Global Prime: Daily Market Digest

[IvanGlobalPrime]

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Truce Or No Truce, That's The Question

China, via the Commerce Ministry, confirmed earlier reports that it only aims to reach a partial trade deal as part of the trade talks this week (Thursday, Friday), without including in the negotiations reforms on industrial policies or government subsidies. he behavior by the Yen tells us there is clearly some build up of expectations that yet another vague temporary ceasefire can be agreed upon...

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

Even if traders should re-calibrate any over-optimistic expectations of a big trade deal between the US and China this week, the market has so far treated the news that China is only willing to mid halfway from all US demands as yet again, another glass half full type of event. To draw some parallels, just as the market treated the law that forces a no-deal Brexit to be delayed as a positive development for the GBP, the same way seems to be interpreted if the US and China can agree to another truce that would avoid the next increase in tariffs scheduled for October 15, as it would remove an immediate risk out of the way, even if the underlying issue will remain. The behavior by the Yen tells us there is clearly some build up of expectations that yet another vague temporary ceasefire can be agreed upon, although by connecting the dots, one should be in high alert, as Trump has reiterated in multiple occasions that either the US pulls off a big deal with China or he'd rather have no deal at all. It implies partial complacency by Mr. Market. I mention partial because the Aussie and Kiwi were in the losing group of currencies on Monday, which you wouldn't expect if a truce is being priced in. Bottom line, I think the movements in the Oceanic currencies are a better reflection of the dicey environment. The US Dollar, the Canadian Dollar, the Swiss Franc and the Euro were all, in a larger or lesser extent, the beneficiaries of Monday's flows, while the British Pound is once again under tepid pressure as UK PM Johnson gets a devastating rejection of its Irish plan.

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices 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.

China aims for only a partial deal: China, via the Commerce Ministry, confirmed earlier reports that it only aims to reach a partial trade deal as part of the trade talks this week (Thursday, Friday), without including in the negotiations reforms on industrial policies or government subsidies.

Sticking points won't be negotiated: According to Fox News, China is prepared to set out a timetable for the harder issues to be worked out next year. Fox Business' Edward Lawrence, citing China's commerce ministry, wrote: “The Chinese Commerce Ministry says what is not in the table and never will be is changes to their laws to protect intellectual property. The Commerce Ministry telling us that the Chinese will deal with intellectual property theft through administrative regulations.”

China takes advantage of Trump's debilitated position: The fact that Trump is in need to score a big political win amid the scandal of corruption in his Ukraine call from last month, which was partly intended to influence in the meddling of Democrat candidate Joe Biden’s affairs has given China leverage. Whether or not the US blinks by being more flexible in agreeing to a mini deal remains to be seen. Note, Trump has reiterated that either they make a comprehensive full deal or no deal.

Key topics of trade discussion shared by the WH: The White House has published a memo outlining the topics of discussions that will take place as part of this week’s US-China trade talks, scheduled for at least two days. The statement notes the following six topics of discussion: Forced technology transfer, Intellectual property rights, Services, Non-tariff barriers, Agriculture, Enforcement.

Time to re-calibrate over-optimistic expectations: The best one can hope for in this week’s US-China trade talks may be yet another truce in which Trump may agree to extend the deadline for the next increase in tariffs scheduled for October 15, when $250bn worth of Chinese imports will be assigned 30% tariffs from 25%.

UK PM's Irish backstop proposal rejected by the EU: The UK Guardian, in a leaked document, it has learnt the European Union’s full devastating point-by-point rejection of Boris Johnson’s Brexit proposals for the Irish border. As the paper reports, “the disclosure follows the prime minister’s claim on Monday that he had not yet heard the EU’s thoughts on the legal text tabled by Downing Street…”

Trump ramps up rhetoric against Turkey: Trump warns he will obliterate Turkey in a controversial tweet, which has led to selling pressure in the Trkish Lira, as he considering a withdrawal of the American forces from Syria, immediately condemned among congressional Republicans and protested by America’s allies. Trump said it was “time for us to get out” and let others “figure the situation out.” Trump added that “if Turkey does anything that I, in my great and unmatched wisdom, consider to be off limits, I will totally destroy and obliterate the Economy of Turkey (I've done before!). They must, with Europe and others, watch over...the captured ISIS fighters and families…”

Recent Economic Indicators & Events Ahead

Out of all the events scheduled for today, pay special attention to Fed Chair Powell, due to speak at 5.30am AEDT, at the US National Association of Business Economists, in a speech titled “A view from the Federal Reserve Board of Governors” which will include Q&A. The market will be interested to grab new clues on Powell’s evaluation of the economy after last week’s ISM misses, both the manuf and non-manuf PMIs, alongside a rather mixed payrolls report on Friday. Currently, the market is pricing a Fed rate cut in October at 73% at the close of NY on Monday.

Source: Forexfactory

A Dive Into The FX Indices Charts

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices can be found in the Global Prime's Research section.

The EUR index has created a higher high in the hourly chart after heavy buy-side pressure came through the early European session, leading to a retest of the prior swing high. encountered resistance, which marked Monday’s high, was a challenging level to break as it perfectly aligned with a 100% proj target, hence why offers eventually managed to pull the price away. There are three well-defined areas to expect the clearest imbalances of demand/supply in the Euro this Tuesday, al compressed within a narrow 0.3% range. The delimitation of the current range include the latest resistance found, a new hourly support after it achieved a successful rotation, with the midpoint of the range, represented via the 50% fib retrac, another proven reactionary level where residual demand is seen in the Euro.

The GBP index has gone through a rather uneventful technical day, with the undefined outlook extending into Tuesday as part of a broader range context with over 1% of room for the price action to fluctuate before encountering macro bids and offers. The levels that continues to offer the best risk reward remains a tested level of daily support near-by, while the topside sees the mid point of the range as the area where sellers have set its new stronghold, as depicted by the amount of time the price action has been finding equilibrium below this mid point as opposed to the ephemeral time that GBP buyers managed to stay above the red rectangle midpoint. Overall, sellers appear to be gaining ground and conviction in the context of a huge demand imbalance on the daily that keeps being tested, with each test a greater chance of eventually breaking.

The USD index has so far respected an area of daily demand imbalance from where a new buy-side campaign has been initiated, paying dividends for intraday buyers as manifested by the first successful hourly rotation breaking into a short-term buy-side structure. Notice, in line with the principles of market structure I regularly outline, the reversal of the selling bias came at the 100% proj target. Fast forward, the real test for the USD traders’ interest will come on a test of overhead resistance, which is expected to see an imbalance of supply on a first touch, as it represents the 50% fibonacci retracement from last week’s decline. The context under which the USD trades, above the baseline, makes the short bias a risky one to support, especially on the basis that the level is only visibly identifiable through the hourly chart as the color indicates.

The CAD index has breached its previous swing high, allowing the structure to now shift to a buy-side bias in the hourly chart as higher highs get printed on the back of a double bottom. The pricing of the CAD remains below the 13-day ema but there is room to witness further upside appreciation until the next supply imbalance detected in the hourly chart (about 0.2%). Any setback in the valuation of the CAD should seen, given the successful rotation, strong demand re-emerging off the recent lows, which is why I’ve highlighted the area as a new-found level of demand imbalance to be expected off the 8h chart, which adds weight. If we see a larger upside extension before a retest of the breakout point, this may act as a significant level of support of the hourly on a backside retest. We could anticipate to see the price test the 13-d ema, be rejected, find further buyers on that backside retest, and then resume the uptrend.

The NZD index is trapped between hourly levels of support and resistance, both tested and rejected on the first pass, which make the areas no longer as relevant to use as reactionary levels since it won’t be a fresh test. Patience for fresh new levels to be generated is required, unless the NZD can recover all the way up to test an untested area of supply imbalance on the hourly, which would still hold sufficient credence to expect a reaction off it. The drawing of the fibonacci retracement (0,50,100) helps us to really step out and identify the 3 key levels in this market as the current structure stands. What we’ve seen in the last 24h is the NZD buyers stepping in at the 50% retracement of its larger range (micro 100% proj target), only to see sellers popping up at the retest of the breakout point post a successful rotation in the hourly.

The AUD index is within a short distance of testing what I’d expect to be a demand imbalance level from where buyers will step in as part of the hourly time frame. Note, the index is still trading with an overall bearish bias if one steps out of the lower time frames, with the test of the hourly demand, if/when it happens, to occur below the baseline, which makes it an inherently riskier trade to take if one expect to see a long-lasting buy-side campaign to unfold. To the upside, there is no new clear areas formed at this point until up in the topside extremes, where an untested 8h and daily supply area overlaps within a short distance from each other, where I’d be expecting sellers to return to the market for a fresh sell-side campaign.

The JPY index sold off away from a tested supply imbalance, which nonetheless held enough credence as to expect further selling interest judging by the renewed sell-side pressure on the back of the US NFP report last Friday. One could have also spotted how the red overlapping line in the chart, which refers to the ‘risk line’ (sp500 + us30y) was rolling over at the time of the last test. The next logical area of support was tested late in the American session, from where a rebound has taken place. Given the impulsivity of the decline and the fact that the level is no longer a fresh one, those looking to engage in buy-side opportunities in the JPY will be better off patiently waiting until a test of a fresh daily support, which comes about 0.2% below the mentioned hourly level. Coincidentally, which strengthens the technical buy-side case, the 13-day ema is interesting around the same vicinity. A pristine area to engage in JPY longs.

The CHF index has printed new highs, leading to potentially two new hourly demand imbalances to take into account for those interested to engage in buy-side business as value areas. The structure out of the hourly has now clearly turned bullish, with the price a hair above the 13-day ema, in what still appears to be an unfinished upcycle. The room to see further appreciation in the Swissy is definitely available, with a significant vacuum area that poses little upside obstacles until a fresh level of daily supply gets tested, allowing over 0.4% of leeway. Should the newly found hourly levels be broken, any retest of the bottom side of the macro range should see buying interest re-emerge given what’s so far been achieved (break of structure).

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.
• Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
• Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection

 

[IvanGlobalPrime]

Find my latest market thoughts

Cracks In Trade Rhetoric Sinks Risk Appetite

Markets are rapidly losing any sort of hope that the US and China will make much progress in this week’s trade talks. The preponderance of evidence via the non-cooperative headlines, ratified this time by convincing price action in key risk assets as stocks in the US fall sharply and global yield also suffer the unnerving outlook, does imply that the market sees slim chances of a truce agreed.

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 a large Chinese trade delegation readies to catch a plane en-route to Washington, the US administration is not setting the stage for the most optimal collaborative environment, a view that this time was unquestionably vindicated by the risk averse flows hitting stocks and bond yields. This demoralized outlook ahead of the trade talks took its toll on those keeping short-side exposure on funding currencies the likes of the JPY or CHF, this time both enjoying rampant demand in tandem. On the flip side, the Sterling was absolutely annihilated in early European hours as it finally transpired, via the horse's mouth (UK PM Johnson) that a Brexit deal is 'nearly impossible' following a disastrous telephone call on Tuesday morning with German Chancellor Angela Merkel. The USD held firm following a neutral speech by Fed's Chair Powell in which no hint was given that the Central Bank will be lowering interest rates again at the end of this month, despite this view plays against the market pricing. The Aussie and Kiwi have recently been characterized as stubbornly firm currencies, immune to the bad omen of this week's trade talks. One would think these currencies are set to suffer the most from the poor prospects of a 'no trade truce' with China. What's interesting is that the latest actions by China, be it via sending the largest trade delegation out of all trade talks so far, or a stronger Yuan fixing today, is sending a message to the US that they have a genuine intention to find some middle ground for both nations to find a compromise. Lastly, price action in the Euro and the Canadian Dollar was desperately uninspiring, with the former still finding solid resting offers on strength.

