an agreement to replace the backstop as ever. Today's key highlights to act as an extra stimulus of price gyrations include EU/US PMIs and ECB's Draghi testimony in the EU parliament.

    [​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.

    Trump throws cold water in the optimism built around trade talks: US President Trump deflates some of the optimism about a partial trade deal with China in October by saying that the US is not keen on a half-baked trade agreement at this point, leading to an abrupt last minute cancellation to visit US farmers by a Chinese delegation, which was seen as a continuation of the gestures of goodwill both countries had vowed to abide by.

    Interim US-China trade agreement less likely in October? Trump The US President stressed that “I am not looking for a partial deal. I am looking for a complete deal”, which obviously suggests that the chances for an interim agreement in October looks less likely. Even as Trump highlighted his relationship with Chinese President Xi as “amazing”, he went on to say that at present they are having “a little spat”, adding that “I think the voters understand that…I don’t think it has any impact on the election.”

    But on the bright side, constructive talks continue... Another report over the weekend by the NY Times notes that despite the remarks by Trump, “both sides moved on Saturday to indicate that the negotiations continue.” According to China's state-run Xinhua news agency, cited by the NYT, “fairly senior negotiators had conducted constructive discussions in Washington in recent days and had agreed to continue to maintain communication.” The Xinhua statement, the NYT notes, “was matched by a separate statement from the United States trade representative in Washington that discussions were productive, and the United States looks forward to welcoming a delegation from China for principal-level meetings in October.”

    RORO profile back and forth: Risk assets came off the the daily highs in a heartbeat last Friday as the market prices out a successful resolution to the upcoming trade talks expected in early October. It appears as though contentious issues such as intellectual property rights remain the main blockage. The upside breakouts in the JPY index, gold or bonds is a worrying sign to be monitored closely. As a new week begins, it seems as though the market is regaining some of the lost optimism after the Xinhua report.

    Oil opens with gains after Aramco's headlines: The price of Oil has jumped over $1 at the open of markets in Asian after headlines over the weekend by Saudi Arabia’s state-owned Oil conglomerate Aramco, noting that the current repairs to Saudi Oil plants “could take many months rather than weeks”, the DJ wrote. The report adds that “it may take many months-rather than the maximum 10 weeks company executives have promised-to restore operations to full working order.” The longer it takes, the more bullish it is for Oil all else equal as the disruption in Oil supply extends in time.

    Johnson's proposals thought to be a waste of time: According to a report by ITV Journalist Rebort Peston, which did make the rounds on Friday, Johnson's proposals on the Irish border is seen by Brussels as "an utter waste of time". The news led to a sharp retreat in the Sterling on Friday. The report notes: "It is crystal clear UK and EU are as far from agreement to replace backstop as ever. Multiple sources tell me that Johnson's 'non paper' proposals to keep open border on Ireland are seen in Brussels and EU capitals as an utter waste of time, and that Johnson is as far away as ever from what the EU regards as a possible 'landing zone'. There will be one last push, one last chance, after Tory conference. But till then it is full steam ahead with no deal preparations on both sides."

    Fed's Clarida highlight each meeting live from here on out: A line up of Fed speakers made comments on monetary policy last Friday, including Fed’s Vice Chairman Clarida, which for what’s worth, made no remarks that helps the market learn anything new about the Fed’s stance. If anything, it reinforces the message from Chair Powell in that every meeting from here on out will be live within the context of a neutral policy as the lay of the land stands right now but with rapid adaptation to changes in the outlook. Clarida noted “the center of gravity on the committee is the second adjustment was appropriate. Going into October and beyond, we’ll go one meeting at a time.”

    Fed's Bullard sticks to his dovish guns: Fed’s Bullard, who is a well-known dovish member, kept endorsing further easing in Friday’s remarks by saying that “It is prudent risk management, in my view, to cut the policy rate aggressively now and then later increase it should the downside risks not materialize. At the same time, a 50 basis point cut at this time would help promote a more rapid return of inflation and inflation expectations to target.”

    Boston's Rosengren remains a committed hawk: Boston Fed President Rosengren, who has been supporting the hawkish policies and has been a dissenter in the last two rate cuts, said that his last decision to not endorse a rate cut was due to minimizing “the risk of further inflating the prices of risky assets and encouraging households and firms to take on too much leverage”. He argued that the data in the US suggests the economy is in an overall healthy state despite shocks.

    Fed's Kaplan still concerned about spillover effects: Fed's Dallas President Kaplan said he doesn't see another cut this year but is open minded, even if he maintains a residual dovish tilt to his tone by noting that he's not opposed to cuts and that he still project one more will be needed next year. But again, he made his comments sound very conditional to the current dicey dynamics in the market by stressing that “is watching how trade tensions unfold, doesn't want to prejudge.” Kaplan kept reiterating that manufacturing is weak and business investment soft, which should be a reason to be concerned as he fears may spill onto other areas of the economy.