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices can be found in the Global Prime's Research section.

Narratives In Financial Markets

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

US not setting stage for cooperative trade talks: Markets are rapidly losing any sort of hope that the US and China will make much progress in this week’s trade talks, scheduled on Thursday and Friday in Washington. The preponderance of evidence via the non-cooperative fundamental headlines, ratified this time by convincing price action in key risk assets as stocks in the US fall sharply and global yield also suffer the unnerving outlook, does imply that the market sees slim chances of even a truce agreed.

Chinese companies blacklisted, restrictions in investments? The news that the US added 8 China technology companies to a growing blacklist list, with over 20 Chinese security bodies also part of the banned list, has added fuel to the fire. Besides, the are renewed reports about efforts being underway by the US administration on a plan to limit US investments into the Chinese equity markets. The details are still rather obscure at this point. This is not helping to set the stage for an environment of camaraderie and cooperation ahead of the talks. China’s Ministry of Commerce urged the US to remove the Chinese entities from its blacklist, warning that retaliation may follow.

One silver lining from the Chinese... As the Global Times reports, which plays into the view that China is sincerely hoping to achieve something good out of the talks, the Nation is sending one of the largest delegations: “Observers said that the composition of the Chinese delegation, one of the largest teams among the 13 rounds of trade talks, signaled that China is sincerely looking to reach a comprehensive trade deal with the US. Although it is not sure whether the US will hike tariffs on Chinese imports, which it is scheduled to do on October 15, some headway could be made this time concerning industrial policies and intellectual property rights (IPR) protection, they predicted.”

Fed to boost balance sheet to address USD funding: The Fed is set to expand its balance sheet, but not via the conventional QE format markets of recent years. Fed’s Powell said “the time is now upon us to expand the balance sheet”, clarifying that “growth of the balance sheet for reserves purposes should not be confused with QE”. The announcement came after sporadic episodes of USD funding pressures in recent weeks, with the Fed aiming for a longer-lasting solution than the temporary short term open market operations conducted up until this point by the NY Fed. The outright purchase of Treasury Bills will be the method chosen by the Fed to increase the circulation of USDs into the system.

Fed's Powell not sounding too dovish: As part of Tuesday’s Fed Chair Powell speech, we learnt that the policymakers continues to retain the view that the Central Bank will act as appropriate based on the fundamental outlook on a “meeting by meeting” basis. Powell reiterated that global risks are the major sticking point for the Fed to err on the side of caution in policy in an otherwise constructive domestic outlook, even if there was an acknowledgement of lower business investment, manufacturing and trade activity because of the global woes. There has been further evidence, via the US NFIB small business index, that spending intentions by enterprises keep falling. After Powell’s speech, the market sees the chances of a Fed cut in Oct 31st at 77%, although much will still depend on what way the balance tilts this week, as part of the trade talks ‘showdown’.

GBP buyers give up hopes of a Brexit deal: The Sterling is the weakest currency as UK PM Johnson describes the possibility of any deal with the EU as part of the Brexit negotiations as ‘nearly impossible’. The bold statement follows an early morning phone call with German chancellor Angela Merkel, which according to media reports, went really bad with Merkel hard-lining a view in which Northern Ireland must stay inside the EU Customs Union, which is an unacceptable proposal in the eyes of the UK PM.

Is the risk of a no-deal Brexit on the rise? Despite the sell-off in the Sterling, the risk of a no-deal Brexit on October 31st has not increased dramatically, with the base case still an extension of the Brexit deadline and early elections. Nonetheless, the market appears to also be wary of the rise by the Conservatives in the polls, which makes the prospects of a no-deal Brexit not such as distant outcome if the Tories were too retain a majority or form a pro-Brexit coalition majority.

FOMC minutes today likely a non-event: This week’s FOMC minutes of the September meeting is likely to be a redundant event of little relevance that the market will look from the rear mirror given the major disappointments in the US ISM manuf and non-manuf readings from last week, which has obviously altered the market’s perspective on where the Fed should stance regarding policy, hence treating the prior meeting as a rather obsolete outlook.

Recent Economic Indicators & Events Ahead

Source: Forexfactory

A Dive Into The FX Indices Charts

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices can be found in the Global Prime's Research section.

The EUR index is trading in a narrow 0.3% range with both extremes tested, with sell-side forces the ones showing the most conviction at this point as the latest successful rotation off a tested level of horizontal resistance in the H8 illustrates. With the daily structure still overall bearish and the hourly cycle now in alignment following 3 topside failures, it looks as though sellers may now have a slight technical advantage. The valid levels to engage from, can be found at the top of the established range which led to a break of the micro-structure, while on the downside, a daily horizontal support is identified not far from the tested hourly level.

The GBP index has tumbled dramatically as bids off a daily horizontal support were overwhelmed by the offers coming through the European session as BOJO’s Brexit plan collapses. The index sold very aggressively until it encountered its 100% proj level, from where a bounce ensued. The best levels to engage in GBP sell-side action can be found on a retest of the breakout point, which comes at around 0.30-.35% above Tuesday’s close. The downside should be rather limited by the symmetrical 100% proj target reached, although if broken, it will likely act as the key resistance from where momentum strategies will look to reinstate offers from.

The USD index is starting to build higher highs after a double bottom formation in the hourly, with the price action originating off a daily demand area. The latest shot up in the USD valuation has managed to absorb offers at an 8h resistance level, further reinforcing the notion that the index is poised to find growing buy-side interest on dips, with a new area of demand ff the 8h now created along the double-bottom line. The intersection of the 13d ema around the same level only makes the level a stronger candidate for buyers to hold the ground. Overall, it’s not a good idea to be a USD seller based on the structure of the market at this stage.

The CAD index saw inconclusive price action through Tuesday’s flows, keeping the pricing of the currency still below the 13-day ema, even if there is tentative technical evidence that buyers are starting to emerge to take control of the price structure on the hourly an 8h charts. The successful rotation on Monday is still a valid backdrop to speculate on long positions off a newly found 8h horizontal support level around 0.25% below the current price. Above, the CAD index will find an 8h resistance level at exactly 0.25% away too, which tells us that the market is currently in no man’s land, stuck right in the middle of the two relevant SR levels.

The NZD index shows a constructive structure as depicted by the higher highs achieved in the last 24h of trading, with the price now en-route to test the most recent highs, while above the 13-day ema, which only strengthens the buy-side case. The market has found a new wave of buyers just a hair away from the anticipated hourly demand imbalance. Looking to sell the NZD remains a risky proposition judging by the absence of technical backings in the hourly, with the added benefit for buyers that there are no resistance levels of enough credence nearby as none of the recent swing lows seen have managed to violate the bullish structure on the hourly.

The AUD index has found residual demand out of a fresh hourly support level despite a very poor Westpac consumer confidence index. There is room for the Aussie to appreciate further up until it faces its previous swing high, which comes around the same level as the 13d ema. Be mindful that the short-term rebound in the Aussie is against the bearish structure in higher time frames, where a daily resistance area has now taken control of the technical proceedings. In other words, I’d expect the recovery in the currency to be rather limited in nature unless we have some type of U-turn in the US-China trade rhetoric that suggest a truce can be achieved.

The JPY index trades with an overall bullish structure as the pricing stands well above the 13-day ema with a positive structure on higher timeframes. The index found strong demand the moment that the 13d ema got tested, which was within close proximity of a daily support. The price has now reached a confluence resistance level formed by the 100% proj target and an hourly resistance after the last successful down swing, where a rotation into lower prices has occurred as one would expect when we have an overlapping of relevant reactionary levels.

The CHF index torpedoed into a level expected to be rich with offers in CHF pairs following a solid bullish run on the hourly time frame, where a pullback has eventuated as the area represents a fresh daily resistance. I wouldn’t be surprised if the index now retraces all the way down towards the next fresh hourly support as depicted in a green line, which has the extra backing of an additional level of buy-side interest about 0.2% lower. Any retest of the upper resistance level won’t hold as much weight as the area is no longer considered fresh. This stance may chance if in the hourly a break of structure transpires in the coming sessions.

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.
• Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
• Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection

 

[IvanGlobalPrime]

Find my latest market thoughts

State Of Confusion In US-China Trade Talks

The market is in a state of confusion, with the pendulum swinging from risk on to risk-off in a very erratic fashion. Reports suggest a partial deal may not happen as China mulls to cut its visit to the US short, which led to Gold, bonds, Yen, Swissy all bought up, then a headlines emerged that the US may consider a 'currency accord' with China, leading to a V-shaped reversal day so far...

The article is authored by Ivan Delgado, Market Insights Commentator at Global Prime. This content aims to provide an insightful look into topics of interest for traders. Feel free to follow Ivan on Twitter & Youtube. Make sure you join our discord room if you'd like to interact with Ivan and other like-minded traders. You can also subscribe to the mailing list to receive Ivan’s Daily wrap. Also, find out why Global Prime is the highest-rated broker at Forex Peace Army.

Quick Take

It's all about the US-China trade outcome, with the erratic swings in currencies a testament of how unpredictable trading around these high-stake events can be. The latest we've learnt reflects the confusion and state of uncertainty. On one hand, reports suggest that the US and China made no progress on key trade issues, leading to speculation that the Chinese delegation will cut the trip short to just one day of meeting with their US counterparts. On the the other hand, a report via Bloomberg said the US is considering a currency agreement with China. The instruments most intertwined with risk aversion (Gold, bonds, Yen, Swissy) caught a solid bid ahead of the Tokyo open before an epic reversal, while the likes of the Aussie or the Kiwi were marked down only to fly higher on the speculation of a currency accord. Meanwhile, in the Brexit saga, the usual dose of algo-led volatility in the Pound was observed, although the net result was an acceptance of lower levels, prove that the market is not buying into a resolution of the Brexit conundrum. The USD put on a combatant performance to reverse its early losses on Wednesday, even if it's now under some pressure. The Euro broke higher on Wed.

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices 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.

Did all hell break loose before getting even started? The markets were in full risk-off in early Asia as a report via the South China Morning Post revealed that the US and China made no progress on key trade issues in two days of deputy-level talks, according to sources. What’s worse, as the report notes, “the high-level talks are expected to last for only one day, with Liu He and his team now planning to leave Washington on Thursday.” This negative sentiment was later reversed. Read on...

High level trade talks start officially today: China’s Vice Premier Liu He will be leading the Chinese delegation. Ahead of the report by the SCMP, there had been tentative evidence that China was willing to make a partial deal that would include buying more agricultural products, although leaving no room for negotiation in other sensitive issues the US had complained about such as the protection of intellectual property and or reduction in government subsidies for public firms.

Turnaround on talk of currency accord... According to Bloomberg, the White House is looking at rolling out a previously agreed currency pact with China as part of an early partial deal that could also see a tariff increase next week suspended, according to people familiar with the discussions. The currency accord -- which the U.S. said had been agreed to earlier this year before trade talks broke down -- would be part of what the White House considers to be a first-phase agreement with Beijing. It would be followed by more negotiations on core issues like intellectual property and forced technology transfers, the people said.

Violent rotations in risk assets: The immediate reaction in financial markets amid the realization that a partial deal may not happen was to buy the assets most intertwined with risk aversion (Gold, bonds, Yen, Swissy), while the likes of the Oceanic currencies, especially the Aussie, were the most punished in thin liquidity Asian markets. These moves were fully reversed after the news broke out that the US is considering a 'currency pact'.

Fed minutes a non-event: The Fed Minutes, while not a market mover due to its redundancy after new relevant fundamental data not taken into account in the last meeting, it nonetheless left a sense that the Central Bank is growing more concerned over downside risk from slowing global growth, the ongoing strides in the trade war and depressed inflationary pressures. A debate on when to stop the easing cycle also emerged this time, while it as revealed that several members were keen on keeping rates unchanged in the last meeting, in other words, there were more dissenters in theory than previously thought, which means the support to keep easing has shrunk.

Sellers lurk around in the Sterling: The Pound saw an ephemeral spike before coming back down after a report from The Times speculated that the EU was mulling to make some concessions by which a mechanism for Northern Ireland to leave the Irish backstop would be set up after a number of years. However, an unnamed EU official dismissed the report by noting "no bold new offer is coming". The Guardian's Brussels correspondent, Jennifer Rankin, added that “the EU is *not* about to make a big bold offer to allow Stormont to exit part of the Brexit withdrawal agreement…”

Turkey launches offensive against Syria: In the words of Turkish President Erdogan, the attack is aimed to eliminate the 'terror corridor', bringing peace and stability to the region. Trump said that the US does not endorse the attack on Syria, reiterating that “any unforced or unnecessary fighting by Turkey will be devastating to their economy and to their very fragile currency. We are helping the Kurds financially/weapons!.” The Turkish Lira has been under continuous sell-side pressure as the geopolitical tensions escalate.

Recent Economic Indicators & Events Ahead

Source: Forexfactory

A Dive Into The FX Indices Charts

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices can be found in the Global Prime's Research section.

The EUR index made further strides by violating a tough level of resistance in the hourly, finally allowing for a fresh upcycle to be formed in the hourly, with the next target now seen over 0.20% higher, where a daily level of resistance and the 100% proj target intersect. In early Asia, we’ve already seen a touch and go from the backside on the breakout point, proving that the analysis of indices as a technical aid to assist in entering positions based on the aggregate flows of the EUR vs G8 FX holds great value for the avid trader willing to put in the work by patiently awaiting to engage in these areas where a decision will be made.

The GBP index stopped in its tracks at exactly the 100% proj target based on the latest swing breakout, with the predictive nature of selecting the right levels to act as reactionary areas still keeping those following these analysis on the right side of the market. As anticipated, a fresh retest of the broken daily support led to an abrupt rejection of the index, returning back down prior to an acceptance of lower levels for the remainder of the day. This is a bearish admission by the market. Note, there are no longer fresh levels nearby, both the backside retest of the breakout point and the 100% proj target partially consumed in the last 24h. Still, in the grand scheme of things, the market clearly exhibits a bearish structure, with a more macro projection based on the always reliable 100% target over 0.6% lower from Wed’s NY close.

The USD index keeps printing higher highs and higher lows, and with it, building up expectations that further increases in the valuation of the currency lie on the horizon. For today, there are two critical areas to engage in long-side business, the most immediate one includes a level of hourly support recently acting as a magnet to attract and reject prices. Further down, if a setback in the USD takes us down all the way to the prior swing low, it would represent a potentially great area to reinstate longs as it aligns not only with an 8h horizontal support, but the 13d ema comes at the very same level, strengthening the case to see a cluster of bids. On the way up, there aren’t any levels of resistance catching my attention for now.

The CAD index has been treading water going nowhere fast this week as the focus is elsewhere. The fact that we haven’t had any major data releases out of Canada is not helping either. The index, as it was the case yesterday, remains encapsulated right in the middle of a range, between a level of resistance and another of support, both identified via the 8h chart. Drilling down into the hourly chart involves getting into a rather rough sea of erratic fluctuations, so I suggest to stick with the outer levels as the cleanest areas to find opportunities.

The NZD index has transitioned into a bearish structure in the hourly, which implies selling rebounds should dominate proceedings intraday. A retest of the breakout point is happening as I type, with plenty of leeway for sellers to exploit the technicals until the 100% proj target is met over 0.4% lower, allowing for the anticipation of a solid risk reward. Right before the 100% proj is potentially visited, a level of support off the 8h chart may also act as an early reactionary point in the chart since the last 8h swing achieved a full rotation back up. Should the NZD muster enough strength to recover its losses, a level of 8h resistance lies on top as well.

The AUD index managed to violate a series of lows acting as support for the index in recent days, finally opening the doors for the market to potentially transition into lower levels. The retest of the broken support level has led to an immediate resumption of the downtrend, which if it were to pick up further momentum, has as first target the 100% projection as depicted in magenta line in the chart, followed by an hourly level of support further down. Even if the AUD keeps challenging higher levels from here, the cluster of levels overhead, alongside the bearish structure, makes the currency a clear candidate to depreciate further heading into week-end.

The JPY index found strong bids at the intersection of the 13-day ema in early Europe on Wednesday, which coincided with an hourly support as per the impulsive departure of price the prior day. The follow through demand seen in early Asia this Thursday keeps playing into the view that this is a market with risks skewed towards the upside in line with the bullish structure in higher time frames. Unless the trade rhetoric in the US-China talks goes through a U-turn, buying on dips for an eventual breakout of the recent highs is a scenario to account for.

The CHF index has printed a marginal new high, and what this does to the technical outlook is to create, based on market structure analysis, greater expectations that the current pullback will be bought up at areas of interest as the ones outlined in the chart below. That’s where the highest concentration of bids should reside for an eventual resumption of the uptrend. There tends to be a substantial amount of buyside interest when the origin of a demand is retested as it seems it will be the case with the Swissy index, hence why all else equal, this is a market where expectations for higher levels in line with a constructive hourly structure may ensue.

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.
• Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
• Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection

 

[IvanGlobalPrime]

Find my latest market thoughts

Brexit Breakthrough Adds To Trade-Led Optimism

The market has celebrated not only expectations of a partial trade deal between the US and China, but the news of a possible resolution to the Irish backstop in the Brexit saga (major breakthrough), leading to extra enthusiasm to support risk currencies, as reflected by the sharp depreciation in the Yen, Swissy, bonds and the stocks rally. The nearly 2% Sterling rally deserves a special mention.

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 Pound stole the US-China 'trade talks' showdown after the UK prime minister and the Irish leader, as part of a joint statement, agreed that "they could see a pathway to a possible deal". This is a big deal as it opens the doors for the UK to leave the European Union by Oct 31st deadline time without the need for an extension. It's far from being baked in the cake, but the reaction in the British currency, up by over 2%, does indeed make justice to the major milestone this event in itself is to unlock the stalemate. Meanwhile, the high-beta currencies (AUD, NZD, CAD) had a field day, emboldened by the prospects of some sort of deal between the US and China; the fact that Trump is scheduled to meet Chinese Vice Premier Liu He on Friday is a testament that willingness to make a deal is an outcome strongly considered. The Euro joined the bullish party temporarily but could not sustain the rapid acceleration above the USD 1.10 round number, eventually giving back most of its gains. Lastly, the USD, JPY, CHF went through a rough patch, especially the Japanese and Swiss currencies as the favorite funding currencies to borrow at times of rampant risk appetite as it was the case on Thursday.

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices can be found in the Global Prime's Research section.

Narratives In Financial Markets

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

Rampant risk appetite on US-China partial deal anticipation: The market has celebrated not only expectations of a partial trade deal between the US and China, or at the bare minimum, a ‘currency pact’, which alone has caused a tremendous shift in market sentiment, but the news of a possible resolution to the Irish backstop, has jolted the markets with extra enthusiasm, leading to ebullient risk appetite, as reflected by the sharp depreciation in the Yen, Swissy or strong gains in stock indices.

The big shorts will come face to face: Reports of an early departure from the Chinese delegation were denied during the day, which when added to a “leaked” commentary by Bloomberg that the US is considering a currency agreement with China as part of partial trade deal in exchange for the suspension of further tariff increases, set the ball rolling. We then learned via circulating credible reports that US President Trump has scheduled a meeting with Vice Premier Liu He on Friday, leading to an extra boost in the groovy mood towards risk-seeking strategies in the marketplace.

Will Trump blink enough to hash out a partial deal? Trump tweeted “Big day of negotiations with China. They want to make a deal, but do I? I meet with the Vice Premier tomorrow at The White House.” This tweet by Trump, inviting Liu He for further talks, is an admission that he likes what he’s heard for him to be willing to mid somewhere in the middle, in other words, he seems to be blinking in order to activate damage prevention tactic to reduce the downside risk in both equities and his re-election chances.

Positivism around the trade talks prevail: While Doug Barry from the US China Business Council said that his sources confirmed that a trade deal is going to be smaller than hoped, he added that “a deal of any kind is more than a lot of skeptics have felt.” This follows comments by Craig Allen also of the US China Business council, who said: “We are losing share rapidly. If the light agreement is perceived to be 1st of a number of agreements or down payment on a resolution of issues that would be positive.”

The US makes a 'good-will' gesture on the Huawei saga: Even more reason to be optimistic about a trade deal came after a NYT report indicated that the “Trump administration will soon issue licenses allowing some American companies to supply nonsensitive goods to the Chinese telecom giant Huawei”, according to people familiar with the matter, adding that “this is a step that could cool tensions” as part of the trade talks.

Brexit breakthrough: The Sterling went through a few hours of rampant demand as a joint statement said the UK prime minister and Taoiseach (Irish leader) had a "detailed and constructive discussion", with the statement adding "They agreed that they could see a pathway to a possible deal." As the reaction in the Pound reflects, this is an inflection point as it heightens the prospects to get a Brexit deal done next week at the Brexit summit. The talks concentrated on "the challenges of customs and consent", Downing Street said. "They agreed to reflect further on their discussions and that officials would continue to engage intensively on them." Cabinet minister Michael Gove, who has responsibility for the UK's no-deal preparations, said: "I have to prepare for every eventuality but I'm hopeful following the good conversation that they had that we can make good progress in the days ahead." Meanwhile, Northern Ireland Secretary Julian Smith said to be "delighted to see the positivity that came out of the meeting".

Recent Economic Indicators & Events Ahead

Source: Forexfactory

A Dive Into The FX Indices Charts

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices can be found in the Global Prime's Research section.

The EUR index remains on a constructive bullish path with the overpowering of bids over offers expected to re-emerge out of the 8h support level just hit. Thursday’s EUR rally was rejected off the 8h resistance level outlined, found above a consumed 100% measured movement target. All else equal, this is a pristine location to add long-sided business into the EUR, with the added positive being that the major mark down from the highs has come on a taper of volume.

The GBP index has gone ballistic, placing the index in exceedingly overbought levels, which makes buying right of the gates in Asia a very dangerous proposition unless one lets the price cool off (pullback) for even momentum traders to find some justification to jump in. The Brexit breakthrough is no doubt welcome news as the one-way street huge move depicts, which should see further follow through should the positivism around Brexit continue.

The USD index has lost the 13d ema while at the same time, it has formed a successful bearish rotation, suggesting that any rebound could seriously be considered as a potential opportunity to find an excess of offers back up. The green hourly level is where I expect the first real test where a change of behavior in favor of sellers taking back control would occur. Even if the USD musters enough strength to blow through the hourly level, Thursday’s swing has run far enough to have also qualified a level higher up as a key level of supply on the daily (in red). On the way down, there is plenty of void room for sellers to capitalize on until a level of daily support.