    Canadian retail sales shrugged off by CAD bulls: Canada’s July retail sales came softer at +0.4% vs +0.6% expected. The outcome is rather poor based on what economists were calling for. Sales were up in 6 of 11 subsectors. The Canadian Dollar did end up the Friday rather strong nonetheless, with Monday’s open valuation firming up a tiny bit assisted by the upside gap in the price of Oil.

    EU/US PMIs & Draghi up next: Monday's events highlights include EU and US Sept PMIs with the median projections skewed towards a minor rebound in the manufacturing sectors. Besides, more Fed speakers will be on duty to update their views on policy, including William, Bullard and Daly. Draghi also takes center stage as he is due to testify to the European Parliament where he is expected to emphasize the much needed collaboration between monetary and fiscal policies while reasserting his view of QE as a necessary tool to keep the EU afloat.

    NZIER’s Shadow Board divided on where OCR should be: The New Zealand Institute of Economic Research (NZIER) Monetary Policy Shadow Board, which is an independent body of the Reserve Bank of New Zealand, notes that “there has been increased divergence in views amongst the NZIER Monetary Policy Shadow Board on what the OCR should be at the OCR Review this Wednesday. This widening in the range of views follows the Reserve Bank’s surprise decision to cut the OCR by 50 basis points at its August meeting. Although Shadow Board members generally called for keeping the OCR on hold, some saw a higher OCR as appropriate. The views were taken before the release of June quarter GDP.”

    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 ascendancy keeps being challenged by the multitude of offers sitting overhead at a critical resistance on the daily as depicted by the red line. Every single time the EUR makes it into this area of resistance, traders should be on alert for potential sell-side opportunities as EUR selling flows tend to overwhelm, which is well justified from a technical standpoint, as the index keeps revisiting the most notorious supply imbalance area originated in Aug 30th. The back-to-back upper shadow candles on the daily manifests quite clearly this oversupply at the top, with risk of a downside acceleration once the baseline (currently tested) is taken out.

    The GBP index has finally seen a setback from its hefty level, currently testing the violated 100% proj target from last week. The altitude in the GBP valuation makes it a very risky proposition to be long unless one resorts to short-term intraday trading, where more flexibility is allowed to manage one’s views depending on the Brexit newsflows. Otherwise, these continue to be rather attractive sell-side prices if you believe the whole Brexit conundrum will get worse before it gets better, which is backed up by the overextended nature of the market. Sooner or later, a reversal back to the mean or baseline (13d ema in my case) must occur. I personally wouldn’t touch the GBP to play in either direction unless applying intraday strategies.

    The USD index rebounded quite vigorously from a projected area of demand as highlighted in the chart ever since the FOMC-induced breakout of the baseline. Those looking to gain long-side exposure in the USD were without a doubt given clarity about the best location to engage in the ongoing bullish trend at the intersection of the baseline, with the extra technical addon of being confluent with the horizontal line of support, making the buy-side area ever more compelling. The outlook for the index looks bright after the bullish close on Friday near the daily high.

    The CAD index broke above its baseline (13d ema) last Friday but the tapering of aggregate tick volume in the daily chart is of concern even if the rest of indicators (fisher transform and CCI) point to bullish tendencies still present in this market. If bulls re-group to keep pushing into higher levels, there is room for an extra 0.4-0.5% of appreciation in the index before a re-assessment is needed at the recent trend highs. The bullish inertia in Oil prices at the open in Asia should be a positive contributor to the outlook for CAD throughout the day.

    The NZD index trades in a clear bearish trend with 0 technical evidence to be supportive of long positions at this stage for a barrage of reasons. The market structure of lower lows and lower highs can’t be disputed, while the current leg lower still has room to fall before the 100% proj target is met. That said, this is an awful level to be short NZD as one’s initial position unless the main purpose is to jump on the bandwagon of short speculators with an intraday momentum strategy, which obviously makes trade management tighter and more manageable.

    The AUD index, unlike the NZD, has definitely found an area where I’d expect buy-side activity to pick up considerably. The current level tested is a major macro support as it aligns with a sequence of highs printed through Aug, now retested in the opposite direction, which more often than not, does act as a springboard for a reversal in price behavior. The daily also shows the level of sell-side participating is petering out as the tick volume taper suggests.

    The JPY index has broken above the baseline in a move that in my view does not qualify as the onset of further follow-up buying interest to ensue. Not only the breakout occurred in a rather thin volume candle (as per the aggregation of tick volume vs G8 FX), but the index is trading straight into an area of resistance in the chart as per the double rejection in Aug 13, Sept 15. Should the risk appetite trend resume, the JPY is a candidate to continue underperforming.

    The CHF index is in a similar position to the JPY when it comes to the lack of buy-side commitment to expect much higher levels from here, however, the advantage it has is the void area available until the next resistance level is met (about 0.2%). Also, in favor of the CHF is the printing of a confirmed double bottom with a break of structure, which in its own right does suggests that the CHF might be setting up for a more meaningful bullish outlook. Any retest of the support level right underneath (-0.15% approx) should attract decent bids.

    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
     

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