The CAD index remains one of the most compressed currencies to trade, with the volatility experienced minuscule when compared to the movements seen elsewhere. Nonetheless, within the pirric range it trade, a new upleg was formed in the hourly, with a re-visit of the origin of that demand area towards the end of the NY session leading to a fresh demand imbalance. The latest flows we’ve seen in the CAD, thus, suggest buying off the lows can represent a good opportunity with technical value for a retest of higher levels in the day ahead.

The NZD index saw strong bids throughout the day in response to the groovy mood in the markets, with an hourly level of resistance tested and rejected on the first pass. There is no immediate levels that catches my attention in the hourly, which paired with the fact that the level currently in control is off the 8h as depicted in a blue line, and also the absorption of offers after the multitude of tests off resistance, makes the balance of risks be skewed to the upside.

The AUD index is well positioned structurally wise to keep making further strides with the latest round of ferocious demand flows violating the prior swing highs to create a fresh cycle up. The respect of the most recent hourly levels created along the way is a sign that this is a buying on dips markets as long as the optimism about a partial trade deal with China is sustained. There is plenty of upside room available for buyers to bank on the positive technicals until faced with a sticky resistance level on the 8h chart, which is about 0.35% away from Thursday’s close.

The JPY index is at a juncture of demand off the 8h chart, a level expected to see interest from various parties (market makers, profit taking from sellers) to create an initial stalling point. The confluence of the 100% measured move off the latest bracket area makes the confluence off this level quite a powerful one, even if the sentiment is clearly against a sustainable holding time. Nonetheless, there is definitely value to be a short-term buyer on the condition that the risk sentiment deteriorates from here on out, which can be observed through stocks or bonds.

The CHF index shows an identical picture to JPY, with a 100% measured move now completed at a key intersection point in the chart as part of an hourly horizontal support level. It wouldn’t be rare at all to see bids overpowering offers in the near term as this becomes a prime location for reversal to the mean strategies to thrive at what’s perceived as technical value areas. Should the selling pressure not abate, there is a daily support area (untested) over 0.25% below the closing price of Thursday, where solid buying interest should emanate from it.

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.
• Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
• Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection

 

[IvanGlobalPrime]

Find my latest market thoughts

Market Gives Benefit Of The Doubt In US-China Trade Truce

Given the risk-off ahead of the trade talks as evidence mounted that neither the US nor China was setting the stage for a fruitful outcome, the rampant risk reversal after another truce was reached is perceived as part of a market caught wrong-footed and overplaying what's been achieves so far. The Yen, Swissy and US Dollar were punished the most, while the Sterling remains on fire.

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

Notwithstanding the merit of reaching a trade truce once again, one wonders if the market got ahead of itself by over-selling funding currencies the likes of the Japanese Yen and the Swiss Franc, both destroyed, alongside a considerable loss of value by the US Dollar as well, although to a lesser degree. The truth is that the partial trade deal between the US and China barely scratches the surface on what's still a rather ambiguous and limited trade accord of intent. The Pound's volatility, meanwhile, represents a whole different ball game, as the high-stakes EU-UK Summit later this week approaches amid optimism that a compromise in the Irish border could be reached. Again, has the market overplayed its hand on the Sterling? The pricing of the Pound looks awfully expensive on any time frame other than the monthly perhaps. One of the main beneficiaries last Friday, following at a fair distance the Sterling's tail, is the Canadian Dollar, catapulted by a sizzling hot jobs report. The Aussie also did well as a proxy for China, while the Euro and the New Zealand Dollar were met with new moderate imbalances of supply as both keep retreating from the best levels in weeks.

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices can be found in the Global Prime's Research section.

Narratives In Financial Markets

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

US-China agree to bare minimum: A partial trade deal between the US and China jolted financial markets once again last Friday, even if it should be understood as yet another mere trade truce, whereby China will buy more soybeans ($40-50bn annually) in exchange for a suspension of the next tranche of trade tariffs hikes (from 25% to 30% on $250bn) by the US in October 15th. The formalization of the deal is thought that it may occur during the APEC Summit on 11-17 November.

The 'Phase One' trade deal: The trade deal has been dubbed as ‘Phase One’ of a more comprehensive deal down the road. As it stands, there is simply not enough meat on the bone for markets to get overly excited unless the core issues such as intellectual property, subsidies, market access, currency accord, among others, get addressed, which by the end of talks no public details transpired. What’s more, there was no cancellation of the existing tariffs, while further tariffs are still planned to go ahead for December 15. The blacklisting of Chinese companies by the US administration or the restrictions imposed on Huawei are still not addressed either.

A market caught wrong-sided: Given the risk-off ahead of the trade talks as evidence mounted that neither side was setting the stage for a fruitful outcome, the rampant risk reversal should be perceived as part of a market caught wrong-footed even if the sustainability of the rally remains debatable based on what’s been achieved so far.

No end in sight to lackluster investment and hiring intentions: Since none of the underlying issues as part of the trade war with China were resolved, it does fall short of what global and US firms would have expected in terms of clarity to crank up investment intentions and hiring decisions, hence the global slowdown is still very much a hot topic of discussion among the trading floors. If one buys into this assumption, safe-haven assets the like of Gold, bonds, Yen or the Swiss Franc should still be an attractive macro trade on the basis that the protracted trade war will drag on.

The Sterling is on fire as Brexit rules the rooster: Brexit deal optimism continues to catapult the Sterling, averaging over 2% gains in the last 48h of trading. The latest spike in the GBP on Friday frontrun a subsequent statement from the EU and UK's chief negotiator, in which both had a constructive meeting, where the phrase “both agreed to intensify discussions over the coming days” acted as the driver.

Can UK PM get enough support from the DUP? The real question is whether or not the UK PM Johnson is now capable of convincing the DUP party, by softening his stance on the Irish border, to increase the probabilities of hashing out a deal with the EU before the deadline of Oct 31. DUP’s Nigel Dodds said that “Northern Ireland has to remain fully party of the UK customs union”, while the EU’s Barnier reiterated that the proposal is not good enough to get a deal.

The UK-EU Summit on 17-18 October is absolutely key and it should bring about heaps of volatility in the British Pound. An extraordinary Parliamentary session in the UK on Saturday 19, where PM Johnson might be, by law, forced to seek a Brexit extension followed by the decision to call fresh general elections, may follow.

New details about the Fed’s balance sheet expansion: The NY Fed announced plans to purchase Treasury bills at roughly $60 bn/month, in addition to o/n and term repo operations to guarantee sufficient supply of USD in the system. The statement emphasizes that this isn't a change in the monetary policy stance: "These actions are purely technical measures to support the effective implementation of the FOMC's monetary policy, and do not represent a change in the stance of monetary policy."

A spectacular Canadian employment report: The Canadian jobs report came much better-than-expected at 53.7k vs 7.5k. The details of the report were extraordinarily good, with the unemployment rate at 5.5% vs 5.7% expected, the hourly wages for permanent employees at +4.3% vs +3.8% expected (prior +3.8%), while the full time jobs increased by +70.0K, while part time jobs saw a decline of 16.3K. Chances of a rate cut by the BOC have effectively gone down to 0% for the next meeting.

Recent Economic Indicators & Events Ahead

With Monday expected to be an unusually quiet day given the public holidays in major financial centers (Japan, US, Canada), the week will really come to life from Tuesday. It’s going to be a week with enough market catalysts, fundamentally speaking, to inject decent volatility in G8 FX. The week starts with the publication of the RBA Minutes on Tuesday, with Thursday’s employment data in Australia also to watch closely. Its neighbor, New Zealand, sees the publication of the CPI figures on Wednesday. In the US, focus will be on the earnings season kicking off on Tuesday, which should be the main driver for stocks, hence act as a major driver for the likes of the Yen on risk on/off. Brexit will definitely be another focal point, as the market awaits headlines from the 17-18 October UK-EU Summit. The base case by the market is that an extension will be followed by fresh elections, with the behavior in the Pound still reflecting chances for a deal are alive. Other data points of interest include US Retail Sales on Wednesday or China’s Q3 GDP and other monthly activity indicators on Friday.

Source: Forexfactory

A Dive Into The FX Indices Charts

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices can be found in the Global Prime's Research section.

The EUR index rally could not be sustained beyond a level thought to be of rich liquidity as depicted by the red horizontal line in the chart, as it refers to a daily level. From there, the initiation of a sell-side campaign ensued in the next 2 days, taking the currency to grab liquidity at a level of support in the 8h chart (now tested) as the blue line shows. We seem to now be entering a period of potential consolidation between the 8h support level and the newly created 1h of resistance identified in green color, which holds enough credence after the swing achieved a successful rotation, although not strong enough to validate a new bear cycle.

The GBP index continues to be on fire, fueled by the promising Brexit headlines coming through in the last few days of active trading. The extension is so out of whack that even momentum strategies may find it hard to justify further extensions without at least a meaningful correction lower. That said, if more positivism in the Brexit saga emerges, algo-led strategies will be fast to front run best bids available to keep the momentum going, although as I said, it’s rather suicidal to be a buyer of the Pound at these levels unless you have a macro perspective in mind and the intention is to hold the position for a protracted period of time. A few levels to take into account on the way down were marked in the chart to keep in mind as reference.

The USD index tested a pristine technical area where a potential long lasting buy-side campaign could be initiated from. The low reached on Friday already indicates demand flows are emerging where one would expect, which comprises an area of great confluence including a level of daily horizontal support, a trend line visible off the daily too, and a 100% measured move. A retest of the opposing supply level represented by an 6h resistance level is on the cards in the following days I’d expect, where sellers may find a lot more value to re-engage.

The CAD index has reached its 100% measured move in the hourly chart after a sizzling hot Canadian jobs report. This is a technical area where profit-taking by Friday’s buyers should ensue, potentially leading to a shallow pullback in prices in a day where liquidity is set to be much thinner-than usual on the closure of markets in US/Canada. Should the market manage to return towards its prior hourly swing high (aligns with the 50% retracement and 13d ema), I’d expect demand flooding in for the rally in the CAD to resume into fresher legs.

The NZD index appears to be caught in an hourly range of roughly 0.7%, with the current valuation finding a balance of bids/offers right at the mid point, which makes the zone to be trading the currency rather unattractive unless the edges are re-visited. The multitude of failed attempts to break higher has led to an eventual retracement of the index, although one would think the supply overhead is being consumed the more times it is tested. For now, the index is in no man’s land with a movement of about 0.3% in either direction to reach the cleanest areas of supply or demand where the next directional move is most likely to originate from.

The AUD index is building higher highs and higher lows through the mid-term 6h chart, permitting to create the prospects of a market that should continue to draw buy-side interest on dips, with the most critical support levels drawn in blue below the price. The constructive structure in the Aussie, accompanied by the positive vibes around the renewed truce between the US and China, make the upside supply level depicted by a blue line a potential target to eye. As long as the trendline off the 6h is not breached, the bullish structure is valid off the MT chart.

The JPY index has reached a key level of demand in the daily chart amid overextended conditions, causing the temporary thriving of contrarian reversal to the mean strategies. The void caused by the sharp devaluation of the Yen allows for further upside recovery in the days ahead, with the downside quite limited based on the relevant fresh daily level hit. Should the Yen recover enough ground to reach the 6h resistance level, that’s where the increase in supply imbalance should be most prevalent, as it aligns with a prior support level.

The CHF index looks set to seek out pockets of supply to the upside after it violated a prior daily swing low, creating a fresh bearish cycle on the daily chart. As in the case of the Yen, there is significant upside room for the CHF to undergo a corrective movement before it faces a significant opposing area of resistance off the hourly. A recovery all the way towards the 50% retracement would attract sell-side more macro sell-side interest based on how relevant the level has been in recent chart history, with plenty of interactions seen.

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.
• Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
• Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection

 

[IvanGlobalPrime]

Find my latest market thoughts

Optimism On China Trade & Brexit Drives Markets

The back and forth in the Brexit and US-China trade news flows are hands down the two main topics of discussion driving financial markets this week. The recent out performance of the Pound or the sharp depreciation of the Yen clearly reveal what the intentions of the market have been so far, that is, buy into the premise of hope for a comprehensive deal with China and an unlock of the Brexit stalemate.

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

By checking the chart attached in the report below, where I depict the performance of each individual currency vs a pack of G8 FX, what should be most immediately noticeable is the out sized fluctuations in the value of the Pound and the Yen as a by-product of the relative optimism that surrounds the US-China trade & Brexit negotiations. The rest of currencies remain encapsulated in a rather compressed manner, although by distilling the more micro movements, we can observe a well-bid tone especially in the AUD and CAD, which again, is a reflection of a market more keen on seeking out exposure into long carry trades, even if these days the positive swap in the AUD is not what it used to be. The Kiwi, surprisingly, has been a notable under-performer even if the positive rhetoric would suggest greater demand flows were to be expected. The USD and CHF, while not punished to the same extend as the CHF, not even close, have also shown bearish tendencies as of late. Lastly, the EUR has been rather uneventful in the last 24h.

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices 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.

More talks ahead in the US-China saga? We had a bit of a hiccup in the one-way street risk appetite after Bloomberg reported that China is aiming for more talks before signing Trump's 'Phase One' deal before the Chinese President Xi Jinping accepts the signing ceremony, most likely at the Asia-Pacific EC summit next month in Chile.

China wants Dec tariffs scrapped: The report notes that China wants Trump to suspend indefinitely the planned tariff hike in December, although the US is adamant to agree on that request, according to Treasury Secretary Steven Mnuchin, unless a deal is written in coming weeks.

China's MoC hints deal not yet finalized: China’s Ministry of Commerce came out with a statement in which it somehow doesn't seem to imply that a deal is fully finalized, noting that “the two sides have made substantial progress” and “agreed to work together in the direction of a final agreement.”

Both sides willing to reach a deal: The initial negative reaction in risk sentiment on Monday was later reversed as the market seems to have come to terms that the news does not represent a major setback but rather, it's still seen as a glass half full with China obliviously wanting to get the most out of it as part of a context where both parties do seem willing to reach a deal.

Thin liquidity in the North American session: What may have influenced the lack of follow through risk-off mood, as manifested during the European hours, where equities did come under renewed sell-side pressure, is the fact that markets in the North American region were closed in observance of Columbus day.

Global Times Editor sounds optimistic: Another factor influencing the recovery in risk high-beta currencies in general is a tweet by the Global Times Editor, Hu Xijon, who suggested that China will live up to the agreed commitment. The tweet read: “China has the market demand to buy $40bn-$50bn worth of US farm products. China won’t make a commitment that it can’t honor.”

PBOC gives blessing to US-China talks? Adding to the positive vibes in the Aussie away from its recent low is the fact that today's PBOC fix saw a slight appreciation of the CNY, which one could read as the PBOC (Chinese government-controlled entity) supporting the outcome of the US-China trade talks via the gesture of a higher Yuan.

RBA dovishness intact: Today's RBA minutes continues to show a Central Bank leaning towards a firm easing bias, noting that they are "prepared to ease further if needed to support growth and jobs." The RBA remains caution on its tone, detailing as part of the statement that "leading indicators point to slowdown in jobs growth in quarters ahead."

Trump set to impose big sanctions to Turkey: Trump said big sanctions on Turkey are coming in response to the strikes in the northern part of Syria last week. The Turkish Lira remains under pressure as the upcoming sanctions are set to exert further strains in an already debilitated economic outlook.

Chinese trade figures show weak demand: China trade balance data came very poor on Monday, with imports and exports both lower than expected. In USD terms, the exports were down by -3.2% y/y while the decline in imports was much more dramatic, with a fall of 8.5% y/y, which implies weak domestic demand and understandably, led to an initial negative reaction in the Oceanic currencies, although a stubborn Aussie managed to weather the storm. The Kiwi didn’t show as much conviction.

The Sterling holds firm as Brexit hopes remain: The Pound is holding firm near its highest levels after the Telegraph reports that Brexit deal hopes keep rising as 'last-minute compromises are made'. The report expands that “sources in Brussels and London told The Daily Telegraph there was cautious optimism that a narrow path to a deal could now be appearing - a marked shift in tone from the downbeat assessment from the EU’s chief negotiator Michel Barnier on Sunday.” A source, according to the news portal, said "a positive day of negotiations had yielded a potential solution to the Northern Irish border.”

Finnish PM has thrown some cold water: The politician said the prospects of an immediate deal, if there were to be one, are not easy after detailing the following statement “I think there is no time in a practical way and in a legal base to reach an agreement before the Council meeting”.

Recent Economic Indicators & Events Ahead

With the RBA Minutes out of the way, Aussie traders now look forward to Thursday’s jobs data in Australia. New Zealand, sees the publication of the CPI figures on Wednesday. In the US, focus will be on the earnings season kicking off on Tuesday, which should be the main driver for stocks, hence act as a major driver for the likes of the Yen on ris on/off. Brexit will definitely be another focal point, as the market awaits headlines from the 17-18 October UK-EU Summit. The base case by the market is that an extension will be followed by fresh elections. Other data points of interest include US Retail Sales on Wednesday or China’s Q3 GDP and other monthly activity indicators on Friday.

Source: Forexfactory

A Dive Into The FX Indices Charts

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices can be found in the Global Prime's Research section.

The EUR index has entered a range period, encapsulated between a level of hourly resistance, tested and rejected during Monday’s activity, while the downside remains firmly capped by an area identified as a level of support on the mid-term chart (6h time frame). The index was recently rejected from a daily resistance level, which means it could have been an inflection point from where a more protracted sell-side cycle sets out to mature. So far, the reaction off this daily resistance suggest this scenario still coming to fruition, although much will depend on whether or not supply imbalances can violate the 6h support level in blue and accept below.

The GBP index continues to find demand at these present lofty levels as algo-led buying tries to get onto the bandwagon of the GBP frenzy after a report by the Telegraph feeds into the rhetoric that a potential compromise on the Irish border may still be found. The level the currency trades at remains exceedingly expensive but in a week where headlines will take the driving seat, anything can happen, including the further elongation of the momentum on Brexit positives. Should any setback occur, I’ve identified critical levels of support further down at a significant distance from price, which makes them key pockets of demand imbalances to re-engage in GBP.

The USD index found a solid level of demand imbalance as I was anticipating at a huge confluence area (100% measured move, daily horizontal support + trendline intersection), which means plenty of eyes would have been looking to re-engage around this level. The bounce initiated off this strong demand level has shot up towards a level of horizontal resistance in the 6h chart, where sitting offers in G8 FX and represented via the aggregation of flows, implied that sellers would be temporarily gaining the upper hand again, as was the case. With both levels now tested on either side (hence why painted in dash lines), I’ll wait for new levels of clear strong departures to set up in line with the dominant flows before speculating in either direction.

The CAD index could not sustain an expansion of its bullish momentum into the close of the daily candle, even if the structure is still quite conducive to see demand follow through on dips. The positive fundamentals on the CAD, after the sizzling hot employment report last Friday, are an extra factor backing up the appreciation in the currency, as is the overall risk appetite prevailing after last week’s tentative US-China trade agreement. There are a couple of selected horizontal support levels that were identified on setback off the hourly and 6h chart. On the way up, there is significant room until the next level of daily resistance (see red line).

The NZD index has breached an important swing low in the hourly chart, allowing the creation of a fresh bearish leg visible from the 6h time frame. This now sets the stage for sellers to be the dominant force in this market, especially as the market seeks out higher liquidity pockets. I’ve highlighted a couple of hourly resistance levels where sell-side pressure may return, with the most distant of special significance as the baseline off the daily aligns with the origin of Monday’s supply imbalance. On the downside, should the momentum resume, there is room for the NZD to keep selling until faced with a fresh level of daily horizontal support.

The AUD index was convincingly rejected off a critical level of support outlined in blue as it represented not only a level with multiple interaction but also a key juncture as per the intersecting bullish trendline paired with the origin of demand from Oct 11. With the downside level now probably consumed, should further setback come about, there is another critical level of horizontal support off the 6h chart down below where I expect demand to arise as it was a precursor to the Aussie breaking into a new swing high in that 6h chart. On the topside, a sticky level of horizontal resistance, while still at a fair distance away, must be accounted for as an area that will most likely cause a potential supply imbalance as was the case during Sept.

The JPY index saw a 3 leg corrective move off a daily horizontal support, with the price now in no man’s land in terms of the proximity with demand/supply imbalances. This means we must await for further price fluctuations to show the next directional path. However, be aware that the level of demand in the daily has now taken control, which is where a meaningful buy-side campaign may set out towards the next technical level of relevance, currently not see until the 50% retracement of the sharp decline from last week (highlighted in green). In the short-term, the absence of near-by levels allows enough room to see the exploitation of voids in either side.

The CHF index found enough demand to revisit a key level of liquidity in the chart where a supply imbalance had originated off the hourly last Friday, and precisely the area where the corrective leg in the Swissy has come to a temporary end. There is currently a lack of fresh levels of support/resistance nearby to make me consider any area in the chart as tradable, so as in the case of the Yen index, patience for new demand/supply imbalance formation is warranted.

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.
• Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
• Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection

 

[IvanGlobalPrime]

Find my latest market thoughts

Brexit Optimism Eclipses Setback In China Trade

The Sterling extended its gains as hopes for a Brexit deal ahead of this week’s EU-UK Summit, which begins tomorrow, keep building up. The unwinding of short GBP hedges has been nothing short of mind-boggling, with the latest headlines spurring further momentum as EU, U.K. negotiators are closing in on draft Brexit deal.

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 Pound remains the superstar in the Forex arena as talk filters through the market that that the EU and U.K. negotiators are closing in on draft Brexit deal. We saw in the case of the overoptimism int the US-China trade deal, where plenty of details must still be ironed out, that reversals tend to occur as the dust settles and the market takes a step back to analyze the real merits of the headlines. In the case of the Brexit saga, there is still a high bar to meet in the arithmetic side of the equations. An example of the risk for setbacks is the warning from Germany that no matter the outcome of this week, Brexit will still need to be delayed until next year, which goes against the promises of UK PM. The Brexit narrative has so far assisted in the recovery of risk, even if there are still some cracks that must be addressed in the US-China trade deal, despite the disconnect by US President Trump, which is busy talking about Phase Two of the deal when even Phase One is not yet baked in the cake as China demand the removal of Dec 15 tariffs. All in all, brace yourself for wild swings in the market, especially in the Sterling, where the implied vol is at its highest in 12 months. The Yen, as the favorite vehicle to express risk conditions, will also see volatility crank up significantly, while the rest of the currencies pack should see more limited movements. The Oceanic currencies are trading on the back-foot in the early hours of Asia on Wednesday, as negative Chinese headlines related to the HK conflict and RBNZ comments weight.

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices 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.

Brexit positivism dominates: The Sterling extended its gains as hopes for a Brexit deal ahead of this week’s EU-UK Summit, which begins tomorrow, keep building up. The unwinding of short GBP hedges has been nothing short of mind-boggling, with the latest headlines spurring further momentum noting that “EU, U.K. negotiators are closing in on draft Brexit deal.”

Legal text demanded by Barnier: The EU’s chief Brexit negotiator Barnier said a deal is still possible this week but before that becomes a reality, he has requested a legal text of any agreement by midnight UK time in order to decide if a deal is up for consideration during the EU summit. Should the deal be accepted and received the blessing from the EU members, which remains at his point two major assumptions, the ball will then move to the UK parliament courtyard, where an extraordinary assembly is scheduled on Saturday to achieve parliamentary approval. If by October 19th we have no deal, the Benn Act legally forces the UK government to seek a Brexit extension.

Watch speech by UK PM in Parliament: UK PM Boris Johnson is set to address backbenchers at 7.30pm London time on Wednesday, according to the Daily Telegraph reporter Christopher Hope, which has only fueled the optimism that Johnson is setting the stage to gain the necessary support for a deal. Whether or not Johnson receives support from the DUP is the real question here. Stay glued to the newsflows.

Germany warns extension will still be required: Throwing cold water into the prospects of an immediate departure of the EU, the UK Times notes that Germany has warned that no matter the outcome of this week, Brexit will still need to be delayed until next year. The prime minister has been told that ironing out the details of his complicated Northern Ireland plan would take “some two more months”, which would force UK PM Johnson to request an extension to Article 50 on the basis of an in-principle deal.

US-China trade deal still needs more work: While US President Trump aims to feed into the rather misplaced optimism of a comprehensive US-China trade deal by tweeting about a Phase-two deal including banking, a report by Bloomberg citing sources familiar with the negotiations detailed that China wants US to remove retaliatory tariffs on Dec 15 to reach $50 bn imports of US goods. What this suggests is that further talks to iron out the details may be expected, with the Chinese President Xi unlikely to accept a signature ceremony of the Phase-One deal next month as the conditions stand.

China news outlets' tone not as retaliatory: Global Times' editor-in-chief, a Chinese government mouthpiece, keeps tweeting out a more upbeat stance on the ongoing trade conflict, noting that "Phase-one deal of the China-US trade talks is of great significance for China, the US, and the world.” Yesterday’s tweet also carried a rather positive tone: "Based on what I know, China-US trade talks made breakthrough last week and the two sides have the strong will to reach a final deal. Initial statement of the Chinese side is moderate. This is China's habit. It doesn't mean China's real attitude is not positive."

China urges US to stop pushing forward bill over Hong Kong: China's Foreign Ministry has threatened retaliation against the US as it condemns the House passage of the bill, which clearly shows that trade is just one element in the cold war between the two nations. The news has seen risk aversion kicking in a tad during Asian hours.

Further deputy-level trade talks ahead: According to Fox Business reporter Edward Lawrence, further US-China deputy level talks will take place this week with the goal fixated on a deal ready to be signed by mid-November. “Deputy Level Chinese trade meetings will happen this week. We expect one more call between the heads of the US & Chinese trade teams. Then possible meetings in mid-November. The Administration pushing to have a final "Phase One" deal on paper by Mid-November."

NZ inflation print better-than-expected in Q3: NZ Q3 CPI stood at 0.7% q/q vs 0.6% exp and 1.5% y/y vs 1.4%. While the logic is that the RBNZ won't be as compelled to ease on higher inflation, Reserve Bank of New Zealand deputy governor Geoff Bascand threw a curve ball to the optimism, noting that NZ remains vulnerable to external shocks, hence lower rate may still be needed to achieve objectives. He added that "sees lower rates being here for some time", with reasonable prospect the cash rate going lower."

Recent Economic Indicators & Events Ahead

Source: Forexfactory

A Dive Into The FX Indices Charts

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices can be found in the Global Prime's Research section.

The EUR index continues to be trapped between an area of support and resistance in the hourly chart as the currency faces voidness of clear driving factors this week, with all the attention placed in the Brexit proceedings. Ever since the rejection of a daily horizontal resistance (in red), there has been an increase in sell-side flows which has ultimately led to the absorption of a level rich in bids through this week’s lows, leading up to a period of consolidation now.

The GBP index keeps finding further buying interest as hedges are removed and heavy algo-trading activity picks up in response to the lingering optimism that a potential Brexit deal may be achieved this week. The index has now reached a significant level of daily horizontal resistance where supply is expected to increase even if the next directional movement from here will be all about the newsflows and whether or not the positivism can be extended. To the downside, a clear level rich in liquidity where a demand imbalance occurred is key (in green).

The USD index was rejected away from a level of resistance in the 6h chart, which happened to coincide with the 13-day ema (baseline). The price has now returned towards a level of demand off the hourly as depicted by the green line, from where a rebound can be expected. Bearing in mind that the index has recently found a shift in flows due to the test of a daily horizontal support, it should add credence to the prospects of buying interest at these pockets of liquidity.

The CAD index found dip buying interest on a retest of the daily baseline (13-d ema), intersecting right around the same level as a level of hourly support (breakout point last bracket). The successful rotation of price off the lows re-validates the hourly level now for further demand imbalances to take place should it be retested. On the way up, there is room for the CAD to appreciate until faced with a supply area, over 0.40% away from the last close.

The NZD index has been rather predictable in the location where a shift in flows would occur. The early week breakout of a key support led to a 100% measured move extension, from where demand picked up for a retest (a 3rd time) of the old support-tuned-resistance, which happened to be a valid level post the NZ CPI-led spike as the last swing achieved a full rotation. The index should stay bracketed between the immediate levels of demand and supply (blue and red).

The AUD index finds itself at a critical support in the 6h chart where demand so far has not emerged, and as I type, a breakout of the area on negative Chinese headlines has transpired. The next level of demand imbalance is expected to come around 0.3% from the breakout point, area where the 100% measured move also comes into play. On the way up, a level of hourly resistance painted in green can be seen where sellers should return on a bounce.

The JPY index is being bought up at the second retest of a daily horizontal support, with any recovery to see supply emerging at the retest of the last swing breakout point. Further up, since the last rotation was a successful one, additional supply imbalance should come into play at the double top, even if one must be aware that a daily demand has now taken control. What this means is that at this point, the likelihood of a protracted buy-side campaign is higher than an extension of the sell-side flows given where we stand in the market structure.

The CHF index managed to successfully rotate to the downside on the hourly chart, which allows for the drawing of an hourly liquidity level where sitting offers in CHF vs G8 FX should be found. Remember, at the time of the test of resistance, is all about trying to match up the expected rotation down/weakness in the CHF with another currency where demand is eyed. Note, the index is very low after a considerable downside extension, which means the risk of a change in behavior with new uplegs to be building from the current location is a real risk.

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.
• Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
• Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection

 

[IvanGlobalPrime]

Find my latest market thoughts

GBP Vol Here To Stay As Brexit Plot Thickens

The groovy mood around a potential Brexit deal keeps underpinning the Pound and the Euro as UK government officials burn the midnight oil trying to get enough support from MPs to seal a deal with the EU even if the arithmetic suggests it will be a tall order to get an agreement through the Parliament. Overdone or not, the market likes what's been achieves so far...

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

We are probably at the most crucial week in this whole Brexit mess ever since the saga first kicked-off more than 3 years ago. It's therefore no wonder to see an excess of volatility in the Sterling as the market keeps re-adjusting to the positive expectations of a deal, which so far has resulted in a tsunami of buy-side pressure as momentum, algo traders pile into longs while at a more macro level, corporate and commercial hedges are unwound and market makers remove tight interval offers amid rising imp vols. It's going to come down to the wire whether or not the UK can pull enough strings to make this new proposed deal happen. There are still a lot of unknowns and the arithmetic for the UK PM to garner enough support from MPs, let alone to get the final blessing from the EU, is certainly a tall order. The next 2 days in the Pound won't be for the fainthearted type, that's a given. Elsewhere, the Yen remains under pressure as optimism that a Brexit can finally happen builds up. The Kiwi and the Canadian Dollar were notable under performers too, as the RBNZ deputy governor Geoff Bascand threw a curve ball by noting reasonable prospect for the cash rate going lower. The US Dollar, which has been on a downward trend since early October, kept that directional bias intact as US retail sales disappointed (first decline in seven months). The Euro, on Brexit groovy vibes, alongside the Aussie, boosted by a strong jobs report, were the out performers, joining the King of Forex this week (GBP).

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices 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.

The groovy mood around a potential Brexit deal keeps underpinning the Pound and to a lesser extend the Euro as the UK government burns the midnight oil trying to gather enough support from MPs even if the arithmetic suggests it will be a tall order to get an agreement through.

EU officials have reiterated that for the Commission to evaluate a new Brexit proposal that satisfies all the predetermined requirement as it relates to the Irish border, it would have to be submitted by tonight UK time, but there are no signs of that happening yet. The BBC cited a government source noting that there will be “no deal tonight”.

During Wednesday, the top European Union negotiator on Brexit, Mr. Barnier, said to have told EU commissioners that he is optimistic of getting a deal done today, according to RTE political editor, Tony Connelly, while highlighting that outstanding issues were to be resolved.

In today’s speech in the 1933 committee, UK PM Johnson told backbench MPs that 'we are almost there', repeating that the UK will leave the EU on October 31, no matter what. Varies MPs, including ERG leader Steve Baker who said a 'deal sounds like it could be tolerable', appear to see enough merit on the progress made so far to lean towards an endorsement of the deal, although one unshakable condition must be that there is a legal text that backs it up.

As a reminder to readers, there will be an extraordinary vote on the new proposed Brexit deal on Saturday, which is very unlikely to meet the above required steps of making a legal text available, but instead we may end up with just a political declaration of intent. What this means, which is something Germany has already warned, an extension may be inevitable beyond Oct 31st, even if it’s just a formality to finalize the drafting of the legal text.

A report by RTE confirmed, according to as many as 4 different European sources, that the DUP has agreed on the major sticking points to a deal, which was a comment immediately denied by the DUP leader Arlene Foster, who replied that chatter was 'talking nonsense' as talks continue, adding that “needs to be a sensible deal which unionists and nationalists can support.”

French President Macron was reportedly saying that “a Brexit agreement is being finalized” even if at this point the chances of a deal depends on getting the support from the DUP and perhaps also a few Tory MPs who may disagree should the agreement no longer represent the political will for a commitment that includes continuing tariff free trade between the UK and The EU. Meanwhile, Germany’s Chancellor Merkel said 'we are in the last meters in negotiations'.

Staying with Germany, there has been reports that German Chancellor Angela Merkel’s CDU party may be more flexible to accept fiscal stimulus should the economic recession deepens. Any news that may reinforce the notion of Germany’s balanced budget is a EUR positive driver.

While the Brexit news have totally eclipsed the US-China trade negotiations, be mindful that the ironing out of the Phase One details continue, with further deputy-level trade talks eyed this week. According to Fox Business reporter Edward Lawrence, “Deputy Level Chinese trade meetings will happen this week. We expect one more call between the heads of the US & Chinese trade teams. Then possible meetings in mid-November. The Administration pushing to have a final "Phase One" deal on paper by Mid-November."

The Fed's Beige Book, which tends to be a barometer of where the Fed sees the overall economic activity, saw a downgrade by noting that the economy expanded at slight-to-modest pace. Businesses see expansion continuing, but many have cut outlook. Districts in south and west were more upbeat that midwest and great plains. Some districts suggested persistent trade tensions and slower global growth weighed on activity. Most expect economic expansion to continue; however many lowered their outlooks for growth in the coming 6-12 months. Wages rose moderately in most districts, with upwards pressure noted for lower-skill workers.

NZ Q3 CPI stood at 0.7% q/q vs 0.6% exp and 1.5% y/y vs 1.4%. While the logic is that the RBNZ won't be as compelled to ease on higher inflation, Reserve Bank of New Zealand deputy governor Geoff Bascand threw a curve ball to the optimism, noting that NZ remains vulnerable to external shocks, hence lower rate may still be needed to achieve objectives. He added that "sees lower rates being here for some time", with reasonable prospect the cash rate going lower."

The Canadian Sept CPI came at +1.9% y/y vs +2.1% expected, while the CPI m/m stood at -0.4% vs -0.2% expected, putting downward pressure on the Canadian Dollar. The headline number was clearly underwhelming but the core numbers were borderline in respecting the BOC inflationary mandate, which makes the initial negative reaction slightly overdone as it may not alter the neutral policy stance by the BOC, especially on the back of last week’s blockbuster jobs report out of Canada. The major drag was a 10.0% y/y fall in gasoline prices.

The US September advance retail sales came much worse-than-expected at -0.3% vs +0.3% expected, which represents the first drop in seven months. The USD was taken to the woodshed after the poor reading as odds of a Fed rate cut in Oct 31st now increase.

Recent Economic Indicators & Events Ahead

Source: Forexfactory

A Dive Into The FX Indices Charts

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices can be found in the Global Prime's Research section.

The EUR index has found a new base above its prior resistance, with dips so far bought as larger pools of liquidity become now available above the most recent bracket. The structure of the market is clearly bullish in the hourly, with leeway until the next level of daily resistance, even if much of today’s price action will depend on the Brexit negotiations.

The GBP index continues to charge higher in a constructive bullish stepping formation where recent levels of support drew a lot of attention to join the bid, to the extent that the index has broken above a key level of daily demand. Technically, the market remains a buy on dips, but any wrong Brexit-related headline could see a sudden change of flows.

The USD index is breaking below a level of daily support where rich liquidity to buy the USD may be found even if the market structure suggests the pressure may continue to the downside. There is certainly room for the USD to keep depreciating until faced with the next level of horizontal support, which is found around 0.3% below the current price.

The CAD index has pulled back all the way to a critical level of support in the hourly chart, where a rich pool of liquidity in various CAD pairs may be available. Since the departure of the tested swing low did achieve a full extension to visit the opposing high, one would think that structurally wise enough merit has been achieved for demand to return around these levels.

The NZD index broke a key level of daily demand, which was a riskier proposition to consider as we were trading against the dominant long term trend. The decisive breakout of support went for a deep extension lower before a sharp retracement to test a pool of offers as represented by the hourly resistance line in green. From here, sellers are aiming to retake control.

The AUD index has seen a ferocious rebound as liquidity was withdrawn from the market on a better-than-expected AUD jobs report, leading to a retest of a supply pocket in the hourly, perfectly aligned with the intersection of the baseline, hence creating a confluence for sellers to exploit. So far, the price has stopped on its tracks around this level of resistance.

The JPY index is on a clear bearish trend, with the consumption of a daily demand level now setting the stage for a fresh cycle low with plenty of downside room as per the void available. Any rebound should be seen as a sell-side opportunity all else equal. The flows could see a sudden change on any upset coming from China trade negotiations but most importantly this week, on whether or not a new Brexit deal is achieved.

The CHF index is trading back and forth without a particular direction in the last few days, even if the underlying trend remains down, so we should interpret the current seesawing price action as acceptance at lower levels. This means that the risk is still skewed towards the downside, with the latest rebound earlier in the week sold in earnest before the current consolidation.

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.
• Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
• Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection

 

[IvanGlobalPrime]

Find my latest market thoughts

Brexit: Half Equation Done, Miracle Still Needed


The EU and UK official announced the agreement of a new Brexit deal, even if that’s just half the equation, as the ball is now in the courtyard of the UK Parliament, where an extraordinary high-stakes session this Saturday will take place to vote whether or not the new deal can go into law and end this 3-year long conundrum. The Pound has been all over the place with buyers still lurking on dips.

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

If one thing characterizes the Brexit saga right off the gate more than 3 years ago is the defiance of all odds. What UK PM Boris Johnson has been able to pull off by sealing a new improved deal, even if it may not satisfy all parties, is noteworthy and borderline miraculous. Now, the DUP and SNP not being on board makes the arithmetics a near impossible endeavor for the deal to go through the extraordinary sitting of the UK Parliament this Saturday evening. At this stage, if one is to maintain exposure in GBP over the weekend, do ask yourself, do you believe in amiracle and the ongoing defiance of odds in the form of the deal getting the green light from the UK Parliament? If so, long GBP exposure sure can pay off big bucks, while on the flip side, if one can't conceive such outcome, the GBP may be set to suffer from here on out. Either way, the important point to make is that holding exposure in the GBP over the weekend will carry extraordinary risks of ample gaps at the open of markets in Asia next Monday as interbank dealings will font-run the best quotes to enter before retailers have a chance to transact in the Pound. That's why in most legit brokers that look to safeguard the interest of its clients, including of course Global Prime, GBP FX pairs leverage is likely to be reduced, in our case 1:33 (3% margin requirement) over the weekend in anticipation of increased volatility surrounding the Brexit process. Shifting gears, the free-fall in the US Dollar continues to be a hot thematic too, as the world's reserve currency falls to the lowest in 2 months at an index level. The increased odds of a Fed rate cut before year-end + hopes of Brexit are the main culprits. The Japanese Yen is another unloved currency as risk on picks up. The Euro and the Swissy both found enough demand to stay underpinned in the grand scheme of things, although high-beta currencies (AUD, NZD, CAD) have received the most attention in terms of demand flows, as the market keeps acting as if what's been achieved on Brexit over the last few weeks is meritorious enough to be long risk, independent of the outcome in the UK parliament, which would still most likely guarantee a Brexit deadline extension until next year. The Aussie's extra boost of demand can also be explained due to the better-than-expected jobs report on Thursday, which allows room for the RBA to keep the powder dry in rates short-term.

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices 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.

EU-UK deal = 1/2 equation: The EU and UK official announced the agreement of a new Brexit deal, even if that’s just half the equation, as the ball is now in the courtyard of the UK Parliament, where an extraordinary high-stakes session this Saturday will take place to vote whether or not the new deal can go into law and end this 3-year long conundrum. The Pound has been all over the place with buyers still lurking on dips.

The deal satisfies only a portion: The deal has achieved new concessions on Northern Ireland’s custom relationship with the UK, while allowing the British more control over independent trade deals. On one hand, hard Brexitiers may be satisfied with the progress made, but it may represent a real issue to get the support from those who want a closer trade relationship with the EU.

Do miracles exist in Brexit? The fact that the DUP and SNP parties have explicitly and formally opposed some of the Irish backstop conditions under the new deal makes the arithmetics to be approved via the UK Parliament on Saturday, in the words of the Economists, a task that requires a 'miracle' . As a result, the initial rampage of demand into the Sterling saw an almost full reversal even if buyers are still lurking around at the lows, apparently holding the belief that miracles still exist?

What are the numbers Johnson needs to pass the deal? According to the Economist, Sky media have crunched some numbers, noting that "Johnson needs about 320 votes assuming no one abstains, but there are only 287 voting Conservative MPs. Boris Johnson doesn't have the numbers - yet - to pass his deal in the Commons, but there have been clear signs that some of the resistance is crumbling."

Risk appetite flows steady: The euphoria in the broader market has been relatively well sustained, with stocks and bond yields in the US initially spiking on the encouraging headlines coming out of the EU-UK summit, even if the entirety of the gains were not accepted at the highs as doubts remain. Interestingly, the performance by the Japanese Yen and the Aussie, with the AUD/JPY still defying gravity, is a tell that currency traders do keep high hopes that the deal can come through.

The bellwether of risk in FX (JPY) remains offered: It must be pointed out that the behavior in the AUD/JPY as an accurate barometer of risk, and the overall lingering optimism in the market, appears to be at odds and in rather stark contrast with the present arithmetics in the UK parliament to push this deal through.

UK PM Johnson's persuasive skills to suffice? Will UK PM Johnson be able to convince some of the DUP and SNP MPs in addition to also getting on board the 21 ex Conservative PM expelled from the Party last month? Be mindful, if a deal is rejected, what lies ahead is with almost all certainty an extension of the 31 October Brexit date, followed by a potential general election in order to obtain a stronger mandate.

No delay remains Johnson's hard-line stance: Johnson remains hard-lined with the intention to not ask for a delay of Brexit, in that "it is the new deal or no deal but no delays", as a tweet by BBC political editor, Laura Kuenssberg, notes, citing the UK PM. "source says Johnson will ask leaders to rule out a further delay - he's expected to ask them to make clear it's 'the new deal or no deal but no delays’”

EC's Tusk implies extension to be conceded: According to EC President Tusk, if there is an extension request, it will be considered by members. "We will support an extension of Article 50 if that is needed to prevent a no-deal scenario," European Parliament Vice President Pedro Silva Pereira told Sky News.

Small disappointment in China's Q3 GDP: China Q3 GDP came at 6.0% y/y vs 6.1% expected, although that was counteracted by a major beat in the September industrial production, which came at 5.8% y/y vs 4.9% expected.

Recent Economic Indicators & Events Ahead

Source: Forexfactory

A Dive Into The FX Indices Charts

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices can be found in the Global Prime's Research section.

The EUR index has formed a broad range structure, where the identification of symmetries is paying off to those traders engaging at the edges where liquidity is the richest and volume has had a tendency to taper off amid the lack of full clarity in the Brexit saga. Buying off the midpoint of the range, which aligns perfectly with the 50% retracement, or at the very extreme, as was the case on Thursday, is where the value resides as the abrupt rejections demonstrate.

The GBP index, while unable to sustain its gains, has not negated its bullish structure on the hourly chart despite the latest selling off the top. Instead, the market continues to find strong buying interest on dips to now transition into a consolidation, which should be seen as the acceptance of high levels (acceptance) in the context of an uptrend. Brace for a wild gap at the open of markets next Monday depending on the Brexit vote in the UK parliament on Saturday.

The USD index continues its free-fall with the price having reached the 100% measured move in the Asian session of Friday, which happens to be nearby a level of daily horizontal support. It is therefore sensible to conclude that rising demand may be observed in close proximity. Any rebound should be seen as an opportunity to sell the buck at higher prices, as the structure of the market has turned bearish across all temporalities from daily down to the hourly.

The CAD index found a major boost in demand at an area expected to contain heavy bids, which based on the reaction north in the Loonie from there, it was indeed the case. The successful rotation of price off the lows by penetrating the prior swing high in the hourly makes any dips in the next 24h an interesting proposition to consider a reinstatement of buy-side business as one would expect buying programs to get back into what’s arguably the strongest fundamental ccy.

The NZD index has been bolstered by a couple of positive headlines ahead of the Chinese GDP, including an upgrade in Fonterra’s milk prices by BNZ, coupled with the strongest setting in the Yuan in over a month. The release of the Chinese data will inject further vol. In terms of the outlook, the structure in the hourly is now more constructive after the takeout of the prior swing highs, even if cluster of offers via pools of high liquidity are eyed nearby as the index tests the origin of a supply area clearly visible on the hourly chart. Note, the structure on the mid-term chart (6h) remains bearish, hence why expecting supply to kick in won’t be surprising.

The AUD index has garnered enough momentum to make a fast transition from the bottom to closing in towards the top end of its broad 1% range. The strong employment report in Australia in the a.m. of Thursday in Asia, alongside the hopes that a Brexit deal is still possible, has been music to the ears of buyers, which have propelled the ccy into the best levels of the week. The broad-based weakness in the US Dollar is another aspect to factor in to explain the AUD rise. Watch the levels marked off in green (hourly) and blue (6h) to find the deepest pools of liquidity.

The JPY index, once again, has stopped on its tracks at the 100% measured move from its latest well-defined bracket. Notice, the sharp decline in Yen valuation has found predictable (temporary) bottoms at the intersection of the 100% measured move in the two initiated mark-down phase, further reinforcing the value that these areas have as rich pools of liquidity where market makers bids, profit-taking from sell accounts and reversal to the mean bbuy programs all come together around the same level to create upward pressure on the price. The market is likely to rebalance upward seeking out liquidity towards a retest of the broken last low (prior 100% measured move), where an impulsive sell-side move origin is found.

The CHF index rebounded very strongly off the lows, finding sufficient demand to validate a shift in the hourly cycle to bullish, with the ascendance in the CHF valuation being blocked by the intersection of the daily baseline (13-d ema) where offers absorbed the draining bids. Dips are now at risk of being bought with more aggressiveness than the amount of offers set to enter based on the shift in cycle and the 6h support line price is heading into, although much of the directional bias in the coming days will be dependable on the Brexit saga.

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.
• Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
• Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection

 

[IvanGlobalPrime]

Find my latest market thoughts

Limited Vol In GBP As Brexit Vote On Hold

The Pound is trading slightly weaker, even if the depreciation at the open of markets is well contained, after a sufficient majority of MPs in the UK parliament supported the Letwin motion to withhold the approval of PM Johnson Brexit proposal. The behavior in the Pound suggests that the market also sees slimmer possibilities of a ‘no deal’ Brexit ever eventuating.

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 limited volatility in the currency market as the much-awaited vote in the new Brexit withdrawal agreement bill never came to fruition on Saturday as a sufficient majority of MPs in the UK parliament supported the Letwin motion to withhold the approval of PM Johnson Brexit proposal. If one wonders why the Pound is still so stubbornly high, having barely budged, the reason lies on what this motion achieves. It essentially acts as an insurance policy that takes the power away from the UK PM Johnson to trigger a no-deal exit, and we know by now that any developments that see the chances of a no-deal Brexit removed further, at its core, has been treated as a GBP positive. The vote on the new withdrawal bill is still planned to go ahead by Tuesday this week, even if Johnson does not enjoy the same leverage as he used to. The mess that will never end. As the G8 FX chart below exhibits, the volatility has been centered around the GBP as it deals with its own idiosyncratic Brexit drivers. The JPY and USD have also been on the move lately, although for what appears to be different reasons. The former has been the vehicle of choice to express the optimism that a no-deal Brexit will be averted, while the USD has been recently taken to the woodshed as the market factors in the increased chances of a Fed rate cut by Oct 31st, now standing at 91% chance after last Friday's Fed Vice Chairman Clarida intervention, who erred on the dovish side before the official blackout period. The triumphant currencies so far, as China revives the groovy vibes around a meaningful US-China trade deal, include the Aussie and the Kiwi, while the EUR and CHF remain quite firm as well, as a byproduct of the constructive Brexit headlines.

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices can be found in the Global Prime's Research section.

Narratives In Financial Markets

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

GBP vol limited at the open: The Pound is trading on the weak side, even if the depreciation at the open of markets is well contained, after a sufficient majority of MPs in the UK parliament supported the Letwin motion to withhold the approval of PM Johnson Brexit proposal. The motion, which was voted in favor 322 vs 306, acts as an insurance policy to guarantee the inability of the UK PM to trigger a no-deal exit in case the new withdrawal agreement suffers unexpected delays due to legal requirements. The behavior in the Pound clearly suggests that the market also sees slimmer possibilities of a ‘no deal’ Brexit ever eventuating.

UK PM sends Brexit delay letter against own will: What this means is that the UK PM was not able to proceed with the voting on the newly negotiated Brexit Withdrawal Agreement Bill. As a result, the UK PM Johnson has been forced to formally send the Brexit extension request letter to the EU, even if Johnson made it clear that this is done against his will as he doesn’t favour an extension.

Johnson no longer enjoys same leverage: The latest Letwin motion twist no longer gives the UK PM the leverage by threatening with a no-deal Brexit if he doesn’t collect enough votes. MPs now have the upper hand to seek amendments to the bill as well as a “confirmatory vote” to the deal.

Withdrawal agreement vote scheduled for Tuesday: The UK government remains undeterred that a Brexit deal is still possible. Proof of that is that the Letwin motion has not altered the government's intention on the new withdrawal agreement vote, likely to go ahead by Tuesday this week, which means more meaningful Pound volatility awaits. "Notwithstanding the parliamentary shenanigans, we appear to have now the numbers to get this through," Foreign Secretary Dominic Raab said Sunday.

EU set to grant a Brexit extension: The EU needs to formally approve an extension of the Brexit deadline, with some British media outlets reporting that the EU will grant the delay. The UK Times said the EU will grant a Brexit extension through to February 2020 if Boris Johnson is unable to get his deal past this week. The UK Times adds that “the delay would be fungible meaning that Britain could leave earlier, on the 1st or 15th of Nov, Dec or Jan, if his deal is ratified before the extension ends.” If the prime minister runs into serious trouble or MPs force a second referendum, “then countries led by Germany will push for a longer extension, possibly until June next year”, the UK Times said.

Fed's Clarida errs on the dovish side: Fed’s Vice-Chairman Clarida hints at a possible rate cut this October as part of the last intervention by a Fed official before the blackout period. Fed's Clarida said the US economy is in a good place but faces 'evident risks', emphasizing that monetary policy is 'not on a preset course' and decisions will be made 'meeting by meeting'. Clarida sees inflation as ‘muted’. What tilted the balance towards the interpretation of his comments as dovish were the observation that “growth in H2 is somewhat slower than H1”, further detailing that “relative to July we have seen a downshift in overall growth”, which was probably the most telling sign the Fed is ready to ease further as soon as by the end of this month. The odds stand at 91% vs 84% pre-speech.

BOJ's Kuroda supports mix of monetary easing: As Reuters reports, Bank of Japan Governor Haruhiko Kuroda said on Sunday that “a mix of monetary easing, flexible fiscal spending and structural reforms to raise the country’s long-term growth potential could be effective in stimulating the economy." Kuroda added that "we are equipped with unconventional tool kits, so there is no need to be too pessimistic about the effectiveness of monetary policy,” Kuroda told a seminar on long-term policy challenges.

China retains positive trade rhetoric: China Vice-Premier Liu He was cited in The South China Morning Post as saying that “China and the US made ‘concrete progress’ towards a trade war deal in Washington”, adding that both sides made enough improvements to build a foundation for the signing of a "phased deal."

Canadian Federal election eyed: CAD traders should be aware of the Canadian Federal election results. The base case is for a minority government. Both the liberals or Conservative seem to endorse relatively similar monetary and fiscal policies, which means that the impact on the CAD may be rather limited. According to Scotia Bank, "evaluating potential market effects today could well be an altogether different kettle of fish than it was following past elections."

Recent Economic Indicators & Events Ahead

Source: Forexfactory

A Dive Into The FX Indices Charts

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices can be found in the Global Prime's Research section.

The EUR index continues to find the clearest imbalances of demand and supply at the extremes of the established range as well as the mid point of it (50% retracement) as was the case last Friday. As long as there is no clarity in the Brexit saga, it’s highly unlikely that the EUR index finds new drivers to break through these meaningful technical levels. That will change on Thursday though, when the ECB issues a new update on monetary policy, with expectations clearly anchored towards the retention of a dovish language and further rate cuts action.

The GBP index shows a consolidation profile as it heads into its 3rd day of balanced flows at still very elevated levels, which should be seen as a sign that the market is accepting the current valuations in response to the diminishing chances of a ‘no deal’ Brexit. The index will continue to be influenced by the Brexit headlines, hence its’ a swam for algos and short-term traders (the fast money) that can quickly adapt to the injection of ephemeral volatility on news.

The USD index has been on a one-way street as bets build up that the Fed will be cutting rates again by October 31st. The chances now stand at 91% after the dovish comments by Fed's Clarida. That said, we’ve entered the ‘suicidal’ terrain whereby value to be a USD seller given the current over-extension of price looks like a very non-appealing proposition. Sooner rather than later, a meaningful retracement towards previous areas of support turned resistance is expected. The room for buyers to take advantage of the upside void is of nearly 0.5%.

The CAD index keeps heading lower into a pool of strong liquidity as the area refers to the origin of the demand after the latest sizzling hot Canadian jobs report from 2 weeks ago. Should the index retest this level, I am expecting a significant reaction as a point of great technical value. We’ve entered a juncture whereby the lower the index goes, the more value that exist to be a buyer in expectations that the index will be lifted up at these key areas of demand imbalances. Note, the impulsivity of the move up in the last 2 weeks vs the corrective pattern on the way down? That has the signs written all over the wall that order flow structure is still constructive.

The NZD index keeps pressing against a level of hourly resistance, with an upside breakout to expose the most recent sequence of highs from two weeks ago, an area highlighted in red, which would coincide with a brief violation of a projected 100% measured move. In other words, if you are looking for the next area of value to sell Kiwis, that’s the one to be fixated in. The momentum in the Oceanic currency remains strong, with the positive headlines around the US-China Phased Deal likely to further support the addition of bids for an extension.

The AUD index shows a positive picture in the hourly in a market that has been dominated by the imbalance of demand flows ever since mid last week. Last Thursday’s upbeat jobs report in Australia has strengthened the near-term fundamentals of the Aussie as it allows the RBA room to delay further rate cuts, while the good vibes around the US-China trade deal return. There is a clear level of resistance on the 6h chart that should represent the next supply imbalance.

The JPY index, after landing at its projected 100% measured move, has transitioned into balance flows dynamics awaiting new drivers. The tightness of the range on Friday does not clarify the next direction although those holding Yen short bags should be mindful that whenever these 100% measured moves are tested, the probabilities are that we may see a meaningful bounce back towards a previous support-turned-resistance, as it happened on Oct 16.

The CHF index is finding acceptance at a key level of resistance, with the market structure heading into this critical zone suspiciously bullish judging by the strong departure we had from the most recent lows, which has created a shift in flows with higher highs in the hourly. The fact that the baseline is crossing at the same resistance level adds to the confluence to be a seller off this level, although the constant pushes back up are not encouraging at this stage. The Swissy will be most likely driven by the Brexit headlines as a byproduct of the risk dynamics.

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.
• 